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, 1996

/ /  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) 389-94420

     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/

     There is no current market for the Registrant's common stock. The number of
outstanding  shares  of the  Registrant's  Common  Stock on March  24,  1997 was
14,103,160.


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                                TABLE OF CONTENTS

                                     PART I

                                                                          Page
                                                                          ----
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........................................  22
                Sources and Availability of Raw Materials................  25
                Patents, Trademarks, Licenses, Franchises and
                Concessions..............................................  26
                Seasonal Business........................................  27
                Significant Working Capital Required.....................  27
                Dependence on a Single Customer..........................  28
                Backlog Orders...........................................  28
                Government Regulation....................................  28
                Competition..............................................  28
                Research and Development.................................  32
                Environmental Impacts....................................  33
                Employees and Management of Growth.......................  33

    (e)   Financial Information about Foreign and
                Domestic Operations and Export Sales.....................  34
                Revenues from Prior Operations...........................  34

    (f)   Factors Affecting Company's Business Operating Results and
                Financial Condition......................................  34

ITEM 2.   PROPERTIES  ...................................................  49

ITEM 3.   LEGAL PROCEEDINGS..............................................  49

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...........  49

                                       ii

<PAGE>
                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND
                RELATED STOCKHOLDER MATTERS.............................   49
                Market Information......................................   49
                Holders.................................................   50
                Dividends...............................................   50

ITEM 6.   FINANCIAL INFORMATION..........................................  51

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATION.....................  52
                  Overview...............................................  52
                  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....................  57

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS...............................  56
                Backgrounds of Directors and Executive Officers..........  57
                Directorships............................................  60
                Involvement in Certain Legal Proceedings.................  60
                Promoters and Control Persons............................  60

ITEM 11.  EXECUTIVE COMPENSATION.........................................  61

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

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................  62
                Notes Due By Lawrence A. Guinness; Dilution of Guinness'
                  Ownership in the Company...............................  62

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
                REPORTS ON FORM 8-K......................................  63
                Financial Statements.....................................  63
                Exhibits.................................................  64

                                      iii

<PAGE>
                                     PART I

ITEM 1.       BUSINESS

(a)  Overview

Guinness  Telli*Phone  Corporation  is an author and  developer of a proprietary
community  household  online  system that  enables  people  without any computer
experience to exchange  information  and conduct  business over local  telephone
lines (the  "MiniNet")  from a  simple-to-use  computerized  consumer  telephone
appliance  with a display  screen  and  online  capabilities  for  transmitting,
receiving, and processing information (the "Telli*Phone").

The Telli*Phone is approximately the size of a standard telephone, plugs into an
ordinary telephone outlet, and utilizes an internal proprietary operating system
developed by the Company that combines the power of a personal computer with the
simplicity of a telephone.  The Telli*Phone  also operates as a personal address
directory/auto-dialer,    answering    machine,    and    voice/mail   and   fax
receiving/sending  system.  It contains a smart card reader for the distribution
and accumulation of discount offers and commercial credits like frequent shopper
awards.

To establish  immediate  marketplaces for the MiniNet,  the Company offers local
online  service in the form of a continually  updatable  telephone and community
information directory (the "Telli*Phone  Directory").  The Telli*Phone Directory
is stored in a computer (the  "Server")  maintained  and operated by the Company
and located  centrally  within the community to be served by the MiniNet.  It is
connected to the local telephone system through ordinary telephone lines.

People access the MiniNet from the telephone  keypad of the  Telli*Phone  and it
provides the community with a do-it-yourself  "small town"  communication  forum
for local  businesses,  groups,  associations,  and local residents to broadcast
items,  newsletters,  reports,  schedules,  reviews,  responses,  and  comments.
Through  the  Telli*Phone  Directory  users can  distribute  movie  reviews  and
purchase  theater  tickets,  broadcast  school  reports  and  transmit  parental
responses and comments,  reserve, order, and purchase food and merchandise,  and
distribute,  accumulate,  and maintain  special  discount  offers and  preferred
commercial arrangements.

Subscriptions to the Telli*Phone  Directory are planned to be offered  initially
for $6.00 per month through local school districts in return for a percentage of
Telli*Phone  revenues to help fund  education.  Subscribers  will receive a free
Telli*Phone to plug into their existing  telephone outlet for free access to the
Telli*Phone Directory and the MiniNet.

Revenues for the Company are expected to be generated from  subscriptions to the
online Telli*Phone  Directory,  storage of commercial  advertising and community
information in the Telli*Phone Directory,  and licensing fees from companies and
organizations  with online servers that wish to communicate or transact business
with  Telli*Phone  Subscribers  or use the  Telli*Phone  Smart Card system.  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.

                                     Page 1

<PAGE>

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 Registrant.

Registrant,  through this  acquisition,  acquired the rights to a telephone  and
community news and information  computer  software  directory (the  "Telli*Phone
Directory")   and  the   Telli*Phone,   a  combined   telephone   and   computer
communications  product with a small  screen,  that has the ability of accessing
the Telli*Phone  Directory through ordinary telephone lines. The Telli*Phone has
the  potential of replacing the standard  telephone now used in virtually  every
household and office in the United States.  Through the  Telli*Phone's  combined
digital answering machine and interactive  networking access system,  users will
have the  ability  to send,  receive,  and  store  vast  amounts  of  electronic
information and transactions locally and worldwide.

Effective  February  18,  1990 (as  amended  by the March 15,  1994  agreement),
CoNetCo,   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,

                                     Page 2

<PAGE>

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 1997 is to
assemble Telli*Phones,  based on the design of its working model and constructed
from  hardware  components  the  Company has  determined  are  available  in the
marketplace,  and  establish  a  Beta  Test  of  the  Telli*Phone  Directory  in
cooperation  with a local  school  district  to  establish  credibility  for its
business  assumptions  and create  specific value for its operating  systems and
programming  assets.  Through  the  Beta  Test the  Company  hopes to be able to
attract sufficient financing to assemble additional  Telli*Phones and extend its
Initial Market Test to cover an entire community by the end of 1997.

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

Six 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 MiniNet, and engineering functions for the Telli*Phone's hardware.
The smart card reader is  installed  but no  commercial  software  application's
programs have been developed at this time.

The Company plans to bring the  Telli*Phone  and the MiniNet into the BETA stage
and  implement  a marketing  test of the system in Marin  County  California  to
prepare the products for large-scale production. The bulk of the effort required
to bring the Telli*Phone and the MiniNet to the production state will take place
in parallel  with the BETA  efforts,  with fine  tuning  done on the  production
versions from results obtained from the BETA test.

The Company is now 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  initial  stage of the market  test it will use the present
computer for its server.  However,  during the market test it plans to install a
Telli*Phone  computer  server,  designed and  manufactured  by the Company.  The
engineers  will  transfer  the present  indexing  and  Telli*Phone  navigational
systems over to the new  Telli*Phone  computer server for the final stage of the
BETA test of the entire Telli*Phone MiniNet system.

                                     Page 3
<PAGE>

The  Company's  engineers  will  upgrade  the  Telli*Phone  operating  system to
interface with the new Telli*Phone  design,  implement security features for the
MiniNet  to  protect  users,  and  implement  the  World  Wide  Web  and  e-mail
Telli*Phone  format  conversion  functions.  The Company also plans to implement
remote  authoring  software to enable  businesses and consumers to  conveniently
input  advertising and other  information into the Telli*Phone  Directories from
the field.

During  the  final  stages  of the Beta  test the  Company  will  implement  the
Telli*Phone  tracking devices that will check subscriber  telephone ID codes for
security and track subscriber  movement on the system to generate reports.  Upon
completion of the market test the Company will have created complete engineering
specifications for the MiniNet system architecture.

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

During the BETA test the Company's  engineers will redesign the analog telephone
board in the  Telli*Phone  to move from  operating with a PCIMCA S-Mos card to a
CAD PC board design using a new chip that will soon be  available.  As a result,
Telli*Phone  production  models  will  use  the  very  latest  technology.  With
continual  software  upgrading through automatic  downloads from MiniNet servers
when  subscribers are on-line,  the Company  believes that  Telli*Phones and the
MiniNet system should remain continually up-to-date.

The Company's  engineers  will also design  custom  keypad  digital keys for the
Telli*Phone, modify all the analog keys and functions, and optimize the interior
of the Telli*Phone for BETA  manufacture and government  compliance.  Additional
software systems will be developed for the Telli*Phone  including functions such
as fax,  e-mail,  voice  messaging,  VGA Telli*Phone  graphics,  notepad writer,
metering,   user  interfacing  systems,  smart  card  functions,   and  complete
engineering specifications.

Approximately  two years ago the Company  approached,  on an informal  basis,  a
number of major retail  establishments  and a limited number of consumer product
manufacturers  to discuss their  interest in working with the Company during its
Beta Test for the  purpose of  experimenting  with  Telli*Phones  as a marketing
tool. All parties verbally expressed enthusiasm about the proposal and indicated
a  willingness  to work with the Company.  They also  verbally  expressed  their
willingness to make a financial  contribution to the project in return for their
exclusive participation and to give them an edge on their competition.

When the Beta Test of the Telli*Phone Directory is underway the Company plans to
return to these potential partners to renew the discussions to arrange financing
through  the  licensing  of its  technology  for their use.  The  Company has no
assurance that it will he able to renew past discussions or that, if discussions
are opened once again, it will be successful in reaching any agreements with the
parties.

                                     Page 4
<PAGE>

During the Beta Test,  the Company  anticipates  that  Subscribers to the system
will  demonstrate  a  willingness  to keep the  product in their  homes and that
additional  corporations  will become  interested in considering  the use of the
Telli*Phone as a marketing tool.  Registrant  anticipates  being able to solicit
additional  organizations to generate additional agreements to expand the number
of  participants  committed to the project.  With additional  financial  support
Registrant  anticipates  being able to raise the capital necessary to begin full
scale operations within the Initial Market Test area by the end of 1997.

Early in 1997 the Company  anticipates being able to reach an agreement with the
school district within the Initial Market Test area to sell subscriptions to the
Telli*Phone  Directory  throughout the community  commencing in September  1997.
Within the last five years the Company has approached two major school districts
and discussed its plan to involve  school  districts in the sale of  Telli*Phone
Subscriptions  within  their  community  in return  for a share of the  revenues
generated from the use of  Telli*Phones by subscribers  within their  community.
Both districts responded favorably to the plan and verbally indicated that there
was no obstacle  standing in the way of their working with the Registrant on the
project.

The  school  districts  in the Beta Test  area  operate  in a similar  manner to
districts previously approached.  They sell magazine subscriptions each year and
participate  in  various  other  projects  to raise  funds for  schools in their
districts.  However,  the Company has not approached any of the school districts
in the Beta Test area and there is no assurance  that they would  respond in the
same  manner as the other  school  districts  approached,  or that they would be
willing to work with the Company on such a plan.

Network Geographical Access Area

The  Telli*Phone   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,  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 Network  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.

                                     Page 5

<PAGE>
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.).

Individuals cannot distribute controlled advertising to generate part-time extra
income through arts,  crafts,  and hobbies.  With the  Telli*Phone  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 initial success of the  Telli*Phone  Directory is dependent on the Company's
ability to supply Telli*Phones to a great number of homes in a concentrated area
within  a very  short  period  of  time.  The  Company's  goal is to  deliver  a
Telli*Phone to the home of every family with school age children within the area
adjacent to the central computer.  The Company plans to involve the local school
district in the sale of  subscriptions  to the Telli*Phone  Directory and in the
distribution of Telli*Phones.

Each fall many school  districts  embark on fund raising  programs.  Part of the
program in some  districts is a drive to sell  magazine  subscriptions  to local
residents.  One  person  from a  magazine  distribution  company  works with the
district to encourage  the junior high school  children to solicit  homes in the
area and sell the  residents  annual  subscriptions  to popular  magazines.  The
school  district  receives  a  percentage  of the  revenues  generated  from the
subscription sales and the children receive prizes for their efforts.  The whole
process,  from organization to the handing in of orders, takes approximately two
weeks.

The Company  intends to offer a plan whereby the school district can generate an
on-going income to help fund education. The income earned by the school district
will be a percentage of the revenues from the sale of Telli*Phone  Subscriptions
and a percentage of the  advertising  revenues  generated  from the  Telli*Phone
Directory.  The  percentage  will be a calculation of the population of the area
served by the school  district as a percentage  of the total  population  in the
area covered by the local Telli*Phone Directory.

                                     Page 6

<PAGE>

                          Secure Distribution Agreement

The Company must  finalize a  Telli*Phone  distribution  agreement  with a local
school district within the area to be served by the Telli*Phone Directory.  At a
minimum  the  Company  feels that it can expect a best  efforts  agreement  from
school  districts.  School  districts are  establishing  an  electronic  line of
communication  between the home and the school.  Many school districts have been
installing a voice/mail type system 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.

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

The  Company  feels that it is possible  for an  arrangement  to be  established
whereby the school  district makes it obligatory for parents to sign up with the
Telli*Phone Directory for $6.00 per month to receive school information and news
on an ongoing basis (similar to the schools  requiring  students to purchase gym
outfits, school notebooks and supplies, and supplementary materials from time to
time throughout the year).

The  issues for the  parents  to  consider  are that they will be  reducing  the
administrative  overhead of the schools by  eliminating  the cost of  electronic
communications  with the  home,  they  will be  providing  the  schools  with an
additional  source of funding,  school  information  will now be  available on a
telephone display screen at the push of a button at any time, and special offers
through local  merchants will be available to Telli*Phone  Subscribers to reduce
their monthly costs.

To  further  encourage  people  to  acquire  subscriptions  to  the  Telli*Phone
Directory, the Company plans to offer subscriptions to the Telli*Phone Directory
on a free,  30 day,  "on  approval"  trial basis within the area where the first
Telli*Phones  will be  distributed.  It is anticipated  that this will encourage
people without school age children to test this new voice/mail answering machine
and on-screen telephone directory.

                           Building Directory Listings

An agreement from the local school  district for  distribution  of  Telli*Phones
will  establish  proof  that  there  will be a  critical  mass of  users  in the
community with  Telli*Phones in their homes.  Local merchants will be encouraged
to purchase advertising space in the Telli*Phone Directory immediately and enter
information  about their goods and services  under their  Telli*Phone  Directory
listing.

                                     Page 7

<PAGE>

                          Company Sponsored Advertising

The Company plans to send an  advertising  package to all businesses in the area
served  by the  Telli*Phone  Directory.  The  package  will  provide  them  with
information on the Telli*Phone and the Telli*Phone  Directory.  It will announce
that the Telli*Phone is being  introduced into their area and that many affluent
consumers,   located  near  their  place  of  business,   will  have  access  to
Telli*Phones and the Telli*Phone Directory.

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*Phone  Screen Card for them to create a screen of material that they would
like to be  available  to  consumers  under  their  listing  in the  Telli*Phone
Directory.  They will be offered one free listing of one  advertising  screen of
information  Aon  approval@  for a period  of 60 days to give  them a chance  to
evaluate the system.

To  support  this  mailing  program,   the  Company  will  purchase  significant
advertising  space  in the  local  newspapers  to  promote  the fact  that  "the
Telli*Phone  is here" and is being made available to households in the area. The
advertising  will  be to  encourage  support  for  the  program  throughout  the
community,  make  merchants  aware  of the  marketplace  available  to  them  to
encourage them to return their Telli*Phone Screen Cards as soon as possible, and
to  evaluate  the  response  to the  Telli*Phone  from the people and schools in
districts where the Telli*Phone  has yet to be introduced  ("market  research to
evaluate and determine future budgeting for advertising and promotion").

                      Free Newspaper and Magazine Articles

Human interest stories and Telli*Phone  background  articles will be prepared by
Telli*Phone  Editors  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*Phone, the local schools, and funding for education.

b) the MiniNet vs. the Internet.

c) the Telli*Phone and its use to your government and local politicians.

d) the Telli*Phone and its importance to community groups and associations.

e)  individual  accounts and ideas from people in the community on how they plan
to use the Telli*Phone 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*Phone  Directory.  The purpose will be to demonstrate the Telli*Phone
and the  Telli*Phone  Directory  to  business  and  professional  members of the
community and inform them of the advantages  provided  everyone by communicating
through the Telli*Phone.

                                     Page 8
<PAGE>

The  marketing  staff  will  encourage  these  people  to work  with  the  local
Telli*Phone Licensed Editors to help them understand how the Telli*Phone is used
in the community,  how to use the Telli*Phone to their benefit,  and how easy it
is to create screens for the Telli*Phone  Directory.  In addition, the marketing
staff will assist  advertisers in using the media to draw people's  attention to
their Telli*Phone Directory listings.

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 the  Telli*Phone  and  promote its 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*Phone  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*Phone  Directory to
broadcast  information  will encourage the growth of the Telli*Phone  into other
communities.   Through   advertising  and  articles  in  the  local  media,  the
information  available  through the Telli*Phone will be highlighted by those who
have created it.

                       Telli*Phone Subscriber Smart Cards

The Company intends to issue plastic Telli*Phone smart cards  ("Telli*Cards") to
Subscribers  of the  Telli*Phone  Directory at the time their  Telli*Phones  are
delivered.  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 Telli*Phone.

The Company  believes that as  Telli*Phone  Subscribers  hear about these saving
plans and special  offers,  they will be encouraged  to check their  Telli*Phone
before going to shop, even if they have decided what they are going to buy.

                                    Beta Test

The Company will introduce its products to the  marketplace  through a Beta Test
in a single  local  community.  The Beta Test is important in that it will allow
the  Company to debug its  systems,  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*Phones. The goals to be verified are the following:

                                     Page 9

<PAGE>

a) The Telli*Phone Directory can be distributed successfully through the sale of
subscriptions by the local school district and families will come to rely on the
Telli*Phone as their primary source of school news and student information.

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

c) The Telli*Phone 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 the  Telli*Phone  as the new home  communications
appliance  to  replace  their  answering   machine  and  manage  most  of  their
telecommunications needs.

e) Major  information  providers  will  demonstrate  their  confidence  that the
Telli*Phone 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*Phone Subscribers.

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

Product Distribution

The initial success of each district  Telli*Phone  MiniNet 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*Phone to the home
of every family with school age children within a nucleus of the district served
by a Telli*Phone  Directory (the "Geographical  Access Area"). Each Geographical
Access Area is comprised of approximately 5 different areas called "Geographical
Access Units."

The Company  plans to offer  school  districts  encompassing  the most  affluent
Geographical  Access Unit in the Geographical  Access Area a plan whereby it can
generate  funds for  school  projects.  The  minimum  goal will be to have every
family in the school district purchase at least a single month's subscription to
the Telli*Phone Directory from their son or daughter.

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*Phone  and the
Telli*Phone 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*Phone Directory.

                                    Page 10

<PAGE>

A Telli*Phone  marketing  representative will conduct teacher workshops at every
school within the school district to familiarize  teachers with the Telli*Phone,
the Telli*Phone 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*Phone  Directory.  By allowing the teachers
this hands-on experience,  they will become familiar with the Electronic Teacher
section of the Telli*Phone Directory. Some teachers may be interested in writing
material  that will be  published  by the  Company and  distributed  through the
Telli*Phone.

-------------------------------------------------------------------------------

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.

                                    Page 11
<PAGE>

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 Prototype Engineering Expense
- Data Base Software Programming Expense
- Capital Purchases:
- Central Computer for Telli*Phone Directory
- Telli*Phone Production Models for Initial Market Test (100 - 200)
- Marketing Expense
- Legal and Audit Expense

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*Phone  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*Phones to households within the area
served by the  central  computer  Telli*Phone  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*Phone 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 1997. Additional programming  development of a cosmetic
nature is required to prepare the  Telli*Phone  Directory for use by the general
public.

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*Phone
Directory  as a  complete  directory  of  commercial  establishments  within the
geographic area to be served by the Telli*Phone Directory.

Management feels that approximately three months of software development will be
required to complete the above and programming enhancements.

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.

                                    Page 12

<PAGE>

Approximately  30% of the capital required to establish a Telli*Phone  Directory
within a limited  geographical area for the Beta Test will be used to set up and
purchase  Telli*Phones  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*Phone Directory.

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

Anticipated Material Changes in Number of Employees

The Company  presently employs a CEO, COO,  Secretary,  and Systems Engineer and
Programmer.  Within the first six months of 1997  Registrant  plans to employ at
least  two  more  programmers,   an  editor,  and  two  marketing  directors  in
preparation of the Beta Test.

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

<TABLE>
<CAPTION>

               FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
                       AND CLASSES OF PRODUCTS OR SERVICES

------------------------------------------------------------------------------
YEAR                             1994               1995                  1996
-------------------------------------------------------------------------------
<S>                           <C>                 <C>                <C>
Net loss                      $(353,954)          $(199,556)         $(491,369)
Identifiable assets              19,828             229,416             39,528

</TABLE>

There were no sales  during the three  years ended  December  31,  1996,  as the
Company is still in the development stage.

NOTE:  CoNetCo,  Guinness  Productions,  Inc., and Guinness Computer  Television
Corporation  are  predecessors  of the  Registrant  and  the  activities  of the
predecessors  are included in the  cumulative  financial  data of the Registrant
(See notes to Financial Statements).

                                    Page 13

<PAGE>

(d)  Narrative Description of Business

Telli*Phone Products and Services

The Telli*Phone MiniNet

The Company believes that MiniNet hardware and Telli*Phone 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.

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 intelligence of the Telli*Phone programming system is unique compared to the
operation of traditional  programming systems. The brain of the Company's 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
investigated by a Subscriber and edited by an editor experienced in the Guinness
Tri-Stage Learning Systems  programming  techniques.  The cells work together to
clarify  the  thinking  process in the mind of the  Subscriber  relative  to the
subject  matter  being  investigated  and then define a location on the computer
disk where pages of information about the subject are stored.

Telli*Phone Subscribers respond to pages of questions,  choices,  directions, or
instructions  presented on the Telli*Phone screen.  Based on each response,  the
cell program connected to that page of information evaluates the thought process
in the  mind of the  Subscriber  and  displays  specific  pages  of  information
relative  to that  thought  process.  The pages  displayed  on the screen may be
further questions for clarification, a list of facts, or a story presentation of
ideas to give the user a greater perspective of the options that may be explored
within a particular subject.

                                    Page 14

<PAGE>

The Telli*Phone Directory is divided into four main categories. These categories
are divided into subjects that have been  dissected  many times by the Company's
editors  creating  many  additional  subject  levels  containing a total of over
10,000 programmed cells. The Telli*Phone cell programming system contains a high
level of intelligence  that allows people to simply "talk" to the Telli*Phone to
locate what they want.  At the present  time,  Subscribers  use the  Telli*Phone
keypad  to enter  numbers  corresponding  to  their  choices  from  the  options
displayed on the screen.

GUIDELINE  (free  to  Subscribers)  - An  electronic  directory  of  all  retail
       businesses  and  service   vendors  in  the  area  including  a  detailed
       description of their location,  products,  services,  and special offers.
       Advertisers may enter,  update,  or change their  information at any time
       through a Telli*Phone.


COMMUNITY NEWS AND INFORMATION  (free to Subscribers) - A library of information
       from  local  government  and  service   organizations  listing  services,
       meetings, special events, educational information, and programs offered.

BUYLINE (free to  Subscribers)  - A listing  of buy and sell  items  offered  by
     Telli*Phone  Subscribers.  Information  may  be  created  in  the  Buyline,
     changed, or updated by Telli*Phone Subscribers at any time.

COMMUNITY  ON-LINE  (free to  Subscribers)  - A chat  service for members of the
community.

Each programmed cell pertains to a specific topic and contains coded information
from  different  authors  in the form of  digital  pages.  Authors,  businesses,
groups,  and associations are assigned coded pages within the topic cells. These
coded pages contain 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  Company's  Server  via
telephone lines where they are automatically  placed in the appropriate sections
of the  Telli*Phone  Directory.  Since each 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.

People are charged a per page,  monthly fee to store their pages of  information
in the Telli*Phone  Directory.  The  Telli*Phone  Directory is maintained by the
Company in a central  computer,  connected to the local  telephone  system,  and
located in the community served by the Directory listings.  The central computer
is designed to support up to 64 telephone  line  connections  and each telephone
line supports one Telli*Phone.  Based on this design, each Telli*Phone Server is
capable of  communicating  with 64 Telli*Phones at the same time. It is expected
that each Server will service as many as 1,280  Telli*Phone  Subscribers  due to
the fact that not all Subscribers will be  communicating  with the Server at the
same time.

                                    Page 15

<PAGE>

The Company  has not  conducted a test of the ability of the Server to support a
large number of  Subscribers  accessing  the  Telli*Phone  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*Phone
Directory.

The Telli*Phone

The Telli*Phone is a telephone,  speakerphone, and digital answering system with
a super twist LCD screen.  Inside the case is a high powered  personal  computer
with a modem and a smart card reader.

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*Phone central computer.  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 as a  telephone  and
answering system.

The Telli*Phone includes the following essential components:

a)   a two-line telephone with 16 telephone keys;

b)   a speaker and microphone;

c)   a 14,400 baud modem chip set (data rate up to v.32 with 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.

                                    Page 16

<PAGE>

                             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.

                            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.

                                    Page 17
<PAGE>

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.

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 A800" or A900" numbers, or individual numbers.

                                    Page 18
<PAGE>

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*Phone  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.

 .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.

                                    Page 19

<PAGE>

     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*Phone  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*Phone Authoring and Programming Language

The  Telli*Phone  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 Telli*Phone  Subscriber viewing the
display.  Telli*Phone Subscribers read the information on the Telli*Phone screen
and press keys on the  Telli*Phone  keypad to indicate  decisions that they have
made about the  information  displayed,  thus supplying  answers to the editor's
questions.

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.

                                    Page 20

<PAGE>

AMENU is a central  application  computer  software program that establishes the
guidelines  for  writing  Telli*Phone   Directory  programs  and  the  pages  of
information that represent the content of the Telli*Phone Directory. The program
is written in Assembler Language and takes up approximately 64K of memory. AMENU
interprets a Telli*Phone 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.

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

-------------------------------------------------------------------------------

                           AMENU Directional Software

Using ordinary  English and a few simple codes,  Telli*Phone  editors can design
AMENU Directional Programs for Telli*Phone  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.

The following is an example of a AMENU Directional Program.

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 AG111@ 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

                                    Page 21

<PAGE>

0,   If the Subscriber presses the ABACK@ key on the Telli*Phone keypad, go back
     and display the previous screen in the memory stack.

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


$    ( ), 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*Phone  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*Phone  Editor's  terminal screen is exactly what will appear on the
Subscriber's Telli*Phone 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*Phone Security Program

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

                            Telli*Phone Installation

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

Status of Product

A Telli*Phone  Directory  presently resides in a central computer located at the
Company's  business  office.  Only a few  business  names  and  addresses,  with
accompanying   advertising,   have  been   entered   into  a  small   number  of
classifications within the Telli*Phone  Directory.  This information was entered
for  demonstration  and testing  purposes  only. The Company does not feel it is
financially  practical to enter current  listings  until just before the product
becomes  available to Subscribers.  At this time, the  Telli*Phone  Directory is
accessed  through the telephone  system from an existing  working bench model of
the Telli*Phone plugged into a telephone outlet.

                                    Page 22

<PAGE>

During the first six months of 1997 the  Company  intends to  purchase  computer
hardware components for the assembly of Telli*Phones,  assemble Telli*Phones and
prepare the  Telli*Phone  Directory and the central network data base for a Beta
Test. Also, during this same six month period the Company will be working with a
plastics  manufacturer to design and produce a limited quantity of plastic cases
to house the Telli*Phone hardware.

During the second and third  quarters of 1997 the  Company  plans to program the
content  for  the  Telli*Phone  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*Phone Directory, that this work can be accomplished by
an editorial  staff at the same time  Telli*Phones  are being  assembled for the
Beta Test. These lists are available  through state agencies and private vendors
and contain  businesses  broken down into many categories that coincide with the
Company's data base. During this period a mailing will be sent to all businesses
within the area telling them that they are listed in the  Telli*Phone  Directory
and encouraging them to create promotional  screens to be tied to their listing.
Through a telemarketing  program Telli*Phone Free Lance Editors will assist them
in creating their first Telli*Phone Directory Screens.

Following  the Beta  Test  the  Company  plans to  contract  a  manufacturer  to
manufacture  large runs of Telli*Phones to bring down the cost of the product to
the Company and increase its profit potential.  To facilitate this the Company's
engineer,  Mr.  Richard  Morse,  will  redesign  the  main  mother  board of the
Telli*Phone to eliminate many hardware  components that are not necessary to the
operation of the  Telli*Phone as a product to distribute the Company's  software
products.  Management  anticipates that approximately six months of hardware and
software  engineering  will be  required  to design a final high run  production
model of the Telli*Phone.  This will allow a manufacturer of  telecommunications
and  computer  equipment  to  produce  large  runs  of  Telli*Phones  at a  cost
considerably below the cost of the Telli*Phones that were assembled for the Beta
Test.

As the Beta  Test is  underway  the  Company  will  begin  preparing  the  final
production  model of the  Telli*Phone  by  designing a  proprietary  PC board to
eliminate  computer  components usually found on PC boards but not necessary for
the  operation  of the  Telli*Phone.  Also,  the  Telli*Phone  is an  instrument
designed to handle a limited number of specific tasks. Many hardware  components
can be eliminated from the typical PC board because the Telli*Phone  programming
system  is able to do many of its  tasks in  software.  PC  boards  are  usually
designed  with  hardware  components  that  permit  users to manage a variety of
different tasks.  The Company  anticipates that the unit price of a large run of
Telli*Phone  PC boards will be reduced  considerably  from the present cost of a
standard PC board for a personal computer.

                                    Page 23


<PAGE>

Management must emphasize that the Telli*Phone,  as a hardware product, is not a
product of the Company.  The Company plans to either assemble  Telli*Phones from
hardware  components  that  are  presently  available  in  the  marketplace,  or
establish a  strategic  alliance  with a  manufacturer  of hardware  products to
manufacturer  Telli*Phones on its behalf, The Company views the Telli*Phone as a
marketing  incentive to encourage  customers to sign up to receive the Company's
software products. The Company will supply customers with Telli*Phones,  free of
charge, for as long as they are subscribers to its software products.

For the Beta Test the Company estimates that it will pay approximately  $600 for
the hardware components of each Telli*Phone assembled.  The Company has received
estimates  from   consultants   experienced  in  the  manufacturer  of  hardware
components  of a price of less than $200 per  Telli*Phone.  It is  difficult  to
predict an accurate  price until the Company learns from its Beta 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*Phones.

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 Beta Test.

The Company  plans that the  majority of the cost to make these  changes will be
absorbed by the  manufacturer  of  Telli*Phones  as a condition of the strategic
alliance.  To negotiate a strategic  alliance that will be to the benefit of the
Company  will  require  that the Beta  Test  reveal  significant  statistics  as
insuring  the  potential  success  of the  Company's  software  products  in the
marketplace.

The Company plans to announce its product  publicly,  and make available  public
information about its product during the second quarter of 1997.

An important  ingredient of the Company's  marketing plan is making Telli*Phones
available to Subscribers at no additional  charge for as long as they maintain a
subscription  to the  Telli*Phone  Directory.  The Company  feels it will not be
successful  unless it is able to attract a manufacturer of 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*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.

                                    Page 24
<PAGE>

By the end of the third quarter of 1997,  the Company plans to be working with a
local school district to test the use of the product in their area.

By the end of  summer  of  1997,  the  Company  plans to have  entered  into the
appropriate  sections of the  Telli*Phone  Directory the names,  addresses,  and
telephone numbers of all businesses,  groups, and associations within the county
and to have distributed 100 Telli*Phones to 100 households in the test area.

During the summer of 1997 the Company  plans to complete the  manufacture  of at
least one Telli*Phone server and have it operational within the test area.

By September  of 1997 the Company  plans to have  finalized a contract  with the
Beta  Test  school  district  to  begin  selling  Telli*Phone   Directories  and
distributing  Telli*Phones  beginning  in the new school  year of 1997  (October
1997).

In the fall of 1997 the Company  plans to have  manufactured  a minimum of 5,000
production  Telli*Phones  and have a major  marketing  effort  underway  to sell
advertising pages in the Directory.

By the end of 1997 the Company expects to have  distributed its first production
run of  Telli*Phones  to over 5,000  households  within  Southern  Marin County,
California.

Sometime  during the 1997 the Company  expects to have signed a contract with at
least one major  corporation  to use the  Telli*Phone  Smart  Card as a means of
encouraging  consumers  to use the  smart  card to earn and  maintain  "frequent
shopper bonuses".

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

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

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

-    Over 90% of  Telli*Phone  Subscribers  consider the  Telli*Phone  to be the
     device they use for almost all of their household communications (answering
     machine, e-mail, and telephone directory).

Sources and Availability of Raw Materials

The Company does not plan to manufacture  Telli*Phones  itself, nor does it have
any  significant   expertise  in  this  area.  However,   Telli*Phones  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.

                                    Page 25
<PAGE>

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. '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  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.

                                    Page 26
<PAGE>

Except  for  acquiring  a local  business  license  in  areas  where it plans to
establish a Telli*Phone 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*Phone Directory and will sell space to businesses and organizations to
advertise  their products and services in its  Directory.  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.

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*Phone  Directory by consumers may not generate
enough revenue to support the capital required to distribute  Telli*Phones on an
on-going basis. The Company will need significant revenues from paid advertising
in the Telli*Phone  Directory to support its capital  expenditures.  To generate
significant income from businesses and organizations wishing to advertise in the
Telli*Phone  Directory,  it must  distribute  enough  Telli*Phones  to  create a
critical mass of users within the area the Telli*Phone  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*Phones,  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*Phone 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*Phone  Directory  to provide a product that will
     have limited but immediate use.

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

                                    Page 27
<PAGE>

-    Delivering  a number of  Telli*Phones  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 Single Customer

The Company  feels that the success of its  business is dependent on the success
of its Beta Test.  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 create a significant  number of paid  advertising
screens in the  Telli*Phone  Directory  during the Beta Test,  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.

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 Exon Bill would
prohibit distribution of obscene,  lascivious, or indecent communications on the
Internet.  The adoption of any such laws or regulations may cause the Company to
limit the scope of the Company's  products and services in the  marketplace  and
increase  the  Company's  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,  a MiniNet
service,  the  Telli*Phone  Directory,  and the  Telli*Phone  of  existing  laws
governing  issues such as property  ownership,  libel,  and personal  privacy is
uncertain.

Competition

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

                                    Page 28
<PAGE>

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  On  Line  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  offering  Internet   connections;   newspaper  publishing
companies offering local and classified  advertising  including,  including,  in
many  cases,  telecommunication  and  online  community  information  and  news;
printers, distributors, agencies, and clubs offering or managing retail discount
coupons and redemption certificates and awards.

In  addition,  entities  that  sponsor or  maintain  high-traffic  Web sites and
manufacturers  of  telecommunications  and computer  equipment  could develop or
acquire  simple  search  and  navigation  functions  that would  produce  simple
computerized  information  products and services that compete with those offered
by 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.

                                    Page 29
<PAGE>

The  most  significant  market  where  the  Company  competes  is in the area of
telephone directories. The Telli*Phone Directory will compete primarily with the
local  Telephone  Company Yellow Pages directory in areas where it establishes a
MiniNet Telli*Phone 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 MiniNet system and Telli*Phone Directory as a major threat to
their profits,  it is possible that they would use their resources to attempt to
eliminate  competition  from the  MiniNet  and  Telli*Phone  Directory.  How the
Telephone Companies would attempt to eliminate  competition from the MiniNet and
Telli*Phone  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.  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.

Some  organizations  have  attempted  to  offer  consumer  oriented  interactive
directory services to the householder  through personal  computers.  It has been
reported  that IBM invested  over $1 billion into the Prodigy  service which has
yet to  show a  significant  profit.  CompuServe  is  well  established  but has
announced  the  closure of WOW, a  family-oriented  online  service and has lost
users to America  Online which is currently  the most popular and  profitable of
the consumer  oriented  computer  networks in spite of current 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.

                                    Page 30
<PAGE>

Also competing  online for the potentiality  huge market of "local"  advertising
dollars will be  CitySearch,  funded by AT&T and Compaq  Computer  Corp.,  among
others and Microsoft Corporation's Sidewalk, its own local service,  expected to
debut early in 1997. Cox Interactive Media plans a local service as does US West
Interactive Services.  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.

All of these  services could be accessible to  Telli*Phone  MiniNet  Subscribers
once they are  available  to the  marketplace  and if the pricing  makes  access
practicable.  All basically  promise the same thing;  movie reviews,  restaurant
listings and  reservation  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.  Among them,  Philips Home  Services is conducting 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 is  conducting  a trial of its  TransPhone  screen phone in 30
homes in Spokane,  Washington claiming it is really a test of the concept rather
than the device.  Motorola is  developing a screen phone as is Northern  Telecom
whose phone is to be 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 will ship in spring 1997,
uses Microsoft's  Windows CE operating system and web browser,  will allow users
to surf the Net,  exchange  e-mail  and voice  mail,  and  receive  personalized
information downloaded from the Web.

Various  sources,  including  Probe,  a US  research  company,  project  a 9.5 m
penetration  level of smart  phones in the US by the year  2000,  which may be a
conservative estimate. These phones and related products such as Internet phones
should appeal to the 65 percent of homes which do not have a personal  computer.
The US Electronic  Industries  Association  currently reports that 95 percent of
households  have a  telephone,  with 2.4 as the  average  number of  phones  per
household.

There is no assurance that the Company can compete  successfully for advertising
dollars 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 condition.

                                    Page 31
<PAGE>

Research and Development

The  Company's  current  development  efforts  are focused on new  products  and
product  enhancements.  The Company  believes that its software and 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 product, the Telli*Phone.

1994  $194,000
1995  nil
1996  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
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.

                                    Page 32
<PAGE>

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 15 employees,  including two in technical  maintenance,  three in
marketing, and ten 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*Phone  MiniNet Sites 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.

                                    Page 33

<PAGE>

(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  MiniNet,  has not begun  generating  any
advertising  revenues  for  the  Telli*Phone  Directory,  nor  has it  commenced
shipment  of any  Telli*Phones.  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  a computer  information  network,  the
Telli*Phone  MiniNet.  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  MiniNet  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 MiniNet and no assurance
that the user public will accept a new way to access local community information
or  that  community   businesses  and  groups  will  adopt  new   communications
strategies.  The Company's  receipt of significant  revenues is dependent on the
successful  operation of its MiniNet,  the outcome of which cannot be determined
at this time.  Any failure to develop or maintain  the MiniNet  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.

                                    Page 34
<PAGE>

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, 1996, the Company and its predecessor
had  an  accumulated   deficit  of  $10,224,698  with  current   liabilities  of
$1,637,033.   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*Phone 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.

                                    Page 35

<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*Phone  Directory
(the  MiniNet),  the level of usage of the  Telli*Phone  Directory,  demand  for
Telli*Phone  Directory  advertising,  seasonal  trends in both MiniNet 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*Phone or
accessing  the  Telli*Phone   Directory  through  the  MiniNet  or  other  media
properties  developed by the Company,  general economic  conditions and economic
conditions  specific to the MiniNet 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*Phone 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*Phone. 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  MiniNet.  There is no
assurance  of  the  Company's  ability  to  receive  significant  revenues  from
subscriptions  to the  Telli*Phone  Directory,  advertising  in the  Telli*Phone
Directory,  licensing fees to communicate  through the MiniNet with  Telli*Phone
Subscribers, or from the operation of the MiniNet.

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*Phone and the Telli*Phone  MiniNet  (Network) and any
other products  which may be developed by the Company.  The Company is currently
assessing  market  acceptance and demand with the intent of minimizing the risks
involved with the financing and  distribution of the  Telli*Phone  Directory and
the  Telli*Phone  on a  large  scale.  Market  acceptance  for  the  Telli*Phone
Directory,  the  Telli*Phone,  and MiniNet  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.

                                    Page 36
<PAGE>

Uncertainty of Market Acceptance of New Technology

The Telli*Phone MiniNet 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*Phone
MiniNet  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 MiniNet

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

There is no  assurance  that  communication  or commerce  over the MiniNet  will
develop or that  content  will be provided  in the  Telli*Phone  Directory.  The
MiniNet  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 MiniNet may  experience  significant  growth in the number of users and
level of use,  there can be no assurance  that the MiniNet  infrastructure  will
continue  to be able to support  the  demand  placed  upon it by such  potential
growth.  In addition,  the MiniNet could lose its viability due to delays in the
development  of  adoption  of new  standards  and  protocols  required to handle
increased levels of MiniNet activity, or due to increased government regulation.
Changes  in or  insufficient  availability  of  telecommunications  services  to
support the MiniNet also could  result in slower  response  times and  adversely
affect  usage  of the  MiniNet  and  the  Telli*Phone  Directory.  If use of the
Telli*Phone   Directory   does  not   continue  to  grow,   or  if  the  MiniNet
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.

                                    Page 37
<PAGE>

Uncertain Adoption of the MiniNet 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*Phone  Directory,  the
future  success of the Company is highly  dependent  on the  development  of the
MiniNet 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  MiniNet  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 MiniNet
as an  advertising  medium.  In  addition,  the  MiniNet  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 MiniNet 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*Phone Directory, and expects to continue to
do so for the foreseeable future. The Company has not introduced the Telli*Phone
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*Phone  Directory.  There  can be no  assurance  that
advertisers will purchase advertisements in the Company's Telli*Phone Directory.
The Company's ability to generate  advertising revenues will depend, among other
factors,  on  advertisers  acceptance  of  the  MiniNet  as  an  attractive  and
sustainable medium, the development of a large base of users of the Telli*Phone,
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*Phone MiniNet operation and the distribution of the Telli*Phone  Directory
within limited geographical areas, to generate the maximum number of Telli*Phone
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 MiniNet 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 freelance editors. There can be no assurance that the
Company's  marketing and  educational  efforts will encourage  people to use the
Telli*Phone  Directory  or that  pages of  information  will be  placed by third
parties in the Telli*Phone  Directory or that pages of information placed in the
Directory will encourage people to become Subscribers of the Telli*Phone and use
the  Telli*Phone  Directory  or that the  Telli*Phone  Directory  will result in
significant revenue to the Company.  Any failure of these parties to develop and
maintain  high quality and  successful  Telli*Phone  Directory  pages also could
result in  dilution to the names  Telli*Phone  and  MiniNet,  which could have a
material adverse effect on the Company's  business,  results of operations,  and
financial condition.

                                    Page 38
<PAGE>

The Company's future success also depends in part upon the timely processing and
updating of Telli*Phone 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*Phone Directory for Telli*Phone 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*Phone  Directory  information to Telli*Phone  Subscribers.
The telephone companies may assess data transmission rates that are sufficiently
high to make use of the MiniNet 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*Phone  Components;  Single  Sources of
Supply; Assembly of Telli*Phones; Cost of Telli*Phones

The Company currently assembles  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*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 to include available components or assemblies that the operation
of the Telli*Phone could be materially and adversely  affected.  Any delays with
respect to redesigning the Telli*Phone or obtaining substitute  components would
materially and adversely affect the Company's  business,  results of operations,
and financial condition.

                                    Page 39

<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 but not necessary for
the  operation  of the  Telli*Phone.  Also,  the  Telli*Phone  is an  instrument
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 main boards to be
designed by the Company  will  considerably  reduce the present cost to assemble
Telli*Phones.  There is no  assurance  that the Company  will be  successful  in
designing such a board or when designed that the Telli*Phone  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  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;  Limited  Market for the
Telli*Phone

The  Company  plans  to  contract   qualified   manufacturers  of  computer  and
telecommunications  equipment  to  produce  large  runs of  Telli*Phones  on its
behalf. It also anticipates being able to raise the capital required to purchase
large runs of  Telli*Phones.  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  or  that  if the  financing  is  available  and a
manufacture  produces  large  runs  of  Telli*Phones  that  some  or  all of the
Telli*Phones  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  and/or a delay in the delivery of the  Telli*Phones  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,  it is  designed  primarily  for use as a device to access
information  from the  Telli*Phone  Directory  through the MiniNet.  The Company
anticipates  that,  if  the  MiniNet  is not  successful,  there  may  not be an
alternative  computer  information  network to which the Company  could lease or
sell  Telli*Phones.  The Company  further  anticipates  that it would  realize a
substantial  loss  on the  Telli*Phones  if it  were  forced  to  lease  or sell
Telli*Phones  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.

                                    Page 40
<PAGE>

In the intensely competitive  telephone-computer  industry, large companies such
as NorTel, Panasonic, and Philips which have significantly greater financial and
management  resources  than the  Company,  could  produce a  substitute  for the
Telli*Phone  appliance at a better  price.  In that case it is possible that the
Company could use that source for Telli*Phones.  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  MiniNet  Server;
Dependence on Additional Financing for Growth

The computer  equipment that maintains the Telli*Phone  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  MiniNet in the  initial  markets  will depend on the
Company's  ability to acquire  additional  equipment and assemblies to establish
MiniNet Sites and distribute  Telli*Phones into additional markets.  The Company
anticipates  using various financing methods including debt financing and equity
financing to raise capital for the purchase of additional  MiniNet equipment and
assemblies to establish  additional  MiniNet  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 the Telli*Phone, the Telli*Phone Directory, and the MiniNet

Substantially  all of the  Company's  revenues  in the  foreseeable  future  are
expected to be derived from  Subscriptions  to the  Telli*Phone  Directory.  The
purchase of advertising pages in the Telli*Phone  Directory,  and the license of
the Company's software and the right to communicate with Telli*Phone Subscribers
through their  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.

To remain  competitive,  the  Company  must  continue to enhance and improve the
responsiveness,  functionality, and features of the Telli*Phone, the Telli*Phone
Directory,  and the MiniNet  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.

                                    Page 41
<PAGE>

Further,  because the Company has not 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 the Telli*Phone,  the Telli*Phone  Directory,
the MiniNet 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*Phones  and  Server  equipment  to be
acquired for the market  launch will be  sufficient  to  successfully  operate a
single MiniNet Station in the initial markets targeted by the Company.  However,
the Company also anticipates  that the continuing  success of the MiniNet in the
initial  markets  will  depend on the  Company's  ability to acquire  additional
Telli*Phones 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*Phones  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*Phone
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
the  Telli*Phone  is  generally  available to other  manufacturers.  Some of the
technology utilized in the Telli*Phone  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*Phone,  the  Telli*Phone
Directory,  and the MiniNet 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.

                                    Page 42
<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*Phone  MiniNet  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*Phone  Directory content and Telli*Phone  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
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.

                                    Page 43
<PAGE>

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, 1996, 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  Telli*Phone  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.

                                    Page 44
<PAGE>

The  most  significant  market  where  the  Company  competes  is in the area of
telephone directories. The Telli*Phone Directory will compete primarily with the
local  Telephone  Company Yellow Pages directory in areas where it establishes a
MiniNet Telli*Phone 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 MiniNet system and Telli*Phone Directory as a major threat to
their profits,  it is possible that they would use their resources to attempt to
eliminate  competition  from the  MiniNet  and  Telli*Phone  Directory.  How the
Telephone Companies would attempt to eliminate  competition from the MiniNet and
Telli*Phone 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  televisions  by  encouraging  consumers to attach  cablevision/terminal
boxes to their television sets.

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."

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  MiniNet  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  MiniNet  Servers  and  the  computer  systems  of  other  Telli*Phone
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"), Spring 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.  Such incidents involved hackers bypassing  firewalls and

                                    Page 45

<PAGE>

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
MiniNet 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 MiniNet Servers which will
contain  customer  information  for public  access.  The  Company's  advertising
revenues from the Telli*Phone Directory are dependent in part upon the Company's
ability  to  protect  its  internal  MiniNet  infrastructure  and the  pages  of
information in the Telli*Phone 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*Phones,  MiniNet 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*Phone  Directory
subscriptions  and from fees charged to  individuals,  businesses,  groups,  and
associations  for the storage of their pages of information  in the  appropriate
sections of the MiniNet's Telli*Phone 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 MiniNet's  Telli*Phone  Directory and to communicate and
transact business with Subscribers in their homes over their Telli*Phones. There
can be no  assurance  that this income will cover the cost of  Telli*Phones  and
MiniNet 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.

                                    Page 46
<PAGE>

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
"RBOCs") 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,
prohibiting obscene,  lascivious or indecent communications on the Internet. The
adoption of any such laws or regulations  would  similarly  apply to the MiniNet
and may  decrease the growth of the  MiniNet,  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
MiniNet 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.

Concentration of Stock Ownership

The  present  directors,  executive  officers  and their  respective  affiliates
beneficially  own  approximately  69.60% 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.

                                    Page 47
<PAGE>

No Prior Public Market

There has been no public market for the Company's Common Stock, and there can be
no assurance  that an active  public market for the Common Stock will develop or
be sustained.

Effects of Certain Charter Provisions;  Antitakeover 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.

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*Phone  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.

                                    Page 49
<PAGE>

ITEM 2.   PROPERTIES

The Company currently occupies  approximately 1,000 square feet of space located
in Mill Valley,  California,  where it maintains its administrative  offices and
MiniNet 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*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 1997.

ITEM 3.   LEGAL PROCEEDINGS

Registrant 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.

                                     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.

                                    Page 49

<PAGE>

Holders

As of March 24, 1997, there are 533 shareholders,  holding a total of 14,103,160
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
8,515,166 shares of the Common Stock of the Company which  represents  60.44% 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.

                                    Page 50

<PAGE>


ITEM 6.   FINANCIAL INFORMATION

<TABLE>
<CAPTION>

                 GUINNESS TELLI*PHONE CORPORATION AND SUBSIDIARY
                             SELECTED FINANCIAL DATA
                       FIVE YEARS ENDED DECEMBER 31, 1996

                              1996      1995      1994      1993      1992
                              ----      ----      ----      ----       ----
<S>                           <C>       <C>       <C>       <C>       <C>
Net Sales                     None      None      None      None      None

Income (Loss) from Continuing
Operations(A)            $(491,369)  $(199,556) $(353,954) $(447,142)$(225,952)

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

TOTAL ASSETS             $  39,528   $ 229,416  $  19,828  $ 68,567  $   7,015

Weighted Average
Number of Common
Shares Outstanding (B) 13,427,480  12,738,397  12,592,480 11,541,740 10,491,000

Long-term
Obligations (C)               None      None      None      None      None

Cash Dividends Declared
Per Share                     None      None      None      None      None

</TABLE>

     (A) Cumulative  results of operation  since  inception are losses  totaling
$(10,224,698).

     (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  Products,  Inc.,  and  Guinness  Computer  Television
Corporation  are  predecessors  of the  Registrant  and  the  activities  of the
predecessors are included in the cumulative financial data of the Registrant.

                                    Page 51

<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  determined  that research
and  development of the  Telli*Phone  has been  completed.  The Company's  major
emphasis  during fiscal 1995 and 1996 has been the refinement of the Telli*Phone
and the generation of working capital.

Guinness Telli*Phone has generated no revenues and incurred cumulative losses of
approximately  $10.2 million dollars since inception,  of which approximately $7
million of such losses relate to those of the predecessor companies. The Company
expects to incur  operating  losses  through  1997 as it continues to devote the
majority of its available  financial resources to the  commercialization  of the
Telli*Phone.  Future  profitability  of the Company is dependent upon successful
commercialization  of the Telli*Phone.  Furthermore,  as the Company attempts to
achieve commercialization of the Telli*Phone,  it could encounter seasonality or
other currently unforeseen factors causing additional  variability in its future
operating results.

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.

Because of recurring losses,  negative working capital and shareholders' 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.

                                    Page 52

<PAGE>

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.

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 primary  shareholder.  During the first six months of fiscal 1997, 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  Initial
Market Test of the  Telli*Phone  concept in a single  community.  The  following
details the  anticipated  use of the $550,000:


On the  assumption the Company is able to raise capital to finance the Beta
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*Phone Prototype Engineering Expense...........................  25,000
Telli*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*Phones
required for the Beta Test.

By  the  end  of the  six-month  period  Registrant  anticipates  attaining  the
following objectives.

     1. A  fully  operational  community  Telli*Phone  Directory  in  place  and
operating with a significant number of community listings.

     2. At least 200 Telli*Phones  being used by households within the community
on an experimental basis.

     3. An  agreement  signed by a school  district to  distribute  Telli*Phones
throughout the Initial Market Test community.

     4.  At  least  one  Telli*Phone  Licensing  Agreement  signed  with a major
corporation  presently using a commercial  computer  network to communicate with
its customers through personal computers.

                                    Page 53
<PAGE>

The  Company  anticipates  that  after  the Beta  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 Beta  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 Beta Test of its products the Company plans to produce a limited  number
of  Telli*Phones  and begin  distributing  them to homes in the  Southern  Marin
County  Area.  The  Company  anticipates  being  able to  produce  at least  200
Telli*Phones for this test.

During  the Beta  Test,  the  Company's  engineers  will  assign an  inexpensive
Telli*Phone  computer board that eliminates many hardware  components  necessary
for the  operation of a personal  computer but  unnecessary  for the  successful
operation of the Telli*Phone as the everyday  consumer  product for which it was
designed. For the Beta Test the Company estimates that it will pay approximately
$600 for the hardware components of each Telli*Phone assembled.  The Company has
received estimates from consultants  experienced in the manufacturer of hardware
components  of a price of less than $200 per  Telli*Phone.  It is  difficult  to
predict an accurate  price until the Company learns from its Initial 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*Phones.

To this end,  the Company has begun  discussions  with a major  manufacturer  of
telecommunications  equipment that is capable of producing Telli*Phones and at a
favorable price.

When the Beta Test of the Telli*Phone 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 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 totaling $93,000.0 In February
1997, the Company and the minority shareholder completed negotiations to convert
the $343,000 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.

                                    Page 54

<PAGE>

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.

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 Initial Market Test of its product is underway.

The Company,  after the Securities and Exchange  Commission  permits it to trade
its securities,  plans to search for an investment  banker to assist the Company
in developing various  alternatives,  including joint venture  arrangements with
companies  in the  telecommunications  field and the sale of common  shares,  to
raise the funds it will require to take its product to the marketplace,  conduct
the Beta Test, and meet its future debt obligations.

A few investment bankers have indicated to Management that they would be willing
to work with the Company on a best efforts basis if it would increase the amount
of  capital it would be  willing  to raise.  Management  felt that none of these
investment  bankers  possessed the kind of contacts,  background,  and expertise
necessary to raise the amount of capital they  indicated  they would be prepared
to provide.

Management  anticipates  potential  future revenues will be generated from three
sources.

(a)    Sales of Subscriptions to the Telli*Phone Directory to Consumers.

(b)    Purchases  of  commercial  space in the  Telli*Phone  Directory  by local
       businesses and community groups and associations.

(c)    Licensing  fees  from   organizations   that  wish  to  communicate  with
       Telli*Phone Subscribers through their Telli*Phones.

During  the Beta  Test,  Management  will  explore  the  feasibility  of selling
franchises  to qualified  organizations  for the right to operate a  Telli*Phone
Directory  within a  defined  geographical  area as a method  of  financing  the
establishment of new Telli*Phone Directory MiniNet geographical sites.

                                    Page 55

<PAGE>

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,
submitted in a separate section of this report.


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

In August 1996, the Company's Board of Directors  dismissed Arthur Korn, CPA, as
its independent accountant and appointed BDO Seidman, LLP.

The  independent  auditor's  report of Arthur  Korn,  CPA,  on the  consolidated
financial statements of the Company for the three years ended December 31, 1995,
dated March 17, 1996,  included in Form 10-K for the fiscal year ended  December
31, 1995, contained an explanatory paragraph raising substantial doubt about the
Company's ability to continue as a going concern. Additionally, the audit report
included an explanatory  paragraph regarding the Company's  accounting principle
relating  to  capitalized  research  and  development  and that such  accounting
principle was being challenged by the SEC.

In connection with the Company's  audits for the fiscal years ended December 31,
1995 and 1994,  there were (i) no  disagreements  with Arthur Korn,  CPA, on any
matter of accounting  principle or practice,  financial statement  disclosure or
auditing  scope  or  procedure  which  disagreements,  if  not  resolved  to the
satisfaction  of Arthur Korn,  CPA, would have caused Arthur Korn,  CPA, to make
reference  to the subject  matter of the  disagreement  in  connection  with his
report;  (ii)  no  reportable  events  as  described  in  Item  304(a)(1)(5)  of
Regulation  S-K.  During  fiscal 1996,  after lengthy  discussions  with the SEC
regarding the Company's  capitalized research and development costs, the Company
corrected the accounting for such costs and restated the financial statements to
expense such costs.

The company has finished a copy of the  disclosure  contained in this section to
Arthur Korn, CPA, as to whether he agrees.  Arthur Korn, CPA, has responded that
he agrees  with the  statements  made  herein  and,  as  required by Item 304 of
Regulation  S-K, to furnish to the Company a letter  addressed to the Securities
and Exchange Commission to that effect.

During the recent fiscal years 1995 and 1994 and through July 1996,  the Company
had not  consulted  with BDO Seidman  regarding  either (1) the  application  of
accounting principles to a specified transaction,  either completed or proposed;
or the type of audit opinion that might be rendered on the  Company's  financial
statements  and either a written  report  was  provided  to the  Company or oral
advice  was  provided  that  BDO  Seidman  concluded  was  an  important  factor
considered by the Company in reaching a decision as to the accounting,  auditing
of financial reporting issue; or (2) any matter that was either the subject of a
"disagreement"  or a  "reportable  event"  (as such  terms are  defined  in Item
304(a)(1) of Regulation S-K).

                                    Page 56

<PAGE>

                                    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                    54        Vice President,
                                                  Publishing and Director

     Arthur Korn                        59        Chief Financial Officer
                                                  and Director

     Richard A. Morse                   47        Vice President,
                                                  Engineering and Technology

     John Willis                        54        Director

</TABLE>

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.

                                    Page 57

<PAGE>

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.

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*Phone 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.

                                    Page 58

<PAGE>

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.

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.

John Willis  became a director of the Company in August 1996.  From 1991 to 1994
Mr.  Willis served as Senior  Manager of the Capital  Markets Group and later as
Vice President of Sanwa Financial Products with the London,  England,  Branch of
Sanwa Bank Limited  responsible  for  marketing to the FTSE 100, the one hundred
largest public limited corporations in the UK.

From  1968 to 1988  Mr.  Willis  was  associated  with  various  investment  and
investment  management  firms  as a  principal  or  equity  owner  in  either  a
management or sales position. His experience included Registered  Representative
with Dean Witter & Co., Denver,  Colorado;  Manager and equity owner of the West
Coast Regional  Office in Los Angeles of Ameritrade,  a discount  brokerage firm
with  headquarters  in Omaha,  Nebraska;  and Vice  President  and  Manager  for
Richardson  Greenshields,  Spear  Financial  Services,  and a  nationally  known
investment  management  firm. In 1988 he rejoined Dean Witter & Co, in their San
Francisco  Office  where he  served  as Vice  President  presiding  over  assets
exceeding $50 million.  From 1963 to 1968 he was employed with the Office of the
Comptroller  of the  Currency,  U.S.  Treasury  Department  as a  National  Bank
Examiner for the Twelfth  National Bank Region.  Mr. Willis holds a BS degree in
Business Administration from the University of Denver.

                                    Page 59

<PAGE>

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 monies and claiming these loans
involved the sale of securities.  The matter was referred by the Commissioner to
the District  Attorney in Marin  County,  California,  who met with 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 monies and claiming these loans
involved the sale of securities.  The matter was referred by the Commissioner to
the District  Attorney in Marin  County,  California,  who met with 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.

                                    Page 60

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

<TABLE>
<CAPTION>

                                                         Long-term
Name and                 Annual Compensation           Compensation
Principal Position       Year      Salary         Bonus     Awards    Other
------------------       ----      ------         -----     ------    ------
<S>                      <C>       <C>            <C>       <C>       <C>
Lawrence Guinness        1996      $185,682         --         --     --
President and CEO        1995      $56,511(1)       --         --     --
                         1994      $52,067(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 1994 and 1993 a portion
of the annual compensation was allocated to research and development costs.

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          8,515,166 shares         60.44%
               3 Venus Ct.
               Tiburon. CA 94920

</TABLE>

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 August 13, 1996, 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.

                                    Page 61

<PAGE>

<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)       8,515,166 shares         60.44%
               3 Venus Ct.
               Tiburon. CA 94920

Common         Dixie K. Tanner                500,000 shares           3.55%
               Secretary, Director

Common         Arthur Korn(2)                 250,000 shares (2)       1.78%
               CFO, Director

Common         Richard A. Morse               200,000 shares           1.42%
               V.P. Engineering
               and Product Development

Common         John L. Willis                 100,000 shares           0.71%
               Director
-------------------------------------------------------------------------------
Total:                                      9,565,166 shares          67.90%

</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, 1997.


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.

                                    Page 62


<PAGE>

                                     PART IV

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

Financial Statements

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                       Page No.
                                                                      ---------
Report of Independent Certified Accountants ..........................  F-l

Consolidated Balance Sheet at
December 31, 1996, and 1995 ..........................................  F-2

Consolidated Statement of Operations
for the Years Ended December 31, 1996, 1995, and 1994 ................  F-3

Consolidated Statement of Changes in
Stockholders' Equity for the Years
Ended December 31, 1996, 1995, 1994, 1993 and 1992 ...................  F-4

Consolidated Statement of Cash Flows
for the Years Ended December 31, 1996, 1995 and 1994 .................  F-5

Summary of Accounting Policies .......................................  F-8

Notes to Consolidated Financial Statements ...........................  F-11

                                    Page 63


<PAGE>

Exhibits

                                INDEX OF EXHIBITS

Attached hereto and made a part hereof are the following exhibits:

     EXHIBIT 1 - OFFSHORE  SECURITIES  SUBSCRIPTION  AGREEMENT  - dated  January
6,1997 between the Company and Mexscape Investments SA DE CV.

     EXHIBIT 2 - OFFSHORE  SECURITIES  SUBSCRIPTION  AGREEMENT - dated March 12,
1997 between the Company and Mexscape Investments SA DE CV.

                                    Page 64

<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: March 31,1997                          /S/ Lawrence A. Guinness
                                             ---------------------------------
                                             By:  Lawrence A. Guinness
                                             Its: President


Date: March 31, 1997                         /S/ Arthur Korn
                                             ---------------------------------
                                             By: Arthur Korn
                                             Its Chief Financial Officer


Date: March 31, 1997                         /S/ Dixie K. Tanner
                                             ---------------------------------
                                             By: Dixie K. Tanner
                                             Its: Secretary


                                    Page 65
<PAGE>


REPORT OF INDEPENDENT CERTIFIED 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,  1996  and  1995,  and  the  related  consolidated  statements  of
operations,  stockholders' equity, and cash flows for each of the three years in
the period  ended  December  31,  1996 and the period  from  November  12,  1980
(inception)  to  December  31,  1996.   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,  1996 and 1995,  and
results of their  operations and their cash flows for each of the three years in
the period  ended  December  31,  1996 and the period  from  November  12,  1980
(inception)  to  December  31,  1996,  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 and a shareholders'
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.


BDO Seidman, LLP

San Francisco, California
March 10, 1997

                                      F-1
<PAGE>

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

<TABLE>
<CAPTION>

December 31,                                       1996          1995
------------------------------------------------------------------------------
<S>                                               <C>            <C>
Assets
Current
  Cash                                            $ 9,805       $ 97,997
  Stock subscription receivable (Note 6)                -        101,250
  Due from stockholder (Note 2)                         -         27,195
------------------------------------------------------------------------------
Total current assets                                9,805        226,442

Equipment, net of accumulated depreciation of
  $30,395 and $22,663                              29,723          2,974


Total Assets                                      $ 39,528      $229,416
=============================================================================
Liabilities and Stockholders' Equity
Current
  Notes payable (Note 3)                          $435,000       $435,000
  Accounts payable                                 630,733        659,372
  Accrued interest payable (Note 3)                446,300        366,180
  Deferred royalty income (Note 3)                 125,000        125,000
-----------------------------------------------------------------------------
Total current liabilities                        1,637,033      1,585,552
-----------------------------------------------------------------------------
Advances from stockholder (Note 2)                 250,000              -
-----------------------------------------------------------------------------
Total Liabilities                                1,887,033      1,585,552
-----------------------------------------------------------------------------

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

Stockholders' equity (Notes 2, 4 and 6)
 Common stock, $.001 par value; authorized,
 25,000,000 shares; issued and outstanding,
 1996 and 1995  13,427,480 shares                   13,427          13,427
 Additional paid-in capital                      8,363,766       8,363,766
 Deficit accumulated during development stage  (10,224,698)     (9,733,329)
-----------------------------------------------------------------------------
Total Stockholders' Deficit                     (1,847,505)     (1,356,136)
-----------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit      $  39,528       $ 229,416
=============================================================================
</TABLE>

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

                                    Page F-2
<PAGE>


                      Guinness Telli*Phone Corporation and
                    Subsidiary (A Development Stage Company)
                      Consolidated Statement of Operations

<TABLE>
<CAPTION>

                           Cumulative
                               During          Year ended December 31,
                          Development    ----------------------------------
                                Stage        1996        1995        1994
---------------------------------------------------------------------------
<S>                           <C>            <C>          <C>         <C>

Operating expenses
Research and development
 (Note 7)                $ 4,551,152      $    -       $       -     $194,463
  Interest expense
  (Note 3)                 4,171,019       80,120         72,834       66,214
  Officer's salary
   (Note 2 and 7)            482,989      185,682         56,511       18,191
  Rent (Note 7)              313,453       24,600          7,202       27,445
  Other administrative
   expenses                  706,085      200,967         63,009       47,641
-----------------------------------------------------------------------------
Net loss                 $(10,224,698)   $(491,369)    $(199,556)   $(353,954)
==============================================================================

Loss per share                           $   (.04)     $   (.02)    $   (.03)

=============================================================================

Weighted average common
and common equivalent
shares outstanding                       13,427,000    12,738,000    12,592,000
===============================================================================
</TABLE>

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

                                    Page F-3

<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             296,550
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               401,250
 Net loss                                                   (199,556)  (199,556)
------------------------------------------------------------------------------
Balance,
December 31, 1995      13,427,480  $13,427 $8,363,766 $(9,733,329) $(1,356,136)
Net Loss                                               (  491,369)  (  491,369)
==============================================================================
Balance,
December 31, 1996      13,427,480  $13,427 $8,363,766 $(10,224,698) $(1,847,505)
==============================================================================

</TABLE>


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

                                    Page F-4

<PAGE>

                      Guinness Telli*Phone Corporation and
                    Subsidiary (A Development Stage Company)
                      Consolidated Statements of Cash Flows

Incease (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>

                           Cumulative
                               During          Year ended December 31,
                          Development    ----------------------------------
                                Stage        1995        1994        1993
---------------------------------------------------------------------------
<S>                           <C>            <C>          <C>         <C>
Cash used in operations
Net loss                 $(10,224,698)   $(491,369)   $ (199,556)   $(353,954)
 Adjustments to reconcile net loss
 to cash used in operations:
  Depreciation                30,395         7,732         1,923        1,899
  Increase (decrease) in accounts
   payable                   630,733       (28,639)      (65,940)     185,182
   Increase in
   accrued interest          466,300        80,120        72,834       66,214
   Deferred royalty income   125,000             -           -             -
------------------------------------------------------------------------------
Net cash used in operating
activities                (8,992,270)     (432,156)     (190,739)    (100,659)
------------------------------------------------------------------------------
Cash used in investing activities
 Additions to fixed assets   (60,118)      (34,481)       (2,851)          -
------------------------------------------------------------------------------

Cash provided by financing
 activities
 Contributed
  capital(Note 8)           7,543,938            -            -         52,330
 Sale of stock                676,075            -       (301,000)         -
 Notes payable                435,000            -            -            -
 Stockholder advances         250,000       277,195       (20,268)         -
 Collection of stock
  subscriptions receivable    157,180       101,250        10,855       45,075
------------------------------------------------------------------------------
Net cash provided by
financing activities        9,062,193       378,445       291,587       97,405
------------------------------------------------------------------------------

Net increase (decrease) in cash
 and cash equivalents           9,805       (88,192)       97,997       (3,254)

Cash and cash equivalents,
 beginning of year           $     -       $ 97,997      $    -        $ 3,254
------------------------------------------------------------------------------
Cash and cash equivalents,
end of year                  $  9,805      $  9,805      $ 97,997      $    -
==============================================================================
</TABLE>


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

                                    Page F-5


<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 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.

                                      F-8

<PAGE>

                      Guinness Telli*Phone Corporation and
                    Subsidiary (A Development Stage Company)
                         Summary of Accounting Policies

     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 $7,732
in  1996,  $1,923  in 1995 and  $1,899  in 1994 and  $30,395  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.

                                      F-9


  <PAGE>

                      Guinness Telli*Phone Corporation and
                    Subsidiary (A Development Stage Company)
                         Summary of Accounting Policies

Loss Per Share

     Loss per common share has been  computed  following  Accounting  Principles
Board  Opinion No. 15. Loss per share has been  computed by dividing the loss by
the  weighted  average  number  of  common  shares  outstanding.   Common  stock
equivalents such as common stock options and warrants and convertible debentures
were not included in the computation of average shares outstanding because their
inclusion would be anti-dilutive.

     Statement of Financial  Accounting  Standards No. 128,  Earnings Per Share,
establishes new standards for computing and presenting  earnings per share (EPS)
and applies to entities  with  publicly-held  common stock or  potential  common
stock. This Statement  simplifies the standards for computing earnings per share
previously  found in APB  Opinion  No. 15,  Earnings  Per Share,  and makes them
comparable to  international  EPS  standards.  It replaces the  presentation  of
primary EPS with a presentation of basic EPS. It also requires a  reconciliation
of the numerator and denominator of the diluted EPS computation.

     Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average  number of common shares outstanding
for the period.  Diluted EPS reflects the potential dilution that could occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock or resulted in the  issuance of common stock that then shared
in the  earnings of the  entity.  Diluted  EPS is  computed  similarly  to fully
diluted EPS pursuant to Opinion 15.

     This  Statement is effective  for financial  statements  issued for periods
ending after December 15, 1997,  including interim periods;  earlier application
is not permitted.  This Statement  requires  restatement of all prior-period EPS
data presented.  The Company does not believe  adoption will cause a significant
change in earnings per share.

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.

                                      F-10

<PAGE>

                      Guinness Telli*Phone Corporation and
                    Subsidiary (A Development Stage Company)
                   Notes to Consolidated Financial Statements


1.   Statement of 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 and 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 totaling $93,000.  In February
1997, the Company and the minority shareholder completed negotiations to convert
the $343,000 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.

     The  amounts due from  stockholder  at December  31,  1995  represents  the
balance  of  short-term  advances  in excess of  reimbursements  by the  primary
stockholder. The amount is unsecured and does not bear interest. The balance was
repaid in 1996.

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.

                                      F-11
<PAGE>

                      Guinness Telli*Phone Corporation and
                    Subsidiary (A Development Stage Company)
                   Notes to Consolidated Financial Statements

     These notes bear interest at 10%, are in default at December 31, 1996,  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, 1996, 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
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.

                                      F-12

<PAGE>

                        Guinness Telli*Phone Corporation
                    Subsidiary (A Development Stage Company)
                   Notes to Consolidated Financial Statements

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 carry-forward and no deferred tax asset is reflected
in the accompanying financial statements. There are no deferred tax liabilities.

     The  deferred  tax  assets and  valuation  allowances  for the years  ended
December 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>


                                           1996                     1995
------------------------------------------------------------------------------
<S>                                     <C>                      <C>
Net operating loss Carry-forward        $1,306,000               $1,139,000
Valuation allowances                    (1,306,000)              (1,139,000)
------------------------------------------------------------------------------
                                        $        -                $        -

</TABLE>


     The Company has  approximately  $1,200,000  of Federal net  operating  loss
carry-forwards  expiring  between 2004 and 2011.  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  Tell*Phone.
For tax  purposes,  the Company  must amend its prior tax returns to correct for
CoNetCo's accounting for the product development costs.

6.   Equity Transactions

     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.

     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 paid in capital.

                                      F-13
<PAGE>


                      Guinness Telli*Phone Corporation and
                    Subsidiary (A Development Stage Company)
                   Notes to Consolidated Financial Statements

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.

                                      F-14


<PAGE>



                   OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT



                                 January 6, 1997




Agreement dated January 6, 1997,  between Guinness  Telli*Phone  Corporation and
Mexscape Investments SA DE CV, for the sale of One Hundred and Six Hundred Sixty
Thousand  Shares  (660,000)  shares of the common stock of Guinness  Telli*Phone
corporation at Forty-Nine cents (U.S. $0.49) per share.


                               Exhibit 1 - Page 1
<PAGE>


                   OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT

     This  Offshore  Securities  Subscription  Agreement is executed in reliance
upon the  transaction  exemption  offered by  Regulation  S  ("Regulation  S" as
promulgated  by  the  Securities  and  Exchange  Commission  ("SEC",  under  the
Securities Act of 1933, as amended ("1933 Act").

     This Agreement has been executed by the  undersigned in connection with the
private  placement  of shares of Common  Stock  (hereinafter  referred to as the
Shares") of:

                        GUINNESS TELLI*PHONE CORPORATION

Symbol:  TELI           Exchange: NASDAQ (Have Applied)

a corporation organized under the laws of the State of Nevada, United
States of America (hereinafter referred to as the "SELLER"), and

The undersigned:

Mexscape Investments SA DE CV
c/o Mail Box 375
Boulevard de la Marina 39-F
Cabo San Lucas, BCS, Mexico

individuals  who  are  non-USA  resident,   (hereinafter   referred  to  as  the
"PURCHASER"),  who  represents  and  warrants  to, and agrees  with  Seller,  as
follows:

1.   Agreement to Subscribe; Purchase Price.

a.   The undersigned  hereby subscribes for Six Hundred Sixty Thousand (660,000)
     shares at  Forty-Nine  cents  (US$0.49)  per share payable in United States
     Dollars.

b.   Form of Payment:  Purchaser shall pay the purchaser by good funds in United
     States  Dollars to the  designated  depository  for  closing by delivery of
     security versus payment.

2. Subscriber Representation; Access to Information; Independent Investigation:

a.   Offshore  Transaction:  Purchaser  represents  and  warrants  to  Seller as
     follows:

     (1) Purchaser is not a U.S. person as that term is defined under Regulation
S.

     (2) At the time the buy order was  originated,  Purchaser  was  outside the
United  States and is outside the United  States as of the date of the execution
and delivery of this agreement.

                               Exhibit 1 - Page 2
<PAGE>

     (3)  Purchaser  is  purchasing  the Shares for his own  account  and not on
behalf  of any  U.S.  person,  and the sale  has not  been  pre-arranged  with a
purchaser in the United States.

     (4) Each distributor  participating  in the offering of the securities,  if
any, has agreed in writing that all offers and sales of the securities  prior to
the expiration of a period  commencing on the date of the transaction and ending
40 days  thereafter  shall  only be made in  compliance  with  the  safe  harbor
contained  in  Regulation  S,  pursuant  to  registration  of  shares  under the
Securities Act of 1933 or pursuant to an exemption from registration.

     (5) Purchaser represents and warrants and hereby agrees that all offers and
sales of the shares prior to the  expiration of a period  commencing on the date
of the  transaction  and  ending  40  days  thereafter  shall  only  be  made in
compliance  with  the  safe  harbor  contained  in  Regulation  S,  pursuant  to
registration  of the securities  under the Securities Act of 1933 or pursuant to
an exemption from registration, and all offers and sales after the expiration of
the 40 day period shall he wade only pursuant to such a registration  or to such
exemption from registration.

     (6) All offering  documents received by Purchaser include statements to the
effect that the Shares have not been registered under the Securities Act of 1933
and may not be offered or sold in the United States or to U.S.  persons during a
period  commencing on the date of the  transaction and ending 40 days thereafter
unless  the  shares  are  registered  under  the  Securities  Act of  1933 or an
exemption from the registration requirements is available.

     (7) Purchaser  acknowledges that the purchase of the shares involves a high
degree of risk and further  acknowledges  that he can bear the economic  risk of
the purchase of the shares, including the total loss of his investment.

     (8) Purchaser understands that the shares are being offered and sold to him
in reliance on specific exemptions from the registration requirements of Federal
and State  securities  laws and that the  Seller is  relying  upon the truth and
accuracy of the representations,  warranties,  agreements,  acknowledgements and
understandings  of  Purchaser  set  forth  herein  in  order  to  determine  the
applicability of such exemptions and the suitability of Purchaser to acquire the
shares.

b.   Current Public Information.  Purchaser acknowledges that Purchaser has been
     furnished with or has acquired  copies of the Company's Form 10, as well as
     copies of the Form 10-Q for the first,  second and third  quarters of 1995,
     as well as  copies of the Form  10K/A for 1995,  which are on file with the
     Securities and Exchange Commission,  as required by the Securities Act, and
     other publicly available documents.

c.   Independent Investigation; Access. Purchaser acknowledges that Purchaser is
     making the decision to purchase the shares  subscribed for, has relied upon
     independent  investigations made by him and his purchaser  representatives,
     if any, and Purchaser and such representatives,  if any, have, prior to any
     sale to him, been given access and the  opportunity to examine all material
     books and records of the Corporation,  all material  contract and documents
     relating to this  offering and an  opportunity  to ask questions of, and to
     receive  answers from Seller or any person acting on its behalf  concerning
     the terms and conditions of this offering.  Purchaser and his advisors,  if
     any, have been  furnished with access to all publicly  available  materials
     relating  to the  business,  finances  and  operations  of the  Seller  and
     materials  relating  to the offer and sale of the  shares  which  have been
     requested.  Purchaser and his advisors,  if any, have received complete and
     satisfactory answers to any such inquiries.

                               Exhibit 1 - Page 3
<PAGE>

d.   No Government  Recommendation  or Approval.  Purchaser  understands that no
     federal  or  state  agency  has  passed  on or made any  recommendation  or
     endorsement of the Shares.

3.   Issuer Representations:

a.   Reporting Company Status. Seller is a reporting issuer. Seller has complied
     with all reporting  obligations under either Section 12 (b), 12(g) or 15(d)
     of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). It
     has on file with the  Securities  and  Exchange  Commission a Form 10, Form
     10-Q filings required to be filed for the first,  second and third quarters
     of 1996, and a Form 10K/A required to be filed for 1995.

b.   Offshore Transaction.

     (1) Seller has not  offered  these  securities  to any person in the United
States or to any U.S. person as that term is defined in Regulation S.

     (2) At the time the buy  order  was  originated,  Seller  and/or  its agent
reasonably  believed  Purchaser  was outside of the United  States and was not a
U.S. person.

     (3) Seller and/or its agent reasonably believe that the transaction has not
been pre-arranged with a Purchaser in the United States.

c.   No Directed Selling Efforts.  In regard to this transaction  Seller has not
     conducted  any "directed  selling  efforts" as that term is defined in rule
     902 of  Regulation  S nor has Seller  conducted  any  general  solicitation
     relating to the offer and sale of the within securities to persons resident
     within the United States or elsewhere.

     4. Legends on Certificates.  The transaction restriction in connection with
this  offshore  offer and sale restrict  Purchaser  from offering and selling to
U.S.,  persons or for the  account or benefit of a U.S.  person for a forty (40)
day period.  The rules do not require the placement of such a restrictive legend
on the share certificate. Rule 903 (c)(2) governs the forty (40) day transaction
restriction.

     5. Exemption;  Reliance on Representations.  Purchaser understands that the
offer and sale of the Shares is not being  registered under the 1933 Act. Seller
is relying on the rules governing offers and sale made outside the United States
pursuant to  Regulation  S. Rules 901 through  904 of  Regulation  S govern this
transaction.

     6. Transfer Agent Instructions.  Seller's transfer agent will be instructed
to issue one or more share certificates  representing shares without restrictive
legend in the names of purchaser  to be specified  prior to closing and that the
shares have been issued  pursuant to Regulation S. Seller further  warrants that
no instructions  other than these  instructions  have been given to the transfer
agent  and that  these  shares  shall be  freely  transferable  on the books and
records of the company subject to compliance with applicable securities laws.

                               Exhibit 1 - Page 4
<PAGE>

     7. Stock Delivery  Instructions.  The share certificates shall be delivered
to the Purchaser on a delivery  versus payment basis at such times and places to
be mutually agreed.

     8.  Closing  Date.  The date of the issuance of the sale of the Shares (the
"Closing Date" shall be January 6, 1997, or such other  mutually  agreed to time
and place.

     9. Conditions to the Company's  Obligation to Sell.  Purchaser  understands
that Seller's obligation to sell the Stock is conditioned upon:

a.   The receipt and acceptance by Seller of this Subscription Agreement for all
     of the shares as evidenced by execution of this  subscription  agreement by
     the President or any Vice President of the Seller.

b.   Delivery into the closing  depository by Purchaser of good funds (i.e.  the
     letter of credit) as payment in full for the purchase of the shares.

     10. Conditions to Purchaser's  Obligation to Purchase.  Seller  understands
that Purchaser's obligation to purchase the stock is conditioned upon:

a.   Acceptance by Purchaser of a  satisfactory  Subscription  Agreement for the
     sale of Shares;

b.   Delivery of shares of common stock without restrictive legend.

     11.  Governing Law. This Agreement  shall be governed by and interpreted in
accordance with the rulings of the laws of the State of Nevada.

IN WITNESS WHEREOF,  this Offshore  Securities  Subscription  Agreement was duly
executed on the date first written below.

PURCHASER

MEXSCAPE INVESTMENTS SA DE CV



-----------------------------------
Morton Weisbrot



-----------------------------------
John F. Parks

                               Exhibit 1 - Page 5

<PAGE>

Accepted this 6th day of January, 1997.


GUINNESS TELLI*PHONE CORPORATION


--------------------------------------
By: Lawrence A. Guinness, President


<PAGE>




                   OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT



                                 March 12, 1997




Agreement dated March 12, 1997,  between  Guinness  Telli*Phone  Corporation and
Mexscape  Investments SA DE CV, for the sale of One Hundred and Fifteen Thousand
Six Hundred  Eight Shares  (15,680) of the common stock of Guinness  Telli*Phone
corporation at One Dollar and Twenty-Five cents (U.S. $1.25) per share.

                               Exhibit 2 - Page 1

<PAGE>


                   OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT

     This  Offshore  Securities  Subscription  Agreement is executed in reliance
upon the  transaction  exemption  offered by  Regulation  S  ("Regulation  S" as
promulgated  by  the  Securities  and  Exchange  Commission  ("SEC",  under  the
Securities Act of 1933, as amended ("1933 Act").

     This Agreement has been executed by the  undersigned in connection with the
private  placement  of shares of Common  Stock  (hereinafter  referred to as the
Shares") of:

                        GUINNESS TELLI*PHONE CORPORATION

Symbol:  TELI           Exchange: NASDAQ (Have Applied)

a corporation  organized under the laws of the State of Nevada, United States of
America (hereinafter referred to as the "SELLER"), and

The undersigned:

Mexscape Investments SA DE CV
c/o Mail Box 375
Boulevard de la Marina 39-F
Cabo San Lucas, BCS, Mexico

individuals  who  are  non-USA  resident,   (hereinafter   referred  to  as  the
"PURCHASER"),  who  represents  and  warrants  to, and agrees  with  Seller,  as
follows:

1.   Agreement to Subscribe; Purchase Price.

     a. The  undersigned  hereby  subscribes  for Fifteen  Thousand  Six Hundred
Eighty Shares (15,680) at One Dollar and  Twenty-five  cents (US$1.25) per share
payable in United States Dollars.

     b. Form of  Payment:  Purchaser  shall pay the  purchaser  by good funds in
United States  Dollars to the  designated  depository for closing by delivery of
security versus payment.

2. Subscriber Representation; Access to Information; Independent Investigation:

a.   Offshore  Transaction:  Purchaser  represents  and  warrants  to  Seller as
     follows:

     (1) Purchaser is not a U.S. person as that term is defined under Regulation
S.

     (2) At the time the buy order was  originated,  Purchaser  was  outside the
United  States and is outside the United  States as of the date of the execution
and delivery of this agreement.

                               Exhibit 2 - Page 2
<PAGE>

     (3)  Purchaser  is  purchasing  the Shares for his own  account  and not on
behalf  of any  U.S.  person,  and the sale  has not  been  pre-arranged  with a
purchaser in the United States.

     (4) Each distributor  participating  in the offering of the securities,  if
any, has agreed in writing that all offers and sales of the securities  prior to
the expiration of a period  commencing on the date of the transaction and ending
40 days  thereafter  shall  only be made in  compliance  with  the  safe  harbor
contained  in  Regulation  S,  pursuant  to  registration  of  shares  under the
Securities Act of 1933 or pursuant to an exemption from registration.

     (5) Purchaser represents and warrants and hereby agrees that all offers and
sales of the shares prior to the  expiration of a period  commencing on the date
of the  transaction  and  ending  40  days  thereafter  shall  only  be  made in
compliance  with  the  safe  harbor  contained  in  Regulation  S,  pursuant  to
registration  of the securities  under the Securities Act of 1933 or pursuant to
an exemption from registration, and all offers and sales after the expiration of
the 40 day period shall he wade only pursuant to such a registration  or to such
exemption from registration.

     (6) All offering  documents received by Purchaser include statements to the
effect that the Shares have not been registered under the Securities Act of 1933
and may not be offered or sold in the United States or to U.S.  persons during a
period  commencing on the date of the  transaction and ending 40 days thereafter
unless  the  shares  are  registered  under  the  Securities  Act of  1933 or an
exemption from the registration requirements is available.

     (7) Purchaser  acknowledges that the purchase of the shares involves a high
degree of risk and further  acknowledges  that he can bear the economic  risk of
the purchase of the shares, including the total loss of his investment.

     (8) Purchaser understands that the shares are being offered and sold to him
in reliance on specific exemptions from the registration requirements of Federal
and State  securities  laws and that the  Seller is  relying  upon the truth and
accuracy of the representations,  warranties,  agreements,  acknowledgements and
understandings  of  Purchaser  set  forth  herein  in  order  to  determine  the
applicability of such exemptions and the suitability of Purchaser to acquire the
shares.

b.   Current Public Information.  Purchaser acknowledges that Purchaser has been
     furnished with or has acquired  copies of the Company's Form 10, as well as
     copies of the Form 10-Q for the first,  second and third  quarters of 1995,
     as well as  copies of the Form  10K/A for 1995,  which are on file with the
     Securities and Exchange Commission,  as required by the Securities Act, and
     other publicly available documents.

c.   Independent Investigation; Access. Purchaser acknowledges that Purchaser is
     making the decision to purchase the shares  subscribed for, has relied upon
     independent  investigations made by him and his purchaser  representatives,
     if any, and Purchaser and such representatives,  if any, have, prior to any
     sale to him, been given access and the  opportunity to examine all material
     books and records of the Corporation,  all material  contract and documents
     relating to this  offering and an  opportunity  to ask questions of, and to
     receive  answers from Seller or any person acting on its behalf  concerning
     the terms and conditions of this offering.  Purchaser and his advisors,  if
     any, have been  furnished with access to all publicly  available  materials
     relating  to the  business,  finances  and  operations  of the  Seller  and
     materials  relating  to the offer and sale of the  shares  which  have been
     requested.  Purchaser and his advisors,  if any, have received complete and
     satisfactory answers to any such inquiries.

                               Exhibit 2 - Page 3
<PAGE>

d.   No Government  Recommendation  or Approval.  Purchaser  understands that no
     federal  or  state  agency  has  passed  on or made any  recommendation  or
     endorsement of the Shares.

3.   Issuer Representations:

a.   Reporting Company Status. Seller is a reporting issuer. Seller has complied
     with all reporting  obligations under either Section 12 (b), 12(g) or 15(d)
     of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). It
     has on file with the  Securities  and  Exchange  Commission a Form 10, Form
     10-Q filings required to be filed for the first,  second and third quarters
     of 1996, and a Form 10K/A required to be filed for 1995.

b.   Offshore Transaction.

     (1) Seller has not  offered  these  securities  to any person in the United
States or to any U.S. person as that term is defined in Regulation S.

     (2) At the time the buy  order  was  originated,  Seller  and/or  its agent
reasonably  believed  Purchaser  was outside of the United  States and was not a
U.S. person.

     (3) Seller and/or its agent reasonably believe that the transaction has not
been pre-arranged with a Purchaser in the United States.

c.   No Directed Selling Efforts.  In regard to this transaction  Seller has not
     conducted  any "directed  selling  efforts" as that term is defined in rule
     902 of  Regulation  S nor has Seller  conducted  any  general  solicitation
     relating to the offer and sale of the within securities to persons resident
     within the United States or elsewhere.

     4. Legends on Certificates.  The transaction restriction in connection with
this  offshore  offer and sale restrict  Purchaser  from offering and selling to
U.S.,  persons or for the  account or benefit of a U.S.  person for a forty (40)
day period.  The rules do not require the placement of such a restrictive legend
on the share certificate. Rule 903 (c)(2) governs the forty (40) day transaction
restriction.

     5. Exemption;  Reliance on Representations.  Purchaser understands that the
offer and sale of the Shares is not being  registered under the 1933 Act. Seller
is relying on the rules governing offers and sale made outside the United States
pursuant to  Regulation  S. Rules 901 through  904 of  Regulation  S govern this
transaction.

     6. Transfer Agent Instructions.  Seller's transfer agent will be instructed
to issue one or more share certificates  representing shares without restrictive
legend in the names of purchaser  to be specified  prior to closing and that the
shares have been issued  pursuant to Regulation S. Seller further  warrants that
no instructions  other than these  instructions  have been given to the transfer
agent  and that  these  shares  shall be  freely  transferable  on the books and
records of the company subject to compliance with applicable securities laws.

                               Exhibit 2 - Page 4
<PAGE>

     7. Stock Delivery  Instructions.  The share certificates shall be delivered
to the Purchaser on a delivery  versus payment basis at such times and places to
be mutually agreed.

     8.  Closing  Date.  The date of the issuance of the sale of the Shares (the
"Closing  Date" shall be March 12, 1997, or such other  mutually  agreed to time
and place.

     9. Conditions to the Company's  Obligation to Sell.  Purchaser  understands
that Seller's obligation to sell the Stock is conditioned upon:

a.   The receipt and acceptance by Seller of this Subscription Agreement for all
     of the shares as evidenced by execution of this  subscription  agreement by
     the President or any Vice President of the Seller.

b.   Delivery into the closing  depository by Purchaser of good funds (i.e.  the
     letter of credit) as payment in full for the purchase of the shares.

     10. Conditions to Purchaser's  Obligation to Purchase.  Seller  understands
that Purchaser's obligation to purchase the stock is conditioned upon:

a.   Acceptance by Purchaser of a  satisfactory  Subscription  Agreement for the
     sale of Shares;

b.   Delivery of shares of common stock without restrictive legend.

     11.  Governing Law. This Agreement  shall be governed by and interpreted in
accordance with the rulings of the laws of the State of Nevada.

IN WITNESS WHEREOF,  this Offshore  Securities  Subscription  Agreement was duly
executed on the date first written below.

PURCHASER

MEXSCAPE INVESTMENTS SA DE CV


-----------------------------------
Morton Weisbrot



-----------------------------------
John F. Parks

                               Exhibit 2 - Page 5

<PAGE>

Accepted this 12th day of March, 1997


GUINNESS TELLI*PHONE CORPORATION



------------------------------------
By: Lawrence A. Guinness, President

                               Exhibit 2 - Page 5