Table-Phone pursues funds for cordless pay telephones.

Table-Phone pursues funds for cordless pay telephones

Table-Phone Systems Inc. will soon complete a $262,500 private placement of stock to take its remote pay phone to market, but an engineering consultant who worked on the project said a "bug" still remained in the system when he left the company three months ago.

After more than two years of product development and a long search for funding, Carlsbad-based Table-Phone is about to complete a private placement of 26,250 shares of common stock with local and Orange County investors, said majority owner and President Kent Truscott. The $10-a-share placement was initiated in May and will be complete by the end of this month, Truscott said. The stock will be sold in 35 units of 750 shares each, representing a total of about 20 percent of the business.

Proceeds from the stock sale will be used to produce 200 Table-Phones and for continuation of a marketing program for the company. Table-Phone, a product of deregulation of the pay phone business, hopes its device will replace wall-hanging pay phones in restaurants, bars, hair salons, hotels and other establishments where the convenience of a cordless phone would be advantageous. The product is a computerized billing machine that sits next to a cordless phone, keeping track of each call made and producing a printed tape totaling the call charges.

Even with 106 units in the field and 200 more on the way, Marco Thompson, the engineering consultant who designed the current system, claims that there is a flaw in the system's hardware. Thompson's Doctor Design Inc. was hired by Truscott to re-engineer the product late in 1986, a project that Thompson said was a complete rebuild and, Truscott maintains, was only an adjustment to the current product. Thompson also holds an equity interest in the company after investing $35,000 in cash and what he estimated as another $30,000 in services. The private placement memorandum lists Doctor Design as a holder of 11,195 shares, the third-largest stake in the company. Thompson said he left Table-Phone three months ago after promises of financing for the company fell through several times.

"When we were last involved with it, it had a bug in it," Thompson said. "I don't know if he's brought on another hardware engineering team to clean up that last bug or not."

Truscott said the units in the field are operating without a hitch and demonstrated the device as proof. He said Milligan's in La Jolla and Pacifica Grill near downtown San Diego are two establishments where the system is in use. He did not recall discussing the problem referred to by Thompson and said plans are for Thompson to work on the project further, including producing software that will allow three remote phones to work off one Table-Phone device. He said Thompson was granted an option to become vice president of engineering for Table-Phone while working for the company and that he hopes Thompson will still exercise that option and come back to work for the company.

Thompson, on the other hand, was not as cordial towards Truscott. He was surprised to hear that outside capital had been raised by the company and said that he considered his association with Table-Phone to be one of the least rewarding of his career. Still, Thompson expressed enthusiasm about the product and said he probably would be contacting Truscott soon, now that funding appears to be coming through. He acknowledged that he had been given the option to join Table-Phone full time.

"Based on the equity I own in the company today and the fact that they are putting the financing together, maybe it wasn't money flushed down the drain after all," Thompson said.

Truscott agreed with Thompson that the company's inability to get funded until now was a disappointment to everyone. He said the consultant's frustration was probably brought about when a Denver-based company pulled out of a planned merger early this year. After months of negotiations, "when it came right down to doing the final agreement, they got greedy" and demanded controlling interest in Table-Phone, Truscott said.

Truscott, who declined to name investors in the private placement, said a $1 million public offering soon will follow and will, in part, cash out the investments put up in the private placement. Negotiations are under way with "two or three" underwriters who would participate in the highly speculative offering, said Truscott. The prospectus and disclosure statements are complete and should be filed with the Securities and Exchange Commission by the end of August, he said.

Table-Phone is planning a so-called S-18 public offering, often called the "short form" because a company can avoid filing much of the audited financial information required under the standard S-1 filing, said Tim Fitzpatrick, an attorney with Lorber, Grady, Farley, Jensen & Volk of Rancho Bernardo. The S-18 is a quicker, less costly way of going public, Fitzpatrick said, but it is used often by smaller companies that are raising smaller amounts of capital. He said that the filing is usually subject to "Rule 144" which puts restrictions on trading by insiders, or those already invested in the company.

According to Table-Phone's business plan, the pay phone services market is now at $5.1 billion a year. The company's goal is to place Table-Phone systems in one-quarter of the 5,100 restaurants in San Diego county.

Table-Phone plans to run its own operations in San Diego and Orange Counties, but will soon start to franchise the business across the nation, Truscott said.

Table-Phone projects net income of $1.8 million in its first year, based on the sale of 50 franchises. The company reports gross sales since its inception of $100,000 in the private placement memorandum, with another $100,000 backlog. Revenue for the quarter ended March 31, 1987 was $22,760 with a net loss of $17,700.

Franchises will pay about $1,500 for each device and then pay a 4 percent royalty to Table-Phone out of revenues. The other revenue will be split between the establishment owner and the franchisee, with the former being responsible for the phone bills.

Table-Phone expects each location to account for about 20 calls per day for gross revenues of $710 per month, based on 90 percent local calls and 5 percent each for long distance and toll calls. Projections are that the establishment owner would net more than $200 a month.

Locations being tested now have yet to reach the 20-call a day level, Truscott admitted. Even at Milligan's the level of business is 10 to 15 calls a day, he said, but part of the problem is that people are not aware that such a service exists.