Is there something that has changed the below statement on 10KA concerning Liquidity and Capital Resources since May 11, 1998? Thanks for any input.
GUINNESS TELLI-PHONE CORP
Filed on May 11 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Overview
The Company was founded in 1993 and has been principally engaged in the research and
development activities related to advanced navigational and integrated applications software system
that enables people to exchange information and conduct business over local telephone lines from a
computerized consumer telephone appliance (Telli*Phone) with a display screen and online
capabilities for transmitting, receiving and processing information. Prior to the formation of the
Company, research and development of the Telli*Phone was undertaken through predecessor
companies, Guinness Productions and Guinness Computer Television which commenced
operations in 1981. The cumulative operating results of the Company include those operations of
companies deemed to be predecessors to the Company. As of December 31, 1994, the Company
has determined that research and development of the Telli*Phone has been completed. The
Company's major emphasis during fiscal 1996 and 1997 has been the refinement of the
Telli*Phone and the Telli*Screen and the generation of working capital.
Guinness Telli*Phone has generated no revenues and incurred cumulative losses of approximately
$10.6 million dollars since inception, of which approximately $7.2 million of such losses relate to
those of the predecessor companies. The Company expects to incur operating losses through 1998
as it continues to devote the majority of its available financial resources to the commercialization of
the Telli*Screen and the Telli*Phone. Future profitability of the Company is dependent upon
successful commercialization of the Telli*Screen and Telli*Phone. Furthermore, as the Company
attempts to achieve commercialization of its products, it could encounter seasonality or other
currently unforeseen factors causing additional variability in its future operating results.
Liquidity and Capital Resources
The Company is not in a liquid position at this time nor does it possess any assets that could be
deemed liquid, other than cash. Liquidity of the Company is expected to be severely impacted until
operations commence and revenues are generated. Because of recurring losses, negative working
capital, the Company is in default of its loan agreements, and has a stockholder deficit, there is
substantial doubt about the ability of the Company to continue as a going concern.
Since inception, the Company and its predecessors have funded its research and development
efforts by selling equity securities and borrowing capital. Approximately $7 million of additional
paid-in capital represents liabilities of the predecessor companies operations which were personally
assumed by the Company's principal shareholder.
During the first six months of fiscal 1998 the Company plans to raise a minimum of $550,000
through the private or public sale of equity securities. The Company intends to use such funds for
the market test of the Telli*Phone concept in a single community. The following details the
anticipated use of the $550,000:
On the assumption the Company is able to raise capital to finance the market test of the product,
Management plans to utilize the funds raised, as follows:
Investment Banker Consultant Fees .................................... 25,000 Office Rent and Expense
.............................................. 15,000 Administrative Salaries & Office Expense (CEO, CFO,
Engineer, Network Editor, Programmers)............................... 150,000 Telli*Screen/Phone
Prototype Engineering Expense..................... 25,000 Telli*Screen/Phone Production Models (100
- 200)..................... 150,000 Network Hardware Set Up Expense......................................
25,000 Network Software/Programming Expense................................. 90,000 Preparatory
Marketing Expense........................................ 35,000 Initial Promotional Layout
Expense................................... 10,000 Legal, Audit and Miscellaneous
Expense............................... 25,000 - Total ...............................................................$550,000
The above expenses reflect the 6-month budget for the Company while operating in a development
mode. If capital is not raised in a timely manner Management will either delay entry into the
marketplace or reduce the number of Telli*Screens required for the market test.
By the end of the six-month period Company anticipates attaining the following objectives.
1. A fully operational community Telli*Pages Directory in place and operating with a significant
number of community listings.
2. At least 200 Telli*Screens being used by households within the community on an experimental
basis.
3. An agreement signed by a school district to distribute Telli*Screens throughout the market test
community.
4. At least one Telli*Pages Licensing Agreement signed with a major corporation presently using a
commercial computer network to communicate with its customers through personal computers.
The Company anticipates that after the market test they will need to raise additional working
capital through the sale of equity securities or the borrowing of capital. The Company's current
working capital is not adequate for the Company to commence the market test. There can be no
assurance that any necessary working capital will be available on acceptable terms or at all. If
adequate funds are not available, the Company may be required to change, delay, reduce or
eliminate its product commercialization.
For the market test of its products the Company plans to produce a limited number of
Telli*Screens and begin distributing them to homes in the Southern Marin County Area. The
Company anticipates being able to produce at least 200 Telli*Screens for this test.
During the market test, the Company's engineers will assign 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 and Telli*Phone as the
everyday consumer products for which they were designed. For the market test the Company
estimates that it will pay approximately $300 for the hardware components of each Telli*Screen
assembled. The Company has received estimates from consultants experienced in the manufacturer
of hardware components of a price of less than $150 per Telli*Screen. It is difficult to predict an
accurate price until the Company learns from its market test the level of consumer response to the
Company's software products to determine the size of runs that are most feasible. If the
Company's product is very successful then there will be available to the Company many methods
of financing the manufacture of Telli*Phones that will allow the Company to order larger runs and
further reduce the cost to manufacture Telli*Screens and Telli*Phones.
To this end, the Company has begun discussions with a major manufacturer of telecommunications
equipment that is capable of producing Telli*Screens and Telli*Phones and at a favorable price.
When the test of the Telli*Pages Directory is underway the Company plans to approach potential
partners to renew discussions to arrange financing through the licensing of its technology for their
use. The Company has no assurance that it will be able to renew the discussions or, that if
discussions are opened once again, it will be successful in reaching any agreements with the parties.
During 1997, the Company sold 207,500 shares of common stock for $178,500. Such proceeds
were used to fund general and administrative expenses of the Company. The Company also issued
the chief engineer of the Telli*Phone 550,000 shares of the common stock for various consulting
services performed. The stock was valued at $27,500 and recorded as compensation expense.
During 1996 the Company was advanced various non-interest bearing funds from a mnority
shareholder 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 the Company's
primary shareholder. Although the primary shareholder anticipates repaying 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
shareholder advanced additional funds totaling $73,000. In February 1997, the Company and the
minority shareholder completed negotiations to convert the $323,000 of advances to common
stock. The Company issued 675,680 shares of stock under Regulation S of the Securities Act of
1933 as repayment in full for such advances.
On October 19, 1995, the Company sold and issued a total of 700,000 shares of the common
stock for a total of $301,000. On December 15, 1995, the Company sold and issued a total of
135,000 shares of the common stock for a total of $101,250. The capital has been used to secure
the components that will be used to produce Telli*Phones for the test and to complete the
Telli*Phone software to manage the components in the working model.
The Company has 17 notes, dated July 7, 1989, due to individuals who advanced cash to the
Company in exchange for promissory notes and royalty rights. These notes continue to bear
interest at 10% per annum and all are in default. It is the intention of the Company to offer stock to
those note holders who wish to receive common stock in Guinness Telli*Phone Corporation and a
repayment proposal for those investors who wish to receive cash. The Company feels that it will
not be in a position to determine the conditions of such a proposal until the test of its product is
underway.
Management anticipates potential future revenues will be generated from three sources.
(a) Sales of subscriptions to the Telli*Pages Directory to consumers.
(b) Purchases of commercial space in the Telli*Pages Directory by
local businesses and community groups and associations.
(c) Licensing fees from organizations that wish to communicate with
Telli*Pages subscribers through their Telli*Screens and
Telli*Phones.
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, 1997, the Company has a deferred tax asset of approximately $1.4 million
which is 100% reserved. See Footnote 5 of the audited financial statements for additional
information.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to the Company's Consolidated
Financial Statements, and the related notes thereto, which are attached hereto and submitted in a
separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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