<PAGE>2
As filed with the Securities and Exchange Commission on December 29, 2000
Commission File Number 333-39760
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT 2 TO
FORM SB-2
REGISTRATION STATEMENT
Under The Securities Act of 1933
GUINNESS TELLI*PHONE CORPORATION
Nevada 68-0310550
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdictions Classification Code Number) Identification number)
of incorporation
or organization
GUINNESS TELLI*PHONE CORPORATION
(Exact name of registrant as specified in our charter)
655 Redwood Hwy, #111
Mill Valley, CA 94941-3009
Telephone: (415) 389-9442
(Address and telephone number of registrant's principal executive
offices and principal place of business.)
Lawrence Guinness
655 Redwood Hwy., #111, Mill Valley, CA 94941-3009
(415) 389-9442
(Name, address and telephone number of agent for service.)
with copies to:
Jody M. Walker
Attorney At Law
7841 South Garfield Way
Littleton, Colorado 80122
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: | x |
<TABLE>
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed Amount of
class of Amount to be offering aggregate registration
securities registered price offering price fee
<S> <C> <C> <C> <C>
Common Shares 10,000,000 $3.00(1) $30,000,000 $8,340.00
Common Shares 810,000 $3.00(1)(2) 2,430,000 675.54
10,810,000 $32,430,000 $9,015.54
</TABLE>
(1)Estimated solely for the purpose of determining the registration fee
in accordance with Rule 457(c) under the Securities Act. The maximum
price per share information is based on the two day average of the
closing sale prices of Guinness' common stock, $3.00 per share,
reported on the NASD Bulletin Board.
(2)Issuable upon the exercise of common stock commitment warrants
issued to selling shareholders.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay our effective date until the
registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>3
Preliminary Prospectus Dated December 14, 2000
SUBJECT TO COMPLETION
Guinness Telli*Phone Corporation
- up to 10,000,000 shares are issuable to Swartz Private Equity,
LLC based on an investment agreement dated April 24, 2000, and
- up to 810,000 shares are issuable upon the exercise of
warrants issuable to Swartz under the investment agreement.
We will receive no proceeds from the sale of the shares by the selling
shareholders. However, we have received proceeds from the sale of
shares currently outstanding and may receive proceeds from the sale of
shares to Swartz, an underwriter of our common stock and, if exercised,
will receive proceeds from the sale of shares issuable upon the
exercise of warrants by Swartz and certain selling shareholders.
Our shares are listed on the
OTC Bulletin Board under the
symbol TELI
Consider carefully the risk factors beginning on page 10 in this
prospectus.
Neither the SEC nor any state securities commission has approved these
common shares or determined that this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
<PAGE>4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PROSPECTUS SUMMARY 5
RISK FACTORS 5
SELLING SECURITY HOLDERS 9
TERMS OF THE OFFERING 9
DILUTION 12
SOURCE AND USE OF PROCEEDS 12
GUINNESS 13
BUSINESS ACTIVITIES 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION 23
Trends and Uncertainties
Plan of Operation
Results of Operations
MANAGEMENT 24
Officers and Directors
Remuneration
Indemnification
PRINCIPAL SHAREHOLDERS 27
SHARES ELIGIBLE FOR FUTURE SALE 28
MARKET FOR REGISTRANT'S COMMON EQUITY 29
DESCRIPTION OF SECURITIES 29
INDEMNIFICATION 30
LEGAL MATTERS 30
LEGAL PROCEEDINGS 30
ADDITIONAL INFORMATION 30
EXPERTS 31
INTERESTS OF NAMED EXPERTS AND COUNSEL 31
</TABLE>
<PAGE>5
PROSPECTUS SUMMARY
GUINNESS
Our executive offices are located at 655 Redwood Hwy., # 111, Mill
Valley, CA 94941-3009. These premises are approximately 4396 square
feet of space located in Mill Valley, California, where we maintain our
administrative offices and Telli Pages server. These offices are
leased on a three year basis for $12,392.68 per month. Our telephone
number is (415) 389-9442
CORPORATE OPERATIONS
Guinness, a Nevada corporation, is the developer of an online system
that gives households a fast, free, simple-to-use, local online service
and the Telli Pages. The Telli Pages instantly delivers detailed, up-
to-the-minute, local information via a personal computer or a Telli
Screen connected to a telephone.
ABOUT OUR INVESTMENT AGREEMENT
We have entered into an investment agreement with Swartz Private
Equity, LLC for Swartz to invest up to $30 million, at our option,
through a series of sales of our common stock. The dollar amount of
each sale is limited by our common stock's trading volume and a minimum
period of time since the last sale. Each sale will be to Swartz. In
turn, Swartz will either sell our stock in the open market, place our
stock through negotiated transactions with other investors, or hold our
stock in their own portfolio. This prospectus covers the resale of our
stock by Swartz either in the open market or to other investors.
<TABLE>
<CAPTION>
KEY FACTS
<S> <C>
Shares being offered for resale
to the public...........................10,000,000
Total shares outstanding prior to
the offering............................34,903,409
as of November 30, 2000
Total shares outstanding after the
offering................................44,903,409
Total shares outstanding after the
offering and exercise of all
options/warrants........................45,713,409
Price per share to the public...........Market price at time of resale
Total proceeds raised by offering.......None; however, we may receive up
to $30 million from Swartz under
the investment agreement and
additional amounts may be received
from the exercise of warrants
Market for common stock Our shares are currently listed
on the National Association of
Securities Dealers Over The
Counter Bulletin Board under
the stock symbol TELI.
Transfer Agent Pacific Stock Transfer Co.
located at Las Vegas, Nevada is
the transfer agent for our
securities.
</TABLE>
----------------------------------------------------------
RISK FACTORS
----------------------------------------------------------
1. The report of the certifying accountant expresses a going-
concern qualification that Guinness may not be able to continue
as a going-concern. You may lose your entire investment if we
cannot achieve or sustain profitability.
<PAGE>6
The report of the certifying accountant expresses a going concern
qualification. As of September 30, 2000, Guinness and our
predecessor had an accumulated deficit of $(18,641,983) with
current liabilities of $1,857,098. We currently expect to
significantly increase our operating expenses to develop and
expand our sales and marketing operations, to fund greater
levels of product development, and to develop and commercialize
additional media properties. As a result of the foregoing
factors, we expect to continue to incur significant losses on a
quarterly and annual basis for the foreseeable future. These
conditions raise substantial doubt about our ability to continue
as a going concern. We cannot assure you that we will achieve
or sustain profitability.
2. The funds we may receive from Swartz will not be sufficient for our
long term capital requirements and we may have to raise additional
financing.
We believe that the funds to be raised in this offering, assuming the
successful completion of a maximum offering, together with our revenues
will be sufficient to provide us with capital sufficient to fund our
short-term needs. It is likely that we will be required to raise
additional capital. We cannot assure you that the proceeds we receive
from Swartz will, in fact, be available or if available will be
sufficient in the near term or that conditions and circumstances may
not result in subsequent cash requirements by us, or that future funds
will be sufficient to sustain operations and to meet growth. In the
event of such developments, attaining financing under such conditions
may not be possible, or even if additional capital may be otherwise
available, the terms on which such capital may be available may not be
commercially feasible or advantageous to us.
3. Even if the use of the Telli Pages continues to grow, we may not
have the infrastructure to support the demand. We may not be able to
obtain the additional financing needed to create the infrastructure
necessary to support the demand.
If the Telli Pages experience significant growth in the number of users
and level of use, we cannot assure you that our Telli Pages
infrastructure will be able to support the demand placed upon it by
such potential growth. In addition, the Telli Pages could lose our
viability due to delays in the development of adoption of new standards
and protocols required to handle increased levels of activity, or due
to increased government regulation.
4. We failed to file some of the required filings on a timely basis
under the Securities Exchange Act of 1934. We may have potential
liability under the securities laws.
We did not timely file our December 31, 1998 Form 10-K, each of our
Form 10-Q's and the requisite notification of late filing on Form 12b-
25 for each of our 1999 Form 10-Q's. We cannot easily ascertain the
nature and extent our liability under the Securities Exchange Act of
1934. The untimely filings may adversely affect our ability to raise
additional financing.
5. The private equity line provides for an increasing number of
shares to be issued to Swartz as the market price for our common stock
falls. This could have an adverse affect on your investment.
The increase number of shares to be issued to Swartz will dilute your
equity position, depress the price of the common stock, encourage short
sales and could cause a change in control in Guinness. No finder or
other fees were or will be paid in connection with the various
agreements with Swartz or its affiliates.
6. We are dependent on third party distribution of content. If our
relationship with third party distributors ends, we may have delays or
cessations of phone system transmission to users.
Guinness will be dependent on local telephone companies to provide
transmission of Telli Pages Directory information to users. The
telephone companies may assess data transmission rates that are
sufficiently high to make use of the Telli Pages too expensive for most
users. In addition, disruptions in our ability to carry on our
business due to phone system transmission or equipment failures causing
interruptions, delays or cessations in service to users could result in
a material adverse effect on Guinness' business, results of operations,
and financial condition.
<PAGE>7
Changes in or insufficient availability of telecommunications services
to support the Telli Pages also could result in slower response times
and adversely affect usage of the Telli Pages Directory.
7. We are dependent on suppliers of Telli Screen and Telli Phone
Components; Single Sources of Supply; Assembly of Telli Screens
and Telli Phones; Cost of Telli Screens and Telli Phones. If these
supply sources were terminated, we would incur costs delays in finding
new suppliers.
Guinness currently assembles Telli Screens and Telli Phones from
components or assemblies that are purchased from single sources. Some
of the components and assemblies used by Guinness for which there are
not immediately available alternative sources of supply are provided to
Guinness under standard purchase arrangements. If a shortage or
termination of the supply of any one or more of such components or
assemblies were to occur, however, Guinness' business could be
materially and adversely affected. In such event, Guinness would have
to incur the costs associated with redesigning the Telli Screen and
Telli Phone to include available components or assemblies or otherwise
obtain adequate substitutes, which costs could be material.
Also, there is no assurance that in redesigning Telli Phone products to
include available components or assemblies that the operation of Telli
Phone products could be materially and adversely affected. Any delays
with respect to redesigning Telli Phone products or obtaining
substitute components would materially and adversely affect Guinness'
business, results of operations, and financial condition.
There is no assurance that the components or assemblies purchased, when
delivered, that some or all the components will not be defective or
that all of the components can be delivered in accordance with the
intended delivery schedule. Significant defects in the components
and/or a delay in the delivery of the components could significantly
and adversely affect the success of Guinness' business, results of
operations, and financial condition.
8. We must continue to enhance Telli Screens, Telli Phones, and the
Telli Pages Directory or we may not be competitive with new technology.
To remain competitive, Guinness must continue to enhance and improve
the responsiveness, functionality, and features of Telli Screens, Telli
Phones, Telli Pages, and the Telli Pages server, as well as other
branded media properties that may be developed. There can be no
assurance that Guinness will be able to successfully maintain
competitive user response time or implement new features and functions,
such as user personalization and protection, which will involve the
development of increasingly complex technologies. There can be no
assurance that Guinness will not experience difficulties that could
delay or prevent the successful development, introduction, and
marketing of new products and enhancements, or that our new products
and enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance.
Further, because we have only recently commenced shipment of our
products, there can be no assurance that, despite testing by Guinness
and by current and potential customers, errors will not be found in
Guinness' products, or, if discovered, successfully corrected in a
timely manner. In addition, any enhancements of or improvements to
Telli Screens, Telli Phones, Telli Pages, Telli Pages servers, or new
media properties may contain undetected errors that require significant
design modifications, resulting in a loss of customer confidence and
user support and a decrease in the value of Guinness' brand name
recognition. Any failure of Guinness to effectively develop and
introduce these properties, or failure of such properties to achieve
market acceptance, could adversely affect Guinness' business, results
of operations, and financial condition.
9. We will need additional equipment to successfully continue
operations.
Guinness anticipates that the server equipment to be acquired for the
market launch will be sufficient to successfully operate a single Telli
Pages Directory in the initial markets we target. However, Guinness
also anticipates that the continuing success of the Telli Pages in the
initial markets will depend on Guinness' ability to acquire additional
Telli Screens and server equipment to expand our network into
<PAGE>8
additional markets. We cannot assure you that we will be able to
acquire such additional Telli Screens and server equipment or to
successfully expand into additional markets.
10. We do not have protection for intellectual property.
Guinness has filed for copyright/trademark protection of Guinness, but
does not possess any patent or registered intellectual property rights
with respect to any of our technology and has not filed any concept
patent applications.
In addition, much of the technology utilized in the development of
Telli Phones and Telli Screens is generally available to other
manufacturers. Some of the technology utilized in the Telli Phone and
Telli Screen hardware is licensed to Guinness on a world-wide perpetual
basis. Guinness may find that we have to make royalty or licensing
payments for using the technology of other companies. In addition,
other companies with greater financial, marketing and other resources
than Guinness could produce products similar to the Telli Screen, the
Telli Phone, and the Telli Pages Directory, which if produced, may have
features, pricing and other characteristics which would make them more
acceptable to the market than the products of Guinness.
Despite precautions, there is the possibility of a third party
accessing and copying Guinness' proprietary technology or independently
developing similar or superior technology. In this case, litigation
could have an adverse effect on Guinness.
11. We could experience security risks and system disruption and we do
not have any product liability insurance.
Guinness has developed software for a security protocol which operates
in conjunction with encryption and authentication technology. Despite
the existence of this technology, Guinness' products may be vulnerable
to break-ins and similar disruptive problems caused by Telli Pages
users. Such computer break-ins and other disruptions would jeopardize
the security of information stored in and transmitted through the
computer systems of Guinness' servers and the computer systems of other
Telli Pages Information Providers, which may result in significant
liability to Guinness and may also deter potential customers.
Alleviating problems caused by third parties may require significant
expenditures of capital and resources by Guinness and may cause
interruptions, delays, or cessation of service to Guinness' customers;
such expenditures or interruptions could have a material adverse effect
on Guinness' business, operating results, and financial condition.
12. We have a limited public market and you may not be able sell your
common shares.
Although Guinness' common stock became listed on the NASD OTC Bulletin
Board under the symbol "TELI" in 1997, there has been little
significant trading of Guinness' common stock, and there can be no
assurance that a long term active public market for the common stock
will develop or be sustained.
13. We must make payments on our notes payable and pursuant to
royalty agreements that will decrease our profitability.
There are 17 individuals who advanced cash to Guinness in exchange for
royalty rights Under the agreement, Guinness will pay royalties
aggregating 2.267% of the manufacturer's actual net price for which
each Telli Phone device is sold.
In the agreement dated February 18, 1990 with CoNetCo, we must pay a
continuing royalty of 5% of all revenues generated by CoNetCo or any of
our subsidiaries.
Payments of these royalties will have a negative affect on our cash
flow and will decrease our profitability.
14. You will experience dilution of the value of your investment in
us.
The shares and the warrant shares are dilutive to the current
outstanding and issued shares of common stock and the consummation of
the offering may have an adverse effect on the public trading price of
our common stock.
<PAGE>9
Our articles of incorporation authorize the issuance of preferred
stock with such designations, rights, and preferences as may be
determined from time to time by our Board of Directors. Accordingly,
our board of directors is empowered, without stockholder approval, to
designate and issue additional series of preferred stock with dividend,
liquidation, conversion, voting or other rights, including the right to
issue convertible securities with no limitations on conversion, which
could adversely affect the voting power or other rights of the holders
of our common stock, substantially dilute the common shareholder's
interest and depress the price of our common stock. In addition, the
preferred stock could be utilized, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control.
Moreover, the substantial amount of outstanding debentures and number
of warrants, and their terms of conversion, may discourage or prevent
us from being acquired.
-----------------------------------------------------
SWARTZ
-----------------------------------------------------
The following table sets forth certain information with respect to the
underwriter as of November 30, 2000. An asterisk indicates if their
common stock ownership is less than one percent.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP OF
COMMON STOCK AS MAXIMUM NUMBER OF AMOUNT AND PERCENTAGE OF
OF November 30, SHARES OF COMMON STOCK COMMON STOCK AFTER THE
NAME 2000 OFFERED FOR SALE SALE
----------------------------- --------------- ----------------------- -------------------------
NUMBER %
------------ -----------
<S> <C> <C> <C> <C>
Swartz Private Equity, L.L.C. -- 10,810,000 10,810,000 30.10%
</TABLE>
The above table assumes that Swartz will sell all of the shares of
common stock offered hereby. We cannot assure you that Swartz will
sell all or any of the shares offered hereunder.
This number includes 810,000 common shares issuable upon exercise of
outstanding commitment warrants which are currently exercisable, which
represents 2.602% of our issued and outstanding common shares as of
November 30, 2000. This number also includes (solely for purposes of
this prospectus) up to an aggregate of 9,090,909 shares of our common
stock that we may sell to Swartz pursuant to the investment agreement
and 909,091 shares issuable upon exercise of purchase warrants issuable
in connection with the investment agreement, which shares would not be
deemed beneficially owned within the meaning of Sections 13(d) and
13(g) of the Exchange Act before their acquisition by Swartz. It is
expected that Swartz will not beneficially own more than 9.9% of our
standing common stock at any time.
The beneficial owners of Swartz Private Equity, L.L.C. are Eric S.
Swartz, Swartz Ventures, Inc., Kendrick Capital Management, Inc. and
Kendrick Ventures, Inc.
----------------------------------------------------------
TERMS OF THE OFFERING
----------------------------------------------------------
Swartz is free to offer and sell its common shares at such times,
in such manner and at such prices as it may determine. The types of
transactions in which the common shares are sold may include
transactions in the smallcap market, including block transactions,
negotiated transactions, the settlement of short sales of common
shares, or a combination of such methods of sale. The sales will be at
market prices prevailing at the time of sale or at negotiated prices.
Such transactions may or may not involve brokers or dealers.
Swartz has advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities.
<PAGE>10
Swartz may effect such transactions by selling common stock
directly to purchasers or to or through broker-dealers, which may act
as agents or principals. Such broker-dealers may receive compensation
in the form of discounts, concessions, or commissions from the
underwriter. They may also receive compensation from the purchasers
of common shares for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
Swartz Private Equity, LLC is deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act. Any
commissions received by such broker-dealers and any profit on the
resale of the common shares sold by them while acting as principals
might be deemed to be underwriting discounts or commissions.
Swartz will be subject to prospectus delivery requirements.
We have informed Swartz that the anti-manipulation rules of the
SEC, including Regulation M promulgated under the Securities and
Exchange Act, may apply to their sales in the market and have provided
the underwriter with a copy of such rules and regulations.
Swartz also may resell all or a portion of the common shares in
open market transactions in reliance upon Rule 144 under the Securities
and Exchange Act, provided they meet the criteria and conform to the
requirements of such Rule.
-----------------------------------------------------------
INVESTMENT AGREEMENT
-----------------------------------------------------------
OVERVIEW. On April 24, 2000, we entered into an investment
agreement with Swartz Private Equity, LLC. The investment agreement
entitles us to issue and sell, at our option, our common stock for up
to an aggregate of $30 million from time to time during a three-year
period beginning on the date that this registration statement is
declared effective. This is also referred to as a put right.
PUT RIGHTS. In order to invoke a put right, we must have an
effective registration statement on file with the SEC registering the
resale of the common shares which may be issued as a consequence of the
invocation of that put right. Additionally, we must give at least ten
but not more than twenty business days' advance notice to Swartz of the
date on which we intend to exercise a particular put right and we must
indicate the number of shares of common stock we intend to sell to
Swartz. At our option, we may also designate a maximum dollar amount of
common stock (not to exceed $2 million) which we will sell to Swartz
during the put and/or a minimum purchase price per common share, if
applicable, at which Swartz may purchase shares during the put. The
designated minimum purchase price per common share, if we chose to
specify one, shall be no greater than 80% of the closing bid price of
our common stock on the advance put notice date. The number of common
shares sold to Swartz in a given put may not exceed the lesser of:
- 15.0% of the aggregate daily reported trading volume
(excluding any block trades of 20,000 or more common
shares during a period which begins on the business day
immediately following the day we invoked the put right and
ends on and includes the day which is twenty business days
after the date we invoked the put right (excluding certain
days where the common shares trade below a Guinness
specified minimum price).
- 15.0% of the sum aggregate daily reported trading volumes
excluding any block trades of 20,000 or more shares of
common stock for the twenty (20) business days immediately
preceding the put date.
- the intended put amount specified by us in our put notice,
- the number of our shares which when multiplied by the put
share price equals $2 million,
- an amount of put shares, which when added to the number of
put shares acquired by the investor during the 31 days
preceding the put date would exceed 9.99% of the number of
common shares outstanding (on a fully diluted basis).
<PAGE>11
For each common share, Swartz will pay us the lesser of:
- the market price for the applicable pricing period, minus
$.25, or
- 91% of the market price for the applicable pricing period.
Market price is defined as the lowest closest bid price for the
common stock during the pricing period. The pricing period is the
period beginning on the business day immediately following the put date
and ending on and including the date which is 20 business days after
such put date.
WARRANTS. We have delivered to Swartz warrants to purchase
810,000 shares of our common stock at anytime for five years. Within
five business days after the end of the pricing period for each put, we
are required to issue and deliver to Swartz a warrant to purchase a
number of shares of common stock equal to 10% of the common shares
issued to Swartz in the applicable put. Each of these warrants will be
exercisable at a price which will initially equal 110% of the market
price for the applicable put. The warrants will have semi-annual
reset provisions. Each warrant will be immediately exercisable and have
a term beginning on the date of issuance and ending five years
thereafter.
LIMITATIONS AND CONDITIONS PRECEDENT TO OUR PUT RIGHTS.
Swartz is not required to acquire and pay for any common shares with
respect to any particular put for which, during the period beginning on
the date of our advance put notice and ending on the last day of the
pricing period for the put:
- we have announced or implemented a stock split or
combination of our common stock;
- we have paid a common stock dividend;
- we have made a distribution of our common stock or of all
or any portion of our assets between the put notice date
and the date the particular put closes; or
- we have consummated a major transaction (including a
transaction, which constitutes a change of control) between
the advance put notice date and the date the particular put
closes.
SHORT SALES. Swartz and its affiliates are prohibited from
engaging in short sales of our common stock, except that after they
have received a put notice, they may sell a number of shares in long
sales or short sales, up to the number of shares specified in the put
notice.
CANCELLATION OF PUTS. We must cancel a particular put if between
the date of the advance put notice and the last day of the pricing
period:
- we discover an undisclosed material fact relevant to
Swartz's investment decision;
- the registration statement registering resales of the common
shares becomes ineffective; or
- shares are delisted from the then primary exchange.
NON-USAGE FEE. On the last business day of each six-month period,
if we have not put $1,000,000 of our stock to Swartz, we will be
required to pay Swartz a non-usage fee equal to the difference between
$100,000 and 10% of the aggregate put amounts to Swartz during such six
month period. This non-usage fee shall be suspended, at our request,
for up to nine months if we are undertaking a secondary offering of our
stock.
TERMINATION OF INVESTMENT AGREEMENT. We may also terminate our
right to initiate further puts or terminate the investment agreement by
providing Swartz with notice of such intention to terminate; however,
any such termination will not affect any other rights or obligations we
have concerning the investment agreement or any related agreement.
<PAGE>12
RESTRICTIVE COVENANTS. During the term of the investment
agreement, we are prohibited from transferring, selling, or otherwise
disposing of:
- any of our material assets to any of our subsidiaries except
for cash or cash equivalent and for a proper business purposes,
or
- any of our material assets to any officer, director or
owner of 20% or more of our common stock.
RIGHT OF FIRST REFUSAL. During the term of the investment
agreement and for one year after its termination, we are prohibited
from issuing or selling any capital stock or securities convertible
into our capital stock for cash in private capital raising
transactions, without obtaining the prior written approval of Swartz.
In addition, Swartz has the option for 10 days after receiving notice
to purchase such securities on the same terms and conditions. This
right of first refusal shall not apply to acquisitions or option plans.
SWARTZ'S RIGHT OF INDEMNIFICATION. We are obligated to indemnify
Swartz (including affiliates, their stockholders, officers, directors,
employees and agents) from all liability and losses resulting from any
misrepresentations or breaches we made in connection with the
investment agreement, our registration rights agreement, other related
agreements, or the registration statement.
--------------------------------------------------------------
SOURCE AND USE OF PROCEEDS
--------------------------------------------------------------
We expect to sell to Swartz Private Equity, LLC up to $30,000,000
of common stock under the investment agreement. Additional amounts may
be received if the warrants to purchase common stock are exercised.
We intend, in the following order of priority, to use the net proceeds
from this offering as follows:
Completion of production of Telli Screen
System engineering 500,000
Market program for Telli Marin 250,000
Expansion of dial-in Telli Server systems
(3,000) online users 250,000
Development of Telli Listings for expansion
Los Angeles area, San Diego area, San
Francisco Bay area 2,500,000
Marketing programs of addition areas 500,000
Miscellaneous working capital 1,000,000
Manufacture of Telli Screens 25,000,000
-----------
Total $30,000,000
The amount and timing of working capital expenditures may vary
significantly depending upon numerous factors such as:
- The progress of our final development of our business,
- Revenues generated from existing and anticipated
services, products and licenses,
- The development of marketing and sales resources,
- Administrative and legal expenses, and other
requirements not now known or estimable.
We believe that our available cash and existing sources of funding,
together with the proceeds of this offering and interest earned
thereon, will be adequate to maintain our current and planned
operations for at least the next 9 months.
<PAGE>13
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GUINNESS
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Organizational History. Guinness Telli*Phone Corporation, a Nevada
corporation, was originally incorporated on July 8, 1993 as U.S.
Telli*Phone Corporation. Effective August 4, 1993, U.S. Telli*Phone
acquired all of the outstanding shares of Innstar Corporation, an
inactive company having no assets, in exchange for 1,551,480 shares of
Guinness's stock. Innstar Corporation was then merged into Guinness.
U.S. Telli*Phone did not receive any consideration beyond the exchange
of shares. The merger was accounted for as a recapitalization and
Innstar had no assets, liabilities or operations to include in the
accompanying financial statements. The purpose of the merger was to
acquire a company whose shares were registered with the Securities and
Exchange Commission and to change its domicile to Nevada which is where
U.S. Telli*Phone was incorporated.
The corporate name was changed to Guinness Telli*Phone Corporation
effective on September 13, 1993. On March 15, 1994, through a series
of agreements among Guinness, CoNetCo, which was a California
Corporation, and Lawrence A. Guinness, CoNetCo's founder and its
principal shareholder, Guinness, pursuant to a Reorganization in
accordance to section 368 (a)(1)(b) of the Internal Revenue Code, as
amended, acquired all of the issued and outstanding stock of CoNetCo in
exchange for 11,041,000 shares of the common stock of Telli.
Through this acquisition, we acquired the rights to a telephone and
community news and information computer software online directory and
the Telli Phone, a combined telephone and computer communications
product with a small screen, that has the ability of accessing the
Telli Pages Directory through ordinary telephone lines. The Telli
Phone has the potential of replacing the standard telephone now used in
virtually every household and office in the United States. Through the
Telli Phone's combined digital answering machine and interactive
networking access system, users will have the ability to send, receive,
and store vast amounts of electronic information and transactions
locally and worldwide.
Effective February 18, 1990, as amended by the March 15, 1994
agreement, CoNetCo, then Guinness' wholly-owned subsidiary, acquired
from CoNetCo's major stockholder the assets of the businesses known as
Guinness Productions, Inc. and Guinness Computer Television Corp. in
exchange for 8,000,000 shares of CoNetCo stock and royalty rights. The
assets acquired from the Guinness Companies consisted primarily of
product development efforts performed by the Guinness Companies to
further develop the Telli Phone.
For accounting purposes, all costs incurred by the Guinness Companies
to develop the Telli Phone were expensed in accordance with Financial
Accounting Standards Board Statements No. 2, Accounting for Research
and Development Costs. The assets acquired from the Guinness Companies
have been valued at their historical cost basis and not current fair
market value, if any, because all entities are under common control.
The liabilities incurred and assumed by the Guinness Companies during
its development of the Telli Phone were assumed by the shareholder of
the Guinness Companies. The liabilities assumed by the Guinness
Companies' shareholder total approximately $ 7.2 million, which include
approximately $2.3 million of investor notes payable and related
delinquent compounded interest of $3.6 million. Such liabilities were
incurred by the Guinness Companies primarily during the years 1982 to
1989. Such liabilities assumed have been treated as a capital
contribution and increased paid-in capital. CoNetCo and the Guinness
Companies are predecessors of Telli and their activities are included
in the cumulative financial data. Included in the deficit accumulated
during development stage is approximately $7.2 million relating to the
Guinness Companies.
Recent Acquisition. Effective August 4, 2000, we acquired the assets
of NewsSurfer.com Corporation in exchange for 1,000,000 shares of
stock, valued at $2.50 per share, and the assumption of approximately
$41,000 in liabilities. The acquisition included cash of $9,649,
receivables of $23,859, equipment of $5,077 and trademarks and patents
of $2,502,415.
Properties. Guinness currently occupies and has a three year lease on
approximately 6000 square feet in three suites located at 655 Redwood
Highway, Mill Valley, California 94941, where we maintain our
<PAGE>14
administrative offices and Telli Pages server. In addition, Guinness
currently occupies approximately 425 square feet of space at 3030
Bridgeway, Suite 425, Sausalito, California 94965, approximately two
miles from our administrative offices and server, where it maintains
our engineering, research, and product development facilities. These
spaces are leased on a three year basis at an aggregate of $8,611.25
per month for rent storage and maintenance charges. The facilities are
sufficient to meet the current requirements of Guinness and the
business we conduct. All production of the final product will, in the
near future, be sub-contracted to other manufacturers and suppliers.
Guinness will be required to expand when operations commence. There is
adequate space for expansion in Marin County, California, the area in
which Guinness is currently located.
Guinness does not intend to consider setting up our own facilities to
manufacture Telli Screens and Telli Phones until after the initial
introduction of our products and the systems which it is developing
have been fully tested. Management expects an increase in facilities
requirements during 2001.
Operations. We are the developer of an online system that gives
households a fast, free, simple-to-use, local online service and the
Telli Pages. The Telli Pages instantly delivers detailed, up-to-the-
minute, local information via a personal computer or a Telli Screen
connected to a telephone. We are of the opinion that the system is
easier to use than an ATM.
Guinness has generated $118,000 in revenues to 11/30/00. We are
currently signing up advertisers and allowing them to advertise for
free until such time as we begin the distribution of our Telli Screens.
The Telli Screen will be manufactured for distribution with the use of
proceeds from our investment agreement with Swartz.
Consulting Agreement. On July 31, 2000, Guinness entered into a
consulting agreement with Stellcom, Inc. located in San Diego,
California.
Stellcom will generate and deliver the following:
Five (5) Telli*Screen Alpha prototype boards
Five (5) Telli*Screen Beta prototype boards
Schematics
Costed Bill of Materials (BOM)
Approved Vendor List (AVL)
Parts placement (Assembly) drawing
PCB Fabrication drawing
All developed source code with comments
All custom and standard cables assemblies including connector part
numbers and wire gauges
Payments to Stellcom shall be made as follows:
- Stellcom has invoiced Guinness for $125,000 upon the execution
of the Agreement and the Project Assignment by the parties;
- Stellcom will invoice Guinness for $75,000 upon delivery of
Alpha schematics;
- Stellcom will invoice Guinness for $75,000 upon delivery of
Alpha layout documents;
- Stellcom will invoice Guinness for $75,000 upon delivery of
Alpha prototype units;
- Stellcom will invoice Guinness for $50,000 upon delivery of
Beta prototype units and final Deliverables.
Product. The Telli Pages is an electronic version of the printed
yellow pages directory and includes detailed community news,
schedules, agendas, events, and classifieds.
Unlike the Internet, which requires significant training and lots of
spare time, Telli Pages is accessed quickly and easily using a simple
telephone keypad. Guided by numbered statements, people make choices
that are instantly analyzed by the Telli Pages proprietary authored
indexing system. This quick simulated conversation zips you to local
listings displaying current details you need. The Telli Pages includes
telephone business listings, retail advertising and current specials,
community newsletters and notices, school agendas and reports, and
classified buy and sell ads.
<PAGE>15
Our first Telli Pages Directory is stationed in a computer at Guinness'
offices in Mill Valley, California. It is connected to the local
telephone system and operates as the server for the Marin Telli Pages.
(The Pacific Bell Marin Yellow Pages serves approximately 100,000
households and generates $20 million in annual advertising revenues.)
We have taken the telephone yellow pages directory and improved on it.
The inexpensive Telli Pages can be updated instantly, and as often as
needed.
- All businesses have a free name and address listing. Connected
to their free listings are Telli Pages of unlimited, inexpensive
space to write extensive information about their products and
services.
- Advertisers can update their Telli Pages at any time and at no
additional cost, so information and specials will be
up-to-the-minute.
- An intelligent, interactive, on-screen touch-tone indexing
system allows people to target information on personal topics
quickly and efficiently.
- With a Telli Screen, Telli Pages are always instantly and
conveniently available on a screen next to your telephone.
The Telli Pages provide residents of the community with a "small town"
visual communication forum for local businesses, organizations,
associations, groups, and residents to distribute reviews, schedules,
newsletters, and reports, and reserve or purchase tickets, food and
merchandise, and distribute special discount offers and preferred
commercial arrangements.
Plan of Operation. Our general plan of operation beginning with the
calendar year 2000 was to introduce the Telli Pages to the marketplace
within a single community, promote the Telli Pages Directory in the
marketplace and prepare for large scale production of Telli Screens.
The bulk of the effort required to bring Telli Screens to the large
scale production stage will take place in parallel with the market
introduction of the Telli Pages accessed through personal computers.
The first Telli Pages server is stationed in our administrative offices
in Mill Valley, California. The computer operating as the server
contains Guinness's proprietary online operating system for the Telli
Pages Directory and over 10,000 programs that operate the indexing
system for navigating the Telli Pages Directory. As of August 1999,
the server contained the up-to-date listings for all retail businesses
and schools in Marin County. Starting the fall of 1999 we added the
listings for all professional businesses and services. The server is
connected to the local telephone system and is fully operational.
The Telli Phone and Telli Screen proprietary operating system includes
application software for the telephone and speaker phone, answering
machine, address book, auto-dialer, screen graphics and text, access to
the Telli Pages, and engineering functions for the Telli Phone's
hardware components. The Telli Phone smart card reader is installed
and commercial software application programs will be developed when the
product is in the marketplace.
Our engineers have designed an inexpensive computer board to eliminate
many hardware components necessary for the operation of a personal
computer but unnecessary for the successful operation of Telli Screens
as the everyday consumer products for which they were designed. We
have estimates from consultants experienced in the manufacture of
computer appliances of a feasible price per Telli Screen when produced
in volume. It is difficult to predict an accurate price until we learn
the level of consumer response to the Telli Pages to determine a
feasible size for Telli Screen production runs.
We expect that there will be many methods of financing for the
manufacture of Telli Screens to allow us to order large runs and reduce
the cost to manufacture Telli Screens and establish Telli Pages
Directories in additional geographical areas throughout the United
States. These will include strategic alliances with various major
retailers and online service providers, franchising of Telli Pages
territories, the sale of Telli Pages rights for hotels and resorts, and
long term credit and leasing arrangements with banks and manufacturers
of Telli Screen equipment.
<PAGE>16
We expect that the first community Telli Pages Directory will quickly
establish a significant standard for accessing important local,
everyday information. Through this success we plan to install Telli
Pages Directory sites in communities across the United States within
areas defined by the local telephone calling areas.
To this end, we have begun discussions with major financial groups that
have indicated interest in financing our expansion plans.
Telli Pages Directory Access Area
The area of Marin to be covered by the Telli Pages contains
approximately 100,000 households. This represents less than 5% of the
total population of the Bay Area. The median income in Marin County is
$72,400 per household.
Most of the population in and around Mill Valley works in San
Francisco. The people live in expensive homes and care about their
community, their children's education and protecting their quality of
life. There are Little League Baseball teams, soccer leagues, Boy
Scout Troops, service clubs, recreation centers, church groups, sailing
clubs, and hiking and biking trails.
Pacific Bell's Yellow Pages for Marin County generates advertising
revenues in excess of $20 million annually from approximately 40,000
listings. It produces 461,000 purchases every month (National Yellow
Pages Monitor Ratings). The cost of a 1.5" x 1.5" column ad (black
type only) is $48.00 per month. The cost of a 3" x 1.5" column ad
(black type only) is $111.50 per month.
Unlike the Telli Pages that can be continually revised and updated, the
Yellow Pages is printed only once a year. Due to its inflexible
format, it does not contain much advertising from major department
stores, grocery stores, recreation departments (clubs, community
centers, etc.), real estate brokers, airlines, ground transportation
agencies, movie and live theaters, government agencies, consumer
agencies, or service bureaus.
The Yellow Pages does not allow for advertising from individuals such
as tutors of academic studies or sports, house cleaners and
maintenance, entertainers (for parties, etc.), local rentals (tools,
sports equipment), and second hand items (books, clothes, etc.).
Individuals cannot distribute controlled advertising to generate part-
time extra income through arts, crafts, and hobbies. Through the Telli
Pages people could offer sewing, baking, maintenance, video production,
and word processing. Collectors of baseball cards to antiques could
trade and barter.
Corporate Marketing Plan
We have introduced the Telli Pages to individual communities through a
promotional campaign whereby people with personal computers are able to
download the free Telli Pages system to their personal computers for
direct access to Telli Pages servers. Later we plan to distribute free
Telli Screens to households in each area to establish a critical mass
of users at minimal cost.
Revenues for our products will be generated initially from storage of
pages of commercial advertising and community information in the Telli
Pages Directory at an initial minimum monthly rate of $30.00 per page,
fees from special advertising screens loaded into Telli Screens
for off line reference, and licensing fees from companies and
organizations with online servers that wish to communicate or transact
business with Telli Screen users. We plan to promote the sale of
complete Telli Screen systems to businesses, associations, and
government agencies to establish internal telecommunications
information networks.
Our initial marketplace is householders, especially people who do not
have the time or inclination to use a personal computer to exchange
information through a world wide online system, and a large marketplace
of individuals, businesses, and local groups whose primary interest is
communicating and doing business with consumers and residents who
reside within the few miles surrounding their location (a reported $72
billion market in local advertising). In our opinion, Telli Pages
users can reference local information faster, with greater ease, and at
less cost than surfing the Internet through a personal computer.
<PAGE>17
The potential advantage of the Telli Pages is that retail outlets can
communicate with households near their place of business to encourage
them to stop by. Telli Pages offer advertisers the opportunity to
issue a variety of specials and discounts on a day-to-day basis to
target individual buying patterns. In this way they can attract a
large audience of local customers over a long period of time to
maintain a constant flow of business.
The initial success of the Telli Pages is dependent on the number of
households with personal computers and ultimately on our ability to
supply Telli Screens to a great number of homes in a concentrated area
within a very short period of time. We believe that our ultimate
success to secure advertising revenues will be dependent upon our
ability to assure advertisers that a concentrated mass of householders
near their places of business will have access to their promotional
pages and use the Telli Pages Directory on an ongoing basis. In this
way we will be able to encourage advertisers to move their advertising
dollars from the yellow pages to the Telli Pages.
Within each area where a Telli Pages Directory is to be established, we
will select an affluent community with a concentration of population
around a large retail center. After establishing a Telli Pages
Directory that can be accessed directly from personal computers, we
intend to make CDs available to businesses and community groups to
deliver to their customers or members for the purpose of maintaining a
line of communication with their customers or members. Later, we
intend to deliver Telli Screens free of charge to the homes of families
with school age children.
To encourage parents to accept free Telli Screens in their homes and
use the Telli Pages we plan to maintain an up-to-date school directory
with daily classroom homework assignments, teacher's notes, school
news, and district information.
Telli Pages operators who work with retail establishments in the area
will be assigned individual schools where they will organize and
maintain procedures for securing data and entering it in the
appropriate sections of the Telli Pages Directory school news section
in a timely manner. In the high schools, students wanting a part-time
job may be hired to assist the Telli Pages operators.
Through this campaign, local retail establishments can promote the fact
that they are supporting their local schools through the Telli Pages.
Conversely, parents will be encouraged to patronize those retail
establishments that advertise in the Telli Pages.
Building Directory Listings
We have hired Telli Pages operators and supplied them with Telli Pages
terminals to enter information onto the Telli Pages similar to the
method the yellow pages uses to update their information once a year.
Many of these operators will work from their homes. We plan to
concentrate on hiring people with children who will appreciate the
opportunity to work from home.
Telli Pages operators will be assigned a specific set of commercial
accounts in their area that they will call on a regular basis to:
- inform their assigned businesses, groups, and associations
of the advantages of listing in the Telli Pages Directory and
encouraging them to list in the Telli Pages
- assist advertisers by entering their information under their
listing in the Telli Pages
- help advertisers to keep their information current by
editing their Telli Pages or by modifying their listing
categories
- inform advertisers of new ideas that they may incorporate in
their listings to increase their business or new programming
systems that we may develop from time to time to improve
their consumer communications
<PAGE>18
Telli Sponsored Advertising
We have started delivering advertising packages to all businesses in
the area served by the Telli Pages. The package provides them with
information on the Telli Pages and the Telli Screen. It will announce
that Telli Screens are being introduced into their area and that many
affluent consumers, located near their place of business, will have
access to Telli Screens and the Telli Pages Directory.
They are being informed that a listing of the name of their
establishment, the address, and telephone number already appears in the
Telli Pages Directory along with those of their competitors under the
appropriate categories. The package includes a return postage paid
Telli Pages Data Listing Card for them to create one Telli Page of
information that they would like to see available to consumers under
their listing in the Telli Pages Directory, plus online access for
contacting the Company. They are being offered one free listing of one
advertising Telli Page of information "on approval" for a period of 30
days to give them a chance to evaluate the Telli Pages as an
advertising medium.
To support this mailing program, we will purchase significant
advertising space in the local newspapers to promote the fact that
"Telli Pages are here" and that Telli Pages CDs are available to
households and businesses in the area with PCs and that Telli Screens
are to follow. The purpose of the advertising program will be to
encourage support for the Telli Pages throughout the community, make
merchants aware of the marketplace available to them to encourage them
to return their Telli Pages Data Listing Cards as soon as possible, and
to evaluate the response to the Telli Pages from people and businesses
in the adjoining areas where
Telli Screens have not yet been distributed to households ("market
research to evaluate and determine future budgeting for advertising,
promotion, and the production of Telli Screens").
Free Newspaper and Magazine Articles
Human interest stories and Telli Pages background articles will be
prepared by us and sent to the local newspaper, magazine, radio, and
television stations. Some of the articles to be written or subjects to
be promoted are:
- Telli Pages, the local schools, and funding for education
- Telli Pages vs. the old yellow pages
- Telli Screens and their use by government and local
politicians
- Telli Pages and their importance to community groups and
associations
- ideas from people and businesses in the community on how they
are using the Telli Pages.
Workshops, Sales Demonstrations, and Seminars
Members of our marketing staff are working with local school
foundations, clubs, associations, and community groups to conduct
workshops and demonstrations in the geographic area served by the Telli
Pages. The purpose is to demonstrate the Telli Pages and later the
Telli Screen to business and professional members of the community and
inform them of the advantages provided everyone by communicating
through the Telli Pages.
The marketing staff are encouraging these people to work with the local
Telli Pages operators to help them understand how the Telli Pages are
used in the community, how to use Telli Pages to their benefit, and how
easy it is to create and update Telli Pages of information. In
addition, the marketing staff will assist advertisers in using the
media to draw people's attention to their Telli Pages listings.
Members of local groups, associations, and organizations will be
invited to attend seminars in our offices to learn the many functions
of Telli Screens and the Telli Pages and how to promote their use
through their network of members to reduce their costs, simplify their
<PAGE>19
operations, and generate income. People attending these seminars will
be invited to take a Telli Screen home and test it with members of
their household.
We believe that a cooperative marketing effort among many people,
businesses, and organizations who agree to use the Telli Pages to
broadcast information will encourage the growth of the Telli Pages into
other communities. Through advertising and articles in the local
media, the information available through the Telli Pages will be
highlighted by those who have created it.
Telli Screen User Smart Cards
As the success of Telli Pages builds, we intend to issue Telli Screen
and plastic Telli Screen smart cards called Telli Cards to Telli Pages
users for a monthly fee. Businesses in the community will be
encouraged to offer special discounts to Telli Screen users who show
their cards at the time of purchase. These offers may not be advertised
or made available through any other medium. As a result, businesses
will be able to determine the return they are experiencing from the use
of the Telli Pages.
The First Telli Pages Operation
We have introduced CDs and will introduce Telli Screens to the
marketplace in a single local community in cooperation with local
businesses, groups, and associations. During the initial stage of the
product's introduction we will debug its systems, modify any design
flaws to insure that the products meet the needs of the marketplace,
and establish verification of our business. We expect that:
- The Telli Pages can be distributed successfully and families
will come to rely on it as their primary source of school
news and student information.
- People will come to rely on the Telli Pages as their local
telephone book.
- The Telli Pages will grow within the community primarily
through promotion and support from local businesses and
community groups who will use them for their own benefit.
- People will come to rely on Telli Screens as the new home
communications appliance to replace their telephone yellow
pages book.
- Major information providers will demonstrate their confidence
that Telli Screens will allow them to expand their
marketplace beyond users of personal computers by purchasing
Telli Screen licensing contracts to reach Telli Pages users.
- The Telli Pages Directory will operate successfully and
profitably as a small business within a single community.
Product Distribution
The initial success of each Telli Pages Directory will be our ability
to create a critical mass of users in a community within a short period
of time. Our goal will be to deliver a Telli Screen to the home of
every family with school age children within a nucleus of the area
served by a Telli Pages Directory. Each Telli Pages area will be
comprised of approximately 5 different districts called "Telli Pages
Access Units".
We plan to offer school districts encompassing the most affluent Telli
Pages Access Unit in each Telli Pages area a plan whereby they can
generate funds for school projects. A Company representative will
conduct a workshop at meetings of the P.T.A., and meetings of other
parent groups responsible for raising funds for schools in the
district. At these meetings, parents will be shown the Telli Screen
and the Telli Pages including the school news and information
directory. We will work with school representatives to establish a
group of parent volunteers to help enter school district information
and class news in the school news section of the Telli Pages.
One of our marketing representatives will conduct teacher workshops
at every school within the school district to familiarize teachers with
the Telli Screen, the Telli Pages and the process by which funds will
<PAGE>20
be generated for the school district. A Telli Screen will be left in
the school office or teachers lounge for teachers to operate and
discover ways they can use the school news and information section of
the Telli Pages Directory. By allowing the teachers this hands-on
experience, they will become familiar with the school directory section
of the Telli Pages.
DEL MAR SCHOOL 435-1468
105 Avenida Miraflores Tiburon, CA 94920
1. SCHOOL BULLETIN
2. GRADE and CLASS NEWS
3. EVENTS and MEETINGS
4. P.T.A. DIRECTORY and NEWS
5. GENERAL INFORMATION and RULES
6. YOUR CHILD (Confidential)
7. LEAVE A MESSAGE FOR A TEACHER
TYPE a NUMBER - then PRESS the SEND key.
Research and Development to be Performed
We have no plans for the establishment of any significant new research
projects during the year 2001. Additional programming development of a
cosmetic nature is required to maintain the Telli Pages for use by the
public.
In addition to entering Telli Pages of advertising and information for
various groups in Marin County under their listings in the Telli Pages,
our editors will modify the Telli Pages indexing system as the product
expands in the marketplace.
Telli Screens will use the latest technology. With continual software
upgrading through automatic downloads from Telli Pages servers while
users are online, Telli Screen technology and the Telli Pages system
should remain constantly up-to-date and ahead of other technology.
Anticipated Material Acquisition of Plant and Equipment
We do not plan to set up any manufacturing facilities of our own.
Therefore, we will not be making any material acquisition of plant and
equipment within the next fiscal year of operations.
Approximately 80% of the capital required to establish a Telli Pages
Directory within a limited geographical area for the market
introduction will be used to set up and purchase Telli Screens and the
central server to store the Telli Pages Directory. We believe that
there will be no market for this equipment other than for our use to
operate the Telli Pages.
Following the market introduction, we believe that over 60% of the
capital required to maintain a Telli Pages Directory within a specific
geographical area and increase the number of Telli Pages users and
advertisers in that area will be used for the purchase of Telli
Screens, and other computer equipment.
Anticipated Material Changes in Number of Employees
We presently employ forty-seven people, seven in administration and
finance, thirteen in programming, research and product development,
eleven in sales and marketing, seven in Telli Pages production, two in
website development and one MIS director. Within the first nine months
of 2000 we hired employees, in engineering, technology, software
engineering, programming, marketing, an online licensing director, an
advertising and sales director, plus several assistants.
Sources and Availability of Raw Materials
We do not plan to manufacture Telli Screens ourselves, nor do we have
any significant expertise in this area. However, Telli Screens will be
manufactured from the same materials used to manufacture personal
computers and telephones. We are not aware of any problem that exists
<PAGE>21
at the present time or that is projected to occur within the near
future that will materially affect the source and availability of raw
materials for the manufacture and supply of personal computers and
telecommunications equipment.
It is expected that the Telli Pages will have a significant impact on
the use and production of the yellow pages telephone book that may
reduce the need for paper to protect our trees.
Patents, Trademarks, Licenses, Franchises and Concessions
Our success and ability to compete in the marketplace is dependent in
part upon our proprietary technology. Principally, we are a publisher
of information and therefore rely on trade secret and copyright laws of
the United States and worldwide to protect our content, authoring
systems, and programming technology. To distribute our works we will
purchase existing hardware technology from computer hardware developers
and manufacturers.
We will file an application with U.S. Patent and Trademark Office when
the product is being introduced to the marketplace. With the product in
the marketplace, we anticipate being successful with the application.
We do not presently hold any patents, trademarks, licenses, franchises,
or concessions. We do not feel that any patents or trademarks, other
than the above, we may hold or may apply for in the future will affect
materially our ability to create information or distribute that
information to the marketplace. We feel that the success of our
business is dependent on the kind of information we distribute and not
the technology used to distribute it. We believe that factors such as
the technological and creative skills of our personnel, new product
developments, frequent product enhancements, name recognition, and
reliable product maintenance are more essential to establishing and
maintaining a technology leadership position.
Except for acquiring a local business license in areas where it plans
to establish a Telli Pages Directory, we are not, at this time, subject
to any federal, state, or local licensing requirements or regulations.
Seasonal Business
We feel that directories of information are so diverse that the use of
them to provide information or to acquire information is generally not
seasonal except for fluctuations during vacation and holiday periods.
We will be providing consumers with access to information from the
Telli Pages and will sell space in the Telli Pages Directory to
businesses and organizations to advertise their products and services.
While there may be an increase in advertising revenues leading up to
the holiday season in December, we do not expect any increase to
materially effect our flow of income or play any role in any change in
our profits.
Backlog Orders
We have not yet gone to the marketplace with our product and therefore
have no backlog orders of any kind.
Government Regulation
We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and
there are currently few laws or regulations directly applicable to
access or conduct commerce on the Internet or for access through an
online service or to establish an online service. However, due to the
increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be
adopted with respect to the Internet and online services in general,
covering issues such as user privacy, pricing, and characteristics and
quality of products, services, and content. For example, the adoption
of any laws or regulations that would prohibit distribution of obscene,
lascivious, or indecent communications on the Internet may cause us to
limit the scope of our products and services in the marketplace and
increase our cost of doing business or otherwise have an adverse effect
on our business, operating results, or financial condition. Moreover,
the applicability to the Internet, other online services, the Telli
Pages Directory, and the Telli Screen of existing laws governing issues
such as property ownership, libel, and personal privacy is uncertain.
<PAGE>22
Competition
We plan to distribute Telli Screens to users to encourage them to
enhance their existing telephones with Telli Screens. Users will be
able to keep their Telli Screens free of charge for as long as they
remain users of the Telli Pages and we are able to generate enough
revenues from paid advertising in the Telli Pages to support our
monthly operations. At this time we see no competition from computer
hardware and telecommunications equipment manufacturers and vendors.
Although we have targeted online community information, local directory
services, and telecommunications products for consumers who are not
computer literate, other companies offer products similar to our
software and publishing products and target the same customers we do.
We believe our ability to compete depends on many factors within and
outside its control, including the timing and market acceptance of the
products developed by us and our competitors, performance, price,
reliability, and customer service and support.
The marketplace for online products and services is highly competitive
and competition is expected to continue to increase significantly. In
addition, we expect the market for online advertising, to the extent it
develops, to be intensely competitive. There are no substantial
barriers to entry, and we expect that competition will continue to
intensify. Although we believe that the diverse segments of the online
market will provide opportunities for more than one supplier of
products and services similar to ours, it is possible that a single
supplier may dominate one or more market segments.
We compete with other providers of online navigational tools, products,
and services, including directory and Web server review services and
search engine services. Many companies offer competitive products or
services addressing certain of our target markets, including online
companies like America Online/Netscape, CBS' Switchboard and the French
Minitel; suppliers of Internet products and services such as Microsoft
and Yahoo; the Regional Bell Operating Companies offering Yellow Pages
and telecommunication products and services like voice mail and caller
identification; MCI and other companies offering Internet connections;
Cisco with its new cable modem which allows home users to plug a
telephone directly into the Internet; newspaper publishing companies
offering local and classified advertising including, in many cases,
telecommunication and online community information and news; printers,
distributors, agencies, and clubs offering or managing retail discount
coupons and redemption certificates and awards.
In addition, entities that sponsor or maintain high-traffic Web sites
and manufacturers of telecommunications and computer equipment could
develop or acquire simple search and navigation functions that would
produce simple computerized information products and services that
compete with those offered by us.
Many of our competitors are substantially larger than us and have
significantly greater financial, technical, and marketing resources.
As a result, they may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to
devote greater resources to the development, promotion, and sale of
their products than we can. It is also possible that new competitors
may emerge and acquire significant market share to the extent that
smaller providers of online tools, services, or products may be
acquired by, receive investments from, or enter into other commercial
relationships with larger, well-established and well-financed
companies, such as Microsoft, AOL/Netscape, Regional Bell Operating
Companies, and long distance telecommunications companies like AT&T,
MCI, and Sprint. Possible new competitors include large foreign
corporations, major telecommunications companies, and other entities
with substantial resources.
The most significant market where we compete is in the area of
telephone directories. The Telli Pages will compete primarily with the
local Telephone Company Yellow Pages directory in areas where we
establish a Telli Pages Directory central server. Specifically, we may
be competing for advertising dollars. Even though the local Telephone
Companies are regulated by the State Public Utilities Commissions, they
have, unlike us, major financial resources available to them. If the
Yellow Pages publishers see the Telli Pages as a major threat to their
profits, it is possible that they would use their resources to attempt
<PAGE>23
to eliminate competition from the Telli Pages Directory. How the
Telephone Companies would attempt to eliminate competition from the
Telli Pages is not clear at this time.
----------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
----------------------------------------------------------------
Guinness Telli*Phone has generated no revenues and incurred cumulative
losses of approximately $18.6 million dollars since inception, of which
approximately $7.2 million of such losses relate to those of the
predecessor companies. We are in the process of signing up
advertisers in the Marin Telli Pages Directory for commencement of
operations during the current year. Our future profitability is
dependent upon successful commercialization of the Telli Screen and the
online operating system. Furthermore, as we attempt to achieve
commercialization of its products, it could encounter seasonality or
other currently unforeseen factors causing additional variability in
its future operating results. The report of the Independent Certified
Public Accountant expresses substantial doubt about our ability to
continue as a going concern.
Liquidity and Capital Resources
Guinness is not in a liquid position at this time nor does it possess
any assets that could be deemed liquid, other than cash of
approximately $20,986. Liquidity of Guinness is expected to be
severely impacted until operations commence and revenues are generated.
We have recently obtained a $30 million equity line from Swartz Private
Equity LLC, subject to registration with the SEC and governed by a
percentage of our trading volume. Our cash balance at September 30,
2000, plus the proceeds from private equity financing will be adequate
to sustain operations until the completion of the registration with the
SEC. The proceeds from the Swartz agreement may then be sufficient to
bring our products and services to the market place generating revenues
subject to the price and liquidity of our common stock.
Since inception, Telli and our predecessors have funded our research
and development efforts by selling equity securities and borrowing
capital. Approximately $7.2 million of additional paid-in capital
represents liabilities of the predecessor companies operations which
were personally assumed by our principal shareholder.
As a result of the development of the operating system for accessing
the online Marin Telli Pages through personal computers, we will be
able to commence operations prior to the production of the Telli
Screen. However, we still intend to produce Telli Screens to expand
the availability of the Telli Pages to the entire community.
Our engineers have designed an inexpensive Telli Screen computer board
that eliminates many hardware components necessary for the operation of
a personal computer but unnecessary for the successful operation of the
Telli Screen as the everyday consumer product it was designed to be.
For the initial market we estimate that we will pay approximately $300
for the hardware components of each Telli Screen assembled. We have
received estimates from consultants experienced in the manufacture of
hardware components of a price of less than $200 per Telli Screen. It
is difficult to predict an accurate price until we learn from our
market introduction the level of consumer response to our software
products to determine the size of runs that are most feasible. If our
product is very successful then we anticipate that we will have many
methods of financing the manufacture of Telli Screens available that
will allow us to order larger runs and further reduce the cost to
manufacture Telli Screens. To this end, we have begun discussions with
a major manufacturer of telecommunications equipment that is capable of
producing Telli Screens at a favorable price.
When the introduction of the Telli Pages Directory is underway we plan
to approach potential partners to renew discussions to arrange
financing through the licensing of its technology for their use. We
cannot assure you that we will be able to renew the discussions or,
that if discussions are opened once again, we will be successful in
reaching any agreements with the parties.
<PAGE>24
For the nine months ended September 30, 2000, we had deferred lease
costs of $91,066 and additions to fixed assets of $286,762 resulting in
cash used in investing activities of $377,828.
For the nine months ended September 30, 1999, we had additions to fixed
assets of $24,632 resulting in cash used in investing activities of
$24,632.
For the nine months ended September 30, 2000, we received proceeds from
the sale of stock of $1,197,574, loans payable of $428,000 and
stockholder advances of $1,281 resulting in cash provided by financing
activities of $1,626,855.
For the nine months ended September 30, 1999, we received proceeds from
the sale of stock of $476,550, had repaid notes payable of $5,000 and
loans payable of $77,940 resulting in cash provided by financing
activities of $393,610.
During 1999, we sold 8,701,995 shares of common stock for approximately
$1,614,000. The proceeds were used to fund our general and
administrative expenses. We also issued 60,000 shares of common stock
to acquire equipment valued at $12,000 and 50,000 shares for various
consulting services valued at $4,500.
During 1998, we sold 24,750 shares of common stock for $4,950. Such
proceeds were used to fund our general and administrative expenses. We
also issued 2,550,000 shares of the common stock for various consulting
services performed. The stock was valued at $366,300. $266,300
related to stock issued for services rendered by December 31, 1998 was
recorded as expense and $100,000 related to stock issued for services
to be rendered in 1999 was recorded as a prepaid expense at December
31, 1998.
Management anticipates potential future revenues will be
generated from two primary sources.
- Purchases of commercial space in the Telli Pages Directory by
local businesses and community groups and associations.
- Licensing fees from organizations that wish to communicate
with Telli Pages users through their Telli Screens.
Management plans to explore the feasibility of selling franchises to
qualified organizations for the right to operate a Telli Pages
Directory within a defined geographical area as a method of financing
the establishment of new Telli Pages Directory geographical sites.
As of December 31, 1999, Guinness has a deferred tax asset of
approximately $1.7 million which is 100% reserved.
Results of Operations. For the nine months ended September 30, 2000,
Guinness received advertising revenues of $110,016. For the nine
months ended September 30, 2000, Guinness had a net loss of
(6,499,619). Guinness had operating expenses of $6,609,635, which
consisted primarily of interest expense of $87,975, officers' salaries
of $193,500, rent of $96,108, consulting services of $2,670,358 and
other administrative expenses of $3,561,694.
For the nine months ended September 30, 1999, Guinness had a net loss
of ($457,841). Guinness had operating expenses of $457,841 for the
nine months ended September 30, 1999. These expenses consisted
primarily of interest expense of $79,974, officers' salaries of
$24,000, rent of $28,999 and other administrative expenses of $324,868
---------------------------------------------------------
MANAGEMENT
---------------------------------------------------------
The executive officers and directors of Telli, and their
ages and positions are as follows:
Name Age Position
Lawrence A. Guinness 57 President, Chief Executive
Officer and Director
<PAGE>25
Dixie K. Tanner 58 Secretary, Vice President Corporate
Affairs And Director
Arthur Korn 62 Chief Financial Officer and
Director
Richard A. Morse 50 Vice President, Engineering and
Technology
Greg Martin 45 Vice President, Corporate Finance
There are no arrangements or understanding between any of the directors
or executive officers of Guinness and any other person or persons
pursuant to which they were selected as directors or officers. All
officers plan to devote full time to Guinness. No other person has been
nominated or chosen to become an officer at the present time.
There is no family relationship between any director or executive
officer of Guinness. No other person has been nominated or chosen to
become an officer at the present time.
Background of Directors and Executive Officers
Lawrence A. Guinness, a founder of Guinness, has served as
Guinness's President, Chief Executive Officer, and a member of
Guinness's board of directors since our founding. He has devoted most
of his adult life to various ventures in the publishing business.
In 1967, Mr. Guinness, with $300,000 in private funding, founded
Guinness Publishing Ltd., Toronto, Canada, a company that published
educational textbooks for the elementary school curriculum. Guinness'
publications became an instant success with the schools in Canada and
sales were made to United States and other foreign countries. Mr.
Guinness was a publisher in the true sense in that his company (1)
thoroughly researched the marketplace to target product before
development of a publication, (2) authored all our publications in-
house, and (3) marketed, shipped, and maintained an inventory from our
own offices and warehouses. Guinness became a recognized leader in the
field of Canadian educational textbook publishing and, because of our
successful record of sales, Guinness was awarded Canadian distribution
rights to publications published by companies in Great Britain and the
United States to expand our line of products.
In 1969, with $500,000 obtained from a New York venture capital firm,
Mr. Guinness founded Guinness Publishing Ltd., New York, to publish
educational textbooks for the entire North American marketplace. In
addition to producing and marketing our own successful publications, it
authored material, under contract, for American Book Company, a
division of Lytton Industries.
In 1979, Mr. Guinness sold his foreign publications to finance the
development of computer programmed materials and educational programs.
From 1980 to 1988, using $1,000,000 of his own funds and an additional
$5,000,000 raised from various private sources, he founded Guinness
Productions, Inc., to develop various computer software programs and
authoring systems, and Guinness Computer Television Corporation to
develop software for a computer networking and navigational system to
distribute the programs that he had created. In 1989 he founded
CoNetCo, now a subsidiary of Guinness Telli*Phone Corporation, to
develop an easy-to-use, inexpensive screen telephone - the Telli Phone-
to access these and other programs and to receive information from
COMPUTER network information servers. The materials, products, and
computer software programs developed since 1980 have been incorporated
and integrated into Guinness Telli*Phone Corporation.
From 1980 until 1987, while operating Guinness Productions, Inc., and
Guinness Computer Television Corporation, Mr. Guinness borrowed funds
from time to time from certain qualified private individuals for the
development of some of the software being utilized by Guinness
Telli*Phone Corporation. Some of these investors of Guinness
Productions, Inc., and Guinness Computer Television Corporation hold
notes payable by Mr. Guinness that are in default. Even though the
statute of limitations has run regarding the right of the holders of
these securities to rescind, Mr. Guinness intends to offer to all
investors, who have invested in the development of the software
utilized by Guinness Telli*Phone Corporation an opportunity to have all
<PAGE>26
their cash, plus interest, returned or, as an alternative, to receive
shares of his common stock in Guinness Telli*Phone Corporation, at
their option.
Dixie K. Tanner serves as Secretary, Vice President and Director
of Guinness. She has worked with Mr. Guinness on various publishing
projects since 1977. Since graduating from the University of British
Columbia in 1964 with a BA in Anthropology and Psychology, she has been
a tutor for handicapped children and a buyer, manager, and proprietor
for retail businesses. From 1977 to 1979 she served as an author and
editor of Guinness Publishing Limited in Canada. After Guinness
Publishing Limited was sold, until 1986, Ms. Tanner returned to
community work as a volunteer and successful fund raiser. In 1986, Ms.
Tanner joined Guinness Computer Television Corporation as the Editor-
in-Chief of programming and development. In 1989 she joined CoNetCo, a
subsidiary of Guinness, as Vice President and Editor-in-Chief of the
Telli Pages Directory.
Arthur Korn joined Guinness as Chief Financial Officer and
Director in August 1996. From 1962 to 1979 Mr. Korn held various
positions with J.H. Cohn & Company, a large regional CPA firm in New
Jersey, including the partner in charge of the quality control
department and from 1976 to 1979 was the Managing Partner of the firm's
Nevada offices. In 1979, Mr. Korn joined the San Francisco office of
Mann Judd Landau, Certified Public Accountants, a small national firm,
and was the Managing Partner from 1981 to 1984. In 1984, Mr. Korn
merged his office into the San Francisco office of Moss Adams, a large
regional West Coast CPA firm, and was the partner in charge of that
office's audit and accounting department. In 1988 he opened his own
practice. He is a member of the American Institute of CPAs, the New
York State Society of CPAs, the New Jersey State Society of CPAs and
the American Arbitration Society. He has been a member of the
California State Board of Accountancy Report Quality Monitoring
Committee since January, 1994. He was a member of the State Accounting
Principles and Auditing Standards Committee (AP & AS) for the
California Society of CPAs for seven years and Chairman of the San
Francisco Chapter AP & AS for three years. He is a member of the East
Bay Chapter AP & AS, Managing an Accounting Practice Committee and the
Litigation Support Committee. Mr. Korn holds a BS degree in Accounting
from Fairleigh Dickinson University.
Richard Alden Morse serves as Vice President of Engineering and
Technology for Guinness. Since 1986 Mr. Morse has served as a
consultant on various computer related development projects. Since 1989
he has consulted with CoNetCo, a subsidiary of Guinness, and has been
instrumental in the designing, development, and building of the
hardware and software operating systems for the Telli Phone.
From 1985 to 1986 Mr. Morse worked for NEC as the Technical Manager for
the Single Chip Microcomputer Product Group. He supported three
families of microcomputers and helped the Japanese design a new set of
single chip microcomputers for American managed groups of engineers.
From 1979 to 1984 he was employed with Fairchild Semiconductor and in
1983 and 1984 he served as Product Planning Manager for the
Microprocessor Division where he managed a group of engineers who
designed advanced telcom chips (x.25 and MPCC). Mr. Morse holds a BS
degree in Physics from the University of New Hampshire.
Greg Martin joined Guinness Telli*Phone Corporation in the fall
of 1999, and served as a Director of Corporate Investor Relations until
the spring of 2000, when he was subsequently appointed to his current
position as Vice President of Corporate Finance.
In his present capacity Mr. Martin has assumed responsibility for the
raising of capital to support the steady and rapid growth of
Telli*Phone Corp. He is an officer of the corporation and is an active
participant in the executive management team and contributes to
successful execution of corporate goals.
Prior to joining Guinness Telli*Phone, Mr. Martin was an Investment
Executive with Piper Jaffray and First Union Securities, where he
developed and managed individual financial portfolios, retirement
planning programs and counseled clients on investment opportunities.
Mr. Martin also held a position as a Vice President of Operations at
Waste Management, Inc., and served as a Captain in the United States
Marine Corps, after receiving a Bachelor of Arts Degree in Business
Administration from University of California at Riverside in 1978.
<PAGE>27
Directorships
No director of Guinness holds any other directorship in any company
with a class of securities registered pursuant to section 12 of the
Securities Exchange Act or subject to the requirements of section 15(d)
of such Act or any company registered as an investment company under
the Investment Company Act of 1940, 15 U.S.C. 80a-1, et seq., as
amended.
Involvement in Certain Legal Proceedings
None of the directors of Guinness or persons nominated are involved in
any legal proceedings as outlined in Item 401 (f) that are material to
the evaluation of their ability or integrity.
From 1980 until 1987 Lawrence A. Guinness borrowed funds from time to
time from certain qualified private individuals for the development of
some of the software being utilized by Guinness Telli*Phone
Corporation. In 1987 the Commissioner of Corporations of the State of
California issued a "Cease and Desist" order preventing Mr. Guinness
from borrowing any further monies and claiming these loans involved the
sale of securities. The matter was referred by the Commissioner to the
District Attorney in Marin County, California, who met with Mr.Guinness
and after informing him that the County had investigated the loans
thoroughly, dismissed the matter with taking any formal action. The
District Attorney also advised Mr. Guinness to consult a securities
attorney before making any future financial transactions. To this day
Mr. Guinness has complied.
EXECUTIVE COMPENSATION
<TABLE>
Long-term
Name and Annual Compensation Compensation
Principal Position Year Salary(1) Bonus Awards Other
<S> <C> <C> <C> <C> <C>
Lawrence Guinness 2000 $238,000 -- -- --
President and CEO 1999 $59,500 -- -- --
1998 $410,000(2) -- -- --
1997 $21,951 -- -- --
</TABLE>
(1) Guinness does not have a formal employment contract. Compensation
has been based upon annual discretionary factors such as technical
advancements of the Telli Phone products and the generation of capital.
During 1996, approximately $120,000 of funds advanced were treated as
compensation because there is no formal agreement requiring repayment
and there is no collateral securing the funds.
(2) Includes $378,000 accrued at December 31,1998 and paid in 1999
with the issuance of 2,265,000 shares of Guinness' common stock.
----------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
----------------------------------------------------------------
The following table sets forth certain information with respect to
the beneficial ownership of Guinness' common stock as of November 30,
2000, giving effect to the shares being registered herein:
- each person or entity who is known by Guinness to
beneficially own five percent or more of the outstanding common
stock of Guinness,
- each of Guinness's directors,
- each of the named officers, and (iv) all directors and executive
officers of Guinness as a group.
Except as noted below, the address for each such person is c/o
Guinness Telli*Phone Corporation, 655 Redwood Highway, Suite 111,
Mill Valley, CA 94941.
<TABLE>
<CAPTION>
Title of Name and Address of Amount and Nature of Percent
Class Beneficial Owner Beneficial Ownership of Class
<S> <C> <C> <C>
Common Lawrence A. Guinness 10,915,166 shares 31.27%
Pres., CEO, Director
<PAGE>28
Common Dixie K. Tanner 734,000 shares 1.60%
Secretary, Director
Common Arthur Korn 250,000 shares .54%
CFO, Director
Common Richard A. Morse 1,250,000 shares 2.73%
V.P. Engineering
and Product Development
3030 Bridgeway, #405
Sausalito, CA 94965
Common D. Greg Martin 764,000 shares 1.67 %
Vice President
Corporate Finance
Common Dr. Michael Irwin 3,386,666 shares 9.70%
Common Swartz Private Equity, L.L.C. 10,810,000 shares 30.97%
1080 Holcomb Bridge Rd.
Roswell, GA 30076
Officers and
Directors as
A group 13,913,166 shares 30.43%
</TABLE>
------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
------------------------------------------------------------
Notes Due By Lawrence A. Guinness; Dilution of Guinness'
Ownership in Guinness
All of the investors who loaned funds to Guinness to invest in the
Guinness Companies hold notes payable by him that are in default. Even
though the Statute of Limitations has run regarding the right of the
holders of these securities to sue and recover, Guinness intends to
offer his note holders an opportunity to have all their notes payable,
plus interest (totaling approximately $1.1 million) repaid, or, as an
alternative, to receive common stock in Guinness, at their option.
Guinness plans to offer his personal stock in Guinness Telli*Phone
Corporation to those investors who wish to receive Common Stock in
Guinness, thus there will be no dilution to the issued and outstanding
shares of Guinness. However, this will dilute Guinness' present
ownership in Guinness and have an impact on his control of Guinness's
operations. The outcome from this event and its effect on the future
of Guinness cannot be determined at this time. For those investors who
wish to receive cash, it is the intention of Guinness to arrange
financing through an investment banker. This financing may take the
form of debt financing, securities financing, or a public sale of
enough of Guinness' Guinness Telli*Phone Corporation shares of Common
Stock to satisfy the debt to the note holders remaining.
----------------------------------------------------------
SHARES ELIGIBLE FOR FUTURE SALE
----------------------------------------------------------
Guinness currently has 33,683,120 shares of common stock outstanding.
A portion of these common shares will be deemed to be "restricted
securities" after the offering and may be sold in compliance with Rule
144 adopted under the Securities Act of 1933. Other securities may be
issued, in the future, in private transactions pursuant to an exemption
from the Securities Act. Rule 144 provides, in essence, that a person
who has held restricted securities for a period of two years may sell
every three months in a brokerage transaction or with a market maker an
amount equal to the greater of 1% of Guinness's outstanding shares or
the average weekly trading volume, if any, of the shares during the
four calendar weeks preceding the sale. The amount of "restricted
securities" which a person who is not an affiliate of Guinness may
sell is not so limited. Non-affiliates may each sell without
limitation shares held for three years. Guinness will make application
for the listing of our shares in the over-the-counter market. Sales
under Rule 144 may, in the future, depress the price of Guinness's
Shares in the over-the-counter market, should a market develop. Prior
<PAGE>29
to this offering there has been only a limited market for the common
stock of Guinness. The effect, if any, of a public trading market or
the availability of shares for sale at prevailing market prices cannot
be predicted. Nevertheless, sales of substantial amounts of shares in
the public market could adversely effect prevailing market prices.
----------------------------------------------------------
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------
Market Information
The common shares of Guinness are currently listed on the National
Association of Securities Dealers Over The Counter Bulletin Board under
the stock symbol TELI. There has been little significant trading of
Guinness' common stock and there can be no assurance that a long term
active public market for the common stock will develop or be sustained.
The following table sets forth the range of high and low prices
for the periods indicated:
Quarter Ended High Low
September 30, 2000 $1.375 $1.2812
June 30, 2000 $4.125 $1.125
March 31, 2000 $3.625 $0.75
December 31, 1999 $2.62 $0.25
September 30, 1999 $0.33 $0.19
June 30, 1999 $0.31 $0.19
March 31, 1999 $0.44 $0.11
December 31, 1998 $0.50 $0.13
September 30, 1998 $0.44 $0.12
Holders
As of November 30, 2000, there were approximately 554 shareholders.
Guinness has no knowledge of any matter since that date that would
effect any change to that total.
Lawrence A. Guinness, President and Director of Guinness, is the holder
of 10,915,166 shares of the Common Stock of Guinness which represents
31.27% of Guinness's common equity. Other than Mr. Guinness, only one
other person has a beneficial ownership of five percent (5%) or more of
the Common Stock in Guinness. Dr. Michael Irwin is the holder of
3,386,666 shares of Common Stock which represents 9.70% of the common
equity.
Dividends
Guinness is a development stage company and, since our inception, has
only recently generated any sales. As a result, it is not in a position
to declare any dividends, nor does it intend to declare any dividends
in the near future.
--------------------------------------------------------------
DESCRIPTION OF SECURITIES
---------------------------------------------------------------
Guinness's articles of incorporation authorize us to issue up to
100,000,000 common shares, $.001 par value per common share and
1,000,000 preferred shares, $.001 par value per preferred share.
There are currently no preferred shares outstanding. Guinness is in
the process of amending the articles of incorporation to allow the
board of directors to determine the rights and preferences of each
series of preferred shares authorized.
COMMON STOCK.
Liquidation Rights. Upon liquidation or dissolution, each outstanding
common share will be entitled to share equally in the assets of
Guinness legally available for distribution to shareholders after the
payment of all debts and other liabilities.
<PAGE>30
Dividend Rights. There are no limitations or restrictions upon the
rights of the board of directors to declare dividends out of any funds
legally available therefore. Guinness has not paid dividends to date
and it is not anticipated that any dividends will be paid in the
foreseeable future. The board of directors initially may follow a
policy of retaining earnings, if any, to finance the future growth of
Guinness. Accordingly, future dividends, if any, will depend upon,
among other considerations, Guinness's need for working capital and our
financial conditions at the time.
Voting Rights. Holders of common shares of Guinness are entitled to
cast one vote for each share held at all shareholders meetings for all
purposes.
Other Rights. Common shares are not redeemable, have no conversion
rights and carry no preemptive or other rights to subscribe to or
purchase additional common shares in the event of a subsequent
offering.
-----------------------------------------------------------
INDEMNIFICATION
-----------------------------------------------------------
Our bylaws do not contain a provision entitling any director or
executive officer to indemnification against its liability under the
Securities Act of 1933. The Nevada Revised Statutes allow a company to
indemnify our officers, directors, employees, and agents from any
threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, except under certain
circumstances. Indemnification may only occur if a determination has
been made that the officer, director, employee, or agent acted in good
faith and in a manner, which such person believed to be in the best
interests of Guinness. A determination may be made by the shareholders;
by a majority of the directors who were not parties to the action,
suit, or proceeding confirmed by opinion of independent legal counsel;
or by opinion of independent legal counsel in the event a quorum of
directors who were not a party to such action, suit, or proceeding does
not exist. Provided the terms and conditions of these provisions under
Nevada law are met, officers, directors, employees, and agents of
Guinness may be indemnified against any cost, loss, or expense arising
out of any liability under the '33 Act. Insofar as indemnification for
liabilities arising under the '33 Act may be permitted to directors,
officers and controlling persons of Guinness. Guinness has been
advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy and is, therefore,
unenforceable.
-----------------------------------------------------------
LEGAL MATTERS
-----------------------------------------------------------
Certain legal matters with respect to the issuance of the securities
offered hereby will be passed upon by Jody M. Walker, Attorney-At-Law
located in Littleton, Colorado.
--------------------------------------------------------
LEGAL PROCEEDINGS
--------------------------------------------------------
Guinness is not involved in any legal proceedings as of the date of
this prospectus.
--------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------
We have filed with the Securities and Exchange Commission a
registration statement under the Act with respect to the securities
offered hereby. This prospectus does not contain all of the
information set forth in the registration statement, some parts are
omitted in accordance with the rules and regulations of the Commission.
For further information with respect to Guinness and the securities
offered hereby, reference is made to the registration statement.
Copies of such materials may be examined without charge at, or obtained
<PAGE>31
upon payment of prescribed fees from, the Public Reference Section of
the Commission at Room 1024, telephone number 1-800-SEC-0330, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549, at the Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and the New York Regional Office, 7 World
Trade Center, New York, New York 10048.
We will voluntarily file periodic reports in the event our obligation
to file such reports is suspended under Section 15(d) of the Exchange
Act.
We will provide without charge to each person who receives a
prospectus, upon written or oral request of such person, a copy of any
of the information that was incorporated by reference in the prospectus
(not including exhibour to the information that is incorporated by
reference unless the exhibour are themselves specifically incorporated
by reference). Requests for copies of said documents should be
directed to Lawrence Guinness, President.
The Commission maintains a Web site -- //www.sec.gov -- that contains
reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission.
--------------------------------------------------------
EXPERTS
--------------------------------------------------------
The audited financial statements included in this prospectus have been
so included in reliance on the report of Rooney Ida Nolt Ahern
Accountancy Corporation, Certified Public Accountants, on the authority
of such firm as experts in auditing and accounting.
--------------------------------------------------------
INTERESTS OF NAMED
EXPERTS AND COUNSEL
--------------------------------------------------------
None of the experts or counsel named in the prospectus are affiliated
with Guinness.
--------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------
Index to Financial Statements
Unaudited Balance Sheet dated September 30, 2000 and audited Balance
Sheet, dated December 31, 1999
Statement of Operations for the nine months and three months ended
September 30, 2000 and 1999
Statements of Cash Flows for the nine months and three months ended
September 30, 2000 and 1999
Notes to Financial Statements
Independent Auditor's Report
Balance Sheet dated December 31, 1999 and 1998
Statement of Operations for the year ended December 31, 1999 and 1998
Statement of Changes in Stockholders' Equity from the period from
inception to December 31, 1999, 1998 and 1997
Statements of Cash Flows For the year ended December 31, 1999, 1998,
and 1997
Notes to Financial Statements
<PAGE>32
GUINNESS TELLI*PHONE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
2000 December 31,
(unaudited) 1999
------------- ----------
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 20,986 $ 233,689
Accounts Receivable - Trade 56,858
Prepaid expenses and other current assets 2,281,206
---------- -----------
TOTAL CURRENT ASSETS 2,359,050 233,689
PROPERTY AND EQUIPMENT, at cost:
Telliscreens - in progress 125,000
Equipment 258,040 118,364
Office furniture 51,656 13,824
Software 24,471 4,850
Leasehold improvements 19,710
---------- ----------
Totals 478,877 137,038
Less accumulated depreciation 96,731 63,970
--------- ----------
NET PROPERTY AND EQUIPMENT 382,146 73,068
--------- ----------
OTHER:
Trademarks and patents acquired, net of
$83,412 of accumulated amortization 2,420,632
Deferred lease costs, net of $15,178
of accumulated amortization 75,888
Lease deposits 6,709 6,709
----------- -----------
2,503,229 6,709
----------- -----------
$ 5,244,425 $ 313,466
=========== ===========
LIABILITIES
CURRENT:
Notes payable $ 435,000 $ 435,000
Loans payable 38,000
Stockholder advances 28,310 27,029
Accounts payable 248,749 42,953
Deferred royalty income 125,000 125,000
Accrued interest 825,979 738,004
Accrued payroll taxes 144,400 144,400
Deferred advertising income 11,660
Accrued salaries and wages 35,000
----------- ----------
TOTAL LIABILITIES 1,857,098 1,547,386
----------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK, $.001 par value;
shares authorized 100,000,000;
issued and outstanding
33,683,120 (2000) and
26,294,610 (1999) shares 33,683 26,295
Additional paid-in capital 21,995,627 10,882,148
Deficit accumulated during
development stage (18,641,983) (12,142,363)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 3,387,327 (1,233,920)
------------ ------------
$ 5,244,425 $ 313,466
============ ============
</TABLE>
See accompanying notes.
<PAGE>33
GUINNESS TELLI*PHONE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
During Nine Months Three Months
Development Ended September 30, Ended September 30,
Stage 2000 1999 2000 1999
----------- ------------------- --------------------
<S> <C> <C> <C> <C> <C>
REVENUES - ADVERTISING $ 110,016 $ 110,016 $ 110,016
OPERATING EXPENSES:
Research and development 4,551,152
Interest expense 4,550,698 87,975 $ 79,974 29,325 $ 26,658
Officers' salaries 1,167,938 193,500 24,000 76,048 8,000
Rent 502,948 96,108 28,999 49,026 9,720
Consulting services 2,670,358 2,670,358 1,141,132
Other administrative
Expenses 5,824,570 3,561,694 324,868 760,938 115,121
------------- ---------- --------- ----------- ---------
TOTAL OPERATING EXPENSES (19,267,664) (6,609,635) (457,841) (2,056,469) (159,499)
LOSS FROM OPERATIONS (19,157,648) (6,499,619) (457,841) (1,946,453) (159,499)
WRITE-OFF OF EXPIRED
LIABILITIES 515,665
------------- ---------- --------- ----------- ---------
NET LOSS $(18,641,983) $(6,499,619) $(457,841) $(1,946,453) $(159,499)
============= =========== ========= =========== =========
BASIC AND DILUTED
LOSS PER SHARE $ (.21) $ (.02) $ (.06) $ (.01)
============ ========== =========== =========
WEIGHTED AVERAGE
SHARES OUTSTANDING 30,612,106 19,019,892 28,657,495 20,095,367
</TABLE>
See accompanying notes.
- 3 -
<PAGE>34
GUINNESS TELLI*PHONE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
During Nine Months Three Months
Development Ended September 30, Ended September 30,
Stage 2000 1999 2000 1999
----------- ------------------- --------------------
<S> <C> <C> <C> <C> <C>
CASH USED IN OPERATIONS:
Net loss $(18,641,982) $(6,499,619) $(457,841) $(1,946,454) $(159,500)
Adjustments to reconcile net loss
to cash used in operations:
Depreciation 195,321 131,351 7,948 112,587 2,649
Decrease (increase) in
prepaid expenses (102,910) (102,910) 75,000 (45,218) 25,000
Decrease (Increase) in
accounts receivable (56,858) (56,858) (56,858)
Increase (decrease) in
accounts payable 384,926 164,796 (62,896) 108,920 (11,000)
Increase in accrued interest 885,379 87,975 79,974 29,325 26,658
Stock issues for consulting
services, employee
compensation and settlement 5,235,175 4,836,875 4,500 1,185,415
Deferred royalty income 125,000
Increase in deferred advertising 11,600 11,600 11,600
Accrued payroll (35,000) (35,000) (34,053)
----------- ---------- -------- --------- --------
(11,999,289) (1,461,730) (387,368) (600,623) (116,193)
----------- ---------- -------- --------- --------
CASH USED IN INVESTING ACTIVITIES:
Deposits (6,709)
Deferred Lease Costs (91,066) (91,066) 12,142
Additions to fixed assets (411,800) (286,762) (24,632) (142,473) (6,721)
---------- ---------- -------- -------- --------
(509,575) (377,828) (24,632) (130,331) (6,721)
---------- ---------- -------- -------- --------
CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
Contributed capital 7,543,938
Sale of stock 3,791,199 1,197,574 476,550 504,649 253,000
Notes payable 435,000 (5,000) (5,000)
Loans payable 428,000 428,000 (77,940) 228,000 (41,152)
Stockholder advances 174,533 1,281 (30,543)
Collection of stock subscriptions
Receivable 157,180
---------- --------- --------- -------- ---------
12,529,850 1,626,855 393,610 702,106 206,848
---------- --------- --------- -------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS 20,986 (212,703) (18,390) (28,848) 83,934
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 233,689 105,913 49,834 3,589
---------- -------- -------- ------- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 20,986 $ 20,986 $ 87,522 $ 20,986 $ 87,523
========== ======== ========= ======== =========
</TABLE>
See accompanying notes.
- 4 -
<PAGE>35
GUINNESS TELLI*PHONE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT COMPANY)
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: In the opinion of the management of Guinness Telli*Phone
Corporation and Subsidiary, the un-audited financial statements of
Guinness Telli*Phone Corporation and Subsidiary for the interim
periods shown include all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial
position at September 30, 2000, and the results of operations and cash
flows for the periods then ended. The results of operations for the
interim periods shown may not be indicative of the results that may be
expected for the fiscal year. These statements should be read in
conjunction with the financial statements and notes thereto included
in the Company's Form 10-K for the year December 31, 1999.
Note 2: During the year 2000, the Company issued 5,302,839 shares of
its common stock in payment of various services, equipment and a
dispute settlement. The fair market value of these shares was
$7,432,942.
Note 3: The Company has entered into an agreement with Southwest
Bell Communications (SBC) whereby SBC will provide the Company with
business listings which will be fed into the Telli system, allowing
for an easier and faster creation of Telli directories.
Note 4: Effective August 4, 2000, the company acquired the assets of
NewsSurfer.com Corporation in exchange for 1,000,000 shares of stock,
valued at $2.50 per share, and the assumption of approximately $41,000
in liabilities. The acquisition includes cash of $9,649, receivables
of $23,859, equipment of $5,077, and trademarks and patents of
$2,502,415.
Note 5: Pro Forma Consolidated Statement of Operations: In
connection with the August 4, 2000 acquisition described in Note 4
above, the following sets forth pro forma consolidated statement of
operations for the nine month periods ended September 30, 2000 and
1999 as if Newsurfer.com Corporation was acquired on the first day of
each nine month period.
2000 1999
------ -----
Revenues - advertising $ 219,131 $96,515
---------- --------
Operating expenses:
Internet expense 87,975 80,529
Officers' salaries 193,500 59,500
Rent 97,912 30,297
Consulting services 2,706,699 17,106
Other administrative expenses 3,654,440 395,716
---------- --------
6,740,526 583,148
---------- --------
Net Loss $(6,521,395) $(486,633)
<PAGE>36
ROONEY IDA NOLT AHERN
ACCOUNTANCY CORPORATION
1220 Oakland Blvd.
Suite 310
Walnut Creek
CA 95496-4324
(925) 210-2180
fax (925) 210-2199
1-800-RINA-CPA
The Board of Directors and Stockholders
Guinness Telli*Phone Corporation and Subsidiary
We have audited the consolidated balance sheet of Guinness Telli*Phone
Corporation and Subsidiary (a Nevada corporation and development stage
company as of December 31, 1999 and December 31, 1998, and the related
consolidated statements of operations, stockholders' deficit, and cash
flows for each of the three years in the period ended December 31, 1999
and the period from November 12, 1980 (inception) to December 31, 1999.
These financial statements are the responsibility of Guinness's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Guinness Telli*Phone Corporation and Subsidiary as of December 31,
1999 and December 31, 1998, and the results of its operations and cash
flows for each of the three years in the period ended December 31, 1999
and the period from November 12, 1980 (inception) to December 31, 1999
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Guinness will continue as a going concern. As discussed
in Note 3, Guinness has been in the development stage since its
inception and has sustained recurring losses, has negative working
capital, is in default of its loan agreements, and has a stockholders'
deficit. These conditions raise substantial doubt about Guinness's
ability to continue as a going concern. Continuation as a going
concern is dependent upon Guinness's ability to meet its past due debt
obligations and future financing requirements and the success of its
future operations, the outcome of which cannot be determined at this
time. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Management's plan regarding future operations is also described in Note
3.
Rooney, Ida, Nolt and Ahern
Walnut Creek, California
October 25, 2000
<PAGE>37
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS December 31, 1999 December 31, 1998
--------- ----------------- -----------------
<S> <C> <C>
CURRENT:
Cash $ 233,689 $ 105,913
Prepaid expenses - 100,000
------------------ -----------------
TOTAL CURRENT ASSETS 233,689 205,913
------------------ -----------------
PROPERTY AND EQUIPMENT, at cost:
Equipment 118,364 71,432
Office furniture 13,824 -
Software 4,850 -
------------------ -----------------
Totals 137,038 71,432
Less accumulated depreciation 63,970 51,595
------------------ -----------------
NET PROPERTY AND EQUIPMENT 73,068 19,837
------------------ -----------------
OTHER:
Lease deposits 6,709 -
------------------ -----------------
$ 313,466 $ 225,750
================== =================
LIABILITIES
------------
CURRENT:
Notes payable $ 435,000 $ 435,000
Stockholder advance 27,029 177,177
Accounts payable 42,953 583,518
Deferred royalty income 125,000 125,000
Un-issued stock - 660,500
Accrued interest 738,004 631,372
Accrued payroll taxes 144,400 -
Accrued salaries and wages 35,000 34,053
-------------------- ------------------
TOTAL LIABILITIES
(All Current) 1,547,386 2,646,620
-------------------- ------------------
STOCKHOLDERS' DEFICIT (Exhibit C)
---------------------------------
COMMON STOCK, $.001 par value; shares authorized,
100,000,000; issued and outstanding, 26,294,610
(1999) and 17,434,910 (1998)
26,295 17,435
ADDITIONAL PAID-IN-CAPITAL 10,882,148 9,260,408
DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE
(12,142,363) (11,698,713)
---------------- -----------------
TOTAL STOCKHOLDERS' DEFICIT (1,233,920) (2,420,870)
$ 313,466 $ 225,750
</TABLE> ------ ---------
See notes to consolidated financial statements.
<PAGE>38
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
<TABLE>
<CAPTION>
Cumulative
During
Development Year Ended Year Ended Year Ended
Stage Dec. 31, Dec. 31, Dec. 31,
1999 1998 1997
---------- -------- ---------- ---------
<S> <C> <C> <C> <C>
OPERATING EXENSES:
Research and development $4,551,152 $ - $ - $ -
Interest 4,462,723 106,632 96,944 88,128
President's salary 974,440 59,500 410,000 21,951
Rent 406,840 34,404 26,868 32,115
Other 2,260,473 756,379 569,794 228,215
----------- --------- -------- --------
Total operating expenses 12,655,628 956,915 1,103,606 370,409
----------- --------- --------- ---------
LOSS FROM OPERATIONS (12,655,628) (956,915) (1,103,606) (370,409)
OTHER INCOME:
Write-off of expired
liabilities 515,655 515,665 - -
---------- ---------- --------- --------
LOSS BEFORE
INCOME TAXES
(12,139,963) (441,250) (1,103,606) (370,409)
PROVISION FOR
INCOME TAXES 2,400 2,400 - -
----------- ---------- --------- --------
NET LOSS $(12,142,363) $(443,650)$(1,103,606) $(370,409)
============ ========= =========== ========
BASIC AND DILUTED EARNINGS PER SHARE:
Loss per share $ (0.01) $ 0.07 $ (0.03)
========= ========== =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 21,113,576 16,049,257 14,130,565
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>39
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDLARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During Total
Paid-In Development Stockholders'
Shares Amount Capital Stage Deficit
-------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Stock issued for product
rights
2,350,000 $2,350 $ - $ - $ 2,350
Stock issued for predecessor
company assets, including
assumption of predecessor
company debt 8,000,000 8,000 7,147,091 - 7,155,091
Sale of common stock
141,000 141 134,364 - 134,505
Contributed capital by
majority shareholder through
sale of personal stock
- - 285,366 - 285,366
Stock sold for cash of
$240,570 and a receivable
of $55,930 550,000 550 295,950 - 296,500
Stock issued for all of
the outstanding shares of
Innstar Corporation
1,551,480 1,551 - - 1,551
Contributed capital - - 99,580 - 99,580
Stock sold for cash of
$301,000 and a receivable
of $101,250
835,000 835 401,415 - 402,250
Net loss from November 12,
1980 (inception)
to December 31, 1995 - - - (9,733,329) (9,733,329)
---------- ----- ------- ---------- ---------
BALANCE, DECEMBER 31,1995
13,427,480 13,427 8,363,766 (9,733,329) (1,356,136)
Net loss - - - (491,369) (491,369)
---------- ------ --------- ---------- -----------
BALANCE, DECEMBER 31,1996
13,427,480 $13,427 $8,363,766 $(10,224,698) $(1,847,505)
</TABLE>
See notes to consolidated financial statements.
<PAGE>40
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS'DEFICIT
-----------------------------------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During Total
Paid-In Development Stockholders'
Shares Amount Capital Stage Deficit
------- ------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Stock issued for
conversion of debt
675,680 $676 $322,724 $ - $323,400
Stock sold for cash 207,000 207 178,293 - 178,500
Stock issued in
exchange for
consulting services 550,000 550 26,950 - 27,500
Net loss - - - (370,409) (370,409)
---------- ------ ---------- ----------- ---------
BALANCE, DECEMBER 31,1997
14,860,160 14,860 8,891,733 (10,595,107) (1,688,514)
Stock sold for cash
24,750 25 4,925 - 4,950
Stock issued in
exchange for consulting
and professional services
2,550,000 2,550 363,750 - 366,300
Net loss - - - (1,103,606) (1,103,606)
--------- ------ -------- ---------- ---------
BALANCE, DECEMBER 31,1998
17,434,910 17,435 9,260,408 (11,698,713) (2,420,870)
Stock sold for cash
8,749,700 8,750 1,605,350 - 1,614,100
Stock issued in
exchange for equipment
60,000 60 11,940 - 12,000
Stock issued in exchange for consulting
and professional services
50,000 50 4,450 - 4,500
Net loss - - - (443,650) (443,650)
---------- ------- -------- ---------- ------------
BALANCE, December 31, 1999
26,294,610 $26,295 $10,882,148 $(12,142,363) $(1,233,920)
========== ======= =========== ============ ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>41
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
-----------------------------------------
<TABLE>
<CAPTION>
Cumulative
During
Development Year Ended Year Ended Year Ended
Stage Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (Exhibit B) $(12,142,363) $(443,650) $(1,103,606) $(370,409)
Adjustments to reconcile
net loss to net cash
used by operating activities:
Depreciation 63,970 12,375 10,600 10,600
Deferred royalty income 125,000 - - -
Stock issued for consulting
and professional services 398,300 4,500 366,300 27,500
Decrease (increase) in:
Prepaid expenses - 100,000 (85,413) (14,587)
Increase (decrease) in:
Accounts payable 220,130 (540,565) 39,931 3,864
Accrued liabilities 797,404 (408,521) 671,497 88,128
---------- ---------- ----------- ----------
NET CASH USED BY OPERATING
ACTIVITIES (10,537,559) (1,275,861) (100,691) (254,904)
----------- ---------- ----------- ---------
CASH FLOWS FROM @STING ACTIVITIES:
Purchase of property and equipment (125,038) (53,606) (4,600) (6,714)
Lease deposits (6,709) (6,709) - -
---------- --------- ----------- --------
NET CASH USED BY INVESTING
ACTIVITIES (131,747) (60,315) (4,600) (6,714)
---------- -------- ----------- --------
CASH FLOWS FROM FINANCING ACTFVITIES:
Contributed capital 7,543,938 - - -
Sale of stock and
payment received for
un-issued stock 2,593,625 1,614,100 124,950 178,500
Debt proceeds - long term 435,000 - - -
Increase (decrease) in:
Stockholder advances 173,252 (150,148) 86,167 73,400
Collection of stock subscriptions
Receivable 157,180 - - -
---------- --------- ----------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 10,902,995 1,463,952 211,117 251,900
---------- --------- ----------- -------
NET INCREASE (DECREASE) IN CASH 233,689 127,776 105,826 (9,718)
CASH, beginning of year - 105,913 87 9,805
---------- --------- ----------- -------
CASH, end of year $ 233,689 $ 233,689 $ 105,913 $ 87
========== ========= =========== =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>42
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
------------- -------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Non-cash investing and financing activities:
Acquisition of property and equipment $ 65,606 $ 4,600 $ -
Property and equipment acquired through issuance
of common stock (12,000) - -
--------- -------- -------------
Property and equipment purchased with cash 53,606 $ 4,600 $ -
========= ======== =============
Issuance of common stock and receipt of
paid-in capital $1,630,500 $491,250 $ 529,400
Common stock issued for consulting and
professional services (4,500) (366,300) (27,500)
Common stock issued for equipment (12,000)
Common stock issued in repayment of
stockholder advances - - (323,400)
--------- ---------- -------------
Common stock issued for cash $ 1,614,000 $ 124,950 $ 178,500
============ ========== =============
Cash paid during the year for:
Interest $ - $ - $ -
Income taxes $ 2,400 $ - $ -
</TABLE>
See notes to consolidated financial statements.
<PAGE>43
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------
Note 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Nature of business:
Guinness and its predecessors have been in the development stage since
inception. Guinness is engaged in developing an interactive networking
system, the Telli*Screen, which will allow access to electronic
information. Guinness plans initially to target a customer base in the
county of Marin, located immediately north of San Francisco. Guinness
determined that effective December 31, 1994 all significant research
and development regarding the Telli*Screen had been completed.
The consolidated financial statements include the accounts of Guinness
Telli*Phone Corporation (Guinness) and its wholly-owned subsidiary,
Marin Telli Pages, a California corporation. All significant
intercompany balances and transactions have been eliminated in
consolidation. Another wholly-owned subsidiary, CoNetCo, a California
corporation, has been inactive since its reorganization in March, 1994
and has been excluded from the consolidated financial statements for
the following reasons:
1. CoNetCo never incurred any business activities to record in the
form of income or expense items.
2. CoNetCo's balance sheet has no assets or liabilities and its equity
amounts are immaterial to Guinness's financial statements.
3. It is Guinness's present intention to dissolve CoNetCo.
As discussed below, the cumulative operating data of Guinness
Productions, Inc. and Guinness Computer Television Corp. are included
in historical financial information since they are deemed to be
predecessor companies.
Depreciation:
Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets, ranging from 3 to 10 years. Depreciation
expense of $12,375 in 1999, $10,600 in 1998 and 1997, and $63,970
cumulative during development stage has been charged to operations.
Loss per share:
As of December 31, 1997, Guinness adopted the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128). SFAS 128 provides for the calculation of basic and diluted
earnings per share. Basic earnings per share includes no dilution and
is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of
securities, including stock option and warrants, that could share in
the earnings of an entity. Because Guinness has a net loss, dilutive
earnings per share are the same as basic earnings per share. As
required by SFAS 128, all prior earnings have been restated to reflect
the retroactive application of this accounting pronouncement. Adoption
of SFAS 128 had no effect on previously reported earnings per share.
Deferred income taxes:
Deferred income tax assets and liabilities are computed annually for
differences between the financial and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amount
<PAGE>44
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLEIDATED FINANCIAL STATEMENTS
Note 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued):
expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
Calculated deferred tax assets result from product development costs
capitalized for tax purposes and from net operating loss carry-
forwards. A valuation allowance has been established to zero out
deferred tax assets at December 31, 1999, December 31, 1998 and
December 31, 1997.
Fair value of financial instruments:
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments, requires that Guinness disclose
the estimated fair value for its financial instruments for which it is
practicable to estimate their values. Guinness's financial instruments
include cash, stockholder advances, notes payable and accounts payable.
The carrying value of cash approximates fair value due to the short
maturities of these instruments. The fair value of other financial
instruments is not practical to estimate because of the current
financial condition of Guinness.
Note 2. NATURE OF ESTIMATES:
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. Accordingly, actual results
could differ from those estimates.
Note 3. FINANCIAL STATEMENT PRESENTATION:
The financial statements have been prepared assuming Guinness will
continue as a going concern. Although Guinness is still in the
development stage, management is currently negotiating to raise
adequate financing to produce and place Telli*Screen units into a test
market. Guinness is continuing to pursue additional debt and equity
financing while continuing to modify and improve the Telli*Screen.
Guinness's ability to continue as a going concern is dependent on
management's success in obtaining financing, its ability to repay past
due debt obligations and the acceptance of the Telli*Screen by the test
market. To improve its financial condition, Guinness has significantly
curtailed expenditures with only necessary costs being paid from the
sale of stock. Once the system is in place, Guinness anticipates being
able to attract financial support from those having an interest in
reaching subscribers.
Note 3. FINANCIAL STATEMENT PRESENTATION (Continued):
Guinness's recurring losses, negative working capital, default on loan
agreements and stockholders' deficit raise substantial doubt about the
ability of Guinness to continue as a going concern. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Note 4. CONCENTRATIONS OF CREDIT RISK:
Cash was held in one financial institution at December 31, 1999 in an
amount exceeding the guaranteed amount of the Federal Deposit Insurance
Corporation by $133,689.
Note 5. DEBT CONVERSION:
During 1996, Guinness was advanced various non-interest bearing funds
from a minority stockholder to fund operating expenses. As of December
31, 1996, total funds advanced were $250,000. Approximately $122,000
of the funds were received directly by Guinness's primary stockholder.
Although the primary stockholder anticipates repaying
<PAGE>45
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLEIDATED FINANCIAL STATEMENTS
Note 5. Debt Conversion (Continued):
such advances in the future, there is currently no agreement requiring
repayment. Accordingly, the amount has been treated as officer's
salary for the year ended December 31, 1996. In January, 1997, the
minority stockholder advanced additional funds. In February, 1997,
Guinness and the minority stockholder converted the advances to common
stock. Guinness issued 675,680 shares of stock under Regulation S of
the Securities Act of 1933 as repayment in full for advances totaling
$323,400.
Note 6. NOTES PAYABLE:
Guinness, through its longtime inactive wholly-owned subsidiary,
CoNetCo, entered into approximately 20 different royalty agreements
prior to 1990. The terms of the agreements required a fixed payment of
cash for the future rights to a percentage of the future Telli*Phone
(the predecessor of the Telli*Screen) sales proceeds. The agreements
also provided the holders of the royalty agreements the option to
convert its royalty interest into common stock of CoNetCo on the basis
of eight times the royalty payment divided by the greater of $3 per
share or three times the average bid price on the day Guinness's stock
is traded after its initial public offering. During 1990,
approximately 17 of the note-holders modified their royalty agreements
to a conventional note payable. The aggregate principal balance on
these notes was $435,000 at both December 3l, 1999 and December 31,
1998, and accrued interest was $738,004 and $631,372 at December 31,
1999 and December 31, 1998, respectively. These notes bear interest at
10%, were in default at December 31, 1999 and 1998, and require future
royalty payments but do not contain any features allowing the
conversion to common stock. Guinness is currently negotiating with the
note holders to convert their debt and accrued interest into common
stock.
As of December 31, 1999 and 1998, Guinness had received $125,000 of
advance royalty payments, which had not been converted to notes
payable. This amount will begin to be amortized into income once sales
of the Telli*Screen commence. The amortization period of deferred
revenue has not yet been determined.
Note 7. CONMTMENTS:
Royalty agreements:
As part of CoNetCo's acquisition of the Guinness Companies, in
February, 1990, CoNetCo granted royalty rights of 5% of all future
revenues generated by the sale or lease of the Community News Network
and the Telli*Screen instrument to the stockholder of the Guinness
Companies. In addition, royalty and note holders received royalty
rights. Under these agreements, Guinness will pay royalties
aggregating 2.26% of the manufacturer's actual net price for which each
Telli*Screen is sold.
Stock options:
In order to provide interim funds for the development of the
Telli*Screen instrument, CoNetCo's major stockholder agreed in
September 1989 that he would sell some of his stock in CoNetCo to
"qualified investors' and remit the proceeds as donated capital to
CoNetCo. In exchange for the donated capital, he received an option to
purchase a like number of shares sold by him at the same price he
received from their sale and contributed to CoNetCo. This option went
unexercised and expired in September, 1999.
In 1998, the Board of Directors approved a stock option plan under
which options to purchase up to four million shares may be granted. As
of December 3 1, 1999, no options had been granted.
<PAGE>46
Stockholder and predecessor company obligations:
A creditor of the Guinness Companies, and now a creditor of the
Guinness Companies' former stockholder, has filed a lien against the
stockholder and has also named CoNetCo as an additional judgment
debtor. The creditor is seeking to recover approximately $650,000
related to $500,000 of loans and related accrued interest borrowed by
the Guinness Companies. Guinness does not believe that it has any
legal obligation to repay the debt of the Guinness Companies and that
all such liabilities were assumed by the stockholder of the Guinness
Companies. The stockholder of the Guinness Companies is currently the
majority stockholder of Guinness. At December 31, 1999, the ultimate
outcome of this matter is unknown and no liability has been recorded
relating to the matter.
Leases:
During 1999, Guinness entered into several operating leases for its
corporate offices. The office space leases expire between June, 2000
and February, 2005. Guinness also entered into an operating lease for
a copy machine that expires June, 2004. The minimum aggregate lease
payments due under the operating leases are as follows:
Year Ending Office
December 31, Space Copier Total
2000 $48,150 $ 2,460 $50,610
2001 49,046 2,460 51,506
2002 32,188 2,460 34,648
2003 26,568 2,460 29,028
2004 26,568 1,230 27,798
Thereafter 6,642 - 6,642
Totals $ 189,162 $ 11,070 $ 200,232
========= ======== =========
Note 8. INCOME TAXES:
Since Guinness is in the development stage and management cannot
determine that it is more likely than not deferred tax assets will be
recovered, it has provided a 100% valuation allowance against the
deferred tax asset resulting from its capitalized product development
costs and its net operating loss carry-forwards. Accordingly, no
deferred tax asset is reflected in the accompanying financial
statements. There were no material deferred tax liabilities at
December 31, 1999.
The provision for income taxes shown in the accompanying statement of
operations (Exhibit B) comprises the following components:
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
Current $2,400 $ - $ -
Deferred -
Benefits of
net operating
loss carry-forwards -
-------- -------- ---------
Total provision for income
$2,400 $ - $ -
======== ========= =========
Deferred income taxes shown in the accompanying balance sheet (Exhibit
A) comprises the following:
December 31 Net
1999 1998 Change
Deferred tax assets $1,670,180 $1,800,000 ($129,820)
Valuation allowance on
deferred tax assets (1,670,180) 1,800,000) 129,820
Deferred tax liabilities - - -
Net deferred income taxes $ - $ - $ -
Guinness's provision for income taxes differs from the expense that
would result from applying statutory rates to income before income
taxes because of certain nondeductible expenses.
<PAGE>47
Guinness has approximately $2,200,000 of federal net operating loss
carry-forwards expiring between 2004 and 2013. Guinness has
approximately $312,000 of state net operating loss carry-forwards.
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLEDATED FINANCIAL STATEMENTS
Note 8. INCOME TAXES (Continued):
expiring between 2003 and 2004. The losses accumulated by Guinness for
tax purposes is significantly lower than the accumulated losses in
these financial statements because the accumulated losses for financial
statement purposes includes approximately $7,700,000 of losses incurred
by predecessor companies which have been capitalized for tax purposes.
Note 9. EQUITY TRANSACTIONS:
Business combinations:
In 1989, CoNetCo was formed and acquired the theoretical rights to the
Telli*Phone from a predecessor company in exchange for 2,350,000 shares
of CoNetCo stock, which were valued at par value.
Effective February 18, 1990 (as amended by the March 15, 1994
agreement), CoNetCo, currently Guinness's longtime inactive wholly-
owned subsidiary, acquired from CoNetCo's major stockholder the assets
of the businesses known as Guinness Productions, Inc. and Guinness
Computer Television Corp. (together, the Guinness Companies) in
exchange for 8,000,000 shares of CoNetCo stock and royalty rights. The
assets acquired from the Guinness Companies consisted primarily of
product development efforts performed by the Guinness Companies to
further develop the Telli*Screen. For accounting purposes, all costs
incurred by the Guinness Companies to develop the Telli*Screen have
been expensed in accordance with Financial Accounting Standards Board
Statements No. 2, Accounting for Research and Development Costs. The
assets acquired from the Guinness Companies have been valued at their
historical cost basis and not current fair market value, if any,
because all entities are under a common control.
The liabilities incurred and assumed by the Guinness Companies, during
their development of the Telli*Screen, have been assumed by the
stockholder of the Guinness Companies. The primary stockholder of
Guinness Telli*Phone is also the primary stockholder of the Guinness
Companies. The liabilities assumed by the Guinness Companies'
stockholder total approximately $7.2 million, which include
approximately $2.3 million of investor notes payable and related
delinquent compounded interest of $3.6 million. Such liabilities were
incurred by the Guinness Companies primarily during the years 1982 to
1989 and have been treated as a capital contribution and increased
paid-in capital. CoNetCo and the Guinness Companies are predecessors
of Guinness and their activities are included in the cumulative
financial data. Included in deficit accumulated during development
stage is approximately $7.2 million relating to the Guinness Companies.
Effective August 4, 1993, Guinness Telli*Phone Corporation, through an
inactive predecessor company, U.S. Telli*Phone, acquired all of the
outstanding shares of Innstar Corporation, an inactive company having
no assets, in exchange for 1,551,480 shares of Guinness's stock.
Innstar Corporation was then merged into Guinness. U.S. Telli*Phone
did not receive any consideration beyond the exchange of shares. The
merger was accounted for as a recapitalization and Innstar had no
assets, liabilities or operations to include in the accompanying
financial statements. The purpose of the merger was to acquire a
company whose shares were registered with the Securities and Exchange
Commission and to change its domicile to Nevada which is where U.S.
Telli*Phone was incorporated.
Effective March 15, 1994, Guinness Telli*Phone Corporation acquired all
of the outstanding shares of CoNetCo in exchange for 11,041,000 shares
of Guinness's stock. The issuance of shares is accounted for as the
issuance of shares by CoNetCo, who is considered the acquirer for
accounting purposes, in exchange for monetary assets rather than a
business combination since U.S. Telli*Phone, now Guinness Telli*Phone,
was an inactive corporation. The assets acquired, principally the
product development efforts, which for
<PAGE>48
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. EQUITY TRANSACTIONS (continued)
accounting purposes have zero book value, of the Telli*Phone network,
were recorded at the historical cost basis of CoNetCo because of common
control amongst current and predecessor entities.
Other transactions:
At December 31, 1999, outstanding common stock of 26,294,610 shares
valued at $26,295 included transactions which had taken place in
substance, but for which stock certificates had not physically been
issued. These certificates, issued in January 2000, represented
1,502,367 shares at a value of $1,502.
In August, 1998, Guinness sold 24,750 shares of its common stock for
$4,950. In December, 1998, Guinness entered into an agreement to sell
666,666 shares of common stock for $120,000. As Guinness received the
cash, but had not issued the shares in 1998, this obligation had been
recorded as a liability. This liability was relieved during 1999.
During 1998, Guinness issued 2,550,000 shares of common stock with an
aggregate fair value of $366,300 in exchange for professional and
consulting services to be rendered during 1999 and 1998. $ 1 00,000
related to services to be rendered in 1999 is included in prepaid
expenses as of December 31, 1998. This amount was fully amortized
during 1999.
Guinness was also obligated at December 31, 1998 to issue 3,265,000
shares of common stock to compensate employees for work performed
during 1998. Accordingly, a liability of $540,500 was recorded for
this obligation at December 31, 1998. This liability was relieved
during 1999.
In January, 1997, Guinness converted $323,400 of advances from one of
its stockholders to 675,680 shares of its common stock. In September,
1997, Guinness sold 207,000 of its common stock for $178,500. In
December, 1997, Guinness issued 550,000 shares of its common stock for
engineering services. Such shares have been valued at $27,500 and
recorded as a 1997 expense.
On October 19,1995, Guinness sold 700,000 shares of its common stock
for $301,000 which was all received in 1995. On December 15, 1995,
Guinness sold 135,000 shares of its common stock for $101,250 which was
not received until January, 1996. Both of these transactions were
executed in accordance with Regulation S under the Securities Act of
1933.
In fiscal 1994 and 1993, the principal stockholder paid operating
expenses on behalf of Guinness totaling $52,330 and $47,250. These
amounts were accounted for as contributed capital and increased
additional paid-in capital.
Note 10. WRITE-OFF OF EXPIRED LIABILITIES:
The Consolidated Statement of Operations (Exhibit B) shows $515,665 of
Other Income as the write-off of expired liabilities because the
statute of limitations covering the period during which payment of the
liability could have been legally enforced had formally expired.
Note 11. RESEARCH AND DEVELOPMENT:
Research and development costs represent costs Guinness (including the
predecessor companies) believes are directly related to the development
of the Telli*Phone. Included in cumulative research and
<PAGE>49
GUINNESS TELLI*PHONE CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. RESEARCH AND DEVELOPMENT (continued)
development costs is approximately $1,077,000 of officer compensation
and approximately $800,000 of rent expense. During the period of
product development, Guinness estimated that, excluding interest,
approximately 80% of all expenses incurred have related directly to the
development of the Telli*Phone.
Note 12. CASH FLOW STATEMENT:
In 1993, Guinness acquired the stock of Innstar Corporation for
1,551,480 shares of Guinness's common stock, valued at $.001 per share.
Because the cumulative statement of operations includes the predecessor
companies' operations, accumulated loss includes approximately $7.2
million from the predecessor companies. Additionally, contributed
capital includes approximately $7.2 million of liabilities assumed
personally by the predecessor company stockholder, who is also the
primary stockholder of Guinness.
Note 13. RELATED PARTY TRANSACTIONS:
Advances of $55,177 were received by Guinness from its primary
stockholder during 1998. Guinness also received an advance of $15,000
from a relative of Guinness's primary stockholder during
1998. No repayments were made on these advances during 1998. During
1999, however, Guinness paid down the amount due its primary
stockholder by $150,148.
In 1997, 1998 and 1999, Guinness recorded consulting expenses of $0,
$15,990, and $91,010 respectively, for services rendered by a minority
stockholder. At December 31, 1999 and December 31, 1998, $15,000 and
$107,000 respectively, was due to this stockholder.
Note 14. SUBSEQUENT EVENT:
In January 2000 Guinness's Board of Directors passed a resolution to
amend Guinness's articles of incorporation to increase the number of
its authorized shares of common stock from 25,000,000 to 100,000,000.
<PAGE>50
Note 15. REVISED FINANCIAL SSTATEMENTS:
The financial statements as of and for the year ended December 31, 1999
have been revised to remove the prior period adjustment of $116,364
from the Consolidated Statement of Stockholders' Deficit (Exhibit C)
and to add the same amount to "other operating expenses" on the
Consolidated Statement of Operations (Exhibit B). This adjustment was
made for accrued payroll taxes on 1998 officer's compensation that was
paid in the form of capital stock. It has been determined that the
capital stock was restricted for one year so that the liability was not
incurred until 1999. Therefore, the expense properly belongs in the
year 1999.
------------------------------------------------
OTHER INFORMATION
------------------------------------------------
Until December 31, 2000 (90 days after the date of the prospectus), all
persons effecting transactions in the registered securities, whether or
not participating in the offering, may be required to deliver a
prospectus. These persons are still obligated to deliver a prospectus
when they act as underwriters and when they sell their unsold
allotments or subscriptions.
No dealer, salesman, agent or any other person has been authorized to
give any information or to make any representation other than those
contained in this prospectus. If given or made, this information or
representation must not be relied on as having been authorized by Sea
Shell or the underwriter, if an underwriter assists in the sale of the
securities. This prospectus does not constitute an offer or a
solicitation by anyone to any person in any state, territory or
possession of the United States in which the offer or solicitation is
not authorized by the laws thereof, or to any person to whom it is
unlawful to make such offer or solicitation.
Neither the delivery of this prospectus or any sale made hereunder
shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this prospectus or in the
affairs of Guinness since the date hereof.
<PAGE>51
PART II
INFORMATION NOT REQUIRED BY PROSPECTUS
Item 24. Indemnification of Officers and Directors.
The bylaws of Guinness provides that a director of the registrant
shall have no personal liability to the Registrant or our stockholders
for monetary damages for breach of a fiduciary duty as a director,
except for liability (a) for any breach of the director's duty of
loyalty to the Registrant or our stockholders, (b) for acts and
omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, and (c) pursuant to Nevada law for any
transaction from which the director derived an improper personal
benefit. Registrant's bylaws exculpates and indemnifies the
directors, officers, employees, and agents of the registrant from and
against liabilities. Further the bylaws also provides that the
Registrant shall indemnify to the full extent permitted under Nevada
law any director, officer employee or agent of registrant who has
served as a director, officer, employee or agent or the registrant or,
at the registrant's request, has served as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING GUINNESS FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE
AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS
THEREFORE UNENFORCEABLE.
Item 25. Other Expenses of Issuance and Distribution.
Other expenses in connection with this offering which will be paid by
Guinness are estimated to be substantially as follows:
<TABLE>
Amount
Payable
Item By Company
<S> <C>
S.E.C. Registration Fees $9,015.54
Printing and Engraving Fees 5,000.00
Legal Fees 15,000.00
Accounting Fees and Expenses 5,000.00
Miscellaneous 2,500.00
Total $36,515.54
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
In 1997, Guinness issued 675,680 common shares for conversion of
$323,400 in debt pursuant to an exemption from registration under
Regulation S to a foreign party.
Additionally, in 1997, Guinness issued 550,000 common shares for
consulting services valued at $27,500 to Calico Investment Co. (500,000
common shares) and Jeffrey T. Sandberg (50,000 common shares). The
common shares were issued under an exemption from registration pursuant
to Section 4(2) to sophisticated investors (determined based upon their
relationship with Guinness and other representations).
Guinness also sold 207,000 common shares for cash of $178,500 to:
Osborne Family Trust 5,000
Donald G. Osborne 2,000
Pensco Pension Services 150,000
North American Corp. 50,000
The common shares were issued pursuant to Section 4(2) to sophisticated
investors (determined based upon their relationship with Guinness and
other representations made to Guinness).
In the first quarter of 1998, Guinness sold 24,750 common shares for
cash of $4,950 to Arthur Guinness. The common shares were issued
pursuant to Section 4(2) to a sophisticated investor (determined based
upon their relationship with Guinness).
Additionally, in 1998, Guinness issued 2,550,000 common shares for
consulting and professional services valued at $366,300. 1,400,000
shares pursuant to a registration statement on Form S-8 and 1,150,000
class 144 shares.
<PAGE>52
Name 144 shares
Richard A. Morse 550,000
Calico Investment Co. 300,000
Judith Wilson 300,000
S-8 shares
Richard Johnson 750,000
Peter Futro 150,000
Robert Prisco 500,000
In early 1999, Guinness issued 60,000 common shares to K. Dymmel in
exchange for equipment valued at $12,000. Additionally, Guinness
issued 50,000 common shares to Keith Harris in exchange for consulting
and professional services valued at $4,500. The common shares were
issued pursuant to Section 4(2) to sophisticated investors (determined
based upon their relationship with Guinness).
In the calendar year of 1999, Guinness issued the following common
shares to the following for cash of $1,614,100.
Brad Novak 35,000
Cesar Yumul 400,000
Michael Irwin 666,666
Michael Irwin 600,000
Irwin Family Partners 243,667
Vishin Wadhwani 400,000
Grisselle Cayere 125,000
Zeus Enterprise Trust 125,000
Zeus Enterprise Trust 50,000
Michael Irwin 400,000
Irwin Family
Partnership(No. 1) 100,000
Dr. Michael D. Irwin P.A.
And Restated Profit
Sharing 700,000
Randy Horning 40,000
Errol D. Swanson 20,000
Irwin Family
Partnership 100,000
Bill R. Jones 40,000
Brad K. Johnstone 35,000
Brian Miller 40,000
Acuna Family Trust 33,333
Frank Renucci 35,714
Gabrielle Chiesa 40,000
Gaspara Mangialard 20,000
Giuliano Chiesa 40,000
Harish A. Jain 53,967
J. Gerlach & P.Perry 40,000
John & S. Candan 40,000
Joshua Rosenthal 14,286
Amran Adili 46,667
Kelvin Buneman 50,000
Leo Scopesi 40,000
Mario Renucci 44,643
Mark Franklin 53,571
Paul H. Nielson 40,000
Ryan J. Wade 34,000
Tesi Johal 21,429
Wayne E. Ruthledge 33,333
E & C. De Gennardo 40,000
Anthony Doss 35,714
Nancy K. Poole 40,000
Arthur Guinness 520,000
In 2000, Guinness also issued the following common shares for services
rendered in 1999.
Lawrence A. Guinness 765,000
Arthur Korn 250,000
Lawrence A. Guinness 1,500,000
Dixie Tanner 250,000
Richard A. Morse 500,000
Based on subscription agreements and the investors relationship with
Guinness, the above common shares were all issued to accredited
investors pursuant to Rule 506 of Regulation D.
January 01 to September 30 2000, Guinness issued the following common
shares for services pursuant to registration statement on Form S-8.
<PAGE>53
Chris Berkner 71,000
Robert Scott 35,000
Calico Investment 780,000
Barry Meuse 200,000
Floyd Kling 120,000
Steve Bearman 143,400
Cesar Yumul 250,000
Hitesh Shah 119,845
Delfin Beltran 250,000
Mark S. Kasanin 101,117
Bruce Nelson 30,000
Brad Novak 25,000
John Ramirez 6,000
Mike Williams 35,000
Damon Giglio 500,000
Larry Simon 250,000
Grady Clifford 36,000
J. Becker 3,900
D.A. Kreiger 10,000
Mike Lawrence 27,008
Jack Mavis 6,362
Mike McLaughlin 10,000
Barry Meuse 200,000
B. Meyer 20,000
Ravi Iyer 12,475
January 01 to September 30 2000, Guinness also issued the following
common shares (144) for services.
Steve Bearman 104,000
Chris Berkner 280,000
Calico Investment 510,000
Floyd Kling 130,000
Delfin Beltran 200,000
Greg Martin 750,000
Al Roensch 100,000
Howard Schraub 200,000
Shilpa Agarkar 10,000
Deborah Crooks 25,000
Peter Froelich 25,000
Gabriele Chiesa 20,000
Kelly Ireson 5,000
Robert Scott 35,000
Renee Oakes 10,000
Mary Tanner 100,000
Kelly Ireson 5,000
Mike McLaughlin 15,000
January 01 to September 30 2000, Guinness also issued the following
common shares for cash.
Howard Schruab 200,000
Margaret Despart 40,000
Michael Williams 16,667
Robert Camerano 11,765
William Stewart 11,765
Michael D. Irwin 120,000
Randy Horning 62,500
Ed Hinker 15,385
Barbara Hill 12,000
Mark D. & R. Ellis Trust 4,444
Victor R. & W. Davis 5,000
Garth Page 25,000
Susan Pavey 3,704
Roger D. Preston 5,000
Aaron Knox 12,000
Robert Camerano 20,000
Donald D. Yoder 16,000
Jack Craig 10,000
Joseph Ross Craig 3,000
Brian Miller 500
John D. & Joan Hammond 2,000
Jewett Cristian III 500
Lori E. Davis 1,000
Michael T. & E. Flom 3,500
Fred A. Wolff 4,000
<PAGE>54
William T. McLeran 18,300
Mohan Rishwani 5,000
Allen T. Gunter 10,000
Brian Miller 5,000
Victor R. & W. Davis 3,500
Martin Friedman IRA 2,000
Donald D. Yoder 12,000
Joshua Rosenthal 12,500
Melvin H. & Ester Horning 6,000
Norman Duke 10,000
Mark Franklin 4,000
Frank DeLassandro 5,000
Gabriele Chiesa 40,000
Michael Williams 16,000
Glen Gobar 111,000
M. Boltz&K. Goldberg-Boltz 5,000
Jerry Murphy 10,000
Unitemized 115,941
January 01 to September 30 2000, Guinness also issued the following
common shares for acquisitions, equipment and payoffs.
Newssurfer.com 1,000,000
Dymmel 50,000
Pryor 35,000
Calico 780,000
J. Gordon 5,000
Based on subscription agreements and the investors' relationship with
Guinness, the above common shares were all issued to accredited
investors pursuant to Rule 506 of Regulation D.
On August 4, 2000, Guinness issued 1,000,000 shares of stock valued at
$2.50 per share to NewsSurfer.com Corporation in exchange for the
assets of NewsSurfer.com Corporation and the assumption of $41,000 in
liabilities. These shares were issued to a sophisticated investor
pursuant to an exemption from registration under Section 4(2).
Item 27. Exhibit Index.
<TABLE>
<S> <C>
(1) Not Applicable
(2) Not Applicable
(3) Articles of Incorporation incorporated by reference
to Form 10SB
(3.1) Bylaws incorporated by reference to Form 10SB
(4) Specimen certificate for common stock incorporated
by
reference to Form 10SB
(4.1) Investment Agreement
(4.2) Registration Rights Agreement
(4.3) Warrant to Purchase Common Stock of Guinness. ("N"
Shares)
(4.4) Acknowledgement
(4.5) Letter to Transfer Agent
(4.6) Warrant Agreement
(5) Consent and Opinion of Jody M. Walker regarding
legality of securities registered under this
Registration Statement and to the
references to such attorney in the prospectus filed
as part of this Registration Statement
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10) Consulting Agreement with Stellcom, Inc. dated July
31,
2000 incorporated by reference to Amendment 1 to the
registration statement filed November 6, 2000
(10.1) Acquisition agreement with NewsSurfer.com
Corporation
dated August 4, 2000
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(17) Not Applicable
<PAGE>55
(18) Not Applicable
(19) Not Applicable
(20) Not Applicable
(21) Not Applicable
(22) Not Applicable
(23) Not Applicable
(24) Consent of Rooney Ida Nolt Ahern Accountancy
Corporation Certified Public Accountants
(25) Not Applicable
(26) Not Applicable
(27) Financial Data Schedule
(28) Not Applicable
</TABLE>
Item 28. Undertaking.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation form the low or high end of
the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the
aggregate, , the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any additional or changed material information on the
plan of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act, we shall treat each such post-effective amendment as a
new registration statement of the securities offered, and the offering
of the securities at that time shall be deemed to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration
any
of the securities that remain unsold at the end of the offering.
(b) to supplement the prospectus, after the end of the subscription
period, to include the results of the subscription offer, the
transactions by the underwriters during the subscription period, the
amount of unsubscribed securities that the underwriters will purchase
and the terms of any later reoffering. If the underwriters make any
public offering of the securities on terms different from those on the
cover page of the prospecutus, we shall file a post-effective
amendment
to state the terms of such offering.
(c) Not applicable.
(d) to provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
<PAGE>56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this
Report to be signed on its behalf by the undersigned duly authorized
person.
Date: December 14, 2000
Guinness Telli*Phone Corporation
/s/Lawrence Guinness
-----------------------------------------
By: Lawrence Guinness, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons
on behalf of the Company and in the capacities and on the dates
indicated.
/s/Lawrence Guinness
----------------------------------------- 12/14/00
Lawrence Guinness
President and Director
(Principal Executive Officer)
/s/Arthur Korn
------------------------------------------ 12/14/00
Arthur Korn
Chief Financial Officer, Controller
And Director
/s/Dixie K. Tanner
------------------------------------------ 12/14/00
Dixie K. Tanner
Director
