UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 10-K

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

               For the fiscal year ended December 31, 1997

/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
     SECURITIES EXCHANGE ACT OF 1934

               For the transition period from ----  to ----


                         Commission File Number: 0-25632
                                ----------------

                        GUINNESS TELLI*PHONE CORPORATION
             ------------------------------------------------------  
             (Exact name of registrant as specified in its charter)

      NEVADA                                                   68-0310550
----------------------                                    --------------------
(State or Jurisdiction                                    (I.R.S. Employer
   of Incorporation)                                     Identification Number)

     655 Redwood Hwy., # 273, Mill Valley, California              94941
     ------------------------------------------------            ----------     
     (Address of principal executive offices)                    (Zip Code)

     Registrant's telephone number, including area code:      (415) 389-9442

     Securities Registrant pursuant to Section 12(b) of the Act:   None

     Securities registered pursuant to Section 12(g) of the Act:  Common Stock
                                                                $.001 Par Value 

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months (or for,  such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. /X/

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant,  based upon the closing  price on March 9, 1998,  was  approximately
$827,400.
     
     The number of outstanding shares of the Registrant's  Common Stock on March
9, 1998 was 15,760,160.

                                         
   

<PAGE>

                                               
                                TABLE OF CONTENTS

                                     PART I

ITEM 1.   BUSINESS    .................................................... 1
     (a)  Overview    .................................................... 1

     (b)  Registrant's Plan of Operation.................................. 3
               Necessity to Raise Additional Capital ..................... 11
               Research and Development to be Performed .................. 12
               Anticipated Material Acquisition of Plant and Equipment ... 13
               Anticipated Material Changes in Number of Employees ....... 13
               Material Areas Peculiar to Registrant's Business .......... 13

     (c)  Financial Information about Industry Segments .................. 13

     (d)  Narrative Description of Business .............................. 14
               Telli*Phone Products and Services ......................... 14
               Status of Product ......................................... 23
               Sources and Availability of Raw Materials ................. 26
               Patents, Trademarks, Licenses, Franchises and Concessions . 26
               Seasonal Business ......................................... 27
               Significant Working Capital Required ...................... 28
               Dependence on Critical Mass Users ......................... 28
               Backlog Orders ............................................ 28
               Government Regulation ..................................... 29
               Competition ............................................... 29
               Research and Development .................................. 33
               Environmental Impacts ..................................... 34
               Employees and Management of Growth ........................ 34

     (e)  Financial Information about Foreign and
               Domestic Operations and Export Sales ...................... 35
               Revenues from Prior Operations ............................ 35

     (f)  Factors Affecting Company's Business Operating Results and
               Financial Condition ....................................... 35

ITEM 2.   PROPERTIES ..................................................... 50

ITEM 3.   LEGAL PROCEEDINGS .............................................. 50

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............ 50

                                       ii
  
<PAGE>
                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND
          RELATED STOCKHOLDER MATTERS ...................................  51
               Market Information .......................................  51
               Holders ..................................................  51
               Dividends ................................................  51

ITEM 6.   FINANCIAL INFORMATION .........................................  52

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATION ............................  53
               Overview .................................................  53
               Liquidity and Capital Resources ..........................  53

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................  56

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE ...........................  56

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS ..............................  56
               Backgrounds of Directors and Executive Officers ..........  59
               Directorships ............................................  59
               Involvement in Certain Legal Proceedings .................  59
               Promoters and Control Persons ............................  59

ITEM 11.  EXECUTIVE COMPENSATION ........................................  60

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
          OWNERS AND MANAGEMENT .........................................  60
               Controlling Interest .....................................  60
               Security Ownership of Management .........................  61

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................  61
               Notes Due By Lawrence A. Guinness; Dilution of Guinness
                 Ownership in the Company ...............................  61

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
          REPORTS ON FORM 8-K ............................................ 62
               Financial Statements ...................................... 62
               Exhibits .................................................. 62

                                      iii
<PAGE>

                                     PART I

ITEM 1.   BUSINESS

(a)  Overview

Guinness  Telli*Phone  Corporation  (OTC Bulletin Board Stock symbol "TELI"),  a
Nevada Corporation,  is the developer of the Telli*Pages  Information  Directory
Service,  and electronic version of the printed yellow pages directory providing
detailed  up-to-the-minute  community,  business, and personal information via a
screen connected to your telephone.  The system is as easy to operate as the ATM
banking system.

Unlike the  Internet,  people access the  Telli*Pages  Directory by pressing the
keys on the telephone keypad of a simple  computerized screen connected to their
telephones.  Through  Telli*Screens  consumers  can  instantly  access  a  local
computer and view telephone  business  listings,  retail advertising and current
specials,  community  newsletters and notices,  school agendas and reports,  and
classified buy and sell ads.

The first  Telli*Pages  Directory is  stationed  in a computer at the  Company's
offices in Mill  Valley,  California.  It is  connected  to the local  telephone
system and operates as the server for the Marin County Telli*Pages. (The Pacific
Bell Marin Yellow Pages serves  approximately  100,000  households and generates
$20 million in annual advertising revenues.)

The Company has taken the  telephone  yellow pages  directory  (a  multi-billion
dollar industry), and improved on it.

     -All business 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.

     -Telli*Pages are always  instantly and  conveniently  available on a screen
next to your telephone.

The Telli*Pages  provides  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.

The Company will introduce the Telli*Pages to individual  communities  through a
promotional plan involving the distribution of free Telli*Screens to households.
This will establish a critical mass of subscribers in each area at minimal cost.

                                       1

<PAGE>
Revenues for the Company's  products will be generated from subscriptions to the
online Telli*Pages  Directory at $6.00 per month initially,  storage of pages of
commercial  advertising and community information in the Telli*Pages  Directory,
at an initial monthly rate of $30.00 per page, and licensing fees from companies
and  organizations  with online  servers  that wish to  communicate  or transact
business  with  Telli*Pages  Subscribers.  The Company also plans to promote the
sale of complete Telli*Phone systems to businesses, associations, and government
agencies to establish internal telecommunications information network.

The Company's initial marketplace is householders,  especially people who do not
have the time or inclination to use a personal computer to exchange  information
through a worldwide  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  the  Company's   opinion,   Telli*Pages   subscribers  can  reference  local
information  faster,  with  greater  ease,  and at less  cost than  surfing  the
Internet through a personal computer.

Guinness Telli*Phone Corporation, a Nevada corporation, (hereinafter referred to
either as "Registrant" or "the Company") 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 the  Company's
stock.  Innstar Corporation was then merged into the Company.  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
Registrant,  CoNetCo,  a  California  corporation,  and  Lawrence  A.  Guinness,
CoNetCo's  founder  and its  principal  shareholder,  Registrant,  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 the Company.

The Company,  through this  acquisition,  acquired the rights to a telephone and
community news and information  computer  software  directory (the  "Telli*Pages
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.

                                       2
<PAGE>
                                    
Effective  February  18,  1990 (as  amended  by the March 15,  1994  agreement),
CoNetCo,   currently  the  Company's  wholly-owned  subsidiary,   acquired  from
CoNetCo's  major  stockholder  the assets of the  businesses  known as  Guinness
Productions,   Inc.  and  Guinness  Computer   Television  Corp.  (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*Phone.  For  accounting  purposes,  all  costs  incurred  by the  Guinness
Companies  to develop the  Telli*Phone  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 common  control.  The  liabilities  incurred and
assumed by the Guinness Companies during its development of the Telli*Phone have
been 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 the
Company 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.

(b)  Registrant's Plan of Operation

The Company's  general plan of operation  beginning the calendar year 1998 is 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.

The bulk of the effort required to bring the Telli*Pages and the Telli*Screen to
the large scale  production  stage will take place in  parallel  with the market
test,  with fine tuning done on the  production  versions from results  obtained
from the test.

The Telli*Screen, the Telli*Phone and the Telli*Pages Directory are currently at
the ALPHA stage of  development.  The first server is stationed in the Company's
administrative offices in Mill Valley California.  The computer operating as the
server  contains  the  Company's  proprietary  online  operating  system for the
Telli*Pages  Directory and over 10,000 programs that operate the indexing system
for navigating the Directory.  The system needs minor  cosmetics to its indexing
pages  and  the   insertion  of  an  up-to-date   listing  of  the   businesses,
associations, and groups in the Marin County area for the Telli*Pages Directory.
The server is connected to the local telephone system and is fully operational.

Working models of the Telli*Phone  have been produced for ALPHA testing purposes
and to establish the  mechanical  specifications  for production of the consumer
designed  Telli*Phone  case. The  Telli*Phone  proprietary  operating  system is
functional including  applications 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  smart  card  reader  is  installed  and  commercial  software
application programs will be developed when the product is in the marketplace.

                                       3
<PAGE>
                                      
The Company is in a position to manufacture its own Telli*Phone computer servers
based on the proprietary  operating system it developed for the Telli*Phone.  At
the test stage it will use the present computer for its server.  However, during
the market test it plans to assemble & install a  Telli*Phone  computer  server,
designed and  manufactured  by the Company.  After the server is assembled,  the
engineers will port the present  indexing and Telli*Phone  navigational  systems
over to the new  Telli*Phone  computer  server  for the final test of the entire
Telli*Pages Directory system.

For the test of its  products the Company  plans to produce a limited  number of
Telli*Screens and begin  distributing them t homes in Southern Marin County. The
Company  anticipates  being able to produce at least 500  Telli*Screens for this
test.

By the end of a six-month period the 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 500 Telli*Screens being used by households within the community on
     an experimenting basis.

3.   At  least  one  Telli*Phone   Licensing   Agreement  to  reach  Telli*Pages
     subscribers  signed with a major corporation  presently  communicating with
     its customers through personal computer.

During the  initial  start-up  stage,  the  Company's  engineers  will design an
inexpensive  Telli*Screen  and  Telli*Phone  computer  board to  eliminate  many
hardware   components   necessary  for  the  operation  of   Telli*Screens   and
Telli*Phones as the everyday consumer products for which they were designed. For
the product  introduction the Company  estimates that it will pay  approximately
$300 for the components of each Telli*Screen assembled. The Company has received
estimates from consultants experienced in the manufacture of computer appliances
of a price of less than $150 per  Telli*Screen  when  produced in volume.  It is
difficult  to predict an accurate  price  until the Company  learns the level of
consumer  response to the Company's  software  products to determine the size of
runs that are most feasible.

The  Company  expects  that there  will be many  methods  of  financing  for the
manufacture of Telli*Screens to allow the Company 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  alliances  with various  major  retailers and online
service providers, franchising of Telli*Pages Directory territories, the sale of
Telli*Pages  Directory  rights for hotels and resorts,  and long term credit and
leasing   arrangements   with  banks  and   manufacturers  of  Telli*Screen  and
Telli*Phone equipment.

                                       4
<PAGE>

The Company expects that the first community  Telli*Pages Directory will quickly
establish  a  significant  standard  for  accessing  important  local,  everyday
information.  Through  this  success  the Company  plans to install  Telli*Pages
Directory sites in communities  across the United States within areas defined by
the local telephone calling areas.

To this end, the Company has begun  discussions with major financial groups that
have indicated interest in financing the Company's expansion plans.

Telli*Pages Directory Access Area

The  Telli*Pages   Directory   Computer  Station  is  located  in  Mill  Valley,
California. The office is in a building adjacent to Highway 101, the main artery
freeway running through Marin County servicing all its main populated areas. The
building contains small businesses,  medical offices, and retail  establishments
including a deli, hair salon, nail salon, and major restaurant.

Mill Valley is 20 minutes north of the center of San Francisco across the Golden
Gate Bridge.  To the south it borders the town of Sausalito,  a popular  tourist
center. To the west is Mount Tamalpais,  a huge State  Recreational Area. Across
the freeway to the east are the wealthy towns of Tiburon and  Belvedere.  To the
north is the Town of Corte Madera with the largest  shopping center in the North
Bay and just beyond is the City of San Rafael, a large metropolitan  center with
a population of over 50,000.

The  area  of  Marin  to  be  covered  by  the  Telli*Pages  Directory  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 over $53,000
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 l.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.

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.).

                                       5
<PAGE>

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 through to antiques could trade and barter.

Corporate Marketing Plan

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 Company's  ability to
supply  Telli*Screens to a great number of homes in a concentrated area within a
very short period of time and assured advertisers that householders will use the
Telli*Pages  Directory  on an  ongoing  basis.  In this way  advertisers  can be
confident that a concentrated  mass of consumers will have convenient  access to
their promotional pages.

Within each area where a Telli*Pages  Directory has been established the Company
will select a community with a concentration of population around a large retail
center.  The  Company's  initial plan will be to deliver  Telli*Screens  free of
charge to the home of every family with school age children in this community.

To encourage  parents to accept the free  Telli*Screen in their homes and become
subscribers  of  the  Telli*Phone  Directory,   the  Company  will  maintain  an
up-to-date school directory with daily classroom homework homework  assignments,
teacher's notes, school news, and district information.

Telli*Pages  operators who work with retail  establishments  in the area will be
assigned  individuals  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. In its
research the Company has found that many school, teachers, and parent volunteers
have been excited about the Telli*Pages school directory and many have agreed to
assist  in  helping  to keep the  directory  up-to-date.  In  return  for  their
participation  the  Company has  offered to issue  small  grants to  classrooms,
schools, or district foundations.

At a minimum the Company feels that it can expect a best efforts  agreement from
schools to cooperate with the program.  School districts have been attempting to
establish an electronic line of  communication  between the home and the school.
Many school  districts have been installing  voice mail systems to automatically
report student  absences to the home and for parents to access a voice recording
of important  announcements  and homework  assignments.  In some cases where the
system  has been  installed,  it costs the  school  district  as much as $10 per
student per month.

                                       6

<PAGE>

Many of these  services  and more can be  available  within the school  district
through the Telli*Pages at no cost to the district,  and with the added bonus of
generating income for the schools.

Through this campaign local retail establishments can promote the fact that they
are  supporting   their  local  schools  through  the   Telli*Pages   Directory.
Conversely,  parents will be encouraged to patronize those retail establishments
that advertise in the Telli*Pages.

To  further  encourage  people  to  acquire  subscriptions  to  the  Telli*Pages
Directory, the Company plans to offer subscriptions to the Telli*Pages Directory
on a free,  30 day,  "on  approval"  trial basis within the area where the first
Telli*Screens will be distributed.  This program is designed to appeal to people
without school age children to test this new on-screen Tell*Pages Directory.

Building Directory Listings

The Company  will hire  Tell*Pages  operators  and supply them with  Telli*Phone
terminals to enter  information  onto the  Telli*Pages.  Many of these operators
will work from their homes.  The Company plans to  concentrate on hiring mothers
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 Directory

          -help advertisers to keep their  information  current by editing their
          Telli*Page 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
          the Company may develop  from time to time to improve  their  consumer
          communications.

Company Sponsored Advertising

The Company plans to send an  advertising  package to all businesses in the area
served  by the  Telli*Pages  Directory.  The  package  will  provide  them  with
information on the Telli*Screen,  the Telli*Phone and the Telli*Pages Directory.
It will announce that the 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.

                                       7
<PAGE>

They will be  informed  that a listing of the name of their  establishment,  the
address, and telephone number already appears in the Telli*Phone Directory along
with those of their competitors.  The package will include a return postage paid
Telli*Pages  Data Listing Card for them to create a  Telli*Page  of  information
that they would like to see  available to consumers  under their  listing in the
Telli*Pages Directory.  They will be offered one free listing of one advertising
Telli*Page of  information  "on approval" for a period of 60 days to give them a
chance to evaluate the Telli*Pages as an advertising medium.

To  support  this  mailing  program,   the  Company  will  purchase  significant
advertising  space  in the  local  newspapers  to  promote  the fact  that  "the
Telli*Pages are here" and Telli*Screen  have been installed in households in the
area. 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  Directory from people and  businesses in the adjoining  areas where
the Telli*Screens have not yet been distributed to households  ("market research
to evaluate and determine future budgeting for advertising and promotion").

Free Newspaper and Magazine Articles

Human interest stories and Telli*Pages  background  articles will be prepared by
the Company and sent to the local  newspaper,  magazine,  radio,  and television
stations. Some of the articles to be written or subjects to be promoted are:

               a) the Telli*Pages, the local schools, and funding for education.

               b) the Telli*Pages vs. the old yellow pages.

               c) the Telli*Pages, Telli*Screens and their use by government and
               local politicians.

               d) the Telli*Pages and their  importance to community  groups and
               associations.

               e) ideas from people and  businesses in the community on how they
               are using to use the Telli*Pages Directory for their benefit.


Workshops, Sales Demonstrations, and Seminars

A small marketing staff will work with local clubs, associations,  and community
groups to conduct workshops and  demonstrations in the geographic area served by
the Telli*Pages Directory.  The purpose will be to demonstrate the Telli*Screens
and the  Telli*Pages  Directory  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  will  encourage  these  people  to work  with  the  local
Telli*Pages  operators  Editors to help them  understand how the Telli*Pages are
used in the community, how to use the 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 Directory listings.

                                       8

<PAGE>

Members of local  groups,  associations.  and  organizations  will be invited to
attend  seminars  in the  Company's  offices  to  learn  how to use  many of the
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
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.

The Company  believes  that a  cooperative  marketing  effort among many people,
businesses,  and  organizations  who agree to use the  Telli*Pages  Directory 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*Phone Subscriber Smart Cards

As the success of Telli*Pages  builds, the Company intends to issue Telli*Phones
and  plastic  Telli*Phone  smart cards  ("Telli*Cards")  to  subscribers  of the
Telli*Pages Directory for an additional monthly fee. Businesses in the community
will be encouraged to offer special  discounts to  Telli*Phone  subscribers  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 Directory Operation

The Company will introduce  Telli*Screens  to the  marketplace in a single local
community in cooperation with local groups like the Chamber of Commerce.  During
the initial  stage of the  product's  introduction  the Company  will debug its,
modify any design flaws to insure that the  products  will meet the needs of the
marketplace, and establish verification of the Company's Business Plan before it
makes any significant investment in the manufacture of Telli*Screens.  The goals
to be verified are the following:

               a) The Telli*Pages Directory can be distributed  successfully and
               families  will come to rely on the  Telli*Pages  as their primary
               source of school news and student information.

               b) People will come to rely on the Telli*Pages Directory as their
               local telephone book.

               c) The  Telli*Pages  will grow  within  the  community  primarily
               through promotion and support from local businesses and community
               groups who will use it for their own benefit.

               d)  People  will  come to rely on  Telli*Screens  as the new home
               communications  appliance to replace their telephone yellow pages
               book.

                                       9

<PAGE>
               e) Major information  providers will demonstrate their confidence
               that Telli*Screens will allow them to expand their marketplace of
               users beyond that of users of personal  computers  by  purchasing
               Telli*Phone licensing contracts to reach Telli*Pages subscribers.

               f)  The  Telli*Pages  Directory  will  operate  successfully  and
               profitably as a small business within a single community.

Product Distribution

The initial success of each district Telli*Pages Directory will be the Company's
ability to create a critical mass of subscribers  in a community  within a short
period of time. The Company's goal will be to deliver a Telli*Screen to the home
of every family with school age children within a nucleus of the district served
by a Telli*Pages  Directory.  Each  Telli*Pages  Directory  Area is comprised of
approximately 5 different areas called "Telli*Pages Access Units."


The Company  plans to offer  school  districts  encompassing  the most  affluent
Telli*Pages  Access Unit in the  Telli*Pages  Access Area a plan  whereby it 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  Directory  including
the school news and  information  directory.  The Company  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 Directory.

A Company  marketing  representative  will  conduct  teacher  workshops at every
school within the school district to familiarize teachers with the Telli*Screen,
the Telli*Pages Directory,  and the process by which funds will be generated for
the school district. A Telli*Phone 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 Directory. Some teachers may be interested in writing
material  that will be  published  by the  Company and  distributed  through the
Telli*Pages.

                                       10

<PAGE>
-------------------------------------------------------------------------------
DEL MAR SCHOOL                                                     435-1468
105 Avenieda 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.
-------------------------------------------------------------------------------

Necessity to Raise Additional Capital

It is the  opinion  of the  Company,  that in the  next six  months,  it will be
necessary  to  raise  additional  funds to meet the  expenditures  required  for
operating the business of the Company.  The Company has been in the  development
stage  since  inception  and has no  history  of  revenues.  Realization  of the
Company's  objectives  is  dependent  upon  the  Company's  ability  to pay  its
obligations,   raise  additional  capital  and  introduce  its  product  to  the
marketplace  to establish the success of future  operations.  The success of the
product in the  marketplace,  and the  ability of the  Company to  continue as a
going concern cannot be determined at this time.  The report of the  independent
Certified  Public  Accountant  expresses  substantial  doubt about the Company=s
ability to continue as a going concern.

The Company will require funds for:

     - Office Rent and General  Office Expense 
     - Administrative Salaries (CEO, COO, and Secretary)
     - Product Development Salaries (Engineer, Editor, and Programmers)
     - Telli*Phone and Telli*Screen Prototype Engineering Expense
     - Data Base Software Programming Expense
     - Capital Purchases
     - Central Computer for Telli*Phone Directory
     - Telli*Phone and  Telli*Screen  Production  Models 
       for Initial Market Test (100 - 200)
     - Marketing Expense 
     - Legal and Audit Expense

                                       11
<PAGE>

The  Company  plans to use a  variety  of means to raise the  required  capital,
including the sale of Common or Preferred stock or debt instruments.

Most  of the  initial  funds  will  be used  to  establish  a fully  operational
Telli*Pages  Directory  central  computer  system  with a number  of  commercial
listings.  In addition,  the Company plans to have distributed,  through a local
school district,  at least two hundred  Telli*Screens  to households  within the
area served by the Marin Telli*Pages Directory.  Once the system is in place the
Company  believes  a  significant  value  will  have  been  established  for its
technology. The Company anticipates being able to attract financial support from
at  least  one  major  corporation  that  will  have  an  interest  in  reaching
Telli*Pages subscribers. This financial support will help to increase the number
of subscribers to the Company's  Telli*Phone  Directory and increase revenues to
support ongoing operations.

Research and Development to be Performed

The Company has no plans for the  establishment  of any significant new research
projects during the year 1998. Additional programming  development of a cosmetic
nature is required to prepare the  Telli*Phone  Directory for use by the general
public.

The Company's  engineers plan to upgrade the  Telli*Phone  operating  systems to
interface with the new Telli*Pages  server design,  implement  security features
for the Telli*Pages to protect users.  The Company  intends to implement  remote
authoring  software to enable  businesses and consumers to  conveniently  input,
from the field, advertising and other community information in the pages tied to
their listings in the Telli*Pages Directory.

In addition to entering  address  information  on businesses and groups in Marin
County under their  appropriate  categories in the  Telli*Pages  Directory,  the
Company  editors will modify the  Telli*Pages  indexing system during the market
test to correct any difficulties subscribers may have responding to Telli*Screen
software while using the Telli*Pages Directory.

Also during the market start-up stage,  the Company  engineers will redesign the
analog  telephone  board  in the  Telli*Screen  and  Telli*Phone  to  move  from
operating  from a PCIMCA card to a CAD PC board  design  using  chip.  This will
enable  Telli*Screen  and  Telli*Phone  productions  models  to use  the  latest
technology.  With continual software upgrading through automatic  downloads from
Telli*Pages servers while subscribers are online, Telli*Phone technology and the
Telli*Pages systems should remain constantly up-to-date.

The  Company  also  intends  to  design  custom  keypad  digital  keys  for  the
Telli*Screen and the Telli*Phone,  modify all the analog keys and functions, and
optimize the interior of the  Telli*Screen  and Telli*Phone for BETA manufacture
and government  compliance.  The Company intends to develop additional  software
systems for the  Telli*Phone  including  functions  such as fax,  e-mail,  voice
messaging,  notepad  write,  metering,  user  interfacing  systems,  smart  card
functions, and compete engineering specifications.

During the final stages of the market test the Company  plans to  implement  the
Telli*Pages  tracking devices that will check subscriber  telephone ID codes for
security and track subscriber movement in the Telli*Pages  Directory to generate
marketing  reports.  On  completion  of the test the Company  will have  created
complete engineering specifications for the Telli*Pages system architecture.

                                       12

<PAGE>
In addition, directory listings have to be acquired from the State of California
and  entered  into the  central  computer  to be able to market the  Telli*Pages
Directory  as a  complete  directory  of  commercial  establishments  within the
geographic area to be served by the Telli*Pages Directory. Management feels that
approximately three months of software development will be required to add these
listings to the Telli*Pages Directory.

Anticipated Material Acquisition of Plant and Equipment

The Company  does not plan to set up any  manufacturing  facilities  of its own;
therefore it 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 Beta Test will be used to set up and
purchase  Telli*Screens and the central computer system to store the Telli*Phone
Directory.  The Company believes that there will be no market for this equipment
other than for use by the Company to operate the Telli*Pages Directory.

Following the Test, the Company  believes that over 60% of the capital  required
to maintain a  Telli*Pages  Directory  within a specific  geographical  area and
increase the number of Subscribers and advertisers to the Telli*Pages  Directory
in that area will be used for the purchase of  Telli*Screens,  Telli*Phones  and
other computer equipment.

Anticipated Material Changes in Number of Employees

The Company  presently  employs a CEO,  CFO,  Secretary,  Systems  Engineer  and
Programmer.  Within the first six months of 1998  Registrant  plans to employ at
least one hardware  engineer,  two  technicians,  four software  engineers,  two
programmers,  a marketing director and online licensing director, an advertising
director, and five administrative assistants.

Material Areas Peculiar to Registrant's Business

The  Company  is not  aware of any  areas of its  business  not  similar  to the
publishing and  distributing  of interactive  information  through the telephone
network.

(c)   Financial Information About Industry Segments

         The Company's business is focused in one industry segments.

                                       13
<PAGE>

(d)  Narrative Description of Business

Telli*Phone Products and Services

The Telli*Phone Telli*Pages

The Company believes that Telli*Phone and Telli*Screen  hardware and Telli*Pages
software  navigational tools and services are uniquely  positioned to capitalize
on the  shortcomings  of the Internet as an  advertising  medium,  a system that
requires  people  to be  computer  literate,  and a system  where  participation
requires a substantial investment into computer equipment and software.

The Company believes that by supplying consumers with access to media properties
focused  on local  interest  areas,  local  demographic  groups,  and  community
geographical  areas, the Company can provide  advertisers with a greater ability
to target their advertising messages to relevant audiences.

The Telli*Phone Directory

The  Telli*Phone  Directory  is a library  of  information  stored in a computer
maintained by the Company and located in the community being served. The Company
has programmed an  intelligent,  interactive  indexing system into the Directory
establishing categories where information can be entered by businesses,  groups,
and  associations   within  the  community.   These  authors  can  update  their
information  at any time directly from a Telli*Phone or by calling a Telli*Pages
Directory operator.

The  principal  elements of any  computer  information  network are the computer
software programs through which the central computer and the end-user  terminals
interact and the pages of  information  contained  in the  computer  programming
system.  The  computer   programming  system  determines  the  manner  in  which
information  is presented on terminal  screens and the ease with which users can
connect with the  appropriate  pages of  information.  The pages of  information
stored in the computer programming system make up the library of information and
their content impacts directly on the usefulness of the network.


     THE TELLI*PAGES DIRECTORY


     1.   THE TELLI*PAGES GUIDELINE

          Information on commercial Products and Services

     2.   THE COMMUNITY ONLINE

          Information and News from Community Organizations

     3.   THE TELLI*PAGES BUY AND SELL

          Items for Sale from Telli*Pages Subscribers


                                       14
<PAGE>

The intelligence of the Telli*Pages programming system is unique compared to the
operation of other online systems.  The brain of the Telli*Pages  server is made
up of  individual  programmed  concept  cells.  Each cell  contains  a  complete
software program developed by an author  experienced in the subject matter being
presented and edited by an editor experienced in the Guinness Tri-Stage Learning
Systems programming  techniques.  The cells are linked and work together to help
subscribers find pages of information on specific topics.

Subscribers respond to pages of information  displayed on the Telli*Screen.  The
cell  programs  evaluate the thought  processes  indicated by each  response and
display  additional pages of information.  These pages may be further  questions
for  clarification,  a list of  options,  a  presentation  of ides for a greater
perspective of the options that may be explored within a particular  subject, or
a page of information about the subject.

The Telli*Pages  Directory is divided into three main categories.  Each category
has been  separated  into many subjects and each subject has been dissected into
multi-level  topics.  The  Telli*Pages  software  system  contains  over  10,000
connection  subject and topic programmed cells resulting in a system with a high
level of intelligence that allows people to simply "talk" to the Telli*Screen to
locate what they want. At the present time,  subscribers use a telephone  keypad
to enter numbers  corresponding  to their choices form the options  displayed on
the screen.

GUIDELINE (free access) - Listings of all retail  businesses and service vendors
       in the area connected to various subject  categories and linked to a page
       where  they  can  write  information  about  their  location,   products,
       services,  and special offers.  Advertisers may enter,  update, or change
       their  information  at any time  through a  Telli*Phone  or by  calling a
       Telli*Pages Directory operator.

COMMUNITY NEWS AND  INFORMATION  (free  access) - A library of  information  for
       local  government  and  service  organizations  to list  their  services,
       meetings, special events, educational information, and programs offered.

BUYLINE(free  access and  listings) - A two line entry for  subscribers  to list
       buy and sell  merchandise,  garage  sales  and other  items or  services.
       Telli*Pages  linked to their  listings are available for $30 per month to
       display  additional  information.  Information  may be  may  be  entered,
       changed,  or  updated  in the  pages  by  subscribers  at any time for no
       additional charge.

Authors,  businesses,  groups,  associations,  and subscribers with listings are
assigned  coded pages within the topic cells linked to their  listings.  For $30
per page per month they can store and enter details about their ideas, products,
or services.  Through a  Telli*Phone  Authoring  Subscription  people can write,
edit, and update their  information at any time on a Telli*Phone,  or a personal
computer with a modem,  using the  Company's  AMENU  authoring  and  programming
system.  At the push of a button,  their  pages of  information  are sent to the
Telli*Pages  server via telephone lines where they are  automatically  placed in
the appropriate sections of the Telli*Pages Directory. Since each topic cell has
the potential of containing pages of information from many sources,  subscribers
have the opportunity of analyzing specific topics from a variety of angles.

                                       15

<PAGE>

The  Telli*Pages  Directory is maintained by the Company in a central  computer,
connected to the local telephone system,  and located in the community served by
the Telli*Pages Directory listings.  The central computer is designed to support
up to 64  telephone  line  connections  and each  telephone  line  supports  one
Telli*Screen  or  Telli*Phone.  It is expected  that each Server will service as
many as 1,280  Telli*Pages  Subscribers due to the fact that not all subscribers
will be communicating with the server at the same time.

The Company  has not  conducted a test of the ability of the server to support a
large number of  subscribers  accessing  the  Telli*Pages  Directory at the same
time.  There is no assurance  that the software in the server will be successful
in  accommodating  a large number of  subscribers.  It may be necessary  for the
Company  to  purchase  additional  central  computers  to reduce  the  number of
subscribers  accessing  a single  computer  at one  time.  This may  result in a
substantial  increase in the amount of working  capital  necessary  to operate a
community Server and provide adequate service for subscribers to the Telli*Pages
Directory.

The Telli*Phone

The Telli*Screen is an LCD screen with a telephone keypad.  Inside the case is a
high powered personal computer with a modem.  People operate the Telli*Screen by
pressing  keys on the  Telli*Screen's  telephone  keypad.  They  are  guided  by
instructions that are displayed on the Telli*Screen.

The internal  operations  of the  Telli*Screen  are  controlled  by  proprietary
software developed by the Company.  The software which controls the operation of
the  Telli*Screen  can be accessed only by a Telli*Pages  central  computer.  To
access a central  computer the telephone number for the computer must be entered
into the Telli*Screen's  automatic dialing system from a Telli*Pages  server. In
this way the Company will be able to assess  licensing fees and transaction fees
for the use of  Telli*Screens  for anything other than accessing the Telli*Pages
Directory.

The Telli*Phone

The Telli*Phone is a Telli*Screen with additional  telecommunications  features.
The Company  does not plan to make  Telli*Phones  available  to the  marketplace
until after the initial success of Telli*Screens. Telli*Phones will be rented to
Telli*Pages  Directory subscribers for an additional monthly fee. In addition to
being a sophisticated  telecommunications device, with a Telli*Pages subscribers
will have the ability to upload to and download information from the Telli*Pages
Directory.

People operate the Telli*Phone by pressing keys on the  Telli*Phone's  telephone
keypad  or  on  the  optional  remote  control  keyboard.  They  are  guided  by
instructions that are displayed on the Telli*Phone screen.

The  internal  operations  of the  Telli*Phone  are  controlled  by  proprietary
software developed by the Company.  The software which controls the operation of
the Telli*Phone can be accessed only by a Telli*Phone  central computer.  People
can make ordinary  telephone  calls from the Telli*Phone but to access a central
computer  the  telephone  number  for the  computer  must be  entered  into  the
Telli*Phone's  automatic  dialing system from a Telli*Pages  server. In this way
the Company will be able to assess  licensing fees and transaction  fees for the
use of the  Telli*Phone  for  anything  other  than  accessing  the  Telli*Pages
Directory or as a telephone and personal answering system.

  
                                       16
<PAGE>
  
                    Telli*Phone Internal Hardware Components

The Telli*Phone includes the following essential components:

               a) a two-line telephone with 16 telephone keys;
                  
               b) a speaker and microphone;

               c) a  33,600  baud  modem  chip  set  (data  rate  higher  with h
               compression) which includes data, fax, and voice;

               d) a PC-XT 20 MHz processor, 386sl SMOS card IO motherboard, IM x
               8 DRAM memory and 2M x 8 FLASH program and data storage;

               e) a  6.5",  80  character  25 line  LCD  screen  with  640 x 480
               graphics grid;

               f) ROM based custom real time  executive  controlling  the phone;
               and,

               g) an external custom XT infra red keyboard.

The  Telli*Phone  can serve as a digital  answering  machine  with 16 minutes of
storage. It has full voice mail features including the ability to create,  edit,
and send faxes.  The  Telli*Phone  has an address  book that can store up to 500
names,  addresses,  and phone numbers with the ability of dialing  automatically
from the list and sending  voice,  data, or fax messages.  The phone can up/down
load data while on line with a network  or  directly  from a PC via an  external
serial port. In addition,  the Telli*Phone  supports a dot matrix printer,  card
swipe reader and scanner pen.

                             Basic Customer Features

The  Company  proposes to have  available  the  following  features on the first
Telli*Phones that it intends to distribute to the marketplace:

               a) touch tone dialing;

               b) speakerphone;

               c) personal auto dial directory for storing telephone numbers and
               other  information  relating  to  directory  listings  that  will
               display on dialing;

               d) automatic redial of last number dialed;

               e) call  freezing  to prevent  calls  being made to numbers  that
               involve charges including long distance and toll calls;

               f) automatic recorded voice and/or data message taking;

               g) calculator;

               h) automatic multidial calling from a list of numbers;

               i) a hold button;

               j) two telephone line capability;

               k) conference calling if two telephone lines are connected; and,

               i) a smart card reader.


                                       17
<PAGE>
  
                          Optional Add-on Features

The  following  optional  add-on  features  are  planned  to  be  available  for
Telli*Phone Subscribers for an additional monthly fee:

               a) expanded memory;

               b) appointment and information reminder;

               c) visual, on-screen caller identification (actual name of caller
               if  listed  in  personal  directory)  to avoid  having  to answer
               unwanted  calls or calls to members of the  household who are not
               available  (can be used without  having to subscribe to Caller ID
               from the telephone company);

               d)  distinctive  ringing to alert members of the household who an
               incoming call is for;

               e) message  leaving for storing  individual  messages that may be
               picked up by designated callers when they call;

               f)  multiple  message  sending to  automatically  send a recorded
               voice or data message to a list of people; and,

               g) messages forwarded automatically to another number.

                         Summary of Telli*Phone Features

AUTO   SCREEN  DIALING  -  Over  500  telephone  numbers  and  related  personal
       reference notes can be stored in the Telli*Phone auto-dial screen display
       directory.  Telephone  calls  are  made by  pressing  the  number  on the
       telephone  keypad that  corresponds to the correct listing on the screen.
       As the number is being automatically  dialed,  prerecorded personal notes
       relative to that  listing are  displayed  on the  Telli*Phone  screen for
       convenient reference during the call.


MESSAGETAKING  -  The  Telli*Phone  automatically  answers  incoming  calls  and
       digitally   stores   voice   messages,    faxes,   printed   memos,   and
       correspondence. This information may be reviewed later on the Telli*Phone
       screen  (voice  through the speaker) or the  Telli*Phone  will send it to
       another location where it may be listened to, viewed, or printed out on a
       fax machine.

       Since  messages are in digital  format,  they may be erased  individually
       (keeping some and deleting  others).  Codes may be entered so each member
       of the  business  or  household  may  view  only  his  or  her  messages,
       maintaining privacy.

MESSAGELEAVING - Voice messages,  faxes, or other typed memos may be recorded in
       the Telli*Phone to be picked up later by specific authorized callers.

MESSAGESENDING - Voice messages,  faxes, typed messages,  and correspondence may
       be  recorded on the  Telli*Phone  and  automatically  sent to one or more
       people.  Information  can be sent to a large  audience  by using the auto
       dialing directory.

                                       18
<PAGE>

CALLER IDENTIFICATION - When activated, the Telli*Phone asks callers to identify
       themselves  by  entering  their  telephone  number on the keypad of their
       telephone.  The  Telli*Phone  scans its directory,  displays the caller's
       name on its screen, and then begins ringing.  If the caller is not in the
       Telli*Phone directory, or if the caller is reluctant to enter a telephone
       number, the Telli*Phone will switch on its answering system to record the
       caller's incoming message.

       If the  Telli*Phone  Subscriber has "Caller ID" from the local  telephone
       company,  the Telli*Phone  immediately  checks its directory and displays
       the name of the caller.  If the telephone  number is not found, it may be
       because the caller is not calling from a recognized phone; therefore, the
       Telli*Phone  asks the  caller to enter his or her  telephone  number as a
       double check.

APPOINTMENT AND INFORMATION  REMINDER - The  Telli*Phone  will ring at specified
       times and display or broadcast information previously recorded.

CALL   FREEZING  -  Passcodes  may  be  recorded  to  restrict  the  use  of the
       Telli*Phone for normal calling,  long distance calling,  dialing specific
       area codes like "800" or "900" numbers, or individual numbers.

SMART  CARD  READER - A credit  card size  smart  card is  available  and may be
       inserted into the  Telli*Phone  to enhance its features.  The card can be
       used to store and maintain  information  accessed through the Telli*Phone
       including  telephone  and mailing  lists,  banking  transactions,  faxes,
       messages,  correspondence,  voice recordings,  and health,  medical,  and
       insurance information.

EXTERNAL  KEYBOARD - A wireless IR keyboard is available for typing  information
       and faxes from the Telli*Phone.

EXTERNAL PRINTER  AND OTHER  PORTS - The  Telli*Phone  has  inputs to plug in an
       external  printer,   monitor,  fax  machine,  disk  drive,  and  computer
       keyboard.

The Telli*Phone Central Computer (the "Server")

The  Telli*Pages  Directory is stored in an Alpha Micro computer that resides in
the Company's offices in Mill Valley, California. The central computer functions
through a proprietary  operating  system that contains a simple software mapping
structure.  The  central  computer  has 16 disks and each disk is  divided  into
approximately  300 files  through a geometric  plotting  procedure  Each file is
divided  further into  approximately  300  sections  and each  section  contains
numerous categories containing pages of information.

A  particular  piece of  information  can be located by  entering  the code that
represents  its  location on the  computer  disk.  The  following  represents  a
specific page of information.

                              DSK9:E29R4B.F1D[5,1]

               DSK9: The information is located on the ninth disk in the central
               computer.

               [5,1] The information is located in the 5th file in section 1.

                                       19
<PAGE>  
             .F1D F = The  information  appears  under the  "Food and  Dining"
               Section of the Telli*Phone Directory.

               1 = The information  was written by a restaurant  entered under a
               "general" category.

               D = The  content is a page of  information  about the  restaurant
               ("M" would mean the page of  information  is a program to analyze
               the Subscriber=s  response to the display page of information and
               determine the next page of information to be displayed).

               E29R4B  This  code  represents  a  specific  page of  information
               relating  to a  particular  customer  who has placed  advertising
               material in the Telli*Phone  Directory.  No other customer within
               the geographic area represented by the Telli*Phone Directory will
               have this code.

               E2 = The first three digits of the  customer's  telephone  number
               are 332.

               9R = The second three digits of the customer's  telephone  number
               are 924.

               4 = The last digit of the customer's telephone number is 4.

               B = The page is the second page of the customer's information.


The telephone number 332-9244 identifies CHRISTOPHE'S RESTAURANT, 1919 Bridgeway
Avenue, Sausalito, California.

The System  Operator of the  Telli*Pages  Central  Computer can easily  access a
particular  page of  information  or the program  that  controls  the  direction
determined  at a  specific  page.  To  view a  copy  of the  above  page  from a
Telli*Phone terminal the System Operator would first identify himself or herself
by typing the  appropriate  passcodes into the terminal.  Once  identified,  the
central  computer  will give the System  Operator a dot prompt  (".") to signify
that he or she is in a  command  mode and the  system  is  waiting  for  further
instructions.  The System Operator will then enter the following  information to
access the specific page of information.

     .LOG FlD: = Go to disk 9 and access file 5, section 1.

     .VIEW  E29R4B  = On  the  screen  display  page 2 of  the  information  for
                    Christophe's Restaurant in Sausalito.

Telli*Pages Authoring and Programming Language

The  Telli*Pages  Directory  contains  display pages of  information  written by
editors trained in Guinness Tri-Stage Learning Systems. The pages of information
are composed from a small  strategic set of questions  that the editors feel are
important in  determining  the mind set of the  subscriber  viewing the display.
Telli*Pages subscribers read the information on the screen and press keys on the
telephone keypad to indicate decisions that they have made about the information
displayed, thus supplying answers to the editor's questions.

                                       20

<PAGE>

Attached to each page of information is a small  computer  program  written by a
Telli*Phone Editor that transforms  Subscribers' choices into instruction codes.
These codes direct the computer to specific disk locations,  files, and sections
where pages of  information  appropriate  to each  Subscriber's  response can be
found.  Each page of  information  may solicit more  answers for  clarification,
display  additional  material  to help  subscribers  focus  on the  issues  most
important to them, or present the information that will meet their needs.

Guinness  Telli*Phone  Corporation  does not want an editorial  staff limited by
their  engineering  skills in computer  programming.  Therefore  the Company has
written a software  authoring program that allows anyone without any programming
experience to create pages of information and  instruction  codes in the central
computer.  The  Company's  authoring  and display  programming  system is called
AMENU.

AMENU is a central  application  computer  software program that establishes the
guidelines  for  writing  Telli*Pages   Directory  programs  and  the  pages  of
information that represent the content of the Telli*Pages Directory. The program
is written in Assembler Language and takes up approximately 64K of memory. AMENU
interprets a Telli*Pages Editor's instructions into a language understood by the
central computer's operating system and sees that the author's  instructions are
carried out.

The AMENU Authoring Program has two significant pants.

                           AMENU Directional Software

Using ordinary  English and a few simple codes,  Telli*Pages  Editors can design
AMENU  Directional  Programs for  subscribers.  Each AMENU  Directional  Program
displays one page of information and contains the parameters for evaluating each
subscriber's response to determine the next page of information to be displayed.

                                       21

<PAGE>
The following is an example of a AMENU Directional Program.

 .G11
1,                M,       G111
2,                B,       F1:BEGIN
MARIN,            B,       G11263
3,                R,       GE:MAPS
0,                M,       G1
00,               B,       GI:BEGIN
$()               M,       HELP

                             Explanation of Program:

 .G11              Clear the screen,  display  the page  titled  "G11" on disk 9,
                  file 5, section 1, and wait for  subscriber's  response to the
                  information on the screen.

1,                If the subscriber  types in the number 1, maintain a record of
                  the previous pages displayed in the memory stack and run a new
                  program titled "G111" in this same section.

2,                If the subscriber  types in a number 2, clear the memory stack
                  of the  previous  pages  displayed,  go to disk 8,  file  101,
                  section 1, and run the program  "BEGIN" which will display the
                  introduction page ("Begin") of the Restaurant Directory.

MARIN,            If the subscriber types in the word "MARIN",  clear the memory
                  stack of the  previous  pages  displayed  and run the  program
                  "G11263",  in this section,  to help the subscriber  target an
                  area  of  Marin  County  before  continuing  to  look  for the
                  information he or she wants.

3,                If the  subscriber  types in the  number 3,  clear the  memory
                  stack of the previous  pages  displayed and go to disk 9, file
                  6,  section 1, and load into  memory the  educational  program
                  "MAPS",  written in BASIC, to help the Subscriber learn how to
                  read a map of the United States

0,                If the subscriber presses the "BACK" key on the Telli*Phone or
                  Telli*Screen  keypad,  go back and display the previous screen
                  in the memory stack.

00,               If the subscriber presses the "HOME" key on the Telli*Phone or
                  Telli*Screen  keypad,  go hack and  display  the  introduction
                  screen in the existing file.

                                       22

<PAGE>

$                   (),  If  the  subscriber   enters  anything  that  is  not
                    designated above,  then,  without clearing the memory stack,
                    load in the program  "HELP" that gives further  instructions
                    to the subscriber on using the Telli*Pages and responding to
                    the information in this file

                             AMENU Display Software

The AMENU Display  Software  allows  display  screen  editors to create pages of
information as easily as typing a page on an ordinary  typewriter.  What appears
on the Telli*Pages  Editor's  terminal screen is exactly what will appear on the
subscriber's screen.

Special  Telli*Phone  formatting  codes and  graphics  codes are  available  for
authors  who want to  create  more  sophisticated  pages of  information.  These
special codes may be entered into the page by pressing  specially marked keys on
a Telli*Phone remote control keyboard.

The Telli*Pages Security Program

The Company has written a security  software program that prohibits  Telli*Pages
subscribers from entering or changing  information in the Telli*Pages  Directory
without receiving prior  authorization.  Each subscriber's account file contains
details about a subscriber's  privileges in using the Telli*Pages Directory that
is linked  to the  Telli*Pages  tracking  code.  Every  time  subscribers  sends
information to the Telli*Pages Directory, the central computer checks his or her
account to determine whether or not he or she has the authorization to proceed.

                    Telli*Screen and Telli*Phone Installation

The Telli*Screen and the Telli*Phone,  like a fax machine, plug into an ordinary
telephone  outlets and operate  through  existing  telephone  lines  without any
additional  telecommunication  device  or  installation  charges  from the local
telephone company.

Status of Product

A Telli*Pages  Directory  presently  resides in a  centralserver  located at the
Company's  business  office.  Only a few directory  listings  with  accompanying
advertising,  have been entered into the Telli*Pages Directory for demonstration
and testing purposes.  The Company does not feel it is financially  practical to
enter  current  listings  until just before the  product  becomes  available  to
subscribers.  The Telli*Pages Directory is accessed through the telephone system
from Telli*Screens connected to a telephone.

During the first six months of 1998 the  Company  intends to  purchase  computer
hardware  components for the assembly of Telli*Screens,  assemble  Telli*Screens
and prepare the Telli*Pages Directory and the central server for a market test

                                       23
<PAGE>

By September  1998,  the Company  plans to have entered  enough  listings in the
Telli*Pages  Directory  to  provide  sufficient   advertising   information  and
commercial  listings to make it a profitable  product. It is anticipated because
of the extensive  work that has been  completed in preparing the indexes for the
Telli*Pages  Directory that this work can be  accomplished by an editorial staff
at the same time  Telli*Screens  are being  assembled  for the  products  market
introduction.

Telli*Pages  listings are available  through state agencies and private  vendors
and contain  businesses broken down into many categories that coincide \with the
Telli*Pages  categories.  During the second quarter of 1998 the Company plans to
send a mailing  to all  businesses  within the area  telling  them that they are
listed in the  Telli*Pages  Directory  and  encouraging  them to create pages of
information about their products and services tied to their listings.  Through a
telemarketing program,  Telli*Pages operators will assist them in creating their
first Telli*Pages Directory information pages.

During the introduction of the product into the marketplace the company plans to
contract  a  manufacturer  to  manufacture  large  runs  of  Telli*Screens.   To
facilitate  this the Company's  engineer,  Mr. Richard Morse,  will redesign the
main mother board of the  Telli*Screen  and Telli*Phone to eliminate many of the
hardware  components that were present for development and testing  purposes but
are not necessary to the operation as a device to  distribute  the  Telli*Pages.
Management  anticipates  the  approximately  six months of hardware and software
engineering  will be  required  to design a final high run  production  model of
Telli*Screens and later Telli*Phones.

Management  must emphasize that the Company has not developed  Telli*Screens  as
products to generate profits in themselves. The Company plans to either assemble
Telli*Screens  from  hardware  components  that are  presently  available in the
marketplace,  or establish a strategic  alliance with a manufacturer of hardware
products to manufacture them on its behalf.  The Company views  Telli*Screens as
vehicles to  distribute  the  Telli*Pages  and promote  the  Company's  software
products.  The Company  anticipates that there will be enough local  Telli*Pages
advertising revenues to enable it to supply customers with Telli*Screens free of
charge for as long as they are  subscribers to the  Telli*Pages  Directory.  The
Company  estimates  that  initially  it will  cost  $300 for  each  Telli*Screen
assembled.  The Company has received  estimates from consultants  experienced in
the  manufacture  of  consumer  products  of a  price  of  less  than  $150  per
Telli*Screen for full  production.  It is difficult to predict an accurate price
until the Company learns from its introduction into the marketplace the level of
consumer  response to the  Telli*Pages  Directory 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*Screens  that will allow the  Company  to order  larger  runs and  further
reduce manufacturing costs.

The cost of  engineering is relative to the cost of  manufacturing  the product.
The more engineering done prior to manufacturing the product, the lower the cost
to manufacture the product. The Company will not be able to determine the amount
of  engineering  it is  prepared  to do until it sees the results of the initial
market test.

                                       24
<PAGE>

The Company  plans that the  majority of the cost to make these  changes will be
absorbed by the  manufacturer of  Telli*Screens  as a condition of the strategic
alliance with manufacturers.  To negotiate a strategic alliances that will be to
the  benefit  of the  Company  will  require  that the test  reveal  significant
statistics to insure the potential  success of the Telli*Pages  Directory in the
marketplace.

The  Company  plans to  publicly  announce  the  Telli*Pages  Directory  and the
availability of Telli*Screens during the first half of 1998.

An important  ingredient of the Company's marketing plan is making Telli*Screens
available  to  Telli*Pages  subscribers  at no charge  for as long as they are a
subscriber  to the  Telli*Pages  Directory.  The  Company  feels  it will not be
successful  unless it is able to attract a  manufacturer  of  Telli*Screens  and
Telli*Phones  that  is  willing  to  make a large  financial  commitment  to the
project. The Company had successful discussions in 1988 with Northern Telecom, a
leading  manufacturer of equipment,  to supply it with  Telli*Phones  through an
agreement supported with financial commitments. Northern Telecom was not able to
develop an instrument sufficiently inexpensive to attract the general public. In
the past few years the cost of computer  and  telecommunications  equipment  has
fallen  dramatically.  The Company has completed a working model and design of a
Telli*Screen  and the  Telli*Phone  that can be  produced  for a price  that the
Company feels will attract the general public.  However, it has not yet received
a financial commitment from a manufacturer of equipment to enable the Company to
proceed to manufacture its product.

At this time the Company is working with a local school district to test the use
of the product in their area.

By the end of summer of the third  quarter of 1998,  the  Company  plans to have
entered into the appropriate  sections of the  Telli*Pages  Directory the names,
addresses,  and telephone  numbers of all businesses,  groups,  and associations
within the county and to have  distributed  approximately  500  Telli*Screens to
households in the test area.

During the fall of 1998 the Company  plans to  complete  the  manufacture  of at
least one Telli*Pages server and have it operational within the test area.

By September of 1998 the Company plans to have a major marketing effort underway
to sell advertising pages in the Directory. By the end of 1998, it plans to have
manufactured a minimum of 5,000 Telli*Screens and to have distributed this first
production run of Telli*Screens  to over 5,000 households  within Southern Marin
county, California.

Sometime  during  1998,  the Company  expects to have signed a contract  with at
least one major  corporation  to license  Telli*Phone  technology to communicate
with Telli*Pages subscribers through Telli*Screens from their owner server.

By October of 1998 the Company  plans to be well into the  marketplace  with its
product and be able to demonstrate the following.

                                       25

<PAGE>  
      
           - At  least  90% of  households  that  sign  up for  the  Telli*Pages
           directory keep the system in their homes for a period of at least six
           months.

          -  All  Telli*Pages   subscribers  access  the  Telli*Phone  Directory
          frequently and on a daily basis.

          - Over 90% of Telli*Pages  subscribers consider the Telli*Screen to be
          an acceptable device as part of their telephone.

Sources and Availability of Raw Materials

The Company does not plan to manufacture  Telli*Screens itself, nor does it have
any  significant  expertise  in  this  area.  However,   Telli*Screens  will  be
manufactured from the same materials used to manufacture  personal computers and
telephones.  The Company is not aware of any problem  that exists 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

The Company's  success and ability to compete in the marketplace is dependent in
part upon its proprietary technology. Principally, the Company is a publisher of
information  and  therefore  relies on trade  secret and  copyright  laws of the
United  States and  worldwide to protect its  content,  authoring  systems,  and
programming  technology.  To  distribute  its works the  Company  will  purchase
existing   hardware   technology   from   computer   hardware   developers   and
manufacturers.

On July 31,  1996,  the  Company  filed a U.S.  Trademark  Application  with the
Assistant  Commissioner  for  Trademarks  in  Arlington,  Virginia  for the name
"Telli*Phone",  with declaration, Under 15 U.S.C. ss.1051(b), as amended (Intent
to Use) for the following goods:

"COMMUNICATION DEVICE CONTAINING ANSWERING MACHINE,  VOICE/MAIL,  FAX, MODEM,
AND COMPUTER SCREEN TO PROVIDE INTERACTIVE NETWORK CAPABILITY"

The  application  was rejected on January 28, 1998 on the grounds that `the mark
is merely descriptive of the goods, which resemble telephones."

The Company  immediately  filed  another  application  with the U.S.  Patent and
Trademark  Office  for the mark  TELLI  alone.  The  Company  anticipates  being
successful with this application.

                                       26

<PAGE>

The  Company  does  not  presently  hold  any  patents,  trademarks,   licenses,
franchises,  or  concessions.  It does not feel that any patents or  trademarks,
other than the above,  it may hold or may apply for in the  future  will  affect
materially its ability to create  information or distribute that  information to
the marketplace. The Company feels that the success of its business is dependent
on the  kind of  information  it  distributes  and not  the  technology  used to
distribute it. The Company believes that factors such as the  technological  and
creative skills of its personnel,  new product  developments,  frequent  product
enhancements,  name  recognition,  and  reliable  product  maintenance  are more
essential to  establishing  and  maintaining a technology  leadership  position.
There can he no  assurance  that others will not develop  technologies  that are
similar  or  superior  to the  Company's  technology.  The  source  code for the
Company's  proprietary  software is  protected  both as a trade  secret and as a
copyrighted work. The Company generally enters into  confidentiality  or license
agreements with its employees,  consultants, and vendors, and generally controls
access to and distribution of its software,  documentation and other proprietary
information.  Despite these precautions, it may be possible for a third party to
copy or otherwise  obtain and use the Company's  products or technology  without
authorization,  or to develop  similar  technology  independently.  In addition,
effective copyright and trade secret protection may he unavailable or limited in
certain  foreign  countries.  Despite  the  Company's  efforts  to  protect  its
proprietary  rights,  unauthorized  parties may  attempt to copy  aspects of the
Company's  products or content or to obtain and use information that the Company
regards as proprietary.  Policing  unauthorized use of the Company's products or
content is  difficult.  There can be no  assurance  that the steps  taken by the
Company will prevent  misappropriation of its technology or content or that such
agreements will he enforceable. In addition,  litigation may be necessary in the
future to enforce the Company's  intellectual  property  rights,  to protect the
Company's trade secrets,  to determine the validity and scope of the proprietary
rights of others,  or to defend against claims of infringement,  invalidity,  or
liability.  Such litigation  could result in substantial  costs and diversion of
resources and could have a material  adverse  effect on the Company's  business,
operating results, or financial condition.

Except  for  acquiring  a local  business  license  in  areas  where it plans to
establish a Telli*Pages Directory,  the Company is not, at this time, subject of
any federal,  state,  or local licensing  requirements or regulations.  

Seasonal Business

The Company feels that directories of information are so diverse that the use of
them to provide  information  or to acquire  information  is not  seasonal.  The
Company will be selling  subscriptions  to consumers to access  information from
the Telli*Pages  Directory 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,  the Company  does not expect any  increase  to  materially
effect its flow of income or play any role in any change in its profits.

                                       27

<PAGE>

Significant Working Capital Required, Critical Mass of Users

The Company business  requires it to purchase a significant  amount of equipment
and then to attempt to generate  income from its use on a month to month  basis.
Paid  subscriptions  to the Telli*Pages  Directory by consumers may not generate
enough revenue to support the capital required to distribute Telli*Screens on an
on-going basis. The Company will need significant revenues from paid advertising
in the Telli*Pages  Directory to support its capital  expenditures.  To generate
significant income from businesses and organizations wishing to advertise in the
Telli*Pages  Directory,  it must  distribute  enough  Telli*Screens  to create a
critical mass of users within the area the Telli*Pages  Directory is intended to
serve.  No one can guess how many users will be required to obtain that critical
mass, or the amount of equipment, including Telli*Screens,  that will have to be
purchased and distributed to create this critical mass of users.

The Company has developed specific plans in an attempt to reduce the size of the
critical  mass of users that will be  required to  generate  enough  income from
advertisers in the Telli*Pages Directory to maintain its operations.
These strategies are:

-        Limiting the marketplace to a confined area (a small  community)  where
         the critical  mass of users needed to generate  income will be minimal,
         the flow of word of mouth advertising will be maximum,  and where there
         will be a number of businesses that primarily serve households close to
         their establishments.

-        Entering the name and address of every  business  within the geographic
         area to be served by the  Telli*Pages  Directory  to  provide a product
         that will have limited but immediate use.

-        Offering  free pages of  advertising  in the  Telli*Pages  Directory to
         businesses  operating  within the area to be served by the  Telli*Pages
         Directory,  for the first few months of operations to immediately begin
         building  the   Telli*Pages   Directory  and  giving   subscribers  the
         opportunity to compare the  effectiveness of the Telli*Pages  Directory
         to traditional directories.

-        Delivering a number of  Telli*Screens  to select homes with high income
         families within the area to be served,  for a free, on approval period,
         to  create  a  minimum  mass  of  preferred   customers  for  potential
         advertisers.

Dependence on a Critical Mass of Users

The business of the Company  will not be  successful  until  enough  advertising
revenues are generated to cover its monthly expenses. If the Company is not able
to  reach a  critical  mass of  users,  significant  enough  to  attract  enough
businesses  to advertise in the  Telli*Pages  Directory the Company will sustain
substantial  losses and may not be able to  attract  any  additional  capital to
expand its subscriber base and reach the necessary critical mass of subscribers.

Backlog Orders

The Company has not yet gone to the  marketplace  with its product and therefore
has no backlog orders of any kind.

                                       28
<PAGE>

Government Regulation

The Company is 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 the Company to limit the scope
of its products and services in the  marketplace  and increase its cost of doing
business  or  otherwise  have  an  adverse  effect  on the  Company's  business,
operating results, or financial  condition.  Moreover,  the applicability to the
Internet, other online services, the Telli*Pages Directory, and the Telli*Screen
and  Telli*Phone of existing laws governing  issues such as property  ownership,
libel, and personal privacy is uncertain.

Competition

The Company plans to distribute  Telli*Screens  to subscribers to encourage them
to enhance their existing  telephones with  Telli*Screens.  Subscribers  will be
able to keep  their  Telli*Screens  free of  charge  for as long as they  remain
subscribers  to the  Telli*Pages  Directory  and the Company is able to generate
enough revenues from paid  advertising in the  Telli*Pages  Directory to support
its  monthly  operations.  At this time the  Company  sees no  competition  from
computer hardware and telecommunications equipment manufacturers and vendors.

Although the Company has targeted online community information,  local directory
services,  and  telecommunications  products for  consumers who are not computer
literate,  other companies offer products similar to the Company's  software and
publishing  products and target the same  customers as the Company.  The Company
believes its ability to compete  depends on many factors  within and outside its
control, including the timing and market acceptance of the products developed by
the Company and its 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, the
Company expects the market for online advertising, to the extent it develops, to
be intensely  competitive.  There are no substantial  barriers to entry, and the
Company  expects  that  competition  will  continue to  intensify.  Although the
Company  believes  that the diverse  segments of the online  market will provide
opportunities  for more than one supplier of products  and  services  similar to
those of the Company,  it is possible that a single supplier may dominate one or
more  market  segments.  The Company  competes  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 the  Company's  target  markets,
including online companies like America Online and the French Minitel; suppliers
of Internet  products and services  like  Netscape,  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; 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.

                                       29

<PAGE>

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 the Company.

Many of the Company's  competitors are substantially larger than the Company 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 the Company. 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,  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  the  Company  competes  is in the area of
telephone directories. The Telli*Pages Directory will compete primarily with the
local  telephone  company Yellow Pages directory in areas where it establishes a
Telli*Pages  Directory  central  server.  Specifically,  it may be competing for
advertising dollars.  Even though the local Telephone Companies are regulated by
the State  Public  Utilities  Commissions  they have unlike the  Company,  major
financial  resources  available to them. If the Yellow Pages  publishers see the
Telli*Pages  Directory as a major threat to their  profits,  it is possible that
they would use their  resources  to attempt to  eliminate  competition  from the
Telli*Pages  Directory.  How the Telephone  Companies would attempt to eliminate
competition from the Telli*Pages Directory is not clear at this time.

Since 1983 many major  organizations  have spent hundreds of millions of dollars
in an attempt to establish  an  interactive  telecommunications  service for the
home. Most of the methods tried have involved an attempt to encourage  consumers
to attach a videotex  telecommunications/terminal  box to their  television sets
for  people  to  access  interactive  listings  and  directories  through  their
televisions.  These  systems  are no longer  in use due to the lack of  customer
demand.

More recently, some organizations with significant financial resources have made
similar attempts at establishing an interactive  service in the home through the
television set by encouraging consumers to attach  cablevision/terminal boxes to
their  television  sets.  WebTV  Networks   introduced  the  first   mass-market
information  appliance  in 1996,  a little  black box  attached  to the TV which
connects to the World Wide Web and to e-mail.  The second generation  appliance,
WebTV  Plus has  several  new  features  that have not yet been  implemented  by

                                       30

<PAGE>

WebTV's  proprietary  online  service  or by the TV  networks,  but  provide  an
electronic  TV listing in addition to the features of the earlier  model.  These
terminals  are  connected to outside  fiber optic cable systems and are promoted
principally  as a means of receiving  home movies on demand.  These services are
available only to a limited marketplace and it is too soon to project whether or
not consumers  will utilize the service or be willing to pay for it. As reported
in the Wall Street  Journal,  February 27, 1998,  Microsoft has  supported  this
entertainment  format with its $425 million  acquisition  of WebTV Networks Inc.
and its $1 billion investment in Comcast Corp.

Some  organizations  have  attempted  to  offer  consumer  oriented  interactive
directory services to the householder  through personal  computers.  It has been
reported that $1 billion has been invested into the Prodigy service,  with about
2.3 million subscribers, which has yet to show a significant profit. As reported
in the October 31, 1997 issue of Interactive  Services Report,  Prodigy's recent
ad campaign  was  targeted to those who have been  frustrated  with  experiences
using the Internet and to encourage  people to use Prodigy as an  alternative to
America Online, with its approximately 9 million subscribers, which is currently
the most popular and profitable of the consumer  oriented  computer  networks in
spite of  occasional  access  problems.  Attempts  have been  made by  financial
organizations  to offer home banking services through a telephone which includes
a computer processor, a modem, and a digital video screen.

Many businesses,  schools,  local government agencies and associations are using
the  Internet  and  setting  up their  own home  pages on the  World  Wide  Web,
encouraging   the   computer-literate   to  contact  them  for  information  and
transactions.  To date, these attempts have met varying degrees of success,  and
some of them are as yet unproven.  As announced in the February 21,1997 issue of
Information & Interactive  Services  Report,  Digital City Inc., a spin off from
America Online, and associated with the Tribune Co., currently offers service to
the PC marketplace in 13 cities.  As a network of online community  information,
it has launched a national  affiliate  program  targeted at newspapers and other
media wanting to increase their online presence.

Also competing  online for the potentiality  huge market of "local"  advertising
dollars will be CitySearch,  funded by AT&T and Compaq Computer Corp.  which has
expanded its menu of  information  in the  community  government  and local news
categories.  It now features  multimedia  sites with  volunteer,  nonprofit  and
government  Infosites.  Microsoft  Network,  with 2.3 million  subscribers,  has
suffered  from  losses and a series of  missteps  and is now  focusing on a free
World wide Web  version of MSN and  services  and tools that will help people do
everyday  things.  Following  layoffs at Sidewalk local activity  guides and the
elimination of an online travel magazine,  Mungo Park, Microsoft plans to launch
a new site, code-named Start, to serve as a hub for new Web offerings, including
Expedia  for  travel,  Carpoint  for  autos,  MSNBC  for news and a  streamlined
Sidewalk to be launched in 50 cities by the end of 1998

US West Media  Group  debuted  its local  Internet  information  service  called
"DiveIn" in 10 local markets. AT&T is developing a local Web information service
called Hometown Network,  now being test marketed in Sacramento.  Zip2,  another
newspaper affiliate network (Knight_Ridder and Landmark  Communications),  plans
to offer automotive and real estate listings, arts and entertainment guides, and
Yellow Pages and community mapping services, with editorial content generated by
local affiliates.

                                       31

<PAGE>

All of these  services could be accessible to  Telli*Pages  subscribers  through
Telli*Screens  once  Telli*Screens are distributed in the marketplace and if the
pricing makes access  practicable.  All basically promise the same thing;  movie
reviews,  restaurant  listings and reservations  capabilities plus community and
school information area maps and travel information.

A new  generation  of  telephones  with screens for  accessing  the Internet are
currently being tested. These phones, which are less expensive and easier to use
than  computers  are  expected to bring  millions of new users to the Web's home
pages, although none support industry-standard Web browsers. In the months ahead
Cidco Inc., Philips Consumer Communications and Mitsui Contek Corp. plan to sell
screen phones that can perform many of the data communications  functions of the
PC.

Cidco's Phone offers several telephone options plus e-mail yellow and white page
directories  for many US  locations  as well as limited  Internet  access as its
InfoGear browser doesn't  implement some common Web  technologies.  Philips Home
Services  conducted a test in Garden City,  New York using Philips screen phones
and Oracle  Corporation's  InterOffice  software  enabling 6,500  businesses and
consumers  to access the Web and send and receive  e-mail.  The  Philips  screen
phone  utilizes   special  software  to  translate  Web  graphics  to  telephone
compatible text based menus and contains Web content  developed by Garden City's
newspaper, including movie listings and local notices.

US West  conducted  a small  trial of its  TransPhone  screen  phone in Spokane,
Washington  claiming  it to be a test of the  concept  rather  than the  device.
Motorola has  developed a screen phone as has Northern  Telecom  whose phone was
released in early 1997 using Sun Microsystems  Inc.'s Java language to translate
data from Web pages into a format readable on the phone's small screen.  Navitel
Communication's TouchPhone which shipped in spring 1997 uses Microsoft's Windows
CE operating system and Web browser.  It allows users to surf the Net,  exchange
e-mail and voice mail and receive personalized  information  downloaded from the
Web.

Uniden  America  and  Intelidata  Technologies  screen  phones  connect  to  the
Internet,  but to date display only plain text.  Nokia's  wireless  phone allows
users to check  e-mail  and  download  bits of data  from  the Web.  

The market  research  firm IDC expects that sales of such  Internet  phone units
will grow from 333,000 to 1.5 million in 1999.  They predict  sales to reach 4.5
million by 2001.  Various sources including Probe, a US research company project
a 9.5  million  penetration  level of smart  phones in the US by the year  2000.
Smart phones and Internet  phones should appeal to the 65 percent of homes which
do not have a  personal  computer.  The US  Electronics  Industries  Association
currently  reports that 95 percent of households  have a telephone,  with 2.4 as
the average number of phones per household.

                                       32

<PAGE>

There is no assurance that the Company can compete  successfully for advertising
dollar with other local media, the community newspapers,  radio, and TV, or that
the Company can compete with current and future  sources of  competition or that
the competitive  pressures faced by the Company will not have a material adverse
effect on the Company's business, results of operations and financial condition.

The Company cannot make any assurances that it will be able to obtain  financing
to take its products to the marketplace in a profitable  manner,  or that if its
products receive  favorable  acceptance by the general consumer public,  that it
will  have  the  resources  to  sustain   itself  while   competing  with  major
organizations  with similar goals.  The Company can provide no assurance that it
can protect itself from providing potential competitors  additional  information
from its business plan that will assist them in  determining  ways to make their
present  products  successful in the marketplace.  In addition,  there can be no
assurance that the Company will not experience  difficulties that could delay or
prevent the successful  introduction  and marketing of its products or that they
will meet the  requirements of the  marketplace  and achieve market  acceptance.
There can be no assurance that the Company will be able to compete  successfully
against current or future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, operating results and
financial conditions.

Research and Development

The  Company's  current  development  efforts  are focused on new  products  and
product  enhancements.  The Company  believes that its software and  engineering
development team represent a significant  competitive advantage for the Company.
The Company's  ability to attract and retain highly qualified  employees will be
the principal determinant of its success in maintaining technological leadership
in its  field.  The  Company  intends  to have a policy  of  using  equity-based
compensation programs to reward and motivate significant  contributors among its
employees.  The Company  determined  that,  effective  December  31,  1994,  all
significant   research  and  development   had  been  completed   regarding  the
development of the Telli*Phone.

In the last three fiscal  years the Company has spent and accrued  approximately
the  following  amounts  on  company-sponsored  product  development  activities
determined in accordance  with generally  accepted  accounting  principles.  The
entire amounts were spent and accrued on activities  relating to the enhancement
of  software  for  the  Company's  new  products,   the   Telli*Screen  and  the
Telli*Phone.

         1995              $        nil
         1996              $        nil
         1997              $        nil

The Company,  including  any of its  predecessors,  has not,  during each of the
three  fiscal  years  immediately  prior  to the  filing  of  this  registration
statement, received any revenues from operations.

There can be no  assurance  that the Company will be  successful  in getting the
marketplace  to  accept  its  product  or that the  Company  will  generate  any
significant income from the use of its products in the marketplace. There can be
no assurance that the Company will be successful in developing and marketing new

                                       33

<PAGE>

software and hardware  products and  enhancements  that meet  changing  customer
needs and in  responding  to such  technological  changes or  evolving  industry
standards. The Company's current products are designed around certain standards,
including,  for example,  simple-to-use  computer programming systems and future
sales  of the  Company's  products  will be  dependent,  in  part,  on  industry
acceptance of such standards.  Microsoft and IBM are each proposing  alternative
programming  standards and widespread  adoption of either  standard could have a
material  adverse  effect  on the  Company's  business,  operating  results,  or
financial condition.

In  addition,  there can be no assurance  that the Company  will not  experience
difficulties   that  could   delay  or  prevent  the   successful   development,
introduction,  and marketing of new products and  enhancements,  or that its new
products  and  enhancements   will  adequately  meet  the  requirements  of  the
marketplace and achieve market acceptance.  Further, because the Company has not
commenced  shipment of its  products,  there can be no assurance  that,  despite
testing by the Company and potential customers,  errors will not be found in the
Company's  products,  or,  if  discovered,  successfully  corrected  in a timely
manner.  If the  Company  is unable to develop  on a timely  basis new  software
products,  enhancements to existing products,  or error corrections,  or if such
new products or  enhancements  do not achieve market  acceptance,  the Company's
business,   operating  results,  and  financial  condition  will  be  materially
adversely affected.

Environmental Impacts

The Company does plan to  manufacture  the hardware  necessary to distribute its
products and will use existing  telecommunications  services to communicate with
its  subscribers.  The  Company  does not feel that it is  affected by any rules
which have been enacted or adopted regulating the discharge of material into the
environment.  On the contrary,  the Company feels that its system may reduce the
number of trees cut down every year to supply the paper industry.

Employees and Management of Growth

The Company has five full-time employees,  including three in administration and
finance and two in research and product  development.  The Company plans to hire
an  additional  17 employees,  including  one in hardware  engineering,  four in
software  engineering,  two in technical  maintenance,  three in marketing,  and

                                       34

<PAGE>

seven in directory advertising sales and listings.  The Company's future success
is  substantially  dependent on the  performance of its senior  management,  key
technical personnel,  and marketing and sales team and its continuing ability to
attract and retain highly qualified technical, managerial,  marketing, and sales
personnel.  Competition  for such  personnel  is  intense  and  there  can be no
assurance that the Company will be able to retain its key  managerial  personnel
in the future.  None of the Company's employees is represented by a labor union.
The Company has not  experienced  any work stoppages and considers its relations
with its employees to be good.

The Company  intends to establish  Telli*Pages  Directories in other  geographic
locations, which will create additional operational and management complexities,
including the need for continual updating and maintenance of directory listings.
There can be no assurance  that the Company will be able to  effectively  manage
the expansion of its  operations,  that the Company's  systems,  procedures,  or
controls will be adequate to support the Company's  operations,  or that Company
management  will be able to  achieve  the  rapid  execution  necessary  to fully
exploit the market  opportunity for the Company's products and media properties.
Any  inability  to manage  growth,  if any,  effectively  could  have a material
adverse  effect on the  Company's  business,  operating  results,  and financial
condition.

(e) Financial Information About Foreign and Domestic Operations and Export Sales

The Company has had no history of operating  revenues,  domestic or foreign.  In
addition,  the Company will not be conducting  any business that would  generate
foreign sales in the foreseeable future.

Revenues from Prior Operations

The Company,  including  any of its  predecessors,  has not,  during each of the
three  fiscal  years  immediately  prior  to the  filing  of  this  registration
statement, received any revenues from operations.

(f) Factors Affecting Company's Business Operating Results & Financial Condition

Development Stage Company; Limited Operating History

The Company has been in the  development  stage since its  inception and has not
commenced a public  operation of the  Telli*Pages,  has not begun generating any
advertising  revenues  for  the  Telli*Pages  Directory,  nor  has it  commenced
shipment  of any  Telli*Screens.  Accordingly,  the  Company  has only a limited
operating  history upon which an evaluation of the Company and its prospects can
be based.  The  Company and its  prospects  must be  considered  in light of the
risks,  expenses and difficulties  frequently  encountered by companies in their
early stages of development,  particularly companies in new and rapidly evolving
markets. To address these risks, the Company must, among other things,  continue
to respond to competitive developments,  attract, retain, and motivate qualified
personnel,  implement and successfully  execute its advertising  sales strategy,
develop and market  additional  media  properties,  and  continue to upgrade its
technologies  and  commercialize   products  and  services   incorporating  such
technologies.  There can be no assurance  that the Company will be successful in
addressing such risks. The report of the independent Certified Public Accountant
expresses  substantial  doubt about the Company's ability to continue as a going
concern.

No Assurance of Successful Operations

The Company will attempt to establish an online  Telli*Pages  local  information
directory. An internal test of its computer information network was initiated in
Marin County, California, during March 1987, on a very limited scale, but it has
not begun any operations of the network  involving the use of the Telli*Pages by
the general public and has not received any revenues from  operations.  There is
no assurance that the Company will be able to successfully commence or establish
a large scale operation of the  Telli*Pages  Directory and no assurance that the
user public will accept a new way to access local community  information or that

                                       35

<PAGE>

community  businesses and groups will adopt new communications  strategies.  The
Company's  receipt  of  significant  revenues  is  dependent  on the  successful
operation of its Telli*Pages,  the outcome of which cannot be determined at this
time. Any failure to develop or maintain the Telli*Pages  could adversely affect
the Company's  business,  results of operations  and financial  condition.  This
condition  raises  substantial  doubt about the Company's  ability to achieve or
sustain profitability.

No Revenues From Product Sales;  Significant  and Continuing  Operating  Losses;
Accumulated Deficit

Since the incorporation of Guinness Productions,  Inc., the first predecessor of
the  Company,  in November  1980,  the Company has not shipped any  products nor
generated any revenues from sales of its products.  Accordingly, the Company has
no operating  history upon which an  evaluation  of its  prospects  can be made.
There is no assurance that the Company's  operations  will be successful or that
it will meet its stated  objectives.  Such prospects must be considered in light
of  the  risks,  expenses  and  difficulties   frequently   encountered  in  the
establishment  of  a  new  business  in  the  consumer  computer  telephony  and
information  network  development  industry,  which  is a  continually  evolving
industry  characterized  by an increasing  number of market entrants and intense
competition,  as well as the risks, expenses and difficulties encountered in the
shift from development to  commercialization of new products based on innovative
technology.  There can be no assurance  that the Company will be  successful  in
addressing  such risks. As of December 31, 1997, the Company and its predecessor
had  an  accumulated   deficit  of  $10,595,207  with  current   liabilities  of
$1,729,025.   The  Company  currently  expects  to  significantly  increase  its
operating expenses to develop and expand its 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,  the Company
expects to continue to incur significant  losses on a quarterly and annual basis
for the  foreseeable  future.  There can be no  assurance  that the Company will
achieve or sustain profitability.  (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations.")

Potential Fluctuations in Quarterly Operating Results

As a result of the Company's  limited  operating  history,  the Company does not
have  historical  financial  data on which to base planned  operating  expenses.
Quarterly  revenue and  operating  results  will depend  substantially  upon the
advertising revenues received within the quarter from the Telli*Pages Directory,
which are difficult to forecast accurately.  The Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenues shortfall.
Accordingly,  any significant shortfall of demand for the Company's products and
services in  relation  to the  Company's  expectations  would have an  immediate
adverse  impact on the  Company's  business,  operating  results,  and financial
condition.  In addition, the Company plans to increase its operating expenses to
fund  greater  levels  of  research  and  development,  increase  its  sales and
marketing  operations,  develop  new  distribution  channels,  and  broaden  its
customer support  capabilities.  To the extent that such expenses precede or are
not  substantially  followed by  increased  revenues,  the  Company's  business,
operating results and financial condition will be materially adversely affected.

                                       36

<PAGE>

The Company's  operating results may fluctuate  significantly in the future as a
result of a variety of factors, many of which are outside the Company's control.
These  factors   include  the  number  of  Telli*Phone   Subscribers   operating
Telli*Phones  within the geographic  area covered by the  Telli*Pages  Directory
(the Telli*Pages),  the level of usage of the Telli*Pages Directory,  demand for
Telli*Pages Directory advertising, seasonal trends in both Telli*Pages usage and
advertising   placements,   the  advertising   budgeting  cycles  of  individual
advertisers,  the  amount and timing of  capital  expenditures  and other  costs
relating to the expansion of the Company's  operations,  the introduction of new
products or services by the Company or its  competitors,  pricing changes in the
industry,  technical difficulties with respect to the use of the Telli*Screen or
accessing  the  Telli*Pages  Directory  through the  Telli*Pages  or other media
properties  developed by the Company,  general economic  conditions and economic
conditions specific to the Telli*Pages and online media. As a strategic response
to changes in the  competitive  environment,  the  Company may from time to time
make certain pricing, service, or marketing decisions or acquisitions that could
have a material adverse effect on the Company's business, results of operations,
and  financial  condition.  The  Company  also  expects  that it may  experience
seasonality  in  its  business,  with  advertising  impressions  (and  therefore
revenues) being somewhat lower during the summer and after year-end vacation and
holiday  periods,  when usage of the  Telli*Pages  Directory  may he expected to
decline.

Due to all of the  foregoing  factors,  in some  future  quarter  the  Company's
operating  results may fall below the  expectations  of securities  analysts and
investors.  In such event, the trading price of the Company's Common Stock would
likely be materially and adversely affected.  (See "Management's  Discussion and
Analysis of Financial Conditions and Results of Operations.")

Financial Condition of the Company

The Company  does not have an earning  history.  In  addition,  the Company is a
development stage company which is in the process of initiating a market test of
its  computer  information  network and access  device,  the  Telli*Screen.  The
Company  will  require  additional  capital to finance its current and  proposed
operations.  There is no  assurance  that the Company  will be able to raise any
additional capital or that such additional capital will be available at the time
required by the  Company to  successfully  promote  and operate the  Telli*Pages
Directory. There is no assurance of the Company's ability to receive significant
revenues from  subscriptions  to the Telli*Phone  Directory,  advertising in the
Telli*Pages  Directory,  licensing fees to communicate  through the  Telli*Pages
with Telli*Screen or from the operation of the Telli*Pages subscribers.

New  Concept  and  Emerging  Markets;   Uncertainty  of  Market  Acceptance  and
Commercialization Strategy

The  utilization  of  combination  telephone-information  network  products  for
consumer   applications   represents   a  relatively   new   business   activity
characterized  by emerging  markets and an increasing  number of market entrants
who  have  introduced  or are  developing  an  array  of new  telecommunications
products and services,  some of which will compete in some segments  (i.e.  home
banking) against the Telli*Screens and the Telli*Phones, Telli*Pages Directories
and any other  products  which may be developed  by the Company.  The Company is

                                       37

<PAGE>

currently  assessing market  acceptance and demand with the intent of minimizing
the risks  involved  with the  financing  and  distribution  of the  Telli*Pages
Directory  and  Telli*Screens  on a  large  scale.  Market  acceptance  for  the
Telli*Pages  Directory,  and Telli*Screens  will require  substantial  marketing
efforts and  expenditure  of funds to create  awareness  and demand by potential
customers.  There can be no assurance  either that a market will develop or that
it will become sustainable.

Uncertainty of Market Acceptance of New Technology

The Telli*Pages  Directory  involves the use of a new  communications  device or
tool.  It may or may  not be  accepted  by the  marketplace.  Similar,  but  not
identical,  approaches have been undertaken in the United Kingdom,  where it had
limited  success,  and  in  France,  where  it  is  succeeding  with  government
assistance.  Until the Company's  marketing plans have been completed,  one will
not know what degree of success can reasonably be anticipated.  Extensive use of
the  Telli*Pages  will  require  what  amounts  to  a  cultural  change  in  the
user-public comparable to the FAX revolution now underway in America.  Whether a
market will develop for the  Company's  products,  or if it develops more slowly
than expected or becomes saturated with more well-funded  competitors,  or if it
cannot effectively manage expansion, the Company's business,  operating results,
and financial condition will be materially adversely affected.

Dependence on Continued Growth in Use of the Telli*Pages

The Company's future success is substantially dependent upon continued growth in
the use of the Telli*Pages  Directory and the  Telli*Screens in order to support
the sale of advertising  in the  Telli*Pages  and other online media  properties
under development by the Company.

There is no assurance that  communication  or commerce over the Telli*Pages will
develop or that content will be provided.  The Telli*Pages may not prove to be a
viable  commercial  marketplace for a number of reasons,  including  potentially
inadequate  development  of the  necessary  infrastructure,  such as a  reliable
network backbone,  or timely development of performance  improvements  including
high  speed  modems.  In  addition,  to the  extent  that  the  Telli*Pages  may
experience significant growth in the number of users and level of use, there can
be no assurance that the Telli*Pages  infrastructure will continue to be able to
support the demand placed upon it by such  potential  growth.  In addition,  the
Telli*Pages  could  lose its  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.  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.  If use of the Telli*Pages does not continue to grow, or
if the Company's  infrastructure  does not  effectively  support growth that may
occur, the Company's  business,  results of operations,  and financial condition
would be materially and adversely affected.

                                       38

<PAGE>

Uncertain Adoption of the Telli*Pages as an Advertising Medium

Because the Company  expects to derive most of its  revenues in the  foreseeable
future from the sale of pages of advertising in the Telli*Pages  Directory,  the
future  success of the Company is highly  dependent  on the  development  of the
Telli*Pages  as  an  advertising   medium.   Some  of  the  Company's  potential
advertisers may have some limited  experience or knowledge of advertising on the
Internet  through  the  World  Wide  Web,  however,  the  Company's  advertising
customers have no experience with the Telli*Pages as an advertising medium, have
not devoted a significant portion of their advertising expenditures to Web-based
advertising,  and may not find such  advertising  to be effective  for promoting
their products and services  relative to traditional  print and broadcast media.
No  standards  have  yet  been  widely  accepted  for  the  measurement  of  the
effectiveness of Web-based advertising,  and there can be no assurance that such
standards  will  develop  sufficiently  to support  Web-based  advertising  as a
significant  advertising  medium.  Moreover,   critical  issues  concerning  the
commercial use of the Internet (including security,  reliability,  cost, ease of
use and  access,  quality of  service  and  acceptance  of  advertising)  remain
unresolved  and  may  negatively  affect  the  growth  of  Internet  use and the
acceptance  of the  Telli*Pages  as an  advertising  medium.  In  addition,  the
Telli*Pages  serves a very limited  marketplace  unlike the Internet which has a
worldwide  marketplace.  If widespread  commercial  use of the Internet does not
develop,  or if the  Internet  does not develop as an effective  and  measurable
medium  for  advertising,  the  success  of the  Telli*Pages  and the  Company's
business,  results of operations, and financial condition will be materially and
adversely affected.

Reliance on Advertising Revenues

The Company expects to derive  substantially  most of its revenues from the sale
of pages of advertising in the Telli*Pages Directory, and expects to continue to
do so for the foreseeable future. The Company has not introduced the Telli*Pages
Directory  to  the  marketplace,   has  not  attempted  to  sell  any  pages  of
advertising,  and has not  generated  any  revenues  from  the  sale of pages of
advertising  in  the  Telli*Pages  Directory.  There  can be no  assurance  that
advertisers will purchase advertisements in the Company's Telli*Pages Directory.
The Company's ability to generate  advertising revenues will depend, among other
factors,  on  advertisers  acceptance of the  Telli*Pages  as an attractive  and
sustainable medium, the development of a large base of users of the Telli*Pages,
and the effective  development of media properties that provide user demographic
characteristics that will be attractive to advertisers.

No Assurance of Content Development or Advertising Revenues

A key  element  of the  Company's  strategy  involves  the  implementation  of a
Telli*Pages  Directory  operation and the distribution of the Telli*Pages within
limited  geographical  areas,  to  generate  the maximum  number of  Telli*Pages
subscribers  (critical  mass of users) that will generate the maximum  amount of
advertising  revenues from the maximum number of  advertisers,  at minimum cost.
Each area  targeted for the  establishment  of a Telli*Pages  Directory  will be
approximately the same geographic area covered by the local telephone  directory
for that area. In these efforts, the Company will rely and will continue to rely
substantially on content development and localization  efforts of third parties.
For example, businesses advertising products and services,  community groups and
associations publishing news and directory information,  and individuals selling
products and services  will create and update their pages of  information  using
the Telli*Phone or the assistance of local Telli*Pages  operators.  There can be
no assurance that the Company's marketing and educational efforts will encourage
people to use the  Telli*Pages  Directory or that pages of  information  will be
placed  by  third  parties  in  the  Telli*Pages  Directory  or  that  pages  of

                                       39

<PAGE>

information  placed in the Directory will encourage people to become subscribers
of the Telli*Pages or that the Telli*Pages  Directory will result in significant
revenue to the  Company.  Any failure of these  parties to develop and  maintain
high  quality and  successful  Telli*Pages  also could result in dilution to the
names Telli*Phone and Telli*Pages, which could have a material adverse effect on
the Company's business, results of operations, and financial condition.

The Company's future success also depends in part upon the timely processing and
updating of Telli*Pages Directory listings created by users, businesses, groups,
and  associations.   The  Company  may  experience  significant  delays  in  the
processing and updating of information that could have a material adverse effect
on the usefulness of the Telli*Pages  Directory for subscribers which could have
a material adverse effect on the Company's business,  results of operations, and
financial condition.

Dependence on Third Party Distribution of Content

The  Company  will  be  dependent  on  local  telephone   companies  to  provide
transmission of Telli*Pages Directory information to subscribers.  The telephone
companies may assess data transmission  rates that are sufficiently high to make
use  of the  Telli*Pages  too  expensive  for  most  subscribers.  In  addition,
disruptions  in the  Company's  ability  to carry on its  business  due to phone
system  transmission  or equipment  failures  causing  interruptions,  delays or
cessation in service to users could result in a material  adverse  effect on the
Company's business, results of operations, and financial condition.

Dependence  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

The Company currently  assembles  Telli*Screens and Telli*Phones from components
or assemblies that are purchased from single sources.  The Company believes that
there  are  alternative  sources  of  supply  for  most  of the  components  and
assemblies  currently purchased from single sources.  Some of the components and
assemblies  used by the Company for which  there are not  immediately  available
alternative  sources  of supply  are  provided  to the  Company  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,  the Company's
business could be materially and adversely affected.  In such event, the Company
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 the Telli*Phone  products to include available components or
assemblies  that the operation of the  Telli*Phone  products could be materially
and adversely  affected.  Any delays with respect to redesigning the Telli*Phone
products or obtaining  substitute  components  would  materially  and  adversely
affect the Company's business, results of operations, and financial condition.


                                       40

<PAGE>

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 the
Company's business, results of operations, and financial condition.

The Company is designing  its own main board to  eliminate  many of the computer
components  presently used in the assembly of Telli*Phones and Telli*Screens but
not necessary for the operation of the Telli*Phone.  Also,  Telli*Phone products
are  instruments  designed to handle a limited number of specific tasks and many
hardware  components  can be  eliminated  from the  present  model  because  the
Telli*Phone programming system is able to do many of the tasks through software.
The Company  anticipates  that the unit price of a large run of Telli*Phone  and
Telli*Screen main boards to be designed by the Company will considerably  reduce
the present cost to assemble  these  products.  There is no  assurance  that the
Company will be successful  in designing  such a board or when designed that the
products will  function with the  capabilities  of the previous  models.  If the
Company is not able to reduce the present cost of the  assembly of  Telli*Phones
products  there is  substantial  doubt about the  Company's  ability to generate
enough  income to justify  the cost of its  products  in the  marketplace.  This
condition would raise  substantial doubt about the Company's ability to continue
as a going concern.

Dependence on Reliable Source of Telli*Phones and Telli*Screens;  Limited Market
for the Telli*Phone and the Telli*Screen

The  Company  plans  to  contract   qualified   manufacturers  of  computer  and
telecommunications   equipment  to  produce  large  runs  of  Telli*Phones   and
Telli*Screens on its behalf. It also anticipates being able to raise the capital
required to purchase large runs of these products.  The Company believes that it
will be able to raise this capital  through a variety of methods  including  the
sale of securities,  debt financing,  and limited partnerships.  There can be no
assurance  that  the  Company  will be able to raise  the  capital  required  to
interest a manufacturer to produce large runs of Telli*Phones and  Telli*Screens
or that if the financing is available and a manufacturer  produces large runs of
these  products  that some or all of the products  will not be defective or that
all of the  Telli*Phones  can be  delivered  in  accordance  with  the  intended
delivery  schedule.  Significant  defects in the  Telli*Phones or  Telli*Screens
and/or a delay in the delivery of the products could significantly,  materially,
and  adversely  affect  the  Company's  business,  results  of  operations,  and
financial condition.

Although the Telli*Phone can be used as an ordinary  telephone with  stand-alone
voice mail features, the Telli*Phone and Telli*Screen are designed primarily for
use as a  device  to  access  information  from  the  Telli*Pages.  The  Company
anticipates  that, if the Telli*Pages  are not  successful,  there may not be an
alternative  computer  information  network to which the Company  could lease or
sell  Telli*Phones and  Telli*Screens.  The Company further  anticipates that it
would realize a  substantial  loss on the products if it were forced to lease or
sell them for use other  than in a  computer  information  network  which  would
materially and adversely affect the Company's  business,  results of operations,
and financial condition.

                                       41
<PAGE>

In the intensely competitive  telephone-computer  industry, large companies such
as NorTel, Panasonic,  Philips, Uniden, Navitel, Intelidata and Cidco which have
significantly greater financial and management resources than the Company, could
produce substitutes for the Telli*Phone and Telli*Screen  appliances at a better
price.  In that case it is possible  that the Company  could use that source for
its  products.  Also,  there  can be no  assurance  that  competitors  will  not
identify,  develop,  manufacture and offer products to the marketplace rendering
the Company's products obsolete.

Dependence on Reliable Computer Equipment for the Telli*Pages Server; Dependence
on Additional Financing for Growth

The computer  equipment that maintains the Telli*Pages  Directory (the "Server")
and  the  telecommunications  assemblies  connecting  the  Server  to the  local
telephone  system are  purchased  from single  sources under  standard  purchase
arrangements.  The Company believes that there are alternative sources of supply
for  most of the  equipment  and  assemblies  currently  purchased  from  single
sources.  If a shortage or  termination of the supply of any one or more of such
equipment  and  assemblies  were to  occur,  the  Company's  business  could  be
materially  and  adversely  affected.  Also,  the Company  anticipates  that the
continuing  success of the Telli*Pages in the initial markets will depend on the
Company's  ability to acquire  additional  equipment and assemblies to establish
Telli*Pages  Directory  sites  and  distribute   Telli*Screens  into  additional
markets.  The Company anticipates using various financing methods including debt
financing  and equity  financing to raise capital for the purchase of additional
equipment and assemblies to establish  additional  Telli*Pages  Directory sites.
There is no  assurance  that  these  funds  will be  raised or that if funds are
raised and equipment and assemblies are purchased that some or all the equipment
and assemblies will not be detective or that all of the equipment and assemblies
can be delivered in accordance with the intended delivery schedule.  Significant
defects in the  equipment and  assemblies  and/or a delay in the delivery of the
equipment and assemblies could significantly and adversely affect the success of
the Company's business, results of operations, and financial condition.

Enhancement of Telli*Screens, Telli*Phone, and Telli*Pages Directory

Substantially  all of the  Company's  revenues  in the  foreseeable  future  are
expected to be derived from  subscriptions  to the  Telli*Pages  Directory,  the
purchase  of  advertising  pages  in the  Telli*Pages,  and the  license  of the
Company's  software and the right to communicate  with  Telli*Pages  subscribers
through their  Telli*Screens  or  Telli*Phones  from a computer  networking data
base.  Accordingly,  broad  acceptance  of the Company's  software  products and
services by customers is critical to the  Company's  future  success,  as is the
Company's  ability to design,  develop,  test, and support new software products
and enhancements on a timely basis that meet changing customer needs and respond
to technological developments and emerging industry standards.

                                       42

<PAGE>

To remain  competitive,  the  Company  must  continue to enhance and improve the
responsiveness,  functionality, and features of the 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 the Company
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 the Company  will not  experience
difficulties   that  could   delay  or  prevent  the   successful   development,
introduction,  and marketing of new products and  enhancements,  or that its new
products  and  enhancements   will  adequately  meet  the  requirements  of  the
marketplace and achieve market acceptance.

Further,  because  the  Company  has only  recently  commenced  shipment  of its
products,  there can be no assurance that, despite testing by the Company and by
potential customers,  errors will not be found in the Company's 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 the Company's  brand
name  recognition.  Any  failure  of the  Company  to  effectively  develop  and
introduce  these  properties,  or failure of such  properties to achieve  market
acceptance,   could  adversely  affect  the  Company's   business,   results  of
operations, and financial condition.

Need for Additional Equipment

The  Company  anticipates  that the  Telli*Screens  and server  equipment  to be
acquired for the market  launch will be  sufficient  to  successfully  operate a
single  Telli*Pages  Directory in the initial  markets  targeted by the Company.
However,  the  Company  also  anticipates  that the  continuing  success  of the
Telli*Pages  in the  initial  markets  will depend on the  Company's  ability to
acquire additional Telli*Screens and server equipment to expand its network into
additional  markets.  There is no  assurance  that the  Company  will be able to
acquire such additional  Telli*Screens  and server  equipment or to successfully
expand into additional markets.

Lack of Intellectual Property Protection

The Company has applied for  Copyright/Trademark  protection  of the Telli* name
but does not possess any patent or registered  intellectual property rights with
respect  to  any of  its  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 the Company on a world-wide  perpetual  basis.  The Company may find
that it has 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 the Company  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 the Company.  Despite precautions,
there is the  possibility  of a third party  accessing and copying the Company's
proprietary   technology  or  independently   developing   similar  or  superior
technology.  In this  case,  litigation  could  have an  adverse  effect  on the
Company.

                                       43
<PAGE>

The  Company   depends  in  part  upon  certain   technology   and  know-how  to
differentiate  its  products  from  those of its  competitors,  and  relies on a
combination  of  trade  secret  laws  and  nondisclosure   and   confidentiality
agreements with its employees. consultants,  researchers and advisors to protect
its  technology.  There can be no assurance  that such laws or  agreements  will
provide  meaningful  protection  for the Company's  trade secrets or proprietary
know-how  in the  event of any  unauthorized  use or  disclosure  of such  trade
secrets or know-how.  In addition,  others may obtain access to or independently
develop    technologies   or   know-how   similar   to   the   Company's.    The
telecommunications  industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent  infringement.
Although the Company  believes that its products and  technology do not infringe
on the  proprietary  rights of others and has not received any notice of claimed
infringement,  it is possible that an  infringement  of  proprietary  rights may
occur.  In such event,  the  Company  may be required to modify its  products or
obtain a  license.  There can be no  assurance  that the  Company  will have the
financial  or  other  resources  necessary  to  successfully  defend  a claim of
violation of proprietary rights. Failure to do any of the foregoing could have a
material adverse effect on the Company.  Furthermore,  if the Company's products
or technologies are deemed to infringe patents or proprietary  rights of others,
the Company could, under certain circumstances, become liable for damages, which
would have a  material  adverse  effect on the  Company's  business,  results of
operations, and financial condition.

Dependence on Key Man; Need to Assemble Management Team

The  Company's  performance  is dependent  on its  President  and CEO,  Lawrence
Guinness.  The Company has no "key person" life insurance  policy,  and his loss
would  adversely  affect the Company.  Moreover,  the Company's  performance  is
dependent  on hiring and  retaining  high  quality  personnel  for  assembling a
management  team,  and developing  marketing  systems and personnel to deal with
expansion in the  marketplace.  There is  competition  for top  personnel and no
assurance  that the Company will be able to attract,  assimilate,  or retain the
necessary  personnel  which  could  have  an  adverse  effect  on the  business,
operating results or financial condition of the Company.

Substantial Dependence Upon Internal Operations; Personnel for Growth

The Company plans to use an internal sales and marketing force for the marketing
and sale of its products and not outside,  unrelated third parties.  The Company
will be required to expand its field sales force and telesales  organization  as
it establishes  new  Telli*Pages  Directory  sites.  Growth of the Company could
possibly be  affected  by its  dependence  on outside  sources  for  management,
personnel  and other  resources  for several  critical  elements of its business
including  advertising  and  marketing,  technology,  assembly,  development  of
Telli*Pages Directory content and Telli*Screen  distribution among others. There
can  be no  assurance  that  such  internal  operations  or  expansion  will  be
successfully  managed,  that the cost of such  expansion  will  not  exceed  the

                                       44

<PAGE>

revenues generated,  or that the Company's sales and marketing organization will
be able to  successfully  compete against the  significantly  more extensive and
well-funded  sales and marketing  operations of many of the Company's  potential
competitors.   The  Company's  inability  to  effectively  manage  its  internal
expansion  could  have a  material  adverse  effect on the  Company's  business,
operating results, and financial condition.

Management of Growth

The rapid execution necessary for the Company to fully exploit the market window
for its  products and services  requires an  effective  planning and  management
process.  The  Company's  potential  rapid  growth,  which is  essential  to the
Company's  success,  has  placed,  and is  expected  to  continue  to  place,  a
significant  strain on the  Company's  managerial,  operational,  and  financial
resources.  As of December 31, 1997, the Company had five  full-time  employees,
three in administration and finance and two in research and product development.
To manage its growth, the Company must implement and improve its operational and
financial systems and expand,  train, and manage its employee base. For example,
the company is  currently  in the process  planning the building of its internal
maintenance and support organization, and sales and marketing team. There can be
no assurance  that the Company will be able to build or  successfully  implement
this  organization  or team on a timely  basis.  Further,  the  Company  will be
required to manage  multiple  relationships  with  various  customers  and third
parties to generate  revenues from licensing its technology to other Information
Providers to communicate and transact  business with its  subscribers.  Although
the Company  believes  that it has made  adequate  allowances  for the costs and
risks  associated  with  this  expansion,  there  can be no  assurance  that the
Company's  systems,  procedures,  or  controls  will be  adequate to support the
Company's  operations  or that  Company  management  will be able to achieve the
rapid  execution  necessary to fully exploit the market window for the Company's
products and services.  The Company's future operating  results will also depend
on its ability to expand its sales and  marketing  organizations,  implement and
manage new distribution  channels to penetrate different and broader markets and
expand its support  organization  commensurate  with the increasing  base of its
installed products.  If the Company is unable to manage growth effectively,  the
Company's  business,   operating  results,   and  financial  condition  will  be
materially adversely affected.

Competition

Other companies offer products similar to the Company's  products and target the
same  customers  as the  Company.  The Company  believes  its ability to compete
depends upon many factors  within and outside its control,  including the timing
and  market  acceptance  of the  products  developed  by  the  Company  and  its
competitors, performance, price, reliability, and customer service and support.

Many of the Company's  competitors are substantially larger than the Company 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 the Company. It is also
possible that new competitors may emerge and acquire  significant  market share.
Possible   new   competitors   include   large   foreign   corporations,   major
telecommunications companies, and other entities with substantial resources.

                                       45

<PAGE>

The  most  significant  market  where  the  Company  competes  is in the area of
telephone directories. The Telli*Pages Directory will compete primarily with the
local  Telephone  Company Yellow Pages directory in areas where it establishes a
Telli*Pages Directory central computer system. Specifically, it may be competing
for advertising dollars. Even though the local Telephone Companies are regulated
by the State Public Utilities Commissions,  they have, unlike the Company, 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 to eliminate  competition  from the  Telli*Pages
Directory.  How the Telephone  Companies would attempt to eliminate  competition
from the Telli*Pages Directory is not clear at this time.

Since 1983 many major  organizations  have spent hundreds of millions of dollars
in an attempt to establish  an  interactive  telecommunications  service for the
home. Most of the methods tried have involved an attempt to encourage  consumers
to attach a videotex  telecommunications/terminal  box to their  television sets
for  people  to  access  interactive  listings  and  directories  through  their
televisions.  These  videotext  systems  are no longer in use due to the lack of
customer demand.  More recently,  some organizations with significant  financial
resources have made similar  attempts at establishing an interactive  service in
the   home   through   televisions   by   encouraging    consumers   to   attach
cablevision/terminal  boxes to their  television  sets,  which are  still  being
tested. WebTV Networks introduced the first mass-market information appliance in
1996, a little black box attached to the TV which connects to the World Wide Web
and to e-mail.  The second  generation  appliance,  WebTV Plus has  several  new
features  that  have not yet been  implemented  by  WebTV's  proprietary  online
service or by the TV networks,  but provide an electronic TV listing in addition
to the features of the earlier model.

The Company cannot make any assurances that it will be able to obtain  financing
to take  its  products  to the  marketplace,  or that if it is able to take  its
products to the marketplace and the products receive favorable acceptance by the
general consumer public, that it will have the resources to sustain itself while
competing with major  organizations  with similar goals. The Company can provide
no assurance  that it can protect itself from  providing  potential  competitors
additional  information  from  its  business  plan  that  will  assist  them  in
determining ways to make their present  products  successful in the marketplace.
In  addition,  there can be no assurance  that the Company  will not  experience
difficulties  that  could  delay or  prevent  the  successful  introduction  and
marketing  of its  products  or that  they  will  meet the  requirements  of the
marketplace  and achieve market  acceptance.  There can be no assurance that the
Company  will  be  able  to  compete  successfully  against  current  or  future
competitors  or  that  competitive  pressures  faced  by the  Company  will  not
materially  adversely  affect its  business,  operating  results  and  financial
condition. (See "Business...Competition.")


                                       46

<PAGE>

Security Risks and System Disruptions; Lack of Product Liability Insurance

The Company has developed  software for a security  protocol  which  operates in
conjunction with encryption and authentication technology. Despite the existence
of this  technology,  the Company's  products may be vulnerable to break-ins and
similar  disruptive  problems caused by Telli*Pages users and subscribers.  Such
computer  break-ins  and other  disruptions  would  jeopardize  the  security of
information  stored in and  transmitted  through  the  computer  systems  of the
Company's  servers and the  computer  systems of other  Telli*Pages  Information
Providers, which may result in significant liability to the Company and may also
deter  potential  customers.  Persistent  security  problems  continue to plague
public  and  private  data  networks.  Recent  break-ins  reported  in the media
occurred at General Electric Co. ("GE"), Sprint Corporation  ("Sprint") and IBM,
as well as the computer systems of NETCOM ON-Line Communication  services,  Inc.
("NETCOM"),  Netscape Communications  Corporation ("NETSCAPE") and the San Diego
Supercomputer  Center,  and  the  Pentagon.   Such  incidents  involved  hackers
bypassing firewalls and misappropriating  confidential information.  Alleviating
problems caused by third parties may require significant expenditures of capital
and resources by the Company and may cause  interruptions,  delays, or cessation
of service to the Company's customers;  such expenditures or interruptions could
have a material adverse effect on the Company's business, operating results, and
financial  condition.  Moreover,  the security and privacy concerns of potential
customers  as well as  concerns  related to  computer  viruses,  may inhibit the
growth  of  the  Telli*Pages  marketplace  generally,  the  use  of  Telli*Phone
technology  to  communicate  with  consumers  and  transact  business,  and  the
Company's customer base and revenues in particular. The Company intends to limit
its liability to customers,  including  liability  arising from a failure of the
security  features  contained in the  Company's  products,  through  contractual
provisions.  However,  there can be no assurance that such  limitations  will be
enforceable The Company currently does not have product  liability  insurance to
protect  against these risks and there can be no assurance  that such  insurance
will be available to the Company on commercially reasonable terms or at all.

In addition,  the Company intends to maintain secure  Telli*Pages  servers which
will contain customer  information for public access. The Company's  advertising
revenues from the Telli*Pages Directory are dependent in part upon the Company's
ability to protect its internal  infrastructure  and the pages of information in
the  Telli*Pages  Directory  against damage from physical  break-ins,  copyright
infringements,  manipulation  of information by  unauthorized  persons,  natural
disasters,  operational  disruptions,  and other  events.  Any such  break-in or
damage or failure that causes  interruptions  in the  Company's  operations or a
loss of customer  confidence and user support and a decrease in the value of the
Company's brand name recognition could materially adversely affect the Company's
business, operating results, or financial condition.

Extensive Capital Needs

The Company will have extensive  capital needs to finance the  establishment and
growth of its business.  There will be a need for  Telli*Screens,  Telli*Phones,
Telli*Pages server equipment, marketing, overhead and further development. It is
anticipated  that the  Company  may use a  variety  of  means to raise  capital,
including the sale of Common or Preferred Stock or debt instruments.  There is a
risk  that  sufficient  capital  will  not be  raised.  Income  will  come  from
Telli*Pages  subscriptions  and from fees  charged to  individuals,  businesses,

                                       47

<PAGE>

groups,  and  associations  for the storage of their pages of information in the
appropriate  sections  of the  Telli*Pages  Directory.  The  Company  intends to
generate profits through  licensing its technology  (software  systems) to major
retailers, commercial organizations, agencies, groups, and associations who wish
to establish sites on the Telli*Pages  Directory and to communicate and transact
business with subscribers in their homes over their Telli*Screens.  There can be
no  assurance  that  this  income  will  cover  the  cost of  Telli*Screens  and
Telli*Pages  server equipment or the overhead of the Company.  In the event that
the  Company's  plans or the  basis  for its  assumptions  change or prove to be
inaccurate  or  cash  flow  proves  to be  insufficient  to fund  the  Company's
operations (due to  unanticipated  expenses,  loss of sales revenues,  problems,
operating  difficulties,  or  otherwise),  the Company would be required to seek
additional  financing.  In such event, there can be no assurance that additional
financing will be available to the Company on commercially  reasonable terms, or
at all.

Changing Regulatory Environment

The  Company  believes  that the  regulatory  climate in the United  States over
recent years has begun to influence the Regional Bell  Operating  Company's (the
ARBOCs@) deployment of public communication  products. The Company believes that
the RBOCs have begun to upgrade their telecommunications product base with smart
products that reduce their cost of management, maintenance,  administration, and
equipment  that  includes  revenue  enhancement  features.  The  deployment  and
business  strategies  of the public  communication  divisions  of the RBOCs have
affected and will continue to affect the Company's business.  To the extent that
these business  strategies were to change,  for regulatory reasons or otherwise,
the Company=s prospects would be materially and adversely affected.  On February
8, 1996, the President signed into law the Telecommunications Act of 1996, which
deregulates  many  elements  of the  telecommunications  industry  as a means of
stimulating  competition.  The deregulation could affect the  telecommunications
products  industry.  Although the Company believes that  deregulation  generally
will  benefit the  Company,  there can be no  assurance  that the  Company  will
benefit  from  deregulation  or  that  it  will  not be  adversely  affected  by
deregulation.

Government Regulation and Legal Uncertainties

Currently  the  Company's  business is not affected by direct  regulation by any
government agency other than by general business regulations, but in the future,
laws or regulations  may influence  Company  operations,  as with the Exon Bill,
passed by the Senate to prohibit obscene,  lascivious or indecent communications
on the Internet.  The adoption of any such laws or regulations  would  similarly
apply  to the  Telli*Pages  and  may  decrease  the  growth  of the  Telli*Pages
Directory,  which could in turn decrease the demand for the  Company's  products
and increase the Company's  cost of doing  business or otherwise have an adverse
effect on the Company's business,  operating results,  and financial  condition.
Moreover, the applicability to the Telli*Pages of existing laws governing issues
such as property  ownership,  libel, and personal  privacy is uncertain.  Issues
such as privacy and libel may be addressed in the future by government  agencies
reaching  decisions or passing laws which could  adversely  affect the Company's
business,  operating results,  and financial  condition.  

                                       48

<PAGE>

Concentration of Stock Ownership

The  present  directors,  executive  officers  and their  respective  affiliates
beneficially own approximately 67% of the outstanding Common Stock. As a result,
these  stockholders  will be able to  exercise  significant  influence  over all
matters requiring stockholder approval,  including the election of directors and
approval of significant corporate transactions.  Such concentration of ownership
may also have the effect of  delaying or  preventing  a change in control of the
Company.

No Active Public Market

Although the Company's Common Stock became listed on the NASD OTC Bulletin Board
under the symbol "TELI" in 1997,  there has been little  significant  trading of
the  Company's  Common  Stock,  and there can be no  assurance  that a long term
active public market for the Common Stock will develop or be sustained.

Effects of Certain Charter Provisions;  Anti-takeover  Effects of Certificate of
Incorporation; Bylaws and Nevada Law

The Board of Directors  has the  authority  to issue up to  1,000,000  shares of
Preferred Stock and to determine the price, rights, preferences,  privileges and
restrictions,  including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be  adversely  affected by, the rights of the holders of any
Preferred  Stock that may be issued in the future.  The  issuance  of  Preferred
Stock,  while  providing  desirable  flexibility  in  connection  with  possible
acquisitions  and other corporate  purposes,  could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the  Company.  The  Company  has no  present  plans to issue  shares of
Preferred Stock.

Dilution

It should be noted  that there will be  dilution  of the issued and  outstanding
shares of the Company by the issuance of shares for future  financing and by the
installation of an Employee Stock Option Plan. In addition, the Company may sell
substantial  amounts of equities to investors in the future in order to meet its
capital  needs.  The  Company's   business  can  be  characterized  as  "capital
intensive"  and to the  extent  funds  are not  derived  from  debt  securities,
borrowing or limited partnerships, equity may be used.

Dividend Policy

The  company  has  never  paid  cash  dividends  on its  Common  Stock  or other
securities  The  Company  currently  anticipates  that it will retain all of its
future  earnings for use in the expansion and operation of its business and does
not anticipate paying any cash dividends in the foreseeable future.

                                       49

<PAGE>

Notes Payable; Royalty Agreements

There are 17 individuals  who advanced cash to the Company in exchange for notes
payable and royalty rights (the "Royalty  Holders").  Under the  agreement,  the
Company will pay royalties  aggregating 2.267% of the manufacturer's  actual net
price for which each Telli*Phone is sold.

As part of CoNetCo's acquisition of Guinness Production, Inc., Guinness Computer
Television  Corporation  (the  "Guinness  Companies"),  in the  Agreement  dated
February  18,  1990,  CoNetCo  also  acquired  all  of the  concepts  previously
developed  by Lawrence A.  Guinness  ("Guinness")  in both Canada and the United
States. Part of the consideration for the acquisition of Guinness' rights in the
United States and Canada to the  theoretical  models of the  Telli*Phone and the
Telli*Pages  Directory,  as  well as all of  Guinness'  rights  to the  products
previously developed by the Guinness Companies,  was the issuance to Guinness of
Common Stock in CoNetCo and a continuing royalty of 5% of all revenues generated
by CoNetCo or any of its subsidiaries.

ITEM 2.   PROPERTIES

The Company currently occupies approximately 500 square feet of space located in
Mill Valley,  California,  where it  maintains  its  administrative  offices and
Telli*Pages  server. In addition,  the Company currently occupies  approximately
900 square feet of space in Sausalito, California,  approximately two miles from
its  administrative  offices and server,  where it  maintains  its  engineering,
research,  and  product  development  facilities.  This  space  is  leased  on a
month-to-month  basis and is sufficient to meet the current  requirements of the
Company and the business which it conducts.  All production of the final product
will,  in  the  near  future,  be  sub-contracted  to  other  manufacturers  and
suppliers.

The  Company  will be  required to expand  when  operations  commence.  There is
adequate space in the County of Marin,  State of  California,  the area in which
the Company is currently located, to allow for expansion.

The  Company  does not  intend to  consider  setting  up its own  facilities  to
manufacture  Telli*Screens  and Telli*Phones  until after the initial testing of
its products,  and the systems  which it is  developing  have been fully tested.
Management expects an increase in facilities requirements during 1998.

ITEM 3.   LEGAL PROCEEDINGS

The Company is not involved in any legal proceedings.

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

No matter was submitted  during the fourth quarter of the fiscal year covered by
this report to a vote of security holders,  through the solicitation of proxies,
or otherwise.

                                       50

<PAGE>

                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

Market Information

The shares of stock of the Company are  currently  not listed on an exchange and
there has been no established  public  trading  market for the Company's  common
equity  within  the last five  years.  No current  market  exists for any of its
shares.

There is currently no common  equity that is subject to  outstanding  options or
warrants to purchase,  or securities  convertible  into,  common equity of which
have been issued by the Company that are capable of being sold  pursuant to Rule
144 under the Act until two years  after  March 15,  1994.  The  Company has not
agreed to register any common equity for sale by security holders.

Holders

As of March 9, 1998, there are 541  shareholders,  holding a total of 15,760,160
shares of Common  Stock of the  Company.  The  Company has no  knowledge  of any
matter since that date that would effect any change to that total.

Lawrence A.  Guinness,  President and Director of the Company,  is the holder of
8,365,166 shares of the Common Stock of the Company which  represents  53.07% of
the Company's common equity.  Other than Mr.  Guinness,  no other persons have a
beneficial  ownership  of five  percent  (5%) or more of the Common Stock in the
Company.

Dividends

Registrant is a development stage company and, since its inception,  has not yet
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.

                                       51

<PAGE>

ITEM 6.   FINANCIAL INFORMATION


<TABLE>
<CAPTION>

                             SELECTED FINANCIAL DATA
                       FIVE YEARS ENDED DECEMBER 31, 1996

                         1997       1996        1995         1994         1993
                   -------------------------------------------------------------
<S>                      <C>       <C>         <C>          <C>        <C>

Net Sales                None      None        None        None          None

Income (Loss) from
 Continuing 
 Operations(A)        (370,409) $(491,369)   $(199,556)  $(353,954)   $(447,142)

Income (Loss) from
  Continuing Operations
  Per Share               (.03)      (.04)        (.02)       (.03)        (.04)

TOTAL ASSETS           $40,511    $39,528     $229,416     $19,828      $68,567

Weighted Average
  Number of Common
  Shares 
   Outstanding(B)   14,130,565  13,427,480  12,738,397   12,592,480  11,541,740

Long-term Obligations(C)

Cash Dividends Declared
  Per Share              None      None        None       None          None

</TABLE>

     (A) Cumulative  results of operation  since  inception are losses  totaling
     $(10,595,107).

     (B) Giving  effect to amended  agreement on March 15, 1994  increasing  the
     5,880,246 shares issued on February 18, 1990 to 8,000,000 shares.

     (C) Excludes  $435,000 of notes payable  which are  classified as a current
     liability since the original due date was in 1991.


NOTE:  CoNetCo,  Guinness  Productions,  Inc., and Guinness Computer  Television
Corporation  are  predecessors  of the  Company  and the  financial  data of the
Company.

                                       52

<PAGE>

ITEM 7.   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:

                                       53
<PAGE>

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 Initial 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.

                                       54

<PAGE>

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 product
for which it was  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 Beta  Test and to  complete  the  Telli*Phone
software to manage the components in the working model.

                                       55

<PAGE>

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 Telli*Pages geographical sites.

As of December 31, 1997,  the Company has a deferred tax asset of  approximately
$1.4 million which is 100%  reserved.  See Footnotes 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

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

The  executive  officers  and  directors  of the  Company,  and  their  ages and
positions as of March 24,1997 are as follows:

<TABLE>
<CAPTION>



Name                     Age                 Position
-------------------------------------------------------------------------------
<S>                      <C>                 <C>    
Lawrence A Guinness      53                  President, Chief Executive
                                             Officer and Director

Dixie K. Tanner          55                  Vice President,
                                             Publishing and Director

Arthur Korn              60                  Chief Financial Officer
                                             and Director

Richard A. Morse         48                  Vice President,
                                             Engineering and Technology

</TABLE>

                                       56

<PAGE>

There are no  arrangements  or  understanding  between any of the  directors  or
executive  officers of the Company and any other  person or persons  pursuant to
which they were  selected as directors or officers.  All officers plan to devote
full time to the Company 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 the
Company.  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 the  Company,  has served as the  Company's
President,  Chief  Executive  Officer,  and a member of the  Company's  Board of
Directors  since its 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.  The company's  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 its publications in-house,
and (3) marketed.  shipped, and maintained an inventory from its own offices and
warehouses.  The  company  became a  recognized  leader in the field of Canadian
educational  textbook publishing and, because of its successful record of sales,
the company was awarded Canadian  distribution rights to publications  published
by  companies  in Great  Britain  and the  United  States to expand  its 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  its 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 the present,  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 be 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.

                                       57

<PAGE>

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 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 the Company.
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  the  Company,  as  Vice  President  and  Editor-in-Chief  of the
Telli*Pages Directory.

Arthur Korn joined the Company 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  serving  a wide  variety  of
industries  with  clients  from  closely  held  corporations  to publicly  owned
corporations registered with the Securities and Exchange Commission.

Mr. Korn is currently licensed as a CPA in California and Nevada. He is a member
of the American  Institute of CPAs, the California Society 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.

                                       58

<PAGE>

Richard Alden Morse serves as Vice President of  Engineering  and Technology for
the Company. 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  the  Company,  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.

Directorships

No Director of the  Company or person  nominated  or chosen to become a Director
holds  any  other  directorship  in any  company  with  a  class  of  securities
registered  pursuant  to  section  12 of  the  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 the Company 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  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  Guinness from  borrowing any further moneys 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 Guinness and
after  informing  him that the County  had  investigated  the loans  thoroughly,
dismissed the matter  without taking any formal  action.  The District  Attorney
also advised Guinness to consult a securities  attorney before making any future
financial transactions. To this day Guinness has complied.

Promoters and Control Persons

From 1980  until 1987  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  Guinness from  borrowing any further moneys 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 Guinness and
after  informing  him that the County  had  investigated  the loans  thoroughly,
dismissed the matter  without taking any formal  action.  The District  Attorney
also advised Guinness to consult a securities  attorney before making any future
financial transactions. To this day Guinness has complied.

                                       59

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION
                                                                              
<TABLE>
<CAPTION>

                                                         Long-term
Name and                 Annual Compensation           Compensation(2)
Principal Position       Year      Salary         Bonus     Awards    Other
------------------       ----      ------         -----     ------    ------
<S>                      <C>       <C>            <C>       <C>       <C>
Lawrence Guinness        1997      $ 21,951         --         --     --
President and Ceo        1996      $185,682         --         --     --
                         1995      $56,511(1)       --         --     --
                    
</TABLE>

     (1) The Company does not have a formal  employment  contract.  Compensation
         has been based upon  annual  discretionary  factors  such as  technical
         advancements of the  Telli*Phone 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) Stock options issued in connection with sale of personal stock in 1989.
         No value assigned to stock options based upon criteria for vesting (See
         Note 4 of the audited financial statements).

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Controlling Interest

Lawrence A.  Guinness is the only person who has  beneficial  ownership  of over
Five percent (5%) of the Common Stock in the Company:

<TABLE>
<CAPTION>

                                                                     Percent
Title of       Name and Address of           Amount and Nature of      of
Class          Beneficial Owner              Beneficial Ownership     Class
------------------------------------------------------------------------------
<S>            <C>                           <C>                      <C>       
Common         Lawrence A. Guinness          8,365,166 shares         53.07%
               3 Venus Ct.
               Tiburon. CA 94920

</TABLE>



                                       60

<PAGE>
Security Ownership of Management

The  following  table  sets  forth  certain  information  with  respect  to  the
beneficial  ownership of the Company's Common Stock as of March 12, 1998, and is
adjusted to reflect the sale of Common Stock offered  hereby for (i) each person
or entity who is known by the company to  beneficially  own five percent or more
of the  outstanding  Common  Stock of the  Company,  (ii) each of the  Company's
directors,  (iii)  each of the  Names  Officers,  and  (iv)  all  directors  and
executive officers of the Company as a group. Except as noted below, the address
for each such  person  is c/o  Guinness  Telli*Phone  Corporation,  655  Redwood
Highway, Suite 219, Mill Valley, CA 94941.

<TABLE>
<CAPTION>
                                                                    Percent
Title of       Name and Address of           Amount and Nature of      of
Class          Beneficial Owner              Beneficial Ownership     Class
------------------------------------------------------------------------------
<S>            <C>                           <C>                      <C>       
Common         Lawrence A. Guinness(1)       8,365,166 shares         53.07%
               3 Venus Ct.
               Tiburon. CA 94920

Common         Dixie K. Tanner                485,000 shares           3.08%
               Secretary, Director

Common         Arthur Korn(2)                 250,000 shares (2)       1.59%
               CFO, Director

Common         Richard A. Morse               750,000 shares           4.76%
               V.P. Engineering
               and Product Development

-------------------------------------------------------------------------------
Total:                                      9,850,166 shares          62.5%

</TABLE>

     (1) Excludes  options to purchase  634,834 shares of common stock. No other
stock options have been granted nor does a stock option plan exist.

     (2) To be acquired in fiscal year end December 31, 1999.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Notes Due By  Lawrence  A.  Guinness;  Dilution of  Guinness'  Ownership  In the
Company

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
rescind,  Guinness  intends to offer his note holders an opportunity to have all
their notes payable, plus interest (totaling approximately $6.5 million) repaid,
or, as an alternative,  to receive Common Stock in the Company, 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 the Company,  thus there
will be no  dilution  to the  issued  and  outstanding  shares  of the  Company.
However, this will dilute Guinness' present ownership in the Company and have an
impact on his control of the Company's  operations.  The outcome from this event
and its effect on the future of the Company  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.

                                       61

<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a) Documents filed as a part of this report:

     (1) Financial Statements of the Registrant set forth under Item 8 are filed
as part of this report.

     (2) The Financial  Statement  Schedules  other than those listed above have
been  omitted  since  they are  either  not  required,  not  applicable,  or the
information is otherwise included.

     (b) Information filed as part of this report from Form 8-K:

     (1) No Current  Reports on Form 8-K have been filed for the period  covered
by this report. 


                                       62

<PAGE>

Pursuant to the  requirements  of section 12 of the  Securities Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                                          
                                             GUINNESS TELLI*PHONE CORPORATION
                                                   (Registrant)

Date: April 15, 1998                         /S/ Lawrence A. Guinness
                                             ---------------------------------
                                             By:  Lawrence A. Guinness
                                             Its: President


Date: April 15, 1998                         /S/ Arthur Korn
                                             ---------------------------------
                                             By: Arthur Korn
                                             Its Chief Financial Officer


Date: April 15, 1998                         /S/ Dixie K. Tanner
                                             ---------------------------------
                                             By: Dixie K. Tanner
                                             Its: Secretary

                                       63

<PAGE>
                              Guinness Telli*Phone
                                 Corporation and
                                   Subsidiary
                                 (A Development
                                 Stage Company)


















                        Consolidated Financial Statements
                     Years Ended December 31, 1997 and 1996

 
                                                          
<PAGE>

                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                                                        Contents

===============================================================================
Report of Independent Certified Public Accountants                          3

Consolidated Financial Statements
     Consolidated balance sheets                                            4
     Consolidated statements of operations                                  5
     Consolidated statements of stockholders' equity                    6 - 7
     Consolidated statements of cash flows                              8 - 9
     Summary of accounting policies                                   10 - 13
     Notes to consolidated financial statements                       14 - 18


                                       2
                     
<PAGE>


Report of Independent Certified Public Accountants

Board of Directors
Guinness Telli*Phone Corporation
Mill Valley, California

We have  audited  the  accompanying  consolidated  balance  sheets  of  Guinness
Telli*Phone  Corporation  and  Subsidiary (a  development  stage  company) as of
December  31,  1997  and  1996,  and  the  related  consolidated  statements  of
operations,  stockholders' equity, and cash flows for each of the three years in
the period  ended  December  31,  1997 and the period  from  November  12,  1980
(inception)  to  December  31,  1997.   These   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  consolidated   financial  position  of  Guinness
Telli*Phone  Corporation  and  Subsidiary  at December  31,  1997 and 1996,  and
results of their  operations and their cash flows for each of the three years in
the period  ended  December  31,  1997 and the period  from  November  12,  1980
(inception)  to  December  31,  1997,  in  conformity  with  generally  accepted
accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going  concern.  As more fully  described in
Note 1, the Company 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.  This  condition  raises
substantial  doubt about the Company's  ability to continue as a going  concern.
Continuation as a going concern is dependent upon the Company's  ability to meet
its past due debt obligations and future financing requirements, and the success
of 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.  Managements plan regarding future
operations are also described in Note 1.




March 23, 1998

                                                                        
                                       3
<PAGE>


                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                                     Consolidated Balance Sheets

===============================================================================
<TABLE>
<CAPTION>



December 31,                                         1997                 1996
------------------------------------------------------------------------------
<S>                                         <C>                  <C>

Assets

Current
  Cash                                       $         87        $       9,805
  Prepaid expenses                                 14,587                    -
 -------------------------------------------------------------------------------

Total current assets                               14,674                9,805
Equipment, net of accumulated depreciation of
  $40,995 and $30,395                              25,837               29,723
-------------------------------------------------------------------------------
                                             $     40,511        $      39,528
===============================================================================

Liabilities and Stockholders' Deficit

Current
  Notes payable (Note 3)                     $    435,000        $     435,000
  Accounts payable                                634,597              630,733
  Accrued interest payable (Note 3)               534,428              446,300
  Deferred royalty income (Note 3)                125,000              125,000
-------------------------------------------------------------------------------

Total current liabilities                       1,729,025            1,637,033
-------------------------------------------------------------------------------

Advances from stockholder (Note 2)                      -              250,000
-------------------------------------------------------------------------------

Total liabilities                               1,729,025            1,887,033
-------------------------------------------------------------------------------

Commitments, contingencies and subsequent
  event (Notes 2 and 4)

Stockholders' deficit (Notes 2, 4 and 6)
  Common stock, $.001 par value; authorized,
    25,000,000 shares; issued and outstanding, 1997 -
    14,860,160 and 1996 - 13,427,480 shares        14,860               13,427
  Additional paid-in capital                    8,891,733            8,363,766
  Deficit accumulated during development 
    stage                                     (10,595,107)         (10,224,698)
-------------------------------------------------------------------------------
                                               (1,688,514)          (1,847,505)
-------------------------------------------------------------------------------
                                         $         40,511        $      39,528
===============================================================================
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

                                        4

<PAGE>


                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                           Consolidated Statements of Operations
================================================================================

<TABLE>
<CAPTION>

                                           
                              Cumulative         
                                  During         Year ended December 31,
                             Development   ------------------------------------
                                   Stage          1997        1996        1995
-------------------------------------------------------------------------------
<S>                             <C>            <C>        <C>         <C>

Operating expenses
Research and development
  (Note 7)                       $4,551,152   $      -    $       -   $       -
Interest expense (Note 3)         4,259,147     88,128       80,120      72,834
Officer's salary (Notes 2 and 7)    504,940     21,951      185,682      56,511
Rent (Note 7)                       345,568     32,115       24,600       7,202
Other administrative expenses       934,300    228,215      200,967      63,009
-------------------------------------------------------------------------------

Net loss                      $ (10,595,107)  $(370,409)  $(491,369) $ (199,556)
===============================================================================

Basic and diluted earnings per share:
Loss per share                                $    (.03)  $    (.04) $    (.02)
===============================================================================

Weighted average common
  shares outstanding                         14,130,565  13,427,000  12,738,000
===============================================================================
</TABLE>

See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.

                                        5

<PAGE>



                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                      Consolidated Statements of Changes in Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>



                                                             Deficit
                                                            Accumulated
                                                Additional    During
                                 Common Stock      Paid-in  Development
                              Shares     Amount    Capital     Stage     Total
-------------------------------------------------------------------------------
<S>                           <C>        <C>      <C>       <C>        <C>
Stock issued for product
  rights                      2,350,000  $ 2,350            $  2,350
stock issued for predeces-
  sor company assets, in-
  cluding 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 (Note 4)                                    285,366             285,366
Net loss from November 12,
  1980 (inception) to December
  31, 1992                                             $(8,732,677) (8,732,677)
-------------------------------------------------------------------------------

Balance, December 31, 1992  10,491,000  10,491 7,566,821 (8,732,677) (1,155,365)
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 (Note 6)                                             47,250                                 47,250
Net loss                                                   (447,142)   (447,142)
-------------------------------------------------------------------------------

Balance, December 31, 1993  12,592,480  12,592 7,910,021  (9,179,819)(1,257,206)
Contributed capital (Note 6)                      52,330                 52,330
Net loss                                                    (353,954)  (353,954)
-------------------------------------------------------------------------------

Balance, December 31, 1994  12,592,480  12,592 7,962,351  (9,533,773)(1,558,830)
Stock sold for cash of
  $301,000 and a receivable
  of $101,250 (Note 6)         835,000     835   401,415                402,250
Net loss                                                    (199,556)  (199,556)
-------------------------------------------------------------------------------

</TABLE>

                                     Page 6
                                                                       
<PAGE>


                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                      Consolidated Statements of Changes in Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>


                                                             Deficit
                                                            Accumulated
                                                Additional    During
                                 Common Stock      Paid-in  Development
                              Shares     Amount    Capital     Stage     Total
------------------------------------------------------------------------------
<S>                           <C>        <C>      <C>       <C>        <C>
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)
-------------------------------------------------------------------------------

Stock issued for conversion
  of debt (Note 2)             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)
===============================================================================
</TABLE>


See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.

                                    Page 7

<PAGE>


                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                           Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>

                                           
Increase (Decrease) in Cash   Cumulative         
and Cash Equivalents              During         Year ended December 31,
                             Development   ------------------------------------
                                   Stage          1997        1996        1995
-------------------------------------------------------------------------------
<S>                             <C>            <C>        <C>         <C>
Cash used in operating activities
  Net loss                   $  (10,595,107) $(370,409)   $(491,369) $ (199,556)
  Adjustments to reconcile net loss
    to cash used in operations:
      Prepaid expenses              (14,587)   (14,587)           -           -

      Depreciation                   40,995     10,600        7,732       1,923
      Stock issued for 
      consulting services            27,500     27,500            -           -

      Increase (decrease) in accounts
        payable                     634,597      3,864      (28,639)    (65,940)
      Increase in accrued interest  534,428     88,128       80,120      72,834
      Deferred royalty income       125,000          -            -           -
-------------------------------------------------------------------------------
Net cash used in operating 
  activities                     (9,247,174)  (254,904)    (432,156)   (190,739)
-------------------------------------------------------------------------------

Cash used in investing activities
  Additions to fixed assets         (66,832)    (6,714)     (34,481)     (2,851)
-------------------------------------------------------------------------------
Cash provided by financing
  activities
    Contributed capital (Note 8)  7,543,938          -            -           -
    Sale of stock                   854,575    178,500            -     301,000
    Notes payable                   435,000          -            -           -
    Stockholder advances            323,400     73,400      277,195     (20,268)
    Collection of stock subscriptions
      receivable                    157,180          -      101,250      10,855
-------------------------------------------------------------------------------
Net cash provided by financing
  activities                      9,314,093    251,900      378,445     291,587
-------------------------------------------------------------------------------
</TABLE>
                                     Page 8


                                                                               
<PAGE>


                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                           Consolidated Statements of Cash Flows
================================================================================

<TABLE>
<CAPTION>

                                           
Increase (Decrease) in Cash   Cumulative         
and Cash Equivalents              During         Year ended December 31,
                             Development   ------------------------------------
                                   Stage          1997        1996        1995
-------------------------------------------------------------------------------
<S>                             <C>            <C>        <C>         <C>
Net increase (decrease) in cash
  and cash equivalents                   87     (9,718)     (88,192)     97,997
Cash and cash equivalents,
  beginning of year             $         -    $ 9,805    $  97,997    $      -
-------------------------------------------------------------------------------
Cash and cash equivalents,
  end of year                   $        87    $    87    $   9,805    $ 97,997
===============================================================================
</TABLE>

See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.

                                    Page 9
<PAGE>                                                                   



                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                                  Summary of Accounting Policies
================================================================================
Basis of Consolidation

The  consolidated   financial   statements  include  the  accounts  of  Guinness
Telli*Phone Corporation (the Company) and its wholly-owned subsidiary,  CoNetCo,
a California corporation. All significant intercompany balances and transactions
have been  eliminated  in  consolidation.  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.   

Description  of  Business  

The  Company  and its  predecessors  have been in the  development  stage  since
inception.  The  Company is  engaged in  developing  an  interactive  networking
system, the Telli*Phone,  which will allow access to electronic information. The
Company determined that effective December 31, 1994 all significant research and
development regarding the Telli*Phone had been completed.  

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  the  Company's  wholly-owned  subsidiary,   acquired  from
CoNetCo's  major  stockholder  the assets of the  businesses  known as  Guinness
Productions,   Inc.  and  Guinness  Computer   Television  Corp.  (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*Phone.  For  accounting  purposes,  all  costs  incurred  by the  Guinness
Companies  to develop the  Telli*Phone  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 common  control.  The  liabilities  incurred and
assumed by the Guinness Companies during its development of the Telli*Phone have
been  assumed  by  the  shareholder  of  the  Guinness  Companies.  The  primary
shareholder of Guinness Telli*Phone is also the

                                   Page 10

<PAGE>


                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                                  Summary of Accounting Policies
================================================================================
primary  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 the Company 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 the Company's  stock.  Innstar  Corporation was then merged
into the Company.  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 the Company'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 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.

Depreciation

Depreciation  is computed on a  straight-line  basis over the  estimated  useful
lives of the assets, ranging from 5 to 12 years. Depreciation expense of $10,600

                                    Page 11
<PAGE>
                
                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                                  Summary of Accounting Policies
================================================================================
in 1997,  $7,732 in 1996,  and  $1,923  in 1995 and  $40,995  cumulative  during
development stage has been charged to operations.  

Cash and Cash Equivalents 

The Company  considers  investments  purchased with an initial maturity of three
months or less to be cash equivalents.

Use 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.
Actual results could differ from those estimates.

Loss Per Share

Effective  for the year  ended  December  31,  1997,  the  Company  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 the Company has
a net loss, dilutive earnings per share is 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.

                                       Page 12
<PAGE>
                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                                  Summary of Accounting Policies
================================================================================
Income Taxes

Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.

Fair Value of Financial  Instruments  

Statement of Financial  Accounting  Standards  No. 107,  Disclosures  about Fair
Value of Financial Instruments, requires that the Company disclose the estimated
fair value for its financial instruments for which it is practicable to estimate
their  values.  The  Company's  financial  instruments  include  cash,  due from
stockholders,  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 the Company.

                                    Page 13

                                                                            
<PAGE>

                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                      Notes to Consolidated Financial Statements
================================================================================
1.    Statement Presentation

The financial  statements have been prepared  assuming the Company will continue
as a going  concern.  Although  the Company is still in the  development  stage,
management is currently  negotiating to raise adequate  financing to produce and
place Telli*Phone units into a test market.  The Company is continuing to pursue
additional debt and equity  financing while continuing to modify and improve the
Telli*Phone.  The Company's  ability to continue as a going concern is dependent
on  management's  success  in  obtaining  financing,   repaying  past  due  debt
obligations and the acceptance of the  Telli*Phone by the test market.  However,
the Company has significantly  curtailed  expenditures with only necessary costs
being paid from the sale of stock (see Note 6). Once the system is in place, the
Company anticipates being able to attract financial support from those having an
interest in reaching subscribers.

Because of recurring losses, negative working capital, 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.  The financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

2.    Transactions with Stockholders

During 1996, the Company was advanced various  non-interest bearing funds from a
minority 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. In February 1997, the Company
and the minority shareholder converted the 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.


                                    Page 14

<PAGE>


                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                      Notes to Consolidated Financial Statements
================================================================================
3.  Notes  Payable

The  Company,  through  its  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  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 the  Company's  stock  is  traded  after  its  initial  public
offering.  During 1990,  approximately  17 of the notes holders  modified  their
royalty agreements to a conventional note payable.  These notes bear interest at
10%, are in default at December 31, 1997, and require  future  royalty  payments
but do not contain any features  allowing the  conversion to common  stock.  The
Company is currently negotiating with the note holders to convert their debt and
accrued  interest  into common stock.  As of December 31, 1997,  the Company 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*Phone  commence.  The amortization  period of deferred revenue has not
yet been determined. 

4. Commitments 

Royalty Agreements

As part of CoNetCo's  acquisition  of the Guinness  Companies,  CoNetCo  granted
royalty  rights of 5% of all future  revenues  generated by the sale or lease of
the Community News Network and the Telli*Phone  instrument to the shareholder of
the Guinness Companies.  In addition,  royalty and note holders received royalty
rights. Under these agreements, the Company will pay royalties aggregating 2.26%
of the manufacturer's actual net price for which each Telli*Phone is sold.

Stock Options

In order  to  provide  interim  funds  for the  development  of the  Telli*Phone
instrument,  CoNetCo's major stockholder  agreed in September 1989 that he would

                                    Page 15

<PAGE>

                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                      Notes to Consolidated Financial Statements
================================================================================
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 to
purchase shares vests upon the Company reporting earnings per share of $1 before
giving effect, if any, to these options.  The options expire in the lesser of 10
years from  September 1, 1989,  or two years  following the year the options are
vested.  The option has been assumed by Guinness  Telli*Phone  Corporation  on a
share-for-share  basis.  The total number of shares sold by the stockholder with
the proceeds contributed to CoNetCo was 634,834 at a price of $285,366, or $0.45
per share.

Shareholder and Predecessor Company Obligations

A  creditor  of the  Guinness  Companies,  and now a  creditor  of the  Guinness
Companies' former shareholder,  has filed a lien against the shareholder 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.  The Company 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 shareholder of the Guinness  Companies.
The shareholder of the Guinness Companies is currently the majority  shareholder
of the Company.  The ultimate  outcome of this matter is unknown and nothing has
been recorded relating to the matter.

5.    Income Tax

Since the Company is in the development  stage and management  cannot  determine
that it is more likely than not the asset will be  recovered,  it has provided a
100% valuation  allowance  against the deferred tax asset resulting from its net
operating  loss  carryforward  and no  deferred  tax asset is  reflected  in the
accompanying financial statements. There are no deferred tax liabilities.

                                   Page 16

<PAGE>

                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                      Notes to Consolidated Financial Statements

================================================================================
The deferred tax assets and valuation  allowances  for the years ended  December
31, 1997 and 1996 are as follows:

                                                    1997                  1996
--------------------------------------------------------------------------------
Net operating loss carryforward              $ 1,430,000         $    1,306,000
Valuation allowances                          (1,430,000)            (1,306,000)
-------------------------------------------------------------------------------
                                             $         -         $           -
===============================================================================

The  Company  has  approximately   $1,570,000  of  Federal  net  operating  loss
carryforwards  expiring  between 2004 and 2012.  The losses  accumulated  by the
Company for tax purposes is significantly  lower than the accumulated  losses in
these  financial   statements  because  the  accumulated  losses  for  financial
statement  purposes  includes  approximately  $7.2 million of losses incurred by
predecessor  companies.   Additionally,   the  accumulated  loss  for  financial
statement  purposes was also increased by  approximately  $2 million relating to
costs  improperly  capitalized by CoNetCo since 1989 to develop the Telli*Phone.
For tax  purposes,  the Company  must amend its prior tax returns to correct for
CoNetCo's  accounting for the product  development costs. The gross deferred tax
asset has been calculated  under the assumption that the amended returns will be
prepared.

6.    Equity Transactions

In January  1997,  the Company  converted  $323,400 of advances  from one of its
stockholders  to 675,680  shares of its common  stock.  In September  1997,  the
Company  sold  207,000 of its common  stock for  $178,500  which was received in
1997. In December  1997,  the Company  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,  the Company  sold  700,000  shares of its common stock for
$301,000  which was all received in 1995. On December 15, 1995, the Company 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.

                                    Page 17
<PAGE>

                                            Guinness Telli*Phone Corporation and
                                        Subsidiary (A Development Stage Company)

                                      Notes to Consolidated Financial Statements
================================================================================

In fiscal 1994 and 1993, the principal shareholder paid operating expenses
on behalf of the Company totaling $52,330 and $47,250. These amounts
were accounted for as contributed capital and increased additional paid-in
capital.

7.    Research and Development

Research  and  development  costs  represent  costs the Company  (including  the
predecessor  companies)  believes are directly related to the development of the
Telli*Phone.   Included  in  cumulative   research  and  development   costs  is
approximately  $1,077,000 of officer compensation and approximately  $800,000 of
rent expense.  During the period of product  development,  the Company estimated
that,  excluding  interest,  approximately  80% of all  expenses  incurred  have
related directly to the development of the Telli*Phone.

8.    Cash Flow Statement

There were no cash payments for interest or taxes during the periods  presented.
In 1993,  the Company  acquired the stock of Innstar  Corporation  for 1,551,480
shares of the  Company'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
shareholder, who is also the primary shareholder of the Company.


                                     Page 18

<PAGE>