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<SEC-DOCUMENT>0000950131-02-002340.txt : 20020613
<SEC-HEADER>0000950131-02-002340.hdr.sgml : 20020613
<ACCEPTANCE-DATETIME>20020613115510
ACCESSION NUMBER:		0000950131-02-002340
CONFORMED SUBMISSION TYPE:	S-1/A
PUBLIC DOCUMENT COUNT:		3
FILED AS OF DATE:		20020613

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			DAUPHIN TECHNOLOGY INC
		CENTRAL INDEX KEY:			0000832489
		STANDARD INDUSTRIAL CLASSIFICATION:	COMPUTER & OFFICE EQUIPMENT [3570]
		IRS NUMBER:				870455038
		STATE OF INCORPORATION:			IL
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		S-1/A
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-73654
		FILM NUMBER:		02677954

	BUSINESS ADDRESS:	
		STREET 1:		800 E NORTHWEST
		STREET 2:		STE 950
		CITY:			PALATINE
		STATE:			IL
		ZIP:			60067
		BUSINESS PHONE:		8473584406

	MAIL ADDRESS:	
		STREET 1:		800 E NORTHWEST HIGHWAY SUITE 950
		CITY:			PALATINE
		STATE:			IL
		ZIP:			60067

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	SUCCESSO INC
		DATE OF NAME CHANGE:	19910410
</SEC-HEADER>
<DOCUMENT>
<TYPE>S-1/A
<SEQUENCE>1
<FILENAME>ds1a.txt
<DESCRIPTION>AMENDMENT #3 TO FORM S-1
<TEXT>
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549


                                 Amendment No. 3
                                       to
                                    FORM S-1


             Registration Statement under the Securities Act of 1933

                            DAUPHIN TECHNOLOGY, INC.
                            ------------------------
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                      <C>                                 <C>
              ILLINOIS                             3570                            87-0455038
  ---------------------------------------------------------------------------------------------------
   (State or Other Jurisdiction              (Primary Standard               (I.R.S. Employer Number)
  of Incorporation or Organization)      Industrial Classification
                                             Identification No.)

                   800 E. Northwest Hwy., Suite 950, Palatine, IL 60067 847-358-4406
                   -----------------------------------------------------------------
                     (Address, Including Zip Code, and Telephone Number, Including
                         Area Code, of Registrant's Principal Executive Offices)

 Andrew J. Kandalepas, President 800 E. Northwest Hwy., Suite 950, Palatine, IL 60067 847-358-4406
 -------------------------------------------------------------------------------------------------
              (Name, Address, Including Zip Code, and Telephone Number, Including
                                 Area Code, of Agent for Service)
</TABLE>

         Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this registration statement as
determined by the selling shareholders.

         If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box [X]

         If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

         If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]

         If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]

         If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[_]

                         CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Title of Each Class         Amount to be         Proposed Maximum          Proposed Maximum           Amount of
of Securities to be          Registered               Offering            Aggregate Offering        Registration
Registered                     (1)(2)           Price PerShare (2)             Price(2)                  Fee
- ----------------------------------------------------------------------------------------------------------------
<S>                         <C>                 <C>                       <C>                       <C>
Common Stock
$0.001 Par Value              6,605,977                $0.60                  $3,963,586                 $947
</TABLE>


     (1)  In the event of a stock split, stock dividend, or similar transaction
          involving the Company's common stock, in order to prevent dilution,
          the number of shares registered shall automatically be increased to
          cover the additional shares in accordance with Rule 416(a) under the
          Securities Act.

<PAGE>


     (2)  In accordance with a registration rights agreement with a shareholder,
          the Company is required to register for resale an aggregate minimum of
          4,000,000 shares of common stock to cover the common stock issuable or
          to be issued upon conversion of a Convertible Note and the exercise of
          the warrants. The Convertible Note is convertible into shares of
          common stock on a formula of the lower of (i)110% of the average of
          the Bid Prices during the ten Trading Days prior to September 28, 2001
          and (ii)the average of the lowest three consecutive Bid prices during
          the 22-day period immediately preceding the conversion date. If
          converted as of June 11, 2002, such shares would convert into
          5,905,977 of common stock assuming a conversion price of $0.4233 per
          share.


THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

<PAGE>

                            DAUPHIN TECHNOLOGY, INC.

                        6,605,977 Shares of Common Stock

                       $0.60 Bid Price as of June 11, 2002

                                   THE COMPANY

         We design and sell mobile hand-held, pen-based computers and broadband
set-top boxes, as well as other electronic devices for home and business use and
perform design services, process methodology consulting and intellectual
property development.

         Our corporate offices are located at:

                    800 East Northwest Highway
                    Suite 950
                    Palatine, Illinois 60067
                    (847) 358-4406

         Our shares trade on the over-the-counter market electronic bulletin
board operated by the NASD under the symbol "DNTK.OB".

                                  THE OFFERING


         We are registering 6,605,977 shares of common stock which may be
acquired by Crescent International Ltd. ("Crescent" or "selling shareholder"),
an investment company managed by GreenLight (Switzerland) SA, through the
exercise of warrants or the conversion of Convertible Notes. These shares may be
offered and sold from time to time. We will not receive any of the proceeds from
the sale other than from the possible exercise of warrants to purchase 700,000
shares of common stock at $1.3064 per share.

         Had Crescent exercised its warrants and converted the Convertible Note
on June 11, 2002, Crescent would have received 5,905,977 shares of our common
stock. As of the same date, the Company would have received an aggregate amount
of $914,480 from Crescent in connection with its exercise of the 700,000
warrants. Under the terms of our securities purchase agreement with Crescent,
the number of shares to be purchased by Crescent or to be obtained upon the
exercise of warrants or conversion of the Convertible Note held by Crescent
cannot exceed the number of shares that, when combined with all other shares of
common stock and securities then owned by Crescent, would result in Crescent
owning more than 9.9% of our outstanding common stock at any given point of
time. See "Recent Developments" on page 6.


         Investing in our shares involves a high degree of risk. You should
invest only if you can afford a complete loss of your investment. See "Risk
Factors" beginning on page 7.

         Unless the context indicates otherwise, all references to "we", "our",
"us", and the "Company" refer to Dauphin Technology, Inc. and its subsidiaries.

         Neither the Securities and Exchange Commission ("SEC") nor any state
securities commission has determined whether this prospectus is truthful or
complete. Nor have they made, nor will they make, any determination as to
whether anyone should buy these securities. Any representation to the contrary
is a criminal offense.

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

                  The Date of this Prospectus is June 12, 2002


<PAGE>

                                TABLE OF CONTENTS

Prospectus Summary                                    5
Risk Factors                                          7
Forward Looking Statements                           14
Where You Can Find More Information                  14
Use of Proceeds                                      15
Recently Issued Securities                           15
Market Price of Common Stock
    and Dividend Policy                              19
Selected Financial Data                              19
Management's Discussion and
     Analysis of Financial Condition
     and Results of Operations                       20
Business                                             23
Description of Property                              27
Management                                           28
Executive Compensation                               30
Certain Relationships and Related
     Transactions                                    30
Principal Stockholders                               31
Description of Capital Stock                         32
Plan of Distribution                                 33
Selling Stockholder                                  34
Legal Matters                                        35
Experts                                              35
Index to Consolidated Financial Statements           F-1

                                       4

<PAGE>

                              ABOUT THIS PROSPECTUS


         This prospectus is part of a registration statement that we filed with
the SEC, utilizing a "shelf" registration process. In accordance with a
registration rights agreement with Crescent International Ltd., the Company is
required to initially register for resale an aggregate of 6,605,977 shares of
common stock to cover the common stock to be issued upon conversion of the
Convertible Note and the exercise of the warrants. The Convertible Note is
convertible into shares of common stock by a formula of the lower of (i)$1.1561,
which represents 110% of the average of the Bid Prices during the ten Trading
Days prior to September 28, 2001 and (ii)the average of the lowest three
consecutive Bid prices during the 22-day period immediately preceding the
conversion date.


         Each time we offer shares or warrants we will provide a prospectus
supplement that will contain specific information about that offer.

         You should read this prospectus together with the additional
information described under the heading, "Where You Can Find More Information."

         No person has been authorized to give any information or to make any
representations in connection with this offering except those contained in this
prospectus. Neither Dauphin nor the selling shareholder has authorized anyone
else to provide you with different information.

         You should not assume that any information contained in this prospectus
is accurate as of any date other than the date on the front page of this
prospectus. Neither Dauphin nor the selling shareholder is making an offer of
shares in any state where the offer is not permitted.

         In this prospectus, reference to "we", "us" and "our" refer to Dauphin
Technology, Inc.

                               PROSPECTUS SUMMARY

         You should read the following summary together with the more detailed
information and financial statements, including the notes to the financial
statements, appearing elsewhere in this prospectus.

Our Business

         We design and sell mobile hand-held, pen-based computers and broadband
set-top boxes, and other related electronic devices for home and business use.
We also provide private, interactive cable systems to the extended stay
hospitality industry and perform design services, process methodology consulting
and intellectual property development. Orasis(R) is a mobile hand-held,
pen-based computer that incorporates features, which we believe provide greater
power and flexibility to address performance requirements in a variety of
industrial and commercial uses. We have produced a limited number of Orasis(R)
units that have been used for marketing and limited sales. We are currently
redesigning the Orasis(R) and plan to introduce a new version in 2002. In
addition, the Company introduced a prototype of a Vehicle Mountable Docking
Station (VMDS), which can be used as an accessory product for the Orasis(R)

         Toward the end of 1999, we identified set-top boxes as a focus for
product development. The OraLynx(TM) set-top box is an electronic device that
converts digital signals into a user acceptable format via other electronic
devices such as television sets, telephones and computers. It is a routing
device that enables you to access and transmit information to take advantage of
services offered by television, telephone, Internet and other providers of
communication, information or entertainment content or media. For example, you
may connect a set-top box to your television to receive cable television
programming and music broadcasts through your television and home sound system.
You may also connect a set-top box to a computer or various office equipment to
serve a variety of commercial uses. Throughout 2000 and 2001, the Company has
successfully developed multiple versions of its OraLynx(TM) set-top box and is
continuing its further development. The Company has received a contract from the
Hellenic Telecommunications Organization, S.A. (OTE) for the production and sale
of set-top boxes and as of the writing of this registration statement has
shipped 1,100 set-top boxes to them.

         In August 2000, the Company acquired the net assets of T & B Design,
Inc. (f/k/a Advanced Digital Designs, Inc.) ("ADD"). ADD performs design
services, process methodology consulting and intellectual property development
for a variety of technology companies. The Company's engineers specialize in
telecommunications, especially wireless

                                       5

<PAGE>

and cable-based product development, as well as multimedia development,
including digital video decoding and processing.

     In July 2001, the Company purchased the net assets of Suncoast Automation,
Inc. ("Suncoast") from ProtoSource Corporation. Suncoast is a provider of
private, interactive cable systems providing bundled services of basic cable TV,
premium programming, video games and high-speed Internet access to the extended
stay hospitality industry. The Company currently has contracts for the
installation of over 3,200 units in the time share resort industry. Completion
of these installations is contingent upon receiving adequate funding for the
purchase of the equipment.

Recent Developments

     On September 28, 2001, the Company entered into a Securities Purchase
Agreement with Crescent International Ltd., an institutional investor managed by
GreenLight (Switzerland) SA, that allows us to issue and sell to Crescent and
requires Crescent to purchase, at our sole discretion, equity and debt
securities for consideration of up to $10 million (minus applicable fees and
expenses). Under the Securities Purchase Agreement, we received $2.5 million in
exchange for a Convertible Note and may receive up to $7.5 million in exchange
for additional securities. In addition, the Company issued warrants exercisable
to purchase 700,000 shares of common stock at a price of $1.3064 per share for a
five-year term and the Company may be required to issue additional warrants
under certain circumstances. See "Recently Issued Securities" on page 15.

Our Strategy

     Our goals are to capture the opportunity presented by the Orasis(R) and
OraLynx(TM) products and to become a leading provider of niche electronic
products. In addition, we intend to successfully compete for additional
contracts for the installation of private, interactive cable systems. Our
strategy is to develop or acquire a variety of products and services that
complement each other or offer us production and operating economies. In this
way, we seek to minimize the risk presented by reliance upon any given product
that may become obsolete through technological change.

     We expect to increase our development, production and marketing
capabilities by increasing staff and coordinating relationships with outside
manufacturers and sales representatives. We will then establish a responsive
level of production and distribution. At the same time, we have begun an
aggressive marketing campaign to seize opportunities in the growing set-top box
and hand-held computer markets.

General

     Our principal executive offices are located at 800 East Northwest Highway,
Suite 950, Palatine, Illinois 60074, and our telephone number is (847) 358-4406.
Our website is located at www.dauphintech.com. Information contained on our
website is not a part of this prospectus.

                                THE REGISTRATION


Shares to be registered                   6,605,977 shares

Total number of shares outstanding
      immediately after the
      registration                        71,656,566 shares

Use of proceeds                           The Company will not receive any
                                          proceeds from this registration, other
                                          than from the possible exercise of
                                          warrants to purchase 700,000 shares of
                                          common stock at $1.3064 per share. Any
                                          proceeds received from the exercise of
                                          warrants will be used for general
                                          corporate purposes.

                                       6

<PAGE>

                          SUMMARY FINANCIAL INFORMATION
                      (In thousands, except per share data)

     The following table summarizes the consolidated financial data for our
business. You should read the following summary consolidated financial data
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and our Consolidated Financial Statements and
accompanying Notes beginning on page F-1 of this prospectus.




<TABLE>
<CAPTION>
                                                                                                                     Three
                                                                                                                  months ended
                                                                   Year ended December 31,                          March 31,
                                                       (amounts in thousands, except per share amounts)            (unaudited)
INCOME STATEMENT DATA:                              1997        1998         1999       2000         2001        2002      2001
                                                    ----        ----         ----       ----         ----        ----      ----
<S>                                               <C>         <C>          <C>         <C>         <C>          <C>       <C>
Revenues                                          $ 2,730     $ 5,368      $ 2,279     $   860     $  2,620     $  152    $   445
Cost of Sales                                       4,345       5,758        4,834       2,876        2,745        504        328
                                                  -------     -------      -------     -------     --------     ------    -------
Gross Profit (Loss)                                (1,615)       (390)      (2,555)     (2,016)        (125)      (352)       117
Net (Loss)                                         (3,988)     (6,132)      (9,306)     (7,515)     (13,252)    (1,932)    (1,105)

EARNINGS PER COMMON SHARE(1):
Net Income (Loss) (1)                               (0.13)      (0.16)       (0.20)      (0.13)       (0.21)     (0.03)     (0.02)
</TABLE>



<TABLE>
<CAPTION>
                                                                                                                     As of
                                                                     As of December 31,                            March 31,
                                                                     ------------------                            ---------
                                                                                                                  (unaudited)
BALANCE SHEET DATA:                                 1997        1998         1999       2000         2001        2002      2001
                                                    ----        ----         ----       ----         ----        ----      ----
<S>                                               <C>         <C>          <C>         <C>         <C>          <C>       <C>
Total Assets                                        7,269       6,719        3,372     11,161       3,917       3,123     10,158
Long Term Debt                                        430         303          185        102       1,197       1,671         84
Working Capital (Deficit)                           4,511         260         (917)     3,015         680        (212)     2,480
Stockholders Equity                                 5,676       2,885          552     10,521       2,049         604      9,610
</TABLE>


(1)  Income (Loss) per common share is calculated based on the weighted average
     number of shares for the respective period.

                                  RISK FACTORS

     Investment in our shares is risky and should be considered speculative. In
addition to the information contained in this prospectus, you should consider
carefully the following risk factors before investing in shares offered under
this prospectus. We operate in a highly competitive and volatile industry. We
are faced with aggressive pricing by competitors; competition for necessary
parts, components and supplies; continually changing customer demands and rapid
technological developments; and risks that buyers may encounter difficulties in
obtaining governmental licenses or approvals, or in completing installation and
construction of infrastructure, necessary to use our products or to offer them
to end users. The following cautionary statements discuss certain important
factors that could cause actual results to differ materially from the projected
results contained in the forward-looking statements contained in this
prospectus.

Risks Related to Our Financial Results and/or Condition

                                       7

<PAGE>

We have an accumulated deficit due to substantial losses incurred over the last
six years.

Since July 1996 we have operated without substantial sales or revenue and have
an accumulated deficit of $59,594,000 as of December 31, 2001. The Company
expects to incur operating losses over the near term. The Company's ability to
achieve profitability will depend on many factors including the Company's
ability to manufacture and market commercially acceptable products, including
its set-top box. There can be no assurance that the Company will ever achieve a
profitable level of operations or if profitability is achieved, that it can be
sustained. Our financial performance may make it difficult for potential sources
of capital to evaluate the viability of our business to date and to assess its
future viability.

None of our products have achieved widespread distribution or customer
acceptance nor are there any assurances that the Company will be able to
profitably sell its products.

The Orasis(R) is a solution oriented, pen-based, mobile computer system, which
has been produced and marketed only on a limited basis. The Company has not
recognized significant sales of the product. A new version of the Orasis(R) is
under development and scheduled for release in 2002/2003.

We began shipping the OraLynx(TM) set-top box late in the fourth quarter of
2001. We believe the OraLynx(TM) set-top box will address a broad market demand.
There can be no assurance that a market demand will exist or the sales of the
OraLynx(TM) will continue after first being introduced. If a market demand
exists, it may be met with alternative products offered by competitors or with
pricing that we cannot match.

Availability of additional funding under our Securities Purchase Agreement
requires the Company to meet certain conditions precedent, which the Company may
be unable to meet.

On September 28, 2001 the Company entered into a $10 million Securities Purchase
Agreement with Crescent International Ltd., an institutional investor. Under the
Securities Purchase Agreement, the Company issued a Convertible Note for $2.5
million. Although the Company had the option to issue further convertible notes
to Crescent subject to certain conditions precedent, such option expired on
February 1, 2002 and no additional notes were issued. In addition, the Company
issued warrants exercisable to purchase 700,000 shares of common stock at a
price of $1.3064 per share for a five-year term. The Stock Purchase Agreement
further permits the Company to sell to Crescent up to $7.5 million in common
stock of the Company over a 24-month period. Additionally, the Company agreed
not to exercise any drawdowns against its then existing common stock purchase
agreement with Techrich International Ltd., which expired on January 28, 2002.

The Securities Purchase Agreement permits the Company to sell to Crescent and
requires Crescent to purchase from the Company, at the Company's sole
discretion, common stock of the Company for up to $7.5 million over a 24-month
period. Individual sales are limited to $1.5 million, or a higher amount if
agreed to by the Company and Crescent, and each sale is subject to our
satisfaction of the following conditions precedent (none of which are within the
control of Crescent): (1) the Company's representations and warranties must be
true and complete, (2) the Company must have one or more then currently
effective registration statements covering the resale by Crescent of all shares
issued in prior sales to Crescent and issuable upon the conversion of the
Convertible Note, (3) there must be no dispute as to the adequacy of disclosures
made in any such registration statement, (4) such registration statements must
not be subject to any stop order, suspension or withdrawal, (5) the Company must
have performed its covenants and obligations under the Securities Purchase
Agreement, (6) no statute, rule, regulation, executive order, decree, ruling or
injunction may have been enacted, entered, promulgated or adopted by any court
of governmental authority that would prohibit the Company's performance under
the Securities Purchase Agreement, (7) the company's common stock must not have
been delisted from its principal trading market and there must be no trading
suspension of its common stock in effect, and (8) the issuance of the designated
number of shares of common stock with respect to the applicable sale must not
violate the shareholder approval requirements of the Company's principal trading
market. The aggregate amount of all sale shares and convertible notes issued
cannot exceed $10 million. The amount of the sale is limited to twice the
average of the bid price multiplied by the trading volume during the 22 trading
day period immediately preceding the date of sale. When the total amount of
securities issued to Crescent equals or exceeds $5 million, then the Company
shall issue to Crescent a subsequent incentive warrant exercisable to purchase
400,000 shares of common stock at a price equal to the bid price on the date the
incentive warrant is issued.

Even though Crescent has no investment discretion with respect to shares of
common stock that the Company may

                                        8

<PAGE>

require it to purchase under the Securities Purchase Agreement, the Company may
not be able to satisfy one or more of these conditions at any time that it
desires to raise funds from Crescent.

The initial funding of $2.5 million combined with the $308,000 cash on hand at
September 30, 2001 will allow the Company to pay the subcontractors for the OTE
order, complete two installations at time-share resorts, complete the opening of
the branch office in Piraeus, Greece and provide working capital for operations.

Risks Relating to Our Shares

Shareholders may suffer dilution from this offering and from the exercise of
existing options, warrants and convertible notes; the terms upon which we will
be able to obtain additional equity capital could be adversely affected.


Our common stock may become diluted if warrants and options to purchase our
common stock are exercised and if Crescent converts our outstanding $2,500,000
Convertible Note into shares of our common stock. The conversion price of
Crescent's Convertible Note is the lower of $1.1561 and a price based on a
formula determined at the time of conversion. We have limited rights to delay
conversion for up to 180 days from the date triggering those rights if the
conversion price determined by the formula is below $0.75 per share. At this
price, conversion by Crescent of its Convertible Note would result in the
issuance of 3,333,333 shares. We are required to register for resale shares
issued upon conversion of the Convertible Note to the extent they are not
registered under the registration statement of which this prospectus is a part.
As of June 11, 2002, the conversion price of the Convertible Note was $0.4233,
which would result in the issuance of 5,905,977 shares. Crescent has informed us
that it has no current intent to convert the Convertible Note into shares of our
common stock and that any decision as to whether to convert in full or in part
will be based on relevant facts, circumstances and market conditions existing at
the time of the decision.


In addition to the dilution resulting from a conversion of the Convertible Note,
we could be subject to further dilution upon exercise of a Protective Warrant,
if and when issued to Crescent. The number of shares of our common stock that
can be purchased upon exercise of the protective warrant is equal to the number
of shares of our common stock that is determined by subtracting the amount paid
by Crescent for its initial purchase of the Company's common stock, i.e.
$500,000, divided by the purchase price, from an amount which is equal to
$500,000 divided by the price of the common stock for the Company as computed on
the effective date of the Company's registration statement. Under the terms of
the Protective Warrant, if the price for the Company's common stock as computed
on the effective date of the registration statement filed on behalf of Crescent
is higher than the purchase price for the Company's common stock, as computed on
the date Crescent purchased such shares, the Protective Warrant does not become
exercisable.

Irrespective of whether Crescent exercises its warrants or converts its
Convertible Note, our common stock is subject to further dilution upon the
issuance of shares of our common stock to Crescent that could occur if we
require Crescent to purchase additional shares of our common stock for up to
$7,500,000. These additional shares would be at a discount to the then current
market price. The purchase price, with respect to the sale of common stock by us
to Crescent, is determined by taking the lower of $1.1561 and 92% of the average
of the lowest three consecutive bid prices during the 22 trading day period
immediately preceding the applicable sale date. Dilution resulting from issuance
of said shares will depend on the trading price at the time the common stock is
sold. Illustrations of such effect can be found on page 18. Under the terms of
our securities purchase agreement with Crescent, the number of shares to be
purchased by Crescent or to be obtained upon exercise of warrants or conversion
of the Convertible Note held by Crescent cannot exceed the number of shares
that, when combined with all other shares of common stock and securities then
owned by Crescent, would result in Crescent owning more than 9.9% of our
outstanding common stock at any given point of time. Our agreements with
Crescent obligate us to register any shares of our common stock that we require
Crescent to purchase. Neither Crescent nor any of its affiliates can directly or
indirectly engage in any short sale of the Company's common stock. See "Recently
Issued Securities" on page 15 for a more complete description of our agreements
with Crescent.

Because the amount of securities to be issued to Crescent is based on a formula
that is tied to the market price of our shares, issuance of these securities
could result in significant dilution of the per share amounts of our shares. The
inverse relationship between the price and the amount of securities to be issued
may have the following results:


     .    the lower the average trading price of our shares at the time we
          request Crescent to purchase additional shares, the greater the number
          of securities that can be issued, and the greater the risk of dilution
          caused by these securities;

     .    the perceived risk of dilution may cause Crescent or other
          shareholders to sell their shares, which could

                                        9

<PAGE>

          contribute to a downward movement in the stock price of shares; and


     .    any significant downward pressure on the trading price of our shares
          could encourage shareholders to engage in short sales, which could
          further contribute to a price decline of our shares.


These shares, as well as the eligibility for additional restricted shares to be
sold in the future, either pursuant to future registrations under the Securities
Act of 1933, as amended, or an exemption such as Rule 144 under the Securities
Act of 1933, as amended, may have a dilutive effect on the market for the price
of our common stock. The terms upon which we will be able to obtain additional
equity capital could also be adversely affected. In addition, the sale of common
stock offered by this prospectus, or merely the possibility that these sales
could occur, could have an adverse effect on the market price of our common
stock.

It is likely that our shares will be subject to substantial price and volume
fluctuations due to a number of factors, many of which will be beyond our
control.

The securities markets have recently experienced significant price and volume
fluctuations. The market prices and volume of securities of technology and
development-stage companies have been especially volatile. Market volatility and
other market conditions could reduce the market price for our shares despite
operating performance. In addition, if our operating performance falls below
expectations, the market price of our shares could decrease significantly. You
may be unable to resell shares at or above the registration price. In the past,
companies that have experienced volatility in the market price of their stock
have been the subject of securities class action litigation. If we were the
subject of such litigation we could experience substantial litigation costs and
diversion of management's attention and resources.

We have not paid any dividends and have no expectation of paying dividends in
the foreseeable future.

We have not declared, paid, or distributed any cash dividends on our shares in
the past, nor are any cash dividends contemplated in the foreseeable future.
There is no assurance that our operations will generate any profits from which
to pay cash dividends. Even if profits are generated through operations in the
future, our present intent is to retain any such profits for acquisitions,
product development, production and marketing, and for general working capital
requirements.

Our shares are not widely traded.

There is only a limited market for our shares. If a large portion of the shares
eligible for immediate resale after registration were to be offered for public
resale within a short period of time, the current public market would likely be
unable to absorb such shares. This could result in a significant reduction in
current market prices. There can be no assurance that investors will be able to
resell shares at the price they paid for the shares or at any price.

Our shares are subject to special trading rules relating to "penny stocks" which
restrict trading.

Our shares are covered by an SEC rule that imposes additional sales practice
requirements on broker-dealers who sell "penny stock" to persons other than
certain established customers. For transactions covered by the rule, the
broker-dealer must obtain sufficient information from the customer to make an
appropriate suitability determination, provide the customer with a written
statement setting forth the basis of the determination and obtain a signed copy
of the suitability statement from the customer. The rule may affect the ability
of broker-dealers to sell our shares and also may affect your ability to sell
shares in the secondary market.

Risks Related to Our Strategy

We may be unable to identify or acquire additional technologies or products to
diversify our product offering which could reduce our ability to generate
revenues.

One of our goals is to become a leading provider of niche electronic products.
We expect to avoid reliance upon any one given product through acquisition
and/or development of additional technologies and products. However, we may be
unable to identify or acquire technologies or products. In that case, we may
have to rely upon our own resources to develop such technologies and products
internally. We may not have sufficient resources to do this. In addition,
acquisitions involve a number of special risks, such as diversion of
management's attention and financing issues, which may have a negative impact on
operations and financial performance. The Company does not have any current
plans or proposals for any acquisitions at this time.

                                       10

<PAGE>

We may not be able to efficiently integrate any acquired technologies, products
or businesses which may require additional time by senior management and disrupt
our current business.

We will actively look to acquire technologies, products and other businesses to
complement our operations. There can be no assurance that we will be able to
integrate the operations of any other business successfully. Acquisitions we do
undertake will subject us to a number of risks, including the following:

     .  inability to institute the necessary systems and procedures, such as
        accounting and financial reporting systems;
     .  assumption of debt;
     .  issuance of additional common stock, thereby diluting current
        shareholders ownership;
     .  reallocation of managements time away from its current activities;
     .  failure to retain key personnel; and o assumption of unanticipated legal
        liabilities and other problems.

In addition, we may acquire technologies or products that prove incompatible to
other products following further development.

Even if we successfully integrate acquired technologies, products or businesses,
the additional strain on management and current resources may prevent us from
effectively managing the growth.

We seek to become profitable by expanding sales of Orasis(R), the OraLynx(TM)
set-top box and any new products that we may develop or acquire. To manage
growth, we may be required to:

     .  improve existing and implement new operational, production and personnel
        systems;
     .  hire, train and manage additional qualified personnel; and
     .  establish relationships with additional suppliers and strategic partners
        while maintaining existing relationships.

The existing purchase orders received from international companies subjects us
to risks associated with international operation, such as collection of accounts
receivable, foreign currency fluctuations and regulatory requirements .

As we begin shipping under the purchase orders and set-top box agreement, we
risk exposure to international risks, including:

     .  greater difficulty in accounts receivable collection and longer
        collection periods;
     .  unexpected changes in regulatory requirements;
     .  foreign currency fluctuations;
     .  reduced protection of intellectual property rights;
     .  potentially adverse tax consequences; and
     .  political instability.

At the present time, the Company is only currently operating in one foreign
country, Greece. However, as the Company continues to grow and develop,
expansion may very well occur in other countries, primarily in Europe.


Risks Related to Development, Production and Marketing of Our Products

The Company has developed two products in five years and the future of the
Company will be affected by the success of these products.

From June of 1997 through June of 1999, the Company was principally engaged in
research and development activities involving the hand-held computer. Since
then, the Company has been working on new technologies, in particular the design
and development of the set-top boxes. The Company's products have been sold in
limited quantities and there can be no assurance that a significant market will
develop for such products in the future. Therefore, the Company's inability to
develop, manufacture and market its products on a timely basis may have a
material adverse effect on the Company's financial results.

                                       11

<PAGE>

Product development involves substantial expense and resource allocation that
may exceed our capabilities.

We incurred substantial expense in developing the Orasis(R) computer. We expect
to continue to develop enhancements and accessory equipment to meet customer and
market demands. The OraLynx(TM) set-top box is in the final development stage.
Although we anticipate further expense associated with the final stage of
development, it will not be substantial. However, delays in development arising
from insufficient cash or personnel resources will hinder our ability to bring
these products to market before competitors introduce comparable products. In
that case, we will miss the opportunity to capitalize on the technological
advances, which we believe such products may offer.

We depend on outside sources for components and may be harmed by unavailability
of components, excessive prices for components or unexpected delays in component
deliveries.

The Orasis(R) and OraLynx(TM) set-top box use or will use various component
parts, such as PCBs, microchips and fabricated metal parts. We must obtain these
components from manufacturers and third-party vendors. While we do not
anticipate any possible delays or problems in securing parts, our reliance on
those manufacturers and vendors, as well as industry component supply, may
create risks including the following:

     .    the possibility of a shortage of components;
     .    increases in component costs;
     .    variable component quality;
     .    reduced control over delivery schedules; and
     .    potential manufacturer/vendor reluctance to extend credit to us.

Additionally, we are currently utilizing the services of a subcontractor for the
manufacture of our OraLynx(TM) set-top box. If this subcontractor is unable to
meet our requests for product, or if there is a shortage of component parts or
if the cost of these parts substantially increases, our operations and our
success in the marketplace could be materially and adversely affected. The
Company has secured alternative subcontractors and vendors, should our current
sources be unavailable. However, similar risks are present with these
alternative sources.

Errors or defects in our products could result in customer refund or product
liability claims causing an impact on market penetration, acceptance of our
products, profitability and on the cash flow of the Company.

Because our products are complex, they could contain errors or bugs that can be
detected at any point in a product's life cycle. While we continually test our
products for errors and will work with customers to identify and correct bugs,
errors may be found in the future. Although many of these errors may prove to be
immaterial, any of these errors could be significant. Detection of any
significant errors may result in:

     .    loss of or delay in market acceptance and sales of our products;
     .    diversion of development resources;
     .    injury to our reputation; or
     .    increased maintenance and warranty costs.

Errors or defects could harm our business and future operating results. With
defective products, our market share would be negatively impacted and the
Company would lose substantial future revenue. Moreover, because our products
will be used in critical computing functions, we may receive significant
liability claims if our products do not work properly. Our agreements with
customers typically do and will contain provisions intended to limit our
exposure to product liability claims. However, these provisions may not preclude
all potential claims. Liability claims could require us to spend significant
time, money and effort in litigation. They also may result in substantial damage
awards. Any such claim, whether or not successful, could materially damage our
reputation, cause a strain on our results of operation with the lack of revenue
and additional expenses, and burden management resources by focusing efforts on
the errors or defects as opposed to product development and growth.

We will be unable to develop, produce and market our products without qualified
professionals and seasoned management.

Our success depends in large part on our ability to recruit and retain
professionals, key management and operating

                                       12

<PAGE>

personnel. We need to complete development of the OraLynx(TM) set-top box,
continue to develop and modify the Orasis(R) and coordinate production of
Orasis(R) computers and the OraLynx(TM) set-top box. We also need to develop
marketing channels to increase market awareness and sales of our products.
Qualified professionals, management and operating personnel are essential for
these purposes. Such individuals are in great demand and are likely to remain a
limited resource in the foreseeable future. Competition for them is intense and
turnover is high. If we cannot attract and retain needed personnel, we will not
succeed.

We believe that our future success will depend on our ability to retain the
services of our executive officers. These officers have developed industry
relationships that are critical to our growth and development. They also will be
essential in dealing with the significant challenges that we expect will arise
from anticipated growth in our operations.

We have an ongoing need to expand management personnel and support staff. The
loss of one or more members of management or key employees, or the inability to
hire additional personnel as needed, could have a material adverse effect on our
operations.

Risks Related to Competition within Our Industry

Competition in our industry is intense and we may not be able to compete
successfully due to our limited resources.

Our industry is highly competitive and dominated by competitors with substantial
resources. Continuous improvement in product pricing and performance is the key
to future success. At all levels of competition, pricing has become very
aggressive. We expect pricing pressure to continue to be intense. Many of our
competitors are larger and have significantly greater financial, technical,
marketing and manufacturing resources. They also have broader product lines,
greater brand name recognition and larger existing customer bases. As a result,
our competitors may be better able to finance acquisitions or internal growth or
respond to technological changes or customer needs.

Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. There can be no assurance that we will
be able to compete successfully in developing, manufacturing or marketing our
products. An inability to do so would adversely affect our business, financial
condition and market price of our shares.

Our industry is subject to rapid technological change and we may not be able to
keep up.

Rapid technological change, frequent new product introductions and enhancements,
uncertain product life cycles and changes in customer demands and evolving
industry standards, characterize the computer industry. Our products could
become obsolete if products based on new technologies are introduced or if new
industry standards emerge.

Computer equipment is inherently complex. As a result, we cannot accurately
estimate the life cycles of our products. New products and product enhancements
can require long development and testing periods, which requires retention of
increasingly scarce technically competent personnel. Significant delays in new
product releases or significant problems in installing or implementing new
products can seriously damage our business. In the past, we have experienced
delays in scheduled product introductions and cannot be certain that we will
avoid similar delays in the future. We must produce products that are
technologically advanced and comparable to and competitive with those made by
others. Otherwise, our products may become obsolete or we will fail to achieve
market acceptance.

Our future success depends on our ability to enhance existing products, develop
and introduce new products, satisfy customer requirements and achieve market
acceptance. We cannot be certain that we will successfully identify new product
opportunities and develop and bring new products to market in a timely and
cost-effective manner. We may sell fewer products if other vendors' products are
no longer compatible with ours or other vendors bundle their products with those
of our competitors and sell them at lower prices.

Our ability to sell our products depends in part on the compatibility of our
products with other vendors' software and hardware products. For example,
Orasis(R) will not sell if it cannot run software, or access resources such as
Internet or telephone services provided by others. The same is true for the
set-top box. Other vendors may change their products so that they will no longer
be compatible with our products. These vendors also may decide to bundle their
products with products of our competitors for promotional purposes and to
discount the sales price of the bundled products. If this were to occur, our
business and future operating results could suffer.

                                       13

<PAGE>

We have limited intellectual property protection and our competitors may be able
to appropriate our technology or assert infringement claims.

Our products are differentiated from those of our competitors by our internally
developed technology that is incorporated into our products. If we fail to
protect our intellectual property, others may appropriate our technology and
sell products with features similar to ours. This could reduce demand for our
products. We rely on a combination of trade secrets, copyright and trademark
laws, non-disclosure and other contractual provisions with employees and third
parties, and technical measures to protect our proprietary rights in our
products. There can be no assurance that these protections will be adequate or
that our competitors will not independently develop technologies that are
substantially equivalent or superior to ours.

We believe that our products do not infringe upon the proprietary rights of
third parties. However, there can be no assurance that third parties will not
assert infringement claims against us in the future or that a license or similar
agreement will be available on reasonable terms in the event of an unfavorable
ruling on any such claim. In addition, any such claim may require us to commit
substantial time and effort, and to incur substantial litigation expenses, and
may subject us to significant liabilities that could have a material adverse
effect on our financial condition and results of operations.

                           FORWARD LOOKING STATEMENTS

         This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. Any statement that is not a statement of
historical fact constitutes a forward-looking statement. You can identify these
statements by forward-looking words such as "may", "will", "intend", "believe",
"anticipate", "estimate", "expect", "project" and similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, contain projections of our future results of operation and of our
financial condition or state other forward looking information. This prospectus
also includes third party estimates regarding the size and growth of markets and
mobile computer equipment usage in general.

         You should not place undue reliance on these forward-looking
statements. The sections captioned "Risk Factors" and "The Company" as well as
any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from our expectations.

         Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are under no duty to update
any of the forward looking statements after the date of this prospectus or to
conform these statements to actual results or to changes in our expectations,
except with respect to material developments related to previously disclosed
information.

                       WHERE YOU CAN FIND MORE INFORMATION

         We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You can read and copy these reports, proxy
statements and other information at the SEC's public reference room at 450 Fifth
Street, N.W., Judiciary Plaza, Washington D.C. Copies of such materials can be
obtained from the public reference room at prescribed rates. You can obtain
information regarding operation of the public reference room by calling the SEC
at 1-800-SEC-0330. Such material can also be inspected and printed from the
SEC's Internet site located at http://www.sec.gov.

                                 USE OF PROCEEDS

         All net proceeds from the sale of the common stock covered by this
prospectus will be received by the selling shareholder. We will not receive any
proceeds from the sale of the common stock by the selling shareholder other than

                                       14

<PAGE>

from the possible exercise of warrants to purchase 700,000 shares of common
stock at $1.3064 per share. Any proceeds received from the exercise of warrants
will be used for general corporate purposes.

                           RECENTLY ISSUED SECURITIES

On September 28, 2001 the Company entered into a $10 million Securities Purchase
Agreement with Crescent International Ltd., an institutional investor. Under the
Securities Purchase Agreement, the Company issued a Convertible Note for $2.5
million. Although the Company had the option to issue further convertible notes
to Crescent subject to certain conditions precedent, such option expired on
February 1, 2002 and no additional notes were issued. In addition, the Company
issued warrants exercisable to purchase 700,000 shares of common stock at a
price of $1.3064 per share for a five-year term. The Stock Purchase Agreement
further permits the Company to sell to Crescent up to $7.5 million in common
stock of the Company over a 24-month period. Additionally, the Company agreed
not to exercise any drawdowns against its then existing common stock purchase
agreement with Techrich International Ltd., which expired on January 28, 2002.

The Securities Purchase Agreement permits the Company to sell to Crescent and
requires Crescent to purchase from the Company, at the Company's sole
discretion, common stock of the Company for up to $7.5 million over a 24-month
period. Individual sales are limited to $1.5 million, or a higher amount if
agreed to by the Company and Crescent, and each sale is subject to our
satisfaction of the following conditions precedent (none of which are within the
control of Crescent): (1) the Company's representations and warranties must be
true and complete, (2) the Company must have one or more then currently
effective registration statements covering the resale by Crescent of all shares
issued in prior sales to Crescent and issuable upon the conversion of the
Convertible Note, (3) there must be no dispute as to the adequacy of disclosures
made in any such registration statement, (4) such registration statements must
not be subject to any stop order, suspension or withdrawal, (5) the Company must
have performed its covenants and obligations under the Securities Purchase
Agreement, (6) no statute, rule, regulation, executive order, decree, ruling or
injunction may have been enacted, entered, promulgated or adopted by any court
of governmental authority that would prohibit the Company's performance under
the Securities Purchase Agreement, (7) the company's common stock must not have
been delisted from its principal trading market and there must be no trading
suspension of its common stock in effect, and (8) the issuance of the designated
number of shares of common stock with respect to the applicable sale must not
violate the shareholder approval requirements of the Company's principal trading
market. The aggregate amount of all sale shares and convertible notes issued
cannot exceed $10 million. The amount of the sale is limited to twice the
average of the bid price multiplied by the trading volume during the 22 trading
day period immediately preceding the date of sale. When the total amount of
securities issued to Crescent equals or exceeds $5 million, then the Company
shall issue to Crescent a subsequent incentive warrant exercisable to purchase
400,000 shares of common stock at a price equal to the bid price on the date the
incentive warrant is issued.

Convertible Note Issued to Crescent International

         On October 2, 2001, in accordance with the Securities Purchase
Agreement, the Company issued a Convertible Note to Crescent in the amount of
$2,500,000, due September 28, 2004. The Company is not required to pay interest
on the Note unless the Company fails for a period of 10 trading days to issue
shares upon conversion or pay the remaining principal of the Note upon maturity
or redemption. If the Company fails to issue shares or pay the
remaining principal upon maturity or redemption, interest shall be payable at a
fixed rate of 8% per annum, payable in quarterly installments, on the
outstanding principal balance immediately prior to the date of conversion, until
the Note is fully converted or redeemed.

The Company retains the right to redeem the Convertible Note upon 30 days notice
at a price of 110% during the first year of its issuance, 120% during the second
year and 130% thereafter. Additionally, the Company can require the conversion
of the note into shares of our common stock if we satisfy each of the following
requirements:

     .        The shares of our common stock issuable upon conversion of the
              Convertible Note may be sold by Crescent without registration and
              without any time, volume or manner limitations pursuant to Rule
              144 (or any similar provision then in effect) under the Securities
              Act of 1933;

     .        The bid price for each of the 22 trading days immediately
              preceding the date of notice of a required conversion is delivered
              by the Company to Crescent is at least $1.881 (190% of Bid Price
              on Subscription Date);

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<PAGE>

     .        Unless otherwise agreed to in writing by Crescent, the number of
              shares of our common stock issuable upon such required conversion
              of the Convertible Note is less than twice the average of the
              daily trading volume during the 22 trading day period immediately
              preceding the date of notice of a required conversion is delivered
              by the Company to Crescent;

     .        At least 22 trading days have elapsed since a conversion date
              relating to a prior conversion required by the Company or
              Crescent; and

     .        No shares are subject to any shareholder agreements, lock-up
              provisions or restrictions on transfer of any kind whatsoever.

The holder of the Note may convert the Note in whole or in part to common stock
of the Company at any time at the lower of $1.1561 or the average of the lowest
three consecutive bid prices during the 22 days preceding the date of
conversion. The conversion price and the number of note conversion shares is
subject to certain standard anti-dilution adjustments including
reclassification, consolidation, merger or mandatory share exchange; subdivision
or combination of shares; stock dividends; and the issuance of additional
capital shares by us at prices less than the conversion price.

We have the right to reject any conversion if the average bid price of our
common stock during the seven trading days preceding the delivery date of
Crescent's conversion notice is less than $0.75 per share. This right expires
120 days after it is first exercised by us. Based upon this provision, the
maximum number of shares of our common stock that we may be required to issue
upon the conversion of the Convertible Note would be 3,333,333 shares assuming
the conversion price is $0.75 per share.

In furtherance of this transaction, the Company entered into a registration
rights agreement, whereby it is required to file a registration statement, of
which this prospectus is a part, on behalf of Crescent with respect to the note
conversion shares and warrant shares issuable pursuant to the warrants issued to
Crescent. Similar registration statements are to be filed for each subsequent
sale of securities to Crescent. The failure of the Company to obtain the
effectiveness of its registration statements as required under the registration
rights agreement may subject it to certain financial penalties.

Securities issuable to Crescent International

Under the Securities Purchase Agreement with Crescent International Ltd., we can
obtain, subject to applicable fees and expenses and the terms and conditions of
the agreement, an additional $7.5 million by selling up to 10,000,000 shares of
our common stock to Crescent at various points in time, beginning 22 days after
the registration statement of which this prospectus is a part becomes effective.
Additionally, Crescent had the right to assign its obligation to purchase shares
of our common stock to affiliates of Crescent; however, Crescent has informed us
that it has no current or future plans to assign its obligations.

Specifically,  with regard to the sale of shares of our common  stock to
Crescent, we can from time to time at our option and subject to the limitations
described in this prospectus, issue and sell shares of our common stock with an
aggregate purchase price of up to twice the average daily trading value during
the 22 trading day period immediately preceding the date of the notice by us
requiring Crescent to purchase, but no more than $1.5 million at one time. The
purchase price is determined by taking the lower of $1.1561 and 92% of the
average of the lowest three consecutive bid prices during the 22 trading day
period immediately preceding the applicable sale date.

Under the agreement we are required to register the shares issuable to Crescent
through the registration statement of which this prospectus is a part and
subsequent registration statements.

Warrants Issued to Crescent International

                  Incentive Warrant

In further consideration for Crescent entering into the Securities Purchase
Agreement, the Company issued an Incentive Warrant to Crescent exercisable to
purchase 700,000 shares of common stock at a price of $1.3064 per share. The
Incentive Warrant is exercisable for a five-year period commencing September 28,
2001, and provides for adjustment in the price and number of warrant shares:

                                       16

<PAGE>

     .   If the Company, at any time while the Incentive Warrant is unexpired
         and not exercised in full, consummates a reclassification,
         consolidation, merger or mandatory share exchange, sale, transfer or
         lease of substantially all of the assets of the Company;

     .   If the Company, at any time while the Incentive Warrant is unexpired
         and not exercised in full, shall subdivide its common stock, combine
         its common stock, pay a dividend in its capital shares, or make any
         other distribution of its capital shares; and

     .   If the Company, at any time while the Incentive Warrant is unexpired
         and not exercised in full, makes a distribution of its assets or
         evidences of indebtedness to the holders of its capital shares as a
         dividend in liquidation or by way of return of capital or other than as
         a dividend payable out of earnings or surplus legally available for
         dividends under applicable law or any distribution to such holders made
         in respect of the sale of all or substantially all of the Company's
         assets, or any spin-off of any of the Company's lines of business,
         divisions or subsidiaries.


Upon each adjustment of the exercise price, the number of shares of our common
stock issuable in connection with the Incentive Warrant at the option of
Crescent shall be calculated, to the nearest one hundredth of a whole share,
multiplying the number of shares of our common stock issuable prior to an
adjustment by a fraction:


     . The numerator of which shall be the exercise price before any adjustment;
       and

     . The denominator of which shall be the exercise price after such
       adjustment.

In addition, Crescent may not exercise its warrant if, at the time of exercise,
the number of shares that it would receive, together with all other shares of
the Company's common stock which it beneficially owns, would result in Crescent
owning more than 9.9% of the Company's common stock as would be outstanding on
the exercise date.

                  Protective Warrant

In further consideration for Crescent entering into the Securities Purchase
Agreement, if the Company elects to exercise its right with respect to any
subsequent sale to require Crescent to purchase shares of our common stock that
have not been previously registered and are not covered by an effective
registration statement, then on each closing date related to each subsequent
sale, the Company shall issue to Crescent a Protective Warrant with an exercise
price of $0.01 per share of common stock, for the purchase of such number of
shares which shall be determined by subtracting (x) the investment amount with
respect to the applicable subsequent sale divided by the purchase price on the
sale date from (y) the investment amount with respect to the applicable
subsequent sale divided by the purchase price on the effective date applicable
to the sale date.

Liquidated Damages

 Pursuant to our registration rights agreement with Crescent, we are required to
pay Crescent liquidated damages if we fail to obtain the effectiveness of any
registration statement, including any future registration statement, required
under our registration rights agreement, or to maintain its effectiveness for
the period required under our registration rights agreement. If we fail to
obtain the effectiveness of any registration statement for which effectiveness
is required

under our registration rights agreement, we are required under the registration
rights agreement to pay to Crescent an amount equal to 2% of the aggregate
purchase price paid by Crescent for securities that are registered for resale,
or required to be registered for resale, by Crescent as described in this
prospectus, for each calendar month and for each portion of a calendar month,
pro rata, during the period from the effective date of the applicable
registration statement to the effective date of the applicable deficit shares
registration statement.

We will also be liable for liquidated damages similarly computed if we fail to
keep any required registration statement effective for a period of time ending
180 days after the termination of Crescent's obligation to purchase shares of
our common stock, plus one day for each day that we have failed to obtain or
maintain effectiveness of the registration statement.

Right of First Refusal

Crescent has been granted a right of first refusal for any or all shares in a
proposed sale by us of our securities in a private placement transaction exempt
from registration under the Securities Act of 1933, as amended, until 60 days
after

                                       17

<PAGE>

the date the Securities Purchase Agreement between Crescent and us is
terminated. Such right of first refusal shall be held open to Crescent for five
trading days from the date of the proposed offer to sell the securities.

10% Limitation With Respect to Crescent

Under the terms of our Securities Purchase Agreement with Crescent, the number
of shares to be purchased by Crescent or to be obtained upon exercise of
warrants or conversion of the Convertible Note held by Crescent cannot exceed
the number of shares that, when combined with all other shares of common stock
and securities then owned by Crescent, would result in Crescent owning more than
9.9% of our outstanding common stock at any given point of time.

The following table is for illustrative purposes only and sets forth the number
of shares of our common stock issuable to Crescent assuming Crescent were to
purchase the maximum amount of securities allowable under the Securities
Purchase Agreement at the prices stated below. Such number of shares is,
however, subject to the 9.9% limitation whereby Crescent may not own more than
9.9% of the Company's common stock as would be outstanding on any given date.


<TABLE>
<CAPTION>
                    Purchase        Number           %
                     Price        of Shares     of shares (e)
                   ----------    -----------    -------------
                   <S>           <C>            <C>
                   $0.600 (a)    16,666,666         20.4%

                    0.450 (b)    22,222,222         25.5%

                    0.300 (c)    33,333,333         33.9%

                    0.150 (d)    66,666,666         50.6%
</TABLE>



     (a) Represents bid price at close of business on June 11, 2002.
     (b) Represents a 25% decrease from the bid price at close of business on
         June 11, 2002.
     (c) Represents a 50% decrease from the bid price at close of business on
         June 11, 2002.
     (d) Represents a 75% decrease from the bid price at close of business on
         June 11, 2002.

     (e) Securities purchase agreement limits Crescent's ownership to 9.9% of
         outstanding shares.

                                       18

<PAGE>

                MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY


       Our shares trade on the over-the-counter electronic bulletin board
operated by the NASD. The following table shows the range of representative bid
prices for our shares. The prices represent quotations between dealers and do
not include retail mark-up, markdown, or commission, and do not necessarily
represent actual transactions. The number of stockholders on record as of June
11, 2002 is approximately 19,000. Some of the stockholders on record are
brokerage firms that hold shares in the "street name". Therefore, we believe the
total number of stockholders may be greater than 19,000.



<TABLE>
<CAPTION>
                          1999                   2000                  2001                  2002

                     High       Low        High        Low        High       Low        High      Low
                     ----       ---        ----        ---        ----       ---        ----      ----
<S>                 <C>       <C>        <C>         <C>         <C>        <C>        <C>       <C>
First Quarter       $1.219    $0.453     $12.375     $0.266      $2.812     $1.062     $1.350    $0.580
Second Quarter       0.938     0.391       6.219      2.750       1.990      1.125      0.780     0.450
Third Quarter        0.750     0.266       6.562      3.234       1.970      0.900          -         -
Fourth Quarter       0.703     0.219       4.312      0.781       1.550      0.660          -         -
</TABLE>



       The closing bid price of a share on June 11, 2002 was $0.60. We have
never paid dividends and do not anticipate paying any dividends in the
foreseeable future. We currently intend to retain earnings, if any, for product
development, production and marketing, strategic acquisitions and for general
working capital requirements.


                         SELECTED FINANCIAL INFORMATION
                      (In thousands, except per share data)

       The following table summarizes the consolidated financial data for our
business. You should read the following summary consolidated financial data
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and our Consolidated Financial Statements and
accompanying Notes beginning on page F-1 of this prospectus.


<TABLE>
<CAPTION>
                                                                                                 Three months
                                                       Year Ended December 31,                  ended March 31,
                                                       -----------------------
                                          (amounts in thousands, except per share amounts)         (unaudited)
                                           1997       1998       1999      2000       2001       2002      2001
                                           ----       ----       ----      ----       ----       ----      ----
<S>                                      <C>        <C>        <C>       <C>        <C>        <C>       <C>
INCOME STATEMENT DATA:
Revenues                                 $ 2,730    $ 5,368    $ 2,279   $   860    $  2,620   $   152   $   445
Cost of Sales                              4,345      5,758      4,834     2,876       2,745       504       328
                                         -------    -------    -------   -------    --------   -------   -------
Gross Profit (Loss)                       (1,615)      (390)    (2,555)   (2,016)       (125)     (352)      117
Net Income (Loss)                         (3,988)    (6,132)    (9,306)   (7,515)    (13,252)   (1,932)   (1,015)
EARNINGS PER COMMON SHARE:
Net Income (Loss)                          (0.13)     (0.16)      0.20)    (0.13)      (0.21)    (0.03)    (0.02)
</TABLE>

<TABLE>
<CAPTION>
                                                           As of December 31,                  As of March 31,
                                                           ------------------                  ---------------
                                                         (amounts in thousands)                (unaudited)
BALANCE SHEET DATA:                         1997      1998       1999      2000      2001       2002     2001
                                            ----      ----       ----      ----      ----       ----     ----
<S>                                        <C>        <C>        <C>      <C>        <C>       <C>       <C>
Total Assets                               7,269      6,719      3,372    11,161     3,917     3,917     3,917
Long Term Debt                               430        303        185       102     1,197     1,197     1,197
Working Capital (Deficit)                  4,511        260       (917)    3,015       680       680       680
Stockholders Equity                        5,676      2,885        552    10,521     2,049     2,049     2,049
</TABLE>


(1)  Income (Loss) per common share is calculated based on the weighted average
     number of shares for the respective period.

                                       19

<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

Results of Operations - Three months ended March 21, 2002 Compared to Three
months ended March 31, 2001

Revenues for the three months ended March 31, 2002 and 2001 were approximately
$152,000 and $445,000, respectively. Net sales increased from $5,000 in 2001 to
approximately $93,000 in 2002. Sales generated by the Company's interactive
cable system subsidiary, Suncoast, accounted for approximately $78,000 of these
revenues with the balance being parts and accessories for the Orasis(R) and
OraLynx(TM). Design service revenues in the first quarter of 2002 were
approximately $59,000 as compared to revenues of $441,000 in the first quarter
of 2001. This reduction in design service revenue is a continuation of the
decline in engineering projects available in the marketplace which the Company
began experiencing in the fourth quarter of 2001. Cost of sales represents costs
associated with the Suncoast operations for 2002, whereas cost of sales in 2001
related to the costs of parts and accessories. Cost of services increased from
$326,000 in 2001 to $448,000 in 2002. The increase is a result of the
termination of and severance benefits paid to the engineering staff which was
reduced during the first quarter of 2002. Because of these additional expenses,
gross profit margins were negatively affected and generated a gross loss of
$352,000 for the first quarter of 2002.

Selling, general and administrative expenses increased to approximately
$1,111,000 in 2002 from $476,000 in 2001. The increase of approximately $635,000
is primarily due to the selling, general and administrative expenses of Suncoast
and the Company's branch office in Piraeus, Greece which are included in the
first quarter of 2002 and not in 2001. These amounted to approximately $319,000
and $238,000, respectively. We acquired the net assets of Suncoast in July 2001
and opened the branch office in August 2001. In addition, approximately $130,000
of additional administrative costs were incurred at the Company's McHenry,
Illinois location related to closing the facility. These costs were offset by a
reduction of $52,000 in sales and marketing expenses, primarily advertising.

Research and Development expenses decreased to approximately $241,000 during the
first quarter ended March 31, 2002 from $463,000 for the corresponding period in
2001. The set-top box design was substantially completed in the fourth quarter
of 2001 which is reflected in the decrease in Research and Development expenses.
In 2002, approximately 66% of Research and Development costs consisted of costs
related to the development of the set-top box, with 34% related to further
development of the Orasis(R). In 2001, the majority of Research and Development
was costs were for the set-top box.

Interest expense increased to approximately $233,000 for the first quarter of
2002 from $7,000 for the first quarter of 2001. Included in interest expense in
the first quarter of 2002 is three months amortization of the debt discount
associated with the Convertible Note, amounting to $231,000. The remaining
interest is related to capital equipment leases, mortgage note and other
borrowings. Interest expense in the first quarter of 2001 related to capital
equipment leases and short term borrowings. Interest income declined from
$89,000 in 2001 to $4,000 in 2002 due to the reduction of short-term funds held
on deposit.

Net loss

The consolidated loss after tax increased for the first quarter ended March 31,
2002 to approximately ($1,932,000) or ($0.03) per share from ($1,015,000) or
($0.02) per share in 2001. The loss for 2002 was primarily attributed to the
decrease in revenues from design services, the increase in cost of services
related to the termination of the hardware design engineering staff, the
increase in selling, general and administrative costs generated by Suncoast and
the branch office and the increase in interest expense. The loss for 2001 was
primarily attributed to the amortization of goodwill associated with the
acquisition of Advanced Digital Designs, Inc., research and development costs
regarding the set-top box and general administrative expenses. Loss per common
share is calculated based on the monthly weighted average number of common
shares outstanding, which were 64,510,424 for the three-month period ended March
31, 2002, and 61,798,069 for the three-month period ended March 31, 2001.

Balance Sheet

Total assets for the Company at March 31, 2002 were approximately $3,123,000, a
decrease of approximately $800,000 from December 31, 2001. The decrease was
primarily attributable to the net cash used in operations of approximately
$976,000, the purchase of equipment of $315,000, offset by the proceeds from the
exercise of stock warrants and stock


                                       20

<PAGE>


options of $460,000 and the increase in borrowings of $350,000.


Results of Operations December 31, 2001 Compared to December 31, 2000

Revenue for the Company increased from approximately $860,000 in 2000 to
$2,621,000 in 2001. Revenues from the sale of products increased from $64,000 in
2000 to $1,274,000 in 2001. The significant increase is the result of the
Company beginning shipment of its set-top box during the fourth quarter of 2001.
Additionally, the Company recognized approximately $135,000 of revenues from its
interactive cable provider subsidiary, Suncoast Automation Inc. ("Suncoast").
These revenues are only for six months, since the Company acquired the net
assets of Suncoast on July 1, 2001. Design service revenue increased from
$796,000 in 2000 to $1,346,000 in 2001, an increase of 69%. Design service
revenues in 2000 were for four and one-half months, since the date of
acquisition of Advanced Digital Designs, Inc. ("ADD") on August 18, 2000. Design
service revenues began declining during the second half of 2001, as customers
began canceling projects and not beginning new ones. Cost of sales decreased
from $2,376,000 in 2000 to $1,680,000 in 2001. Cost of sales in 2000 included a
write down of obsolete inventory of $1,440,000 and a write down of inventory to
its net realizable value of $510,000. Cost of sales for 2001 includes the costs
of the set-top boxes sold, as well as a write down of obsolete inventory of
$490,000. Cost of services increased from $500,000 in 2000 to $1,137,000 in
2001. Cost of services for 2000 are included only from the date of acquisition
of ADD, representing four and one-half months. Cost of services consist
primarily of payroll and related employee benefits of the engineers performing
the services. Gross profit for design services decreased from 37% in 2000 to 16%
in 2001. The decline in gross profit is a result of the decline in revenues
while cost of services remained at annualized levels did not decrease in
proportion to the revenues.

Selling, general and administrative expenses increased to approximately
$4,742,000 for 2001 as compared to $3,630,000 for 2000. Selling, general and
administrative expenses for 2000 consisted of professional fees and financial
service expenses related to the private placement, salaries for administrative
personnel, expenses for the common stock purchase agreement, administrative
costs associated with the design services subsidiary, ADD and costs associated
with exercising the drawdown. For the year 2001, these selling, general and
administrative costs were partially offset by primarily expenses associated with
the issuance of common stock for reimbursement pursuant to a personal guarantee,
salaries for administrative and marketing personnel, expenses in establishing
the operations of the Greek branch office and expenses pertaining to the
Suncoast subsidiary. Included in selling, general and administrative expenses
for 2001 are the operations of the branch office in Greece, amounting to
approximately $300,000. Also included in 2001 are six months of selling, general
and administrative expenses of Suncoast, included since the date of acquisition.
These approximated $490,000.

Research and Development costs increased to approximately $2,434,000 for 2001 as
compared to $1,472,000 for 2000. Approximately 84% of Research and Development
in 2001 consisted of costs associated with the development of the OraLynx(TM)
set-top box, with approximately 16% for the development of the new version of
the Orasis(R). Research and Development costs in 2000 were for the development
of the OraLynx(TM) set-top box.

Amortization of goodwill associated with the acquisition of ADD amounted to
$1,100,000, whereas in 2000, only four and one-half months of amortization are
included, which amounted to $412,500.

Asset impairment and other losses for 2001 consisted of the write off of the
remaining goodwill associated with the acquisition of ADD of $3,987,500 and
$290,000 of an investment in non-marketable securities. During the fourth
quarter of 2001 the Company determined that the set-top box design was completed
and the design services business with outside customers was declining, therefore
an impairment of the goodwill associated with the acquisition of ADD occurred.
The Company revised its projections and determined that the projected results
would not fully support the future amortization carrying value of the goodwill
balance. In addition, the Company determined that the carrying value of its
investment in non-marketable securities had been impaired since the investment
had discontinued paying dividends in 2001 and due to the overall poor financial
condition of the issuing company.

Interest expense increased to approximately $274,000 for the year ended December
31, 2001 from $68,000 for the year ended December 31, 2000. Included in interest
expense in 2001 is three months amortization of the debt discount associated
with the Convertible Note, amounting to $252,000. The remaining interest is
related to capital equipment leases and other borrowings. Interest expense in
2000 was a result of the capital equipment leases and other borrowings. Interest
on these leases and other borrowings decreased from $68,000 to $22,000 because
the outstanding balances on the capital leases and borrowings have decreased.

                                       21

<PAGE>


Results of Operations December 31, 2000 Compared to December 31, 1999



Revenue for the Company decreased from approximately $2,279,000 in 1999 to
$860,000 in 2000. The revenue decreased as a result of the Company's decision to
eliminate contract manufacturing and focusing its efforts on the development of
the set-top box. The Company determined that contract manufacturing was no
longer profitable and did not fit in to the overall business plan of the
Company. Contract manufacturing revenues approximated $2,000,000 in 1999.
Revenue for 2000 was also aided by the design services and consulting of the
Company's subsidiary, ADD. Gross revenue from ADD from the date of acquisition
of August 18, 2000, amount to approximately $985,000. Gross profit margins are
not comparable for the period due to the fluctuations in revenue. The gross
profit margin for both years were effected by the write down of obsolete
inventory. For the year ended December 31, 2000 the write down of obsolete
inventory and the reserve for potential obsolete Orasis(R) inventory amounted to
$1,950,000 as compared to the write-off of obsolete inventory in the year ended
December 31, 1999 of $1,793,000.

Selling, general and administrative expenses decreased to approximately
$4,043,000 for 2000 as compared to $4,173,000 for 1999. The increase in
professional fees and financial service expenses related to the private
placement, common stock purchase agreement and cost associated with exercising
the drawdown, amounting to approximately $985,000, were offset by staff
reductions and other cost cutting measures implemented by management
approximating $1,115,000. The Company decided to eliminate contract
manufacturing in the third-quarter. The employee count at RMS was reduced from
185 employees during the beginning of 1999 to six employees at December 31,
2000. In addition, certain related expenses were also reduced, such as health
insurance, telephone, travel and entertainment, utilities, office supplies and
other administrative expenses.

Research and Development costs increased to approximately $1,472,000 for 2000 as
compared to $510,000 for 1999. Research and Development in 2000 consisted of
costs associated with the development of the OraLynx(TM) set-top box, whereas in
1999, these costs were for the continued development of the Orasis(R).

Interest expense decreased to approximately $68,000 for the year ended December
31, 2000 from $2,099,000 for the year ended December 31, 1999. Interest expense
in 1999 was mainly a result of the financing activities associated with the
conversion of debt to common stock as well as the issuance of warrants
associated with the debt.

Liquidity and Capital Resources

The Company has incurred a net operating loss in each year since its founding
and as of March 31, 2002 has an accumulated deficit of approximately
$61,526,000. The Company expects to incur operating losses over the near term.
The Company's ability to achieve profitability will depend on many factors
including the Company's ability to manufacture and market commercially
acceptable products including its set-top box. There can be no assurance that
the Company will ever achieve a profitable level of operations or if
profitability is achieved, that it can be sustained.

For the three months ended March 31, 2002, the Company used $976,000 of cash in
operating activities, used $315,000 in investing activities and generated
$802,000 of cash from financing activities that produced a decrease in cash of
$489,000 for the three months. The net loss of $1,932,000 was partially offset
by the non-cash items of depreciation and amortization and amortization of the
debt discount associated with the Convertible Note. Investing activities
consisted of the purchase of equipment for installations associated with the
interactive cable systems. Financing activities consisted of the exercise of
warrants and the increase in mortgage note payable and short-term borrowings. As
of March 31, 2002, the Company had current liabilities in excess of current
assets, whereas at December 31, 2001, the Company had a current asset to current
liabilities ratio of 2.0. The Condensed Consolidated Statements of Cash Flows,
included in this report, detail the other sources and uses of cash and cash
equivalents.

In the second quarter of 2000, the Company entered into a common stock purchase
agreement, escrow agreement and registration rights agreement with Techrich
International Ltd., ("Techrich"). These agreements provided a $100,000,000
equity line of credit for use by the Company at its discretion. During the third
and fourth quarters of 2000, the Company received $7,000,000 from the equity
line in exchange for the issuance of 2,136,616 of common stock. In the third
quarter of 2001, the Company received an additional $300,000 from the equity
line in exchange for 258,968 shares of common stock. The shares underlying the
equity line of credit with Techrich were registered with the Securities and
Exchange Commission with an S-1 filing, File No. 333-35808, dated July 20, 2000
and effective on July 28, 2000.


                                       22

<PAGE>

On September 28, 2001 the Company entered into a $10 million Securities Purchase
Agreement with Crescent International Ltd., ("Crescent") an institutional
investor. Under the Securities Purchase Agreement, the Company issued a
Convertible Note for $2.5 million. Although the Company had the option to issue
further convertible notes to Crescent subject to certain conditions precedent,
such option expired on February 1, 2002 and no additional notes were issued. In
addition, the Company issued warrants exercisable to purchase 700,000 shares of
common stock at a price of $1.3064 per share for a five-year term. The Stock
Purchase Agreement further permits the Company to sell to Crescent up to $7.5
million in common stock of the Company over a 24-month period. Additionally, the
Company agreed not to exercise any drawdowns against its then existing common
stock purchase agreement with Techrich International Ltd., which expired on
January 28, 2002.

The Securities Purchase Agreement permits the Company to sell to Crescent and
requires Crescent to purchase from the Company, at the Company's sole
discretion, common stock of the Company for up to $7.5 million over a 24-month
period. Individual sales are limited to $1.5 million, or a higher amount if
agreed to by the Company and Crescent, and each sale is subject to our
satisfaction of the following conditions precedent (none of which are within the
control of Crescent): (1) the Company's representations and warranties must be
true and complete, (2) the Company must have one or more currently effective
registration statements covering the resale by Crescent of all shares issued in
prior sales to Crescent and issuable upon the conversion of the Convertible
Note, (3) there must be no dispute as to the adequacy of disclosures made in any
such registration statement, (4) such registration statements must not be
subject to any stop order, suspension or withdrawal, (5) the Company must have
performed its covenants and obligations under the Securities Purchase Agreement,
(6) no statute, rule, regulation, executive order, decree, ruling or injunction
may have been enacted, entered, promulgated or adopted by any court of
governmental authority that would prohibit the Company's performance under the
Securities Purchase Agreement, (7) the company's common stock must not have been
delisted from its principal trading market and there must be no trading
suspension of its common stock in effect, and (8) the issuance of the designated
number of shares of common stock with respect to the applicable sale must not
violate the shareholder approval requirements of the Company's principal trading
market. The aggregate amount of all sale shares and convertible notes issued
cannot exceed $10 million. The amount of the sale is limited to twice the
average of the bid price multiplied by the trading volume during the 22 trading
day period immediately preceding the date of sale. When the total amount of
securities issued to Crescent equals or exceeds $5 million, the Company shall
issue to Crescent a subsequent incentive warrant exercisable to purchase 400,000
shares of common stock at a price equal to the bid price on the date the
incentive warrant is issued. If the Company, for the purposes of obtaining any
additional financing, wishes to sell shares to a party other than Crescent, the
Company shall first offer to Crescent the right to purchase such shares at the
bona fide price offered by the other party.

The Company elected to pursue the above financing arrangements with Crescent
because the Company's previous financing arrangements with Techrich contained
certain limitations as it related to the market price of our common stock, the
average volume of shares traded on a daily basis and other such factors which
would not generate the greatest benefit to the Company's shareholders. In
addition, the financing arrangement with Techrich expired at the end of January
2002. Because of the changes in circumstances and the current economic
conditions of the Company, management decided to explore alternative financing
arrangements. Several alternatives were reviewed, including private placement
transactions, various long-term debt arrangements with different investment
bankers and other equity line arrangements similar to the one with Techrich.
Management felt that the arrangement with Crescent was the best alternative and
was in the best interest of the Company and its shareholders.

The Company expects to rely on the above financing arrangements in order to
continue its development of products and to continue its ongoing operations in
the short-term. The long-term cash needs of the Company will be dependent on the
successful development of the Company's products and their success in the market
place. At the current rate, the Company is not able to internally generate
sufficient funds for operations and will be required to rely on outside sources
for continued funding until such time as the Company's operations generate a
profit and cash is generated from operations. The Company has historically
issued and may continue, if the circumstances warrant, to issue common stock to
vendors and suppliers in lieu of cash for products and services provided to the
Company.


                                    BUSINESS

Overview

Dauphin Technology, Inc. ("Dauphin" or the "Company") and its subsidiaries
design and market mobile hand-held, pen-based computers and set-top boxes. The
Company is also a provider of private, interactive cable systems to the extended

                                       23

<PAGE>

stay hospitality industry. One of the Company's subsidiaries has performed
design services, specializing in hardware and software development, to customers
in the communications, computer, video and automotive industries.

The Company, an Illinois corporation, was formed on June 6, 1988 and became a
public entity in 1991. As of December 31, 2001, the Company employed
approximately 50 people consisting of engineering, sales and marketing,
administrative, and other personnel. Because of the reduction in orders for
design services and the decision to terminate its operations at the facilities
in McHenry, during the first quarter of 2002, the Company laid off 24 full-time
employees and currently has 26 full-time employees. The Company's executive
offices are at 800 E. Northwest Highway, Palatine, Illinois and it has two other
facilities in northern Illinois, one in central Florida and a branch office in
Piraeus, Greece.

The Company's stock is traded on the over-the-counter market electronic bulletin
board operated by NASD, under the symbol DNTK.

In 1993 and 1994 the Company encountered severe financial problems. On January
3, 1995, the Company filed a petition for relief under Chapter 11 of the Federal
Bankruptcy Code in the United States Court for the Northern District of
Illinois, Eastern Division. The Company operated under Chapter 11 until July 23,
1996, when it was discharged as Debtor-in-Possession and bankruptcy proceedings
were closed.

Strategic Plan

Before the Company emerged from bankruptcy, the Board of Directors was
reconstituted and a new management team was recruited. Individuals with strong
engineering and manufacturing backgrounds as well as finance, accounting, sales
and marketing skills were hired. The new management formulated a strategic
business plan to diversify the Company's operations to eliminate dependence on a
single product line or industry.

The plan incorporated an initial focus on the hand-held mobile computer market.
In particular, it focused on development of miniaturized mobile computers that
would be incorporated in electronic solutions for vertical markets. In addition
to mobile computing markets, management is focused on producing and marketing
other electronic devices, namely set top boxes, coupled with targeted
acquisitions in the technology sector.

As part of management's plan, on June 6, 1997 the Company acquired all of the
outstanding shares of stock in R.M. Schultz & Associates, Inc. ("RMS"), an
electronic contract-manufacturing firm located in McHenry, Illinois. In 1999,
the Company terminated the operations of RMS because the entity was not
profitable and used, rather than provided, cash in its operations.

On August 28, 2000 the Company, through a newly formed subsidiary named ADD
Acquisition Corp., acquired all of the assets of T & B Design, Inc. (f/k/a
Advanced Digital Designs, Inc.), Advanced Technologies, Inc., and 937 Plum Grove
Road Partnership pursuant to an Asset Purchase Agreement. The subsidiary then
changed its name to Advanced Digital Designs, Inc. ("ADD"). ADD specializes in
design services in the telecommunications industry, especially wireless and
cable-based product development, as well as multimedia development, including
digital video decoding and processing.

To assist the Company in the further development and marketing of its set-top
box products, on July 1, 2001 the Company acquired substantially all of the net
assets of Suncoast Automation, Inc. ("Suncoast"). Suncoast is a provider of
private, interactive cable systems to the extended stay hospitality industry
utilizing the Company's set-top boxes.

In August 2001, the Company signed a sales and marketing agreement with the
Hellenic Telecommunications Organization S.A. (OTE) to sell set-top boxes
through their more than 400 retail shops, as well as to participate in several
vertical projects, meaning with other businesses or governmental agencies, that
OTE is managing. This relationship marks the Company's entry into the consumer
marketplace with its products. As a result of the agreement with OTE and other
similar marketing agreements reached with Orbit Plan and the Dialogue Group of
Companies, we established a European branch office consisting of twelve sales,
marketing, customer service and technical support personnel located in Piraeus,
Greece.

The Company plans to market and distribute for consumer use, complementary
peripheral devices manufactured by other vendors in conjunction with its set-top
boxes. A portfolio of complimentary peripheral devices would include video
telephones, displays, home cinema equipment, wireless local area network (LAN)
devices and various conferencing accessories. Specific consumer markets include
retail chains, Internet Service Providers (ISP), and satellite

                                       24

<PAGE>

programming providers.

As a result of the agreements noted above, the Company has become involved in
vertical projects to develop communications solutions for law enforcement,
defense, surveillance and Olympic security utilizing Terrestrial Trunked Radio
(TETRA) technology. As a part of this solution, the Company has begun
development of a next generation Orasis(R) by exploring alternative mobile
hand-held computer products through original equipment manufacturers.

Products and Services

Orasis(R) is a hand-held computer developed by the Company with features to meet
the expressed desires of many potential customers. The unit was developed with
the multi-sector mobile user in mind. As such, it incorporated an upgradable
processor, user upgradable memory and hard disc, various modules and mobile
devices to satisfy the needs of various industries. The Company has not
recognized significant sales of the product to date due to the lack of adequate
marketing and the development of new technologies within the industry. Because
of these new technologies, in 2001 the Company began developing a new version of
the Orasis(R). The new Orasis(R) will have most of the same features as the
original design, but will incorporate new technologies. The scheduled release of
the next generation Orasis(R) is currently planned for 2002-2003.

A set-top box is an electronic device that converts digital signals into a user
acceptable format via other electronic devices such as television sets,
telephones and computers. The OraLynx set-top box processes high-speed video,
provides storage and works with coaxial cable, ADSL and fiber. The OraLynx(TM)
set-top box offers considerable advantages for service providers and end users.
For service providers, the OraLynx(TM) set-top box enables integration of data,
voice, and video over one unified network using one termination device. For end
users, the OraLynx(TM) set-top box serves as a simple yet sophisticated gateway
and access device that can be controlled with a remote control, keyboard or
other mobile handheld device. The OraLynx(TM) set-top box can be networked to
PC's, Internet appliances, and more. The OraLynx(TM) can provide direct access
to interactive TV, video-on-demand and ATM or IP voiceover phone service. Basic
unit features are as follows:

   .   High quality/high speed user interface (2D graphics)
   .   Seamless Video-on-Demand Service
   .   Instant Telephone Access
   .   IP or ATM voiceover
   .   Supports standard Internet protocols and various Internet connections
       (xDSL, SONET, ATM25, Ethernet)
   .   Networking and Smart Appliance Interface o Provides wireless or
       conventional networking

The Company also designs, constructs, installs and maintains private interactive
entertainment systems, focusing primarily in the extended stay hospitality
industry, utilizing the Company's set-top boxes. The Company provides all
service and maintenance on the entire system. In addition to basic cable TV, the
Company's system offers high speed internet connectivity, tiered programming,
pay-per-view, games, room messaging, folio view, express check-out and community
channels.

During 2001 and 2000, the Company performed design services, specializing in
hardware and software development. In addition, the Company's engineers
consulted with and assisted customers in the development of intellectual
property. The Company's engineers specialize in telecommunications, especially
wireless and cable-based product development, as well as multimedia development,
including digital video decoding and processing. The design services part of the
business has decreased significantly, and in the first quarter of 2002, the
Company laid off the majority of its design engineering staff. As existing
contracts with customers expire and are completed, the Company will not pursue
additional orders.

Markets

Based on the latest statistics, the mobile computing devices market is
approximately $110 billion in annual revenue. Sales of laptop and notebook
computers represent a large portion of this market. However, the growth rate of
hand-held pen-based devices exceeds that of laptops and notebooks. Based on the
latest Frost and Sullivan studies, the total pen-tablets market, in which
Orasis(R) competes, is several billion dollars and is growing at approximately
twenty five

                                       25

<PAGE>

percent per year.

The set-top box market is a relatively new phenomenon. According to the research
firm, Strategy Analytics, the worldwide installed base of set-top boxes was a
mere 2.2 million in 1998 and was 27.4 million boxes in the year 2000, and is
expected to grow by 35% in 2002. Currently with the market in the early
developing stages, the "set-top box" has not been perfected. Existing designs do
not offer the flexibility or future capacity that Dauphin's customers seek.

Our focus on the timeshare market is based upon current statistics indicating
annual timeshare global sales topping $6 billion and timeshare growth between
16% and 18% a year for the past seven years. Timesharing is the fastest-growing
segment of the global travel and tourism industry. According to the January 1999
issue of Bear, Stearns & Co. Inc.'s Leisure Almanac, "the confluence of rapidly
growing population of income-qualified households and increased utilization
should result in collective revenues of $200 billion between 1995 and 2009." In
1998, the United States accounted for $3.06 billion--approximately half--of the
world's timeshare sales revenue, according to a survey sponsored by the American
Resort Development Association. In 2000, U.S. sales were about $4.1 billion,
according to Ragatz Associates. The United States also leads in the number of
resorts (more than 1,600) and owners (nearly 3 million). According to Ragatz
Associates, in 1998 there were 4.25 million timeshare owners living in more than
200 countries and over 5,000 timeshare resorts in more than 90 countries.

Sales and Marketing

During the later part of 1999, the Company was engaged in negotiations and
eventually on February 17, 2000 signed a contract with Estel Telecommunications
S.A. ("Estel"), a European telecommunications firm seeking to develop an
ultra-high speed information technology network, to develop and produce set-top
boxes. Estel intended to construct, install and operate a fiber optic cable
network system offering telephone, television, Internet and other services in
Greece. On August 30, 2000 and December 28, 2000 the contract was amended to
extend the delivery dates, amend certain specifications of the product and amend
certain terms and conditions pertaining to Estel's performance. During 2000 and
into the first six months of 2001, the Company focused its primary marketing
resources around the Estel contract and did not actively market its products to
other companies. This was because the Company had very limited staffing
resources and the lack of aggressive marketing was not a direct result of the
terms of the contract with Estel. The set-top box agreement with Estel was
terminated on July 1, 2001 due to the lack of performance by Estel and the
inability of Estel to meet the terms and conditions of the agreement.

During the year 2001, the Company focused its marketing efforts in Greece, as it
established a strong relationship with the Hellenic Telecommunications
Organization S.A. (OTE). The Company has a sales and marketing agreement with
OTE, whereby the Company's products are marketed through the OTE Commercial
Network throughout Europe and the Middle East. OTE is a multi-billion dollar
company comprised of well known subsidiaries including CosmOte, OTEnet, OTESAT,
CosmoOne, OTEGlobe, OTEestate, HELLASCOM and other affiliated companies based in
Bulgaria, Yugoslavia, Romania, Armenia, Albania and Jordan. OTE is a public
company and trades on the Athens Exchange and the New York Stock Exchange. OTE
is a reseller of our products in Greece and other European countries. OTE will
work directly with our Greek based branch marketing and sales office. The branch
office was opened in August 2001. The office is staffed with approximately
twelve sales and marketing personnel. In addition, the Company has developed a
relationship marketing arrangement with Orbit Plan S.A., a strategic planning
and business development firm having a presence in more than ten countries, for
assistance in marketing the Company's products into many regions of Europe,
Russia, the Commonwealth of Independent States, China and the Far East. The
Company has also entered into a marketing arrangement with the Dialogue Group of
Companies which establishes the framework for joint development of a
communications infrastructure for law enforcement and local public safety
authorities, as well as development of certain related software applications.
The agreement calls for bilateral representation of each respective company's
products. The Dialogue Group of Companies is a Russian/American joint venture
and is among the largest private commercial enterprises in the former Soviet
Union, employing more than 3,500 people with clients that include the Ministry
of Internal Affairs in Russia, the Moscow Police Department and the Federal Tax
Police.

The Company's interactive cable systems are marketed primarily to the extended
stay hospitality industry through advertising and direct contact with the
customer.

Competition

Many competitors exist in the market segments where Dauphin competes. In the
hand held computer market, companies such as Epson, Fujitsu, IBM, and Mitsubishi
are market segment leaders. The companies manufacturing set-top boxes

                                       26

<PAGE>

are equally as impressive, including Motorola and Scientific Atlanta. However,
Dauphin management believes some advantages exist over the competition including
flexibility, adaptability and unique solutions driven designs. Most of the
Company's competitors are large corporations or conglomerates, which may have
greater resources to withstand downturns in the hand-held computer and set-top
box markets, invest in new technology and capitalize on growth opportunities.
These competitors, like the Company, aggressively seek to improve their yields
by way of increased market share and cost reduction.

The Company's interactive cable system competes with cable television companies,
pay-per-view outlets such as On Command and others. Primary competitive factors
in our markets include selection, convenience, accessibility, customer service
and reliability.

We believe we can compete favorably in all of our markets. Most of our
competitors are larger than us and have much greater financial resources. No
assurance can be given that such increased competition will not have an adverse
effect on our business.

Customer Dependence

While the Company continues to market to a variety of companies in many
different industries, two customers accounted for approximately 87% of total
revenues for 2001. Motorola, Inc. accounted for approximately 45% of total
revenue for the year 2001 and approximately 53% of total revenues for the year
2000. This customer has itself suffered a reduction in revenue and as a result
has not been issuing new purchase orders for design services. Because of the
loss of future orders, in the first quarter of 2002, the Company laid off the
majority of its engineering staff. Another customer, Hellenic Telecommunications
Organization S.A. (OTE), accounted for approximately 42% of total revenues in
2001, as a result of fourth quarter sales of set-top boxes.

Research and Development

Substantially all of the Company's research and development efforts relate to
the development of handheld computers and set-top boxes. To compete in the
highly competitive hardware markets, the Company must continue to develop
technologically advanced products. The Company's total research and development
expenditures were approximately $2,434,000, $1,427,000and $510,000 in 2001, 2000
and 1999, respectively. The Company has retained all rights and intellectual
property acquired during the development of their handheld products and
peripheral devices, and anticipates protecting all intellectual property
developed as a result of work being done on the Company's set-top boxes.

Production

Because the main components of the Company's products are complex, the assembly
of the motherboards is outsourced to various subcontractors located in the
United States and in Southeast Asia. Additionally, final assembly and the first
level of testing is performed by the subcontractors. The Company's proprietary
software is loaded by the subcontractor. The Company does final testing and
modifications.


Source and Availability of Raw Materials

Component parts are obtained from suppliers around the world. Components used in
all designs are state of the art and are Year 2000 compliant. Components such as
the latest mobile Intel processors, color video controllers and CACHE memory
chips are in high demand and are, thus, available in short supply. However, once
production has begun, management does not anticipate delays in the production
schedule.

Software Licensing Agreements

The Company is leasing BIOS (basic input/output software) for Orasis(R) from
Phoenix Technologies Ltd. ("Phoenix"). Phoenix designs, develops, markets and
licenses proprietary software products for original equipment manufacturers and
related software for personal computers. A Master License Agreement was signed
for the right of distribution of Phoenix software. The Company pays $4 per unit
sold for this license.

The Company has entered into a Pen Products Original Equipment Manufacturing
Distribution License Agreement and

                                       27

<PAGE>

Sub-license Agreement for Dedicated Systems with Annabooks Software LLC
("Annabooks"), the supplier of products offered by Microsoft Corporation
("Microsoft"). Microsoft is the third-party beneficiary under these agreements.
Under the terms of these agreements, the Company is authorized to install DOS,
Windows 95, 98, 2000 and NT, and Windows for Pen, among others, on the computers
it sells. For this right, the Company must pay Annabooks royalties for each unit
sold, although quantity discounts are available. The Company pays approximately
$78 per license for each computer it sells.

Patents, Copyrights and Trademarks

In view of rapid technological and design changes inherent to the computer
industry, the Company does not believe that, in general, patents and/or
copyrights are an effective means of protecting its interests. However, due to
the unique configuration of the Orasis(R), the Company did patent its mechanical
design and processor upgradability concepts. It also expects to patent its
set-top box design following development. The Company also attempts to maintain
its proprietary rights by trade secret protection and by the use of
non-disclosure agreements. It is possible that the Company's products could be
duplicated by competitors and duplication and sale could therefore adversely
affect the Company. However, management believes that the time spent by
competitors engineering the product would be too long for the rapidly changing
computer industry. In 1997 the Company applied for and received a trademark on
the name "Orasis."

                             DESCRIPTION OF PROPERTY

         Our executive offices consist of 7,300 square feet of office space
located at 800 E. Northwest Hwy, Suite 950, Palatine, Illinois 60067. We pay
approximately $10,000 per month to rent the facilities. In December 1998, in
conjunction with upgrading the facilities, we signed a five-year lease
extension. The lease called for increased rent, but provided for reconstruction
of facilities to better suit our needs. We believe the space will be adequate
for the foreseeable future. In addition, the Company operates a branch office
consisting of 2,800 square feet at II Merarchias 2 Street and Aki Miaouli, 185
35, Piraeus, Greece. The lease is for 2 years and the monthly rent is $2,800.

         RMS facilities are located at 1809 South Route 31, McHenry, Illinois
60050. RMS occupies 53,000 square feet of space, of which 7,000 square feet is
for office space and 5,000 square feet is surface mount portion of production.
The lease was for a five-year term ending on May 31, 2002 with an optional
extension for an additional five years. The rent is approximately $16,000 per
month. The Company will not renew the lease.

         ADD facilities are located at 937 N. Plum Grove Road, Schaumburg,
Illinois 60173. The approximately 5,500 square feet of office space is owned by
the Company.

         Suncoast. facilities are located at 150 Dunbar Avenue, Oldsmar, Florida
34677. Suncoast occupies 3,000 square feet of space of which 1,500 square feet
is for office space and 1,500 square feet is warehouse. The current lease
expires in July 2002 and is renewable for three years. The rent is approximately
$1,800 per month. The Company believes the space will be adequate for the
foreseeable future.


                                   MANAGEMENT

Directors and Executive Officers

         The following table sets forth the name, age and position, present
principal occupation and employment history for the past five years for each of
our directors and executive officers, as of October 31, 2001.

<TABLE>
<CAPTION>


                  Name                      Age                                 Present Office
         <S>                                <C>                        <C>
         Andrew J. Kandalepas               50                         Chairman of the Board of Directors
                                                                       Chief Executive Officer

         Christopher L. Geier               40                         Executive Vice President

         Harry L. Lukens, Jr.               51                         Vice President, Chief Financial Officer
                                                                       and Assistant Secretary
</TABLE>


                                       28

<PAGE>

<TABLE>

         <S>                                <C>                        <C>
         Jeffrey L. Goldberg                50                         Secretary, Director

         Gary E. Soiney                     61                         Director

         Mary Ellen W. Conti, MD            57                         Director

</TABLE>

         Mr.  Kandalepas  joined  Dauphin as Chairman of the Board in February
1995. He was named CEO and President of Dauphin in November of 1995. In
addition, Mr. Kandalepas is the founder and President of CADserv, engineering
services firm. Mr. Kandalepas graduated from DeVry Institute in 1974 with a
Bachelor's Degree in Electronics Engineering Technology. He then served as a
product engineer at GTE for two years. Mr. Kandalepas left GTE to serve ten
years as a supervisor of PCB design for Motorola prior to founding CADserv in
1986.

         Mr. Geier is Executive  Vice  President  reporting  directly to
Dauphin's CEO. Mr. Geier leads Dauphin's overall organization, including its
subsidiaries. Prior to joining Dauphin, Mr. Geier founded and managed several
multimillion-dollar private corporations, as well as a $100 million region of a
large retail distribution company. Mr. Geier earned an MBA from the University
of Chicago Graduate School of Business and a Bachelor of Arts in Criminal
Justice/Pre Law from Washington State University.

         Mr. Lukens was appointed Chief Financial Officer in May 2000 and named
Assistant Secretary in March 2001. From 1998 until his appointment, he served as
a personal asset manager for an individual investor. From 1993 until 1998, Mr.
Lukens was Vice President, Treasurer and Chief Financial Officer of Deublin
Company, a privately owned international manufacturer. From 1972 until 1993, he
was with Grant Thornton LLP, serving as a partner from 1986 until 1993.

         Mr.  Goldberg has served as Secretary  and a Director  since June of
1995. He is also a member of the Audit Committee. Mr. Goldberg is a principal
with Jeffrey L. Goldberg and Associates, a financial planning firm and is
currently Chief Executive Officer of Stamford International, a Canadian company.
He is a former principal at Essex. LLC., a financial planning and asset
management firm and at FERS Personal Financial LLC, an accounting and financial
planning firm. Mr. Goldberg formerly served as the President of Financial
Consulting Group, LTD., a lawyer at the Chicago law firm of Goldberg and
Goodman, and prior to that, was a tax senior with Arthur Andersen LLP. He is an
attorney and CPA.

         Mr. Soiney has served as a Director  since  November of 1995.  He is
also a member of the Audit Committee. Mr. Soiney graduated from the University
of Wisconsin in Milwaukee with a degree in Business Administration. He is
currently a 75% owner in Pension Design & Services, Inc., a Wisconsin
corporation, which performs administrative services for qualified pension plans
to business primarily in the Mid-West.

          Dr. Conti was  appointed to the Board of Directors  and to the Audit
Committee in September, 2000. Dr. Conti is a Radiation Oncologist and owns and
operates four Radiation Therapy Clinics in the St. Louis, MO. area. She has
practiced in the medical field since 1974 and has been a member of the Planning
and Budget Committee of Memorial Hospital in Belleville, Illinois. Dr. Conti
currently serves as a member of the Board of Directors of Creighton University,
FirstStar Bank Health Care Board, Association of Freestanding Radiation Oncology
Centers and the Accreditation Association for Ambulatory Health Care.

         All directors and executive officers are elected annually and hold
office until the next annual meeting of the stockholders or until their
successors have been elected and qualified.

Involvement in Certain Legal Proceedings

          There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.

Involvement by Management in Public Companies

          Mr. Goldberg is Chief Executive Officer and Chairman of the Board of
Stamford International, Inc., which trades on the Canadian Dealer Network. Mr.
Goldberg also served as a Director of Econometrics, Inc. that was traded on the
over the counter market until October 2000. None of the other Directors,
Executive Officers or Officers has had, or presently has,

                                       29

<PAGE>

any involvement with a public company, other than the Company.

Indemnification of Directors and Officers

         We have adopted a by-law provision which stipulates that we shall
indemnify any director or executive officer who was or is a party, or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, investigative or administrative, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him/her in connection with such
action, suit or proceeding, if he/she acted in good faith and in a manner he/she
reasonably believed to be in, or not opposed to, our best interest, had no
reasonable cause to believe his/her conduct was unlawful; provided, however, no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his/her duty to the company, unless, and only
to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper. These
indemnification provisions are not expected to alter the liability of directors
and executive officers under federal securities laws.

                                       30

<PAGE>

                       COMPENSATION OF EXECUTIVE OFFICERS

         The following table sets forth in the format required by applicable
regulations of the Securities and Exchange Commission the compensation for
Executive Officers of the Company who served in such capacities as of December
31, 2001.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
                          FISCAL                                         LONG-TERM                 ALL OTHER
                          YEAR        ANNUAL COMPENSATION             COMPENSATION (1)           COMPENSATION
                          ENDED                                                                       (2)
    NAME AND TITLE        DEC. 31
                        -----------------------------------------------------------------------
                                       SALARY      BONUS           AWARDS         PAYOUTS

                                                            -----------------------------------
                                                                 SECURITIES      LONG-TERM
                                                                 UNDERLYING      INCENTIVE
                                                                 OPTIONS (#)    PLAN PAYOUTS
                                                                                    ($)
- -----------------------------------------------------------------------------------------------------------------
<S>                       <C>        <C>           <C>                   <C>             <C>            <C>
Andrew J. Kandalepas      2001       $195,000      $    -0-             -0-             -0-             $5,000
Chairman, CEO and         2000        195,000        50,000             -0-             -0-              5,000
President                 1999         84,000           -0-             -0-             -0-              5,000

Christopher L. Geier(3)   2001       $185,000           -0-             -0-             -0-                -0-
Executive                 2000        185,000           -0-             -0-             -0-                -0-
Vice-President            1999         65,585           -0-             -0-             -0-                -0-

Harry L. Lukens, Jr.(4)   2001       $175,000           -0-             -0-             -0-                -0-
Chief Financial Officer,  2000        106,000           -0-             -0-             -0-                -0-
Assistant Secretary
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

         (1)      The Company presently has no long-term compensation
                  arrangements and had no such plans during fiscal years 1999
                  through 2001.

         (2)      The amounts disclosed in this column consist of Company
                  discretionary contributions to the Company's 401(k) Plan and
                  insurance premiums paid by the Company. The Company made no
                  discretionary contributions to the 410(k) Plan in fiscal years
                  1999 through 2001.

         (3)      Mr. Geier commenced employment in March 1999 and therefore,
                  the compensation shown for him for 1999 is for the period from
                  March 1999 through December 1999.

         (4)      Mr. Lukens commenced employment in May 2000 and therefore, the
                  compensation shown for him for 2000 is for the period from May
                  2000 through December 2000.

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         CADserv, an engineering services company based in Schaumburg, Illinois,
controlled by Andrew J. Kandalepas, Chief Executive Officer and a major
shareholder, has contributed to the design, packaging and manufacturing of the
Orasis(R) and assisted the Company in the design of the set-top box. The Company
paid $72,573 in 2001 for such services.

         RMS facilities are leased from Enclave Corporation, a company that is
owned by the former President of RMS whose contract with the Company was
terminated on May 14, 1999. The Company paid $182,337 of rent and $32,380 in
real estate taxes for the property lease in 2001, $179,468 of rent and $30,206
of real estate taxes for the property lease in 2000 and $179,684 of rent and
$24,150 of real estate taxes for 1999.

                                       31

<PAGE>

                             PRINCIPAL STOCKHOLDERS

         The following table sets forth as of December 31, 2001, the number and
percentage of outstanding shares of the Company's common stock beneficially
owned by (i) each Executive Officer and Director, (ii) all Executive Officers
and Directors as a group, (iii) all persons known by the Company to own
beneficially more than 5% of the Company's common stock. Beneficial ownership
has been determined in accordance with Rule 13d-3 under the Exchange Act. Under
this rule, certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the power to
dispose of the shares). In addition, shares are deemed to be beneficially owned
by a person if the person has the right to acquire the shares (for example, upon
exercise of an option or warrant) within 60 days of the date as of which the
information is provided; in computing the percentage ownership of any person,
the amount of shares is deemed to include the amount of shares beneficially
owned by such person (and only such person) by reason of these acquisition
rights. As a result, the percentage of outstanding shares of any person as shown
in the following table does not necessarily reflect the person's actual voting
power at any particular date.


<TABLE>
<CAPTION>
                                                                       Amount and Nature         Percent of
                                                                       of Beneficial             Shares of
Name                                Title                              Ownership                 Common Stock
- -------------------------------------------------------------------------------------------------------------
<S>                                 <C>                                <C>                       <C>
Andrew J. Kandalepas                Chairman, Chief
                                    Executive Officer
                                    & President                          4,526,337 (1)             6.6%

Harry L. Lukens, Jr.                Chief Financial
                                    Officer, Asst. Secretary               480,000 (2)              *

Jeffrey L. Goldberg                 Secretary, Director                     80,000 (3)              *


Christopher L. Geier                Executive Vice-
                                    President                            1,000,000 (4)             1.4%

Gary E. Soiney                      Director                                80,000 (5)              *

Mary Ellen Conti, M.D.              Director                               164,500 (6)              *

Crescent International, Ltd.                                             6,605,977 (7)             9.2%
                                                                       -----------              -------

Executive Officers, Directors and 5%
    Beneficial Owners as a group (7 persons)                            12,912,514 (8)            18.0%
                                                                       ===========              =======
</TABLE>

- -----------------------
*         Less than 1%

     (1)  Includes options to purchase 1,150,000 shares under options
          immediately exercisable.
     (2)  Includes options to purchase 480,000 shares under options immediately
          exercisable.
     (3)  Includes options to purchase 80,000 shares under options immediately
          exercisable.
     (4)  Includes options to purchase 1,000,000 shares under options
          immediately exercisable.
     (5)  Includes options to purchase 80,000 shares under options immediately
          exercisable.
     (6)  Includes options to purchase 40,000 shares under options immediately
          exercisable.
     (7)  Assumes exercise of all shares being registered under the Convertible
          Note and Incentive Warrant.
     (8)  Includes options to purchase 2,840,000 shares under options
          immediately exercisable.

                          DESCRIPTION OF CAPITAL STOCK

                                       32

<PAGE>

         Our authorized capital stock consists of 100,000,000 shares of $0.001
par value common stock and 10,000,000 shares of $0.01 par value preferred stock.
As of May 28, 2002 there were 65,050,646 shares of common stock outstanding and
beneficially owned by approximately 20,000 beneficial shareholders, and no
shares of preferred stock were outstanding. The following summary is qualified
in its entirety by reference to our certificate of incorporation, which is
available upon request.

Common Stock

         The holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the shareholders. Subject
to preferences that may be applicable to any then outstanding preferred stock,
holders of common stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available. In the event
of a liquidation, dissolution or winding up of the company, holders of the
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of common stock have no right to convert their common stock into
any other securities and have no cumulative voting rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable.

Preferred Stock

         The preferred stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by the Board of Directors,
without further action by shareholders, and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion and redemption rights and sinking fund
provisions. We have no present plans to issue preferred stock. However, the
issuance of any such preferred stock could affect the rights of the holders of
common stock and reduce the value of the common stock. In particular, specific
rights granted to future holders of preferred stock could be used to restrict
our ability to merge with or sell our assets to a third party, thereby
preserving control of the company by present owners.

Warrants and Options

         As of May 28, 2002 warrants to purchase 8,265,411 shares of common
stock were issued and outstanding in the hands of approximately 60 investors.
These warrants are convertible at any time. The strike prices of these warrants
range from $0.20 to $5.481. The warrants expire between three and five years
from the date of issuance. The warrants include a change of form provision in
them so that if a change in the form of the common stock occurs due to stock
splits, stock dividends, or mergers, the holders are entitled to receive a
pro-rata increase of shares at a discounted price. However, the holders of the
warrants do not have any voting rights and are not entitled to receive any cash
or property dividends declared by the Board of Directors until they convert the
warrants into common shares. At the time such warrants are exercised, the common
shareholders' ownership percentage of the Company will be diluted. In December
2000, the Company re-priced approximately 3,012,000 warrants it had previously
issued to outside consultants. The warrants were originally issued with an
exercise price ranging from $10.00 to $5.00, and were re-priced with exercise
prices ranging from $5.00 to $2.00 per share. The re-pricing created a charge to
earnings of approximately $234,000. In March 2002, the Company re-priced an
additional 1,023,000 warrants creating a charge to earnings of approximately
$27,218.

          As of May 28, 2002 there are a total of 5,605,562 options issued and
outstanding in the hands of more than thirty employees and former employees.
These options are exercisable at any time into the Company's $0.001 par value
common stock. The per share strike prices of these options range from $0.50 to
$3.875. These options expire three years from the date of issuance. At the time
such options are exercised, the common shareholders ownership percentage of the
Company will be diluted.

Transfer Agent and Registrar

         Our transfer agent and registrar is American Stock Transfer and Trust
Company, 59 Maiden Lane, Plaza Level, New York, New York 10038 (212) 936-5100.

                              PLAN OF DISTRIBUTION

                                       33

<PAGE>

         We are registering 6,605,977 shares of common stock on behalf of
Crescent International Ltd. The shares are shares that may be acquired by it
through the exercise of warrants and the conversion of a convertible note.

         The selling shareholder may sell its shares from time to time at prices
and at terms prevailing at the time of sale. The selling shareholder may
exercise its 700,000 warrants from time to time prior to expiration. As of June
11, 2002, we would have received $914,480 from the exercise of such warrants if
all are exercised prior to expiration. We will receive none of the proceeds of
any subsequent sale of shares issued under the warrants or conversion of the
Convertible Note.

         Crescent is contractually restricted from engaging in short sales of
our common stock and has informed us that it does not intend to engage in short
sales or other stabilization activities.

         Sales may be made on the over-the-counter market or otherwise at prices
and at terms then prevailing or at prices related to the then current market
price, or in negotiated private transactions, or in a combination of these
methods. The selling shareholder will act independently of us in making
decisions with respect to the form, timing, manner and size of each sale. We
have been informed by the selling shareholder that there are no existing
arrangements between the selling shareholder and any other person, broker,
dealer, underwriter or agent relating to the sale or distribution of shares of
common stock which may be sold by selling shareholder through this prospectus.
The selling shareholder may be deemed an underwriter in connection with resales
of its shares.

         The common shares may be sold in one or more of the following manners:

         .        a block trade in which the broker or dealer so engaged will
                  attempt to sell the shares as agent, but may position and
                  resell a portion of the block as principal to facilitate the
                  transaction;

         .        purchases by a broker or dealer for its account under this
                  prospectus;

         .        ordinary brokerage transactions and transactions in which the
                  broker solicits purchases, or

         .        privately negotiated transactions.

         In effecting sales, brokers or dealers engaged by the selling
shareholder may arrange for other brokers or dealers to participate. Except as
disclosed in a supplement to this prospectus, no broker-dealer will be paid more
than a customary brokerage commission in connection with any sale of the common
shares. Brokers or dealers may receive commissions, discounts or other
concessions from the selling shareholder in amounts to be negotiated immediately
prior to the sale. The compensation to a particular broker-dealer may be in
excess of customary commissions. Profits on any resale of the common shares as a
principal by such broker-dealers and any commissions received by such
broker-dealers may be deemed to be underwriting discounts and commissions under
the Securities Act of 1933. Any broker-dealer participating in such transactions
as agent may receive commissions from the selling shareholder (and, if they act
as agent for the purchaser of such common shares, from such purchaser).

         Broker-dealers may agree with the selling shareholder to sell a
specified number of common shares at a stipulated price per share, and, to the
extent a broker dealer is unable to do so acting as agent, to purchase as
principal any unsold common shares at a price required to fulfill the
broker-dealer commitment to the selling shareholder. Broker-dealers who acquire
common shares as principal may thereafter resell such common shares from time to
time in transactions (which may involve crosses and block transactions and which
may involve sales to and through other broker-dealers, including transactions of
the nature described above) in the over-the-counter market, in negotiated
transactions or otherwise at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
from the purchasers of such common shares commissions computed as described
above. Brokers or dealers who acquire common shares as principal and any other
participating brokers or dealers may be deemed to be underwriters in connection
with resales of the common shares.

         In addition, any common shares covered by this prospectus which qualify
for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this prospectus. We will not receive any of the proceeds from the sale of these
common shares, although we have paid the expenses of preparing this prospectus
and the related registration statement of which it is a part.

                                       34

<PAGE>

         The selling shareholder will pay all commissions and its own expenses,
if any, associated with the sale of their common shares, other than the expenses
associated with preparing this prospectus and the registration statement of
which it is a part.

                               SELLING SHAREHOLDER

         The following table provides certain information with respect to the
common stock beneficially owned by Crescent International Ltd., who is
classified as a selling shareholder and is entitled to use this prospectus. The
information in the table is as of the date of this prospectus. Although the
selling shareholder has not advised us of its intent to sell shares pursuant to
this registration and after conversion of the note to shares, it may choose to
sell all or a portion of the shares from time to time in the over-the-counter
market or otherwise at prices and terms then prevailing or at prices related to
the current market price, or negotiated transactions. The selling shareholder is
not nor has been an affiliate of the Company or holds more than 5% of the
outstanding shares.

<TABLE>
<CAPTION>
                                                                                Beneficially
                                                       Beneficially Owned       Owned         Registered Shares
                                Shares Beneficially    Shares to be             Shares        Beneficially Owned
                                Owned                  Registered               to be Sold    After Registration
Name                            Number       %         Number          %        Number        Number           %
- ----                            ------       -         ------          -        ------        ------           -
<S>                             <C>          <C>       <C>             <C>      <C>           <C>              <C>
Crescent International Ltd.     0            0.0%      6,605,977       9.2%     0             6,605,977        9.2%
</TABLE>

         On September 28, 2001, we entered into a $10 million securities
purchase agreement with Crescent International Ltd., ("Crescent") an
institutional investor managed by GreenLight (Switzerland) SA. The initial
funding was a $2.5 million Convertible Note and warrants exercisable to purchase
700,000 shares of common stock at a price of $1.3064 per share for a five-year
term. The Convertible Note is convertible into common stock at the lower of
(i)$1.1561, which represents 110% of the average of the Bid Prices during the
ten Trading Days prior to September 28, 2001 and (ii)the average of the lowest
three consecutive Bid prices during the 22-day period immediately preceding the
conversion date. If converted as of June 11, 2002, such shares would convert
into 5,905,977 of common stock assuming a conversion price of $0.4233 per share.

         The Company and Crescent had signed a Stock Purchase Agreement on May
28, 1999. Under that agreement, the Company sold to Crescent 1,398,951 shares of
common stock for $598,050 and issued warrants to purchase 750,000 shares of
common stock at a price of $.6435 per share. Crescent exercised its warrants
during 2000. By July 31, 2001, Crescent had sold all of its shares of the
Company in the over-the- counter market or through negotiated transactions.

         Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated, we believe each person
possesses sole voting and investment power with respect to all of the shares of
common stock owned by such person, subject to community property laws where
applicable. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days are deemed outstanding. Such shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership of any
other person.

         Except as previously discussed, the selling shareholder has not held
any positions or offices or had material relationships with us or any of our
affiliates within the past three years. We may amend or supplement this
prospectus from time to time to update the disclosure.


                                  LEGAL MATTERS

         Certain legal matters with respect to the validity of the shares being
registered have been passed upon for the company by Rieck and Crotty, P.C., 55
West Monroe Street, Suite 3390, Chicago, Illinois 60603.

                                       35

<PAGE>

                                     EXPERTS

         The audited consolidated financial statements as of and for the three
years ended December 31, 2001, which are included in this prospectus and appear
in the registration statement have been audited by Grant Thornton LLP,
independent certified public accountants, as set forth in their report thereon
which appears elsewhere in the prospectus and in the registration statement, and
is included in reliance upon the authority of such firm as experts in accounting
and auditing.

                                       36

<PAGE>

                            Dauphin Technology, Inc.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<S>                                                                          <C>
Unaudited Condensed Consolidated Financial Statements
    CONDENSED CONSOLIDATED BALANCE SHEETS - MARCH 31, 2002 AND
         DECEMBER 31, 2001 ...............................................   F-2

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
         THREE MONTHS ENDED MARCH 31, 2002 AND 2001 ......................   F-3

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
         FOR THE YEAR ENDED DECEMBER 31, 2001 AND THREE MONTHS
         ENDED MARCH 31, 2002 ............................................   F-4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
         MONTHS ENDED MARCH 31, 2002 AND 2001 ............................   F-5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS .....................   F-6

Audited Consolidated Financial Statements

    Report of Independent Certified Public Accountants ...................   F-1

    CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 2001 AND 2000 ..............   F-3

    CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
         DECEMBER 31, 2001, 2000 AND
         1999 ............................................................   F-4

    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS
         ENDED DECEMBER 31, 1999, 2000 AND 2001 ..........................   F-5

    CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
         DECEMBER 31, 2001, 2000 AND
         1999 ............................................................   F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...............................   F-7
</TABLE>


                                      F-1

<PAGE>


                            Dauphin Technology, Inc.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      March 31, 2002 and December 31, 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                          March 31, 2002      December 31, 2001
                                                                          --------------      -----------------
<S>                                                                       <C>                 <C>
CURRENT ASSETS:
   Cash                                                                    $     236,383          $     725,364
   Accounts receivable-
    Trade, net of allowance for bad debt of $50,621 at March 31,
       2002 and December 31, 2001                                                 36,650                 67,201
    Employee receivables                                                           3,248                  3,248
   Inventory, net of reserve for obsolescence of $2,981,623 at March
       31, 2002 and December 31, 2001                                            303,151                518,452
   Prepaid expenses                                                               56,759                 37,883
                                                                           -------------          -------------
                  Total current assets                                           636,191              1,352,148

PROPERTY AND EQUIPMENT, net of accumulated
    depreciation of $565,494 at March 31, 2002 and $475,899 at
    December 31, 2001

                                                                               2,050,147              1,824,935
ESCROW DEPOSIT
                                                                                  76,220                368,181
ASSETS NOT USED IN BUSINESS                                                       75,017                 75,017
INSTALLATION CONTRACTS, net of accumulated amortization
of $34,286 and $22,857 at March 31, 2002 and December 31,
2001, respectively                                                               285,714                297,143
                                                                           -------------          -------------
                  Total assets                                             $   3,123,289          $   3,917,424
                                                                           =============          =============

CURRENT LIABILITIES:
   Accounts payable                                                        $     588,421          $     477,716
   Accrued expenses                                                               71,121                103,792
   Short-term borrowings                                                         100,000                      -
   Current portion of long-term debt                                              81,055                 82,507
   Customer Deposits                                                               7,741                  7,741
                                                                           -------------          -------------

                  Total current liabilities                                      848,338                671,756

LONG-TERM DEBT                                                                    37,630                 43,580
CONVERTIBLE DEBENTURES                                                         1,383,666              1,153,197
MORTGAGE NOTE PAYABLE                                                            250,000                      -
                                                                           -------------          -------------
                  Total liabilities                                            2,519,634              1,868,533

COMMITMENTS AND CONTINGENCIES                                                          -                      -

SHAREHOLDERS' EQUITY:
   Preferred stock, $0.01 par value, 10,000,000 shares authorized
     but unissued                                                                      -                      -
   Common stock, $0.001 par value, 100,000,000 shares authorized;
     65,050,646 and 64,059,813 issued and outstanding at March 31,
     2002 and at December 31, 2001, respectively                                  65,051                 64,061
   Warrants                                                                    3,989,394              4,227,499
   Paid-in capital                                                            58,075,353             57,351,406
   Accumulated deficit                                                      (61,526,143)           (59,594,075)
                                                                           -------------          -------------
                  Total shareholders' equity                                     603,655              2,048,891
                                                                           -------------          -------------
                   Total liabilities and shareholders' equity              $   3,123,289          $   3,917,424
                                                                           =============          =============
</TABLE>


                                      F-2

<PAGE>


                            Dauphin Technology, Inc.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   Three months ended March 31, 2002 and 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            Three Months
                                                                           Ended March 31,
                                                                           ---------------

                                                                      2002               2001
                                                                      ----               ----
<S>                                                                <C>               <C>
NET SALES                                                         $     93,094       $      4,566
DESIGN SERVICE REVENUE                                                  59,375            440,588
                                                                  ------------       ------------
               TOTAL REVENUE                                           152,469            445,154

COST OF SALES                                                           55,916              2,222
COST OF SERVICES                                                       448,493            326,363
                                                                  ------------       ------------
         Gross (loss) profit                                          (351,940)           116,569

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                         1,110,915            475,984
RESEARCH AND DEVELOPMENT EXPENSE                                       240,533            462,522
AMORTIZATION OF GOODWILL                                                     -            275,000
                                                                  ------------       ------------
         Loss from operations                                       (1,703,388)        (1,096,937)
INTEREST EXPENSE                                                       233,015              6,885
INTEREST INCOME                                                          4,335             88,660
                                                                  ------------       ------------
         Loss before income taxes                                   (1,932,068)        (1,015,162)
INCOME TAXES                                                                 -                  -
                                                                  ------------       ------------
         NET LOSS                                                 $ (1,932,068)      $ (1,015,162)
                                                                  ============       ============


   BASIC AND DILUTED LOSS PER SHARE                               $      (0.03)      $      (0.02)
                                                                  ============       ============
Weighted average number of shares of common stock outstanding       64,510,424         61,798,069
</TABLE>


                                      F-3

<PAGE>


                            Dauphin Technology, Inc.
                CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS'
              EQUITY Year ended December 31, 2001 and three months
                              ended March 31, 2002
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       Common Stock            Paid-in
                                                       ------------
                                                    Shares       Amount        Capital         Warrants
                                                    ------       ------        -------         --------
<S>                                              <C>            <C>         <C>             <C>
BALANCE, December 31, 2000                        61,652,069    $  61,653   $ 53,479,116    $  3,321,810


Issuance of common stock in connection with:
    Stock purchase agreement                         258,968          259        280,640          19,101
    Beneficial conversion feature and
       warrants                                            -            -        914,279         684,600
    Stock Options exercised                           35,600           36         28,528               -
    Warrants exercised                               285,000          285        242,025        (71,236)
    Acquisition of business                          766,058          766      1,125,339               -
    Personal guarantee                             1,032,118        1,032      1,240,709               -
    Vendor payments                                   30,000           30         40,770         273,224
Net loss                                                   -            -              -               -
                                                 -----------    ---------   ------------     -----------
BALANCE, December 31, 2001                        64,059,813       64,061     57,351,406       4,227,499

Issuance of common stock in connection with:
    Stock Options exercised                           57,500           57         49,557               -
    Warrants exercised                               933,333          933        674,390       (265,323)
    Consulting fees                                        -            -              -          27,218
Net loss                                                   -            -              -               -
                                                 -----------    ---------   ------------    ------------
BALANCE, March 31, 2002                           65,050,646    $  65,051   $ 58,075,353    $  3,989,394
                                                 ===========    =========   ============    ============

<CAPTION>
                                                   Treasury      Stock       Accumulated
                                                   --------      -----
                                                    Shares       Amount        Deficit          Total
                                                    ------       ------        -------          -----
<S>                                              <C>            <C>         <C>             <C>
BALANCE, December 31, 2000                                 -    $       -   $(46,341,715)   $ 10,520,864


Issuance of common stock in connection with:
    Stock purchase agreement                               -            -              -         300,000
    Beneficial conversion feature and
       warrants                                            -            -              -       1,598,879
    Stock Options exercised                                -            -              -          28,564
    Warrants exercised                                     -            -              -         171,074
    Acquisition of business                                -            -              -       1,126,105
    Personal guarantee                                     -            -              -       1,241,741
    Vendor payments                                        -            -              -         314,024
Net loss                                                   -            -    (13,252,360)    (13,252,360)
                                                 -----------    ---------   ------------    ------------
BALANCE, December 31, 2001                                 -            -    (59,594,075)      2,048,891

Issuance of common stock in connection with:
    Stock Options exercised                                -            -              -          49,614
    Warrants exercised                                     -            -              -         410,000
    Consulting fees                                        -            -              -          27,218
Net loss                                                   -            -     (1,932,068)     (1,932,068)
                                                 -----------    ---------   ------------    ------------
BALANCE, March 31, 2002                                    -    $       -   $(61,526,143)   $    603,655
                                                 ===========    =========   ============    ============
</TABLE>


                                      F-4

<PAGE>


                            Dauphin Technology, Inc.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                   Three months ended March 31, 2002 and 2001
                                   (Unaudited)
 -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                             2002              2001
                                                                         ------------      -----------
<S>                                                                      <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES -
         Net loss                                                        $(1,932,068)      $(1,015,162)
         Non-cash items included in net loss:
           Depreciation and amortization                                     101,024            98,645
           Amortization of goodwill                                                -           275,000
           Interest expense on convertible note                              230,469                 -
           Warrants issued in lieu of consulting fees                         27,218                 -
         Decrease (increase) in accounts receivable - trade                   30,551           (23,348)
         Decrease in accounts receivable from employees                            -             3,342
         Decrease (increase) in inventory                                    215,301           (23,311)
         Increase in prepaid expenses                                        (18,876)         (100,920)
         Decrease in escrow deposits                                         291,961            46,336
         Increase (decrease) in accounts payable                             110,705           (65,084)
         Decrease in accrued expenses                                        (32,671)           (5,345)
         Increase in customer deposits                                             -               344
                                                                         -----------       -----------

         Net cash used in operating activities                              (976,386)         (809,503)

CASH FLOWS FROM INVESTING ACTIVITIES -
         Purchase of equipment                                              (314,807)          (26,613)
                                                                         -----------       -----------

         Net cash used in investing activities                              (314,807)          (26,613)

CASH FLOWS FROM FINANCING ACTIVITIES -
         Proceeds from issuance of shares                                     49,614           104,300
         Proceeds from issuance of warrants                                  410,000                 -
         Repayment of long-term leases and other obligations                  (7,402)          (21,842)
         Increase in mortgage note payables                                  250,000                 -
         Increase in short-term borrowing                                    100,000                 -
                                                                         -----------       -----------

         Net cash provided by financing activities                           802,212            82,458
                                                                         -----------       -----------

         Net (decrease) increase in cash                                    (488,981)         (753,658)

CASH BEGINNING OF PERIOD                                                     725,364         2,683,480
                                                                         -----------       -----------

CASH END OF PERIOD                                                       $   236,383       $ 1,929,822
                                                                         ===========       ===========

Cash Paid During The Period For -
         Interest                                                        $     2,546       $     6,885
</TABLE>


                                      F-5

<PAGE>


                            Dauphin Technology, Inc.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Dauphin Technology, Inc. ("Dauphin" or the "Company") and its Subsidiaries
design and market mobile hand-held, pen-based computers, broadband set-top
boxes; provide interactive cable systems to the extended stay hospitality
industry; and perform design services, specializing in hardware and software
development, out of its three locations in northern Illinois, one in central
Florida and its branch office in Piraeus, Greece. The Company, an Illinois
corporation, was formed on June 6, 1988 and became a public entity in 1991.

Basis of Presentation

The consolidated financial statements include the accounts of Dauphin and its
wholly owned subsidiaries, R.M. Schultz & Associates, Inc. ("RMS"), Advanced
Digital Designs, Inc ("ADD") and Suncoast Automation, Inc. ("Suncoast"). All
significant intercompany transactions and balances have been eliminated in
consolidation.

2.   SUMMARY OF MAJOR ACCOUNTING POLICIES

Earnings (Loss) Per Common Share

Basic earnings per common share are calculated on income available to common
stockholders divided by the weighted-average number of shares outstanding during
the period, which were 64,510,424 for the three-month period March 31, 2002 and
61,798,069 for the three-month period March 31, 2001. Diluted loss per common
share is adjusted for the assumed conversion exercise of stock options and
warrants unless such adjustment would have an anti-dilutive effect.
Approximately 12.5 million additional shares would be outstanding if all
warrants and all stock options were exercised as of March 31, 2002.

Unaudited Financial Statements

The accompanying statements are unaudited, but have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and in accordance with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation of results have been included. The interim
financial statements contained herein do not include all of the footnotes and
other information required by accounting principles generally accepted in the
United States of America for complete financial statements as provided at
year-end. For further information, refer to the consolidated financial
statements and footnotes thereto included in the registrant's annual report on
Form 10-K for the year ended December 31, 2001.

The reader is reminded that the results of operations for the interim period are
not necessarily indicative of the results for the complete year.

Use of Estimates

The presentation of the Company's consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.


                                      F-6

<PAGE>


                            Dauphin Technology, Inc.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

3.   RISKS AND UNCERTAINTIES

The Company has incurred a net operating loss in each year since its founding
and as of March 31, 2002 has an accumulated deficit of $61,526,143. The Company
expects to incur operating losses over the near term. The Company's ability to
achieve profitability will depend on many factors including the Company's
ability to design and develop and market commercially acceptable products
including its set-top box. There can be no assurance that the Company will ever
achieve a profitable level of operations or if profitability is achieved, that
it can be sustained.

4.   BUSINESS SEGMENTS

The Company has three reportable segments: Dauphin Technology, Inc. and RMS
(Dauphin), Advanced Digital Designs, Inc. (ADD) and Suncoast Automation, Inc.
(Suncoast). Dauphin is involved in design, manufacturing and distribution of
hand-held pen-based computer systems and accessories and smartbox set-top boxes.
ADD performs design services, process methodology consulting and intellectual
property development.

                                           March 31, 2002      March 31, 2001
                                         ----------------    ----------------

                        Revenue
                        -------
       Dauphin                               $     15,132        $      4,566
       ADD                                        268,750             638,275
       Suncoast                                    77,962                   -
       Inter-company elimination                 (209,375)           (197,687)
                                             ------------        ------------
                             Total           $    152,469        $    445,154
                                             ============        ============
Operating (Loss)
       Dauphin                               $ (1,117,988)       $ (1,037,747)
       ADD                                       (288,667)            (59,190)
       Suncoast                                  (296,733)                  -
       Inter-company elimination                        -                   -
                                              -----------        ------------
                             Total           $ (1,703,388)       $ (1,096,937)
                                             ============        ============

                                           March 31, 2002   December 31, 2001
                                         ----------------   -----------------
                          Assets
                          ------
       Dauphin                               $ 18,039,736        $ 17,461,145
       ADD                                      2,678,197           2,699,250
       Suncoast                                 1,747,311           1,702,791
                                                                 ------------
       Inter-company elimination              (19,341,955)        (17,945,762)
                                             ------------        ------------
                             Total           $  3,123,289        $  3,917,424
                                             ============        ============

5.   COMMITMENTS AND CONTINGENCIES

The Company is an operating entity and in the normal course of business, from
time to time, may be involved in litigation. In management's opinion, any
current or pending litigation is not material to the overall financial position
of the Company.


                            Dauphin Technology, Inc.

                                      F-7

<PAGE>


                            Dauphin Technology, Inc.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

6.   CONVERTIBLE DEBT AND WARRANTS
     -----------------------------

In connection with a Securities Purchase Agreement entered into with Crescent
International Ltd., an institutional investor, on September 28, 2001, a
Convertible Note was funded on October 2, 2001 and is due September 28, 2004.
The Company shall not be required to pay interest on the Convertible Note unless
the Company fails to deliver shares upon conversion. In such event, the Note
will bear an interest rate of 8.0% per annum, payable in quarterly installments.
The Company has recorded a beneficial conversion feature on the Convertible Note
and Warrants based on the fair value of the common stock of $0.99 per share as
of the date of commitment. The Warrants with an exercise price of $1.3064 per
share, are valued using the Black-Scholes valuation method, and are recorded at
$684,600. The beneficial conversion feature is calculated to be $914,279 and has
been recorded as Additional Paid in Capital and a discount to the Convertible
Note. The beneficial conversion feature is being amortized over three years, the
life of the Note. For the three month period ended March 31, 2002, the Company
recognized $230,469 as interest expense on the amortization of the beneficial
conversion feature. At conversion, the Company may record an additional
beneficial conversion based on the market price of the stock at the conversion
date.

7.   MORTGAGE NOTE PAYABLE
     ---------------------

On March 28, 2002, the Company entered into a one-year mortgage note payable
with a current shareholder, Clifford F. Klose and Marjorie J. Klose Trust. The
interest rate is Prime plus 7.25%. The current interest rate is 12% per annum.
Interest is payable on a monthly basis. The Company's building in Schaumburg,
Illinois serves as collateral for the mortgage.

8.   EQUITY TRANSACTIONS
     -------------------

2002 Events

During the first quarter of 2002, the Company received proceeds in the amount of
$410,000 for the exercise of 933,333 warrants. Additionally, employees exercised
57,500 stock options at prices ranging from $0.50 to $0.89 per share.

In March 2002, the Company re-priced approximately 1,023,000 warrants it had
previously issued to outside consultants. The warrants were originally issued
with an exercise price ranging from $2.00 to $5.00, and were re-priced with an
exercise price of $0.60 per share. The re-pricing created a charge to earnings
of approximately $27,218, which was calculated using the Black-Scholes pricing
model assuming 0% dividend yield, risk free interest rate of 5%, volatility
factor of 443% and an expected remaining life of 10 months.


                                      F-8

<PAGE>

               Report of Independent Certified Public Accountants

To the Board of Directors and Shareholders of
Dauphin Technology, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of DAUPHIN
TECHNOLOGY, INC. (an Illinois corporation) and Subsidiaries, as of December 31,
2001 and 2000, and the related consolidated statements of operations,
shareholders' equity and cash flows for the three years ended December 31, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dauphin
Technology, Inc. and its Subsidiaries as of December 31, 2001 and 2000 and the
consolidated results of their operations and their cash flows for the three
years ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
incurred a net loss of $13,252,360 during the year ended December 31, 2001, and,
as of that date, the Company's accumulated deficit is $59,594,075. In addition,
the Company has consistently used, rather than provided, cash in its operations.
These factors, among others, as discussed in Note 2 to the financial statements,
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

As disclosed in Note 20, the accompanying consolidated financial statements for
the year ended December 31, 2000 have been restated.

                                          GRANT THORNTON LLP



Chicago, Illinois
April 9, 2002

                                      F-9

<PAGE>

                            Dauphin Technology, Inc.

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                 2001                   2000
                                                                                 ----                   ----
                                                                                                      RESTATED
<S>                                                                          <C>                   <C>
CURRENT ASSETS:
  Cash                                                                       $    725,364          $  2,683,480
  Accounts receivable-
    Trade, net of allowance for bad debt of $50,621 at December 31,
       2001 and 2000                                                               67,201               321,377
    Employee receivables                                                            3,248                21,590
  Inventory, net of reserves for obsolescence of $2,981,623 and
       $2,491,216 at December 31, 2001 and 2000                                   518,452               505,749
  Prepaid expenses                                                                 37,883                20,794
                                                                             ------------          ------------
          Total current assets                                                  1,352,148             3,552,990

INVESTMENT IN RELATED PARTY                                                             -               290,000
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
    $475,899 and $1,127,040 at December 31, 2001 and 2000                       1,824,935             1,477,787
ESCROW DEPOSIT                                                                    368,181               752,500
ASSETS NOT USED IN BUSINESS                                                        75,017                     -
INSTALLATION CONTRACTS, net of accumulated amortization of
    $22,857 at December 31, 2001                                                  297,143                     -
GOODWILL, net of accumulated amortization of $412,500 at
    December 31, 2000                                                                   -             5,087,500
                                                                             ------------          ------------
        Total assets                                                         $  3,917,424          $ 11,160,777
                                                                             ============          ============

CURRENT LIABILITIES
  Accounts payable                                                           $    477,716          $    290,474
  Accrued expenses                                                                103,792                80,433
  Current portion of long-term debt                                                82,507               113,629
  Customer deposits                                                                 7,741                53,244
                                                                             ------------          ------------

        Total current liabilities                                                 671,756               537,780

LONG-TERM DEBT                                                                     43,580               102,133
CONVERTIBLE DEBENTURES                                                          1,153,197                     -
                                                                             ------------          ------------
          Total liabilities                                                     1,868,533               639,913
COMMITMENTS AND CONTINGENCIES                                                           -                     -
SHAREHOLDERS' EQUITY:
  Preferred stock, $0.01 par value, 10,000,000 shares authorized
    but unissued                                                                        -                     -
  Common stock, $0.001 par value, 100,000,000 shares authorized;
    64,059,813 shares issued and outstanding at December 31, 2001
    and 61,652,069 shares issued and outstanding at December 31, 2000              64,061                61,653
  Warrants to purchase 9,198,744 and 8,822,572 shares at December
    31, 2001 and 2000                                                           4,227,499             3,321,810
  Paid-in capital                                                              57,351,406            53,479,116
  Accumulated deficit                                                         (59,594,075)          (46,341,715)
                                                                             ------------          ------------
          Total shareholders' equity                                            2,048,891            10,520,864
                                                                             ------------          ------------
        Total liabilities and shareholders' equity                           $  3,917,424          $ 11,160,777
                                                                             ============          ============
</TABLE>

      The accompanying notes are an integral part of these balance sheets.

                                      F-10

<PAGE>

                            Dauphin Technology, Inc.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

              For the years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                             2001                2000                1999
                                                             ----                ----                ----
<S>                                                   <C>                 <C>                <C>
                                                                               RESTATED
NET SALES                                              $   1,274,045        $     63,913        $  2,279,058
DESIGN SERVICE REVENUE                                     1,346,162             795,924                   -
                                                      --------------      --------------     ---------------
        TOTAL REVENUE                                      2,620,207             859,837           2,279,058

COST OF SALES                                              1,608,380           2,375,948           4,833,601
COST OF SERVICES                                           1,136,619             499,679                   -
                                                      --------------      --------------     ---------------
        Gross loss                                          (124,792)         (2,015,790)         (2,554,543)

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
                                                           4,742,028           3,630,199           3,405,620

RESEARCH AND DEVELOPMENT EXPENSE                           2,434,006           1,472,093             510,287

AMORTIZATION OF GOODWILL                                   1,100,000             412,500                   -

ASSET IMPAIRMENT AND OTHER LOSSES                          4,277,500                   -             767,475

WRITE OFF ASSETS NO LONGER USED IN
     BUSINESS                                                525,691                   -                   -
                                                      --------------      --------------     ---------------
        Loss from operations                             (13,204,017)         (7,530,582)         (7,237,925)

INTEREST EXPENSE                                             274,407              67,753           2,099,179

INTEREST INCOME                                              226,064              83,356              30,800
                                                      --------------      --------------     ---------------
        Loss before income taxes                         (13,252,360)         (7,514,979)         (9,306,304)

INCOME TAXES                                                       -                   -                   -
                                                      --------------      --------------     ---------------
        Net loss                                       $ (13,252,360)       $ (7,514,979)       $ (9,306,304)
                                                      ==============      ==============     ===============

LOSS PER SHARE:
   Basic                                             $         (0.21)       $      (0.13)       $      (0.20)
                                                    ================      ==============     ===============
   Diluted                                           $         (0.21)       $      (0.13)       $      (0.20)
                                                    ================      ==============     ===============
Weighted average number of shares of common
    stock outstanding
        Basic                                             63,147,476          58,711,286          46,200,408

        Diluted                                           63,147,476          58,711,286          46,200,408
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-11

<PAGE>


                            Dauphin Technology, Inc.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              For the years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                         Common Stock               Paid-in
                                                    Shares          Amount          Capital          Warrants
                                                    ------          ------          -------          --------
<S>                                                <C>            <C>            <C>               <C>
BALANCE, January 1, 1999                           40,000,000     $  40,000      $ 32,343,785      $     55,181

Issuance of common stock in connection with:
    Conversions of debt                             4,985,358         4,985         3,842,235           287,700
    Private placement                               6,003,529         6,004         1,481,167           895,208
    Settlement of Trade Payables                      656,322           656           395,243                 -
Stock bonuses paid                                     26,373            26            26,890                 -
Net loss                                                    -             -                 -                 -
                                                   ----------     ---------      ------------      ------------
BALANCE, December 31, 1999                         51,671,582     $  51,671      $ 38,089,320      $  1,238,089
Issuance of common stock in connection with:
    Private placement, restated                     4,654,613         4,656         6,877,639           419,556
    Stock purchase agreement                        2,136,616         2,137         5,854,991         1,142,872
    Warrant exercised                               1,999,602         1,999         1,234,715          (620,641)
    Consulting fees                                   500,000           500           312,000         1,103,669
    Employee stock compensation                             -             -            70,622                 -
    Settlement of trade payables                      480,000           480           299,520                 -
    Stock options exercised                             2,000             2               998                 -
    Vendor payments                                   207,656           208           739,311            38,265

Net loss, restated                                          -             -                 -                 -
                                                   ----------     ---------      ------------      ------------
BALANCE, December 31, 2000, restated               61,652,069     $  61,653      $ 53,479,116      $  3,321,810
Issuance of common stock in connection with:
    Stock purchase agreement                          258,968           259           280,640            19,101
    Beneficial conversion feature and
       warrants                                             -             -           914,279           684,600
    Stock Options exercised                            35,600            36            28,528                 -
    Warrants exercised                                285,000           285           242,025           (71,236)
    Acquisition of business                           766,058           766         1,125,339                 -
    Personal guarantee                              1,032,118         1,032         1,240,709                 -
    Vendor payments                                    30,000            30            40,770           273,224
Net loss                                                    -             -                 -                 -
                                                   ----------     ---------      ------------      ------------
BALANCE, December 31, 2001                         64,059,813     $  64,061      $ 57,351,406      $  4,227,499
                                                   ==========     =========      ============      ============

<CAPTION>
                                                        Treasury Stock            Accumulated
                                                    Shares          Amount          Deficit            Total
                                                    ------          ------          -------            -----
<S>                                                <C>            <C>            <C>               <C>
BALANCE, January 1, 1999                             (138,182)    $ (33,306)     $(29,520,432)     $  2,885,228
Issuance of common stock in connection with:
    Conversions of debt                               101,673        24,402                 -         4,159,322
    Private placement                                  14,963         3,591                 -         2,385,970
    Settlement of Trade Payables                        1,546           371                 -           396,270
Stock bonuses paid                                     20,000         4,942                 -            31,858
Net loss                                                    -             -        (9,306,304)       (9,306,304)
                                                   ----------     ---------      ------------      ------------
BALANCE, December 31, 1999                                  -     $       -      $(38,826,736)     $    552,344
Issuance of common stock in connection with:
    Private placement, restated                             -             -                 -         7,301,851
    Stock purchase agreement                                -             -                 -         7,000,000
    Warrant exercised                                       -             -                 -           616,073
    Consulting fees                                         -             -                 -         1,416,169
    Employee stock compensation                             -             -                 -            70,622
    Settlement of trade payables                            -             -                 -           300,000
    Stock options exercised                                 -             -                 -             1,000
    Vendor payments                                         -             -                 -
                                                                                                        777,784

Net loss, restated                                          -             -        (7,514,979)       (7,514,979)
                                                   ----------     ---------      ------------      ------------
BALANCE, December 31, 2000, restated                        -     $       -      $(46,341,715)     $ 10,520,864
Issuance of common stock in connection with:
    Stock purchase agreement                                -             -                 -           300,000
    Beneficial conversion feature and
       warrants                                             -             -                 -         1,598,879
    Stock Options exercised                                 -             -                 -            28,564
    Warrants exercised                                      -             -                 -           171,074
    Acquisition of business                                 -             -                 -         1,126,105
    Personal guarantee                                      -             -                 -         1,241,741
    Vendor payments                                         -             -                 -           314,024
Net loss                                                    -             -       (13,252,360)      (13,252,360)
                                                   ----------     ---------      ------------      ------------
BALANCE, December 31, 2001                                  -     $       -      $(59,594,075)     $  2,048,891
                                                   ==========     =========      ============      ============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-12

<PAGE>

                            Dauphin Technology, Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                      2001             2000              1999
                                                                      ----             ----              ----
                                                                                     RESTATED
                                                                                     --------
<S>                                                               <C>               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                      $(13,252,360)     $ (7,514,979)    $(9,306,304)
    Non-cash items included in net loss
       Depreciation and amortization                                 1,630,454           827,348       1,101,616
       Inventory reserve                                               490,407           545,920       1,793,296
       Bad debt reserve                                                      -          (377,978)        417,361
       Asset impairment losses                                       4,277,500                 -               -
       Write off assets not used in business                           525,691                 -               -
       Interest expense on convertible debt                            252,076                 -       2,062,451
       Common stock issued for personal guarantee                    1,241,741                 -               -
       Warrants issued in lieu of consulting fees                      266,998           680,005               -
       Common stock issued to vendors                                   40,800         1,052,019               -
       Employee stock compensation                                           -            70,622               -
       Settlement of trade payables                                          -          (436,478)              -
       Stock bonus                                                           -                 -          31,858
    Changes in-
       Accounts receivable
           - trade                                                     268,845           181,445         147,508
           - employee                                                   18,342           (21,472)         45,869
       Inventory                                                      (390,056)          470,217        (361,495)
       Prepaid expenses                                                  7,237            17,985           7,817
       Escrow deposits                                                 384,319          (752,500)              -
       Accounts payable                                                 47,128        (1,176,470)       (208,909)
       Accrued expenses                                                 23,359            53,714        (188,586)
       Customer deposits                                               (45,503)           53,244               -
                                                                  ------------      ------------     -----------

           Net cash used in operating activities                    (4,213,022)       (6,327,358)     (4,457,518)

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment                                (661,283)           (2,195)        (25,680)
    Acquisition of business                                                  -        (6,025,000)              -
    Investment                                                               -                 -          10,000
                                                                  ------------      ------------     -----------
           Net cash used in investing activities                      (661,283)       (6,027,195)        (15,680)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of shares                                   300,000        14,201,671       2,385,970
    Proceeds from exercise of warrants and options                     205,864         1,179,182               -
    Issuance of convertible debentures and warrants net
       of financing                                                  2,500,000                 -       1,776,614
    (Decrease) increase in short-term borrowing                              -          (286,000)        286,000
    Repayment of long-term leases and other                            (89,675)          (87,907)              -
                                                                  ------------      ------------     -----------
       obligations

           Net cash provided by financing activities                 2,916,189        15,006,946       4,448,584
                                                                  ------------      ------------     -----------
                  Net increase (decrease) in cash                   (1,958,116)        2,652,393         (24,614)

CASH, beginning of year                                              2,683,480            31,087          55,701
                                                                  ------------      ------------     -----------
CASH, end of year                                                 $    725,364      $  2,683,480     $    31,087
                                                                  ============      ============     ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
    Interest Paid                                                 $     22,331      $     36,728     $    36,728

NONCASH TRANSACTIONS:
   Common stock issued in connection with
   Settlement of customer deposits and payables                   $          -      $    300,000     $   396,270
   Conversion of debentures                                                  -                 -       4,159,322
</TABLE>

         The accompanying notes are an integral part of these statements

                                      F-13

<PAGE>

                            Dauphin Technology, Inc.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------

1.   DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:

Description of Business

Dauphin Technology, Inc. ("Dauphin" or the "Company") and its Subsidiaries
design and market mobile hand-held, pen-based computers, broadband set-top
boxes; provide private, interactive cable systems to the extended stay
hospitality industry; and perform design services, specializing in hardware and
software development, out of three locations in northern Illinois, one in
central Florida and its branch office in Piraeus, Greece. Through one of its
subsidiaries, the Company marketed its contract manufacturing services through
July 1999. The Company, an Illinois corporation, was formed on June 6, 1988 and
became a public entity in 1991.

Basis of Presentation

The consolidated financial statements include the accounts of Dauphin and its
wholly owned subsidiaries, R.M. Schultz & Associates, Inc. ("RMS"), Advanced
Digital Designs, Inc. ("ADD") and Suncoast Automation, Inc. ("Suncoast"). All
significant inter-company transactions and balances have been eliminated in
consolidation.

2.   REALIZATION OF ASSETS:

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the company as a going concern. However, the company
has sustained substantial losses from operations in recent years, and such
losses have continued through the unaudited quarter ended March 31, 2002.
Revenues from the Company's design services have declined. In addition, the
company has used, rather than provided, cash in its operations.

In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the company, which in turn is
dependent upon the company's ability to meet its financing requirements on a
continuing basis, to maintain present financing, and to succeed in its future
operations. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the company be
unable to continue in existence.

Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue in existence: The Company has concentrated its efforts on
marketing its set-top boxes, halted all further development of the next
generation Orasis and are exploring alternative mobile hand-held computer
products through original equipment manufacturers. In January 2002 the
management of the Company began terminating employees who were not a critical
part of the marketing efforts. The facilities in McHenry, which housed the RMS
operations, has been closed, the majority of the personnel have been terminated
and the remaining inventory and equipment will be auctioned in the second
quarter of 2002.

                                      F-14

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------

3.   RISK AND UNCERTAINTIES:

Absence of Operating Profit

The Company has incurred a net operating loss in each year since it's founding
and as of December 31, 2001 has an accumulated deficit of $59,594,075. The
Company expects to incur operating losses over the near term. The Company's
ability to achieve profitability will depend on many factors including the
Company's ability to market commercially acceptable products including its
set-top box. There can be no assurance that the Company will ever achieve a
profitable level of operations or if profitability is achieved, that it can be
sustained.

Early Stage of Development of the Company's Products

From June of 1997 through June of 1999, the Company was principally engaged in
research and development activities involving the hand-held computer. Since
then, the Company has been working on new technologies, in particular the design
and development of the set-top boxes. In 2001, the Company also began developing
a new version of its hand-held computer. The Company's products have been sold
in limited quantities and there can be no assurance that a significant market
will develop for such products in the future. Therefore, the Company's inability
to develop and market its products on a timely basis may have a material adverse
effect on the Company's financial results.

4.   SUMMARY OF MAJOR ACCOUNTING POLICIES:

Cash and Cash Equivalents

Cash and cash equivalents include all cash and liquid investments that mature
three months or less from when they are purchased. The carrying amount
approximates the fair value due to short maturity of these investments.

Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market and primarily consist of purchased parts and assemblies.

Property and Equipment

Property and equipment are stated at cost. Depreciation is being computed using
the straight-line methods over the estimated useful lives (principally three to
seven years for machinery and equipment and twenty-five years for building) and
leasehold improvements over the lesser of the lease term or their useful life.

Goodwill and long-lived assets

Goodwill arising from business acquisitions is amortized on a straight-line
basis ranging from five years to ten years. Goodwill associated with the
acquisition of ADD was being amortized on a straight-line basis over 5 years.
Goodwill associated with the acquisition of RMS was being amortized on a
straight-line basis over 10 years. Installation contracts acquired in the
acquisition of Suncoast are being amortized on a straight-line basis over the
term of the contract, typically seven years. Long-lived assets, including
goodwill and other intangible assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss would be recognized when the carrying
amount of an asset exceeds the estimated undiscounted future cash flows expected
to result from the use of the asset and its eventual disposition. The amount of
the impairment loss to be recorded is calculated by the excess of the asset's
carrying value over its fair value. Fair value is

                                      F-15

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------

4.   SUMMARY OF MAJOR ACCOUNTING POLICIES - Continued

Goodwill and long-lived assets-Continued

determined using a discounted cash flow analysis. The Company recorded
$1,100,000 and $412,500 of amortization expense during 2001 and 2000,
respectively. At the end of the year, the Company recorded an impairment loss of
$3,987,500 on goodwill and an impairment loss of $290,000 on its investment in
non-marketable securities (See Notes 6 and 13).

Income Taxes

Deferred tax liabilities and assets are recognized for the expected future tax
consequences of events that have been included in the financial statements and
tax returns. Deferred tax liabilities and assets are determined based on the
difference between the financial statement basis and tax basis of assets and
liabilities (excluding non-deductible goodwill) and using enacted tax rates in
effect for the years in which the differences are expected to become recoverable
or payable.

Revenue Recognition

The Company recognizes revenue upon shipment of mobile computers, computer
accessories, set-top boxes and assembled products. Revenue from design services,
consulting and intellectual property development is recognized in the month the
services are performed.

(Loss) Per Common Share

Basic loss per common share is calculated by dividing net loss for the year by
the weighted-average number of shares outstanding during the period, which were
63,147,476, 58,711,286 and 46,200,408 for the years ended December 31, 2001,
2000 and 1999, respectively. Diluted loss per common share is adjusted for the
assumed exercise of stock options and warrants unless such adjustment would have
an anti-dilutive effect

Concentration of Credit Risk

Financial instruments which potentially subject Dauphin to concentrations of
credit risk consist principally of accounts receivable. Generally, credit risk
with respect to accounts receivable is diversified due to the number of entities
comprising Dauphin's customer base. However, one individual customer accounted
for approximately 50% and 53% of total accounts receivable at December 31, 2001
and 2000, respectively and the same customer accounted for approximately 45% and
53% of total revenues for the year ended December 31, 2001 and 2000,
respectively. Another customer accounted for approximately 42% of total revenues
for the year ended December 31, 2001.

Use of Estimates

The presentation of the Company's consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements

     On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No.141 ("SFAS No. 141"), "Business
Combinations", and Statement of Financial Accounting Standards No. 142 ("SFAS
No. 142"), "Goodwill and Intangible Assets". SFAS No. 141 is

                                      F-16

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------

4.   SUMMARY OF MAJOR ACCOUNTING POLICIES - Continued

New Accounting Pronouncements -Continued

effective for all business combinations completed after June 30, 2001. SFAS No.
142 is effective for fiscal years beginning after December 15, 2001; however,
certain provisions of such Statement apply to goodwill and other intangible
assets acquired between July 1, 2001, and the effective date of SFAS No. 142.
Major provisions of these Statements and their effective dates for the Company
are as follows:

          1.  All business combinations initiated after June 30, 2001 must use
              the purchase method of accounting. The pooling of interest method
              of accounting is prohibited except for transactions initiated
              before July 1, 2001.

         2.   Intangible assets acquired in a business combination must be
              recorded separately from goodwill if they arise from contractual
              or other legal rights or are separable from the acquired entity
              and can be sold, transferred, licensed, rented, or exchanged,
              either individually or as part of a related contract, asset, or
              liability.

         3.   Goodwill, as well as intangible assets with indefinite lives,
              acquired after June 30, 2001, will not be amortized. Effective
              January 1, 2002, all previously recognized goodwill and intangible
              assets with indefinite lives will no longer be subject to
              amortization.

         4.   Effective January 1, 2002, goodwill and intangible assets with
              indefinite lives will be tested for impairment annually and
              whenever there is an impairment indicator.

         5.   All acquired goodwill must be assigned to reporting units for
              purposes of impairment testing and segment reporting.

The Company has written-off the remaining goodwill as of the end of the year in
accordance with SFAS 121, therefore the provisions of SFAS 141 and SFAS 142 will
not effect the Company.

During 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, to address significant implementation issues related to
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and to develop a single accounting model to account
for long-lived assets to be disposed of. SFAS 144 carries over the recognition
and measurement provisions of SFAS 121. Accordingly, an entity should recognize
an impairment loss if the carrying amount of a long-lived asset or asset group
(a) is not recoverable and (b) exceeds its fair value. Similar to SFAS 121, SFAS
144 requires an entity to test an asset or asset group for impairment whenever
events or circumstances indicate that its carrying amount may not be
recoverable. SFAS 144 provide guidance on estimating future cash flows to test
recoverability. SFAS 144 includes criteria that have to be met for an entity to
classify a long-lived asset or asset group as held for sale. However, if the
criteria to classify an asset as held for sale are met after the balance sheet
date but before the issuance of the financial statements, the asset group would
continue to be classified as held and used in those financial statements when
issued, which is a change from current practice. The measurement of a long-lived
asset or asset group classified as held for sale is at the lower of its carrying
amount of fair value less cost to sell. Expected future losses associated with
the operations of a long-lived asset or asset group classified as held for sale
are excluded from that measurement.

SFAS 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years. However,
the provisions of SFAS 144 related to assets to be disposed of are effective for
disposal activities initiated by an entity's commitment to a plan after the
effective date or after the Statement are initially applied.

                                      F-17

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------

5.   INVENTORY

Inventory is comprised of material, labor and overhead and consists of the
following at December 31:

                                                         2001            2000
                                                         ----            ----
          Finished goods                             $  359,890       $  88,211
          Work in process                               156,040         156,040
          Raw materials                               2,984,145       2,752,714
                                                     ----------      ----------
                                                      3,500,075       2,996,965
          Less - Reserve for Obsolescence             2,981,623       2,491,216
                                                     ----------      ----------
          Less - Reserve for obsolescence             2,981,623       2,491,216
                                                     ----------      ----------
                                                     $  518,452      $  505,749
                                                     ==========      ==========

During the fourth quarter of 2001, the Company determined that its current
inventory could not be used in the production of a new version of the Orasis(R),
when it is completed, and therefore adjusted its remaining raw materials and
work in process inventory to an estimated liquidation value. The Company plans
on liquidating this inventory in the second quarter of 2002. The amount of the
write down was $490,000. During the fourth quarter of 2000, the Company wrote
down approximately $1,440,000 of inventory, consisting primarily of raw
materials, and disposed of certain excess and obsolete inventory which will not
be used in the production of the Orasis(R) or the set top box. In addition, the
Company also set up a reserve for obsolescence of approximately $510,000 to
adjust for the net realizable value of the remaining inventory associated with
the Orasis(R). Upon liquidation and disposal of the inventory, the reserve for
obsolescence will be adjusted.

6.   PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                      2001              2000
                                                                      ----              ----
     <S>                                                         <C>               <C>
     Furniture and fixtures                                      $   249,007       $    89,084
     Office equipment                                                480,765           374,732
     Manufacturing and warehouse equipment                         1,039,282           624,690
     Leasehold improvements                                          131,780           407,186
     Plastic molds for the Orasis(R)                                       -           696,862
     Building                                                        400,000           400,000
     Automobile                                                            -            12,273
                                                                  ----------       -----------
                                                                   2,300,834         2,604,827
     Less - Accumulated depreciation and amortization                475,899         1,127,040
                                                                  ----------       -----------
                                                                 $ 1,824,935       $ 1,477,787
                                                                 ===========       ===========
</TABLE>

During the fourth quarter of 2001, the Company decided to terminate its
operations at the facilities in McHenry, Illinois and liquidate the remaining
assets. The property and equipment at this facility were written down to an
estimated liquidation value. The result was a write down of obsolete assets of
$221,000. In addition, in the fourth quarter the Company concluded that the
plastic molds for the Orasis(R) were deemed unusable in the development and
production of a new version of the Orasis(R) and were written off, resulting in
a charge of approximately $305,000. The remaining liquidation value of the
assets has been reclassified to Assets not used in the Business.

                                      F-18

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

7.   INVESTMENT

During the third quarter of 1998, the Company invested in non-marketable
securities of a company that was managed by a former director of Dauphin. The
investment was carried on the books at cost. The Company recorded dividend
income of approximately $26,000 in 2000. Dividends were discontinued in 2001.
The Company has determined that due to the discontinuance of dividends and the
poor financial condition of the company, the carrying value has been impaired.
Therefore the Company wrote off the investment in 2001 in the amount of $290,000
and the expense is included in the asset impairment loss in the statement of
operations.

8.   LONG-TERM DEBT

As of December 31, 2001, the fair value of long-term debt approximates its book
value. At December 31, long-term liabilities consist of:

<TABLE>
<CAPTION>
                                                                           2001       2000
                                                                          ------     ------
<S>                                                                      <C>        <C>
McHenry County Department of Planning and Development loan for
   expansion of RMS, payable in equal monthly installments over 84
   months with 6% interest. This loan is unsecured and is due on
   October 1, 2004                                                       $ 69,073   $ 89,508
PACJETS Financial Ltd. equipment ease, payable in equal monthly
   installments over 60 months. The lease is collateralized by the
   equipment and has a one-dollar buy-out option. The lease carries
   12% interest and is due on October 15, 2003                             52,891     92,575
PACJETS Financial Ltd. furniture lease payable in equal monthly
   installments over 36 months. The lease carries a 23% annual
   interest rate and was due on November 15, 2000. The lease was
   collateralized by the furniture and has a one-dollar buy-out                 -     23,269
   option
Other- Capital leases for certain vehicles, machinery and equipment
   and certain priority tax claims due and payable in equal monthly
   installments over 36 to 72 months. All debts, collateralized by
   the equipment, are due October 2002 and carry interest rates
   ranging from 9% to 18%                                                   4,123     10,410
                                                                         --------   --------

     Total long-term liabilities                                          126,087    215,762
     Less short-term                                                       82,507    113,629
                                                                         --------   --------
                         Total long-term                                 $ 43,580   $102,133
                                                                         ========   ========
</TABLE>

Future minimum debt payments are as follows:

                        Year                                       Amount Due
                        ----                                       ----------
                        2002                                       $  82,507
                        2003                                          24,343
                        2004                                          19,237
                                                                   ---------

                Total long-term debt                               $ 126,087
                                                                   =========

                                      F-19

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

9.   CONVERTIBLE DEBT AND WARRANTS

On September 28, 2001 the Company entered into a $10 million Securities Purchase
Agreement with Crescent International Ltd., an institutional investor. Under the
Securities Purchase Agreement, the Company issued a Convertible Note for $2.5
million on October 2, 2001. Although the Company had the option to issue further
convertible notes to Crescent subject to certain conditions precedent, such
option expired on February 1, 2002 and no additional notes were issued. In
addition, the Company issued warrants exercisable to purchase 700,000 shares of
common stock at a price of $1.3064 per share for a five-year term. The
Securities Purchase Agreement further permits the Company to sell to Crescent up
to $7.5 million in common stock of the Company over a 24-month period.
Additionally, the Company agreed not to exercise any drawdowns against its
existing common stock purchase agreement with Techrich International Ltd., which
expired on January 28, 2002.

The Securities Purchase Agreement permits the Company to sell to Crescent and
requires Crescent to purchase from the Company, at the Company's sole
discretion, common stock of the Company for up to $7.5 million over a 24-month
period. Individual sales are limited to $1.5 million, or a higher amount if
agreed to by the Company and Crescent, and each sale is subject to our
satisfaction of the following conditions precedent (none of which are within the
control of Crescent): (1) the Company's representations and warranties must be
true and complete, (2) the Company must have one or more then currently
effective registration statements covering the resale by Crescent of all shares
issued in prior sales to Crescent and issuable upon the conversion of the
Convertible Note, (3) there must be no dispute as to the adequacy of disclosures
made in any such registration statement, (4) such registration statements must
not be subject to any stop order, suspension or withdrawal, (5) the Company must
have performed its covenants and obligations under the Securities Purchase
Agreement, (6) no statute, rule, regulation, executive order, decree, ruling or
injunction may have been enacted, entered, promulgated or adopted by any court
of governmental authority that would prohibit the Company's performance under
the Securities Purchase Agreement, (7) the company's common stock must not have
been delisted from its principal trading market and there must be no trading
suspension of its common stock in effect, and (8) the issuance of the designated
number of shares of common stock with respect to the applicable sale must not
violate the shareholder approval requirements of the Company's principal trading
market. The aggregate amount of all sale shares and convertible notes issued
cannot exceed $10 million. The amount of the sale is limited to twice the
average of the bid price multiplied by the trading volume during the 22 trading
day period immediately preceding the date of sale. When the total amount of
securities issued to Crescent equals or exceeds $5 million, then the Company
shall issue to Crescent a subsequent incentive warrant exercisable to purchase
400,000 shares of common stock at a price equal to the bid price on the date the
incentive warrant is issued.

The Convertible Note was funded on October 2, 2001 and is due September 28,
2004. The Company shall not be required to pay interest on the Convertible Note
unless the Company fails to deliver shares upon conversion. In such event, the
Note will bear an interest rate of 8.0% per annum, payable in quarterly
installments. The Company has recorded a beneficial conversion feature on the
Convertible Note and Warrants based on the fair value of the common stock of
$0.99 per share as of the date of commitment. The Warrants with an exercise
price of $1.3064 per share, are valued using the Black-Scholes valuation method,
and are recorded at $684,600. The beneficial conversion feature is calculated to
be $914,279 and has been recorded as Additional Paid in Capital and a discount
to the Convertible Note. The beneficial conversion feature is being amortized
over three years, the life of the Note. For the year ended December 31, 2001,
the Company recognized $252,076 as interest expense on the amortization of the
beneficial conversion feature. At conversion, the Company may record an
additional beneficial conversion based on the market price of the stock at the
conversion date.

On March 30, 1999, the Company signed an agreement with Augustine Funds, LP
("Augustine"), an accredited investor operated by Augustine Capital Management.
Augustine agreed to commit up to $6 million according to the following
conditions:

                                      F-20

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

9.   CONVERTIBLE DEBT AND WARRANTS - Continued

A) The first closing for $1 million will occur upon execution of agreed upon
documentation as well as a deposit of 2 million common shares (which shall be
pledged by current shareholders) in escrow. This tranche will take the form of
an 8% promissory note convertible into stock beginning sixty days after closing.
B) If the Company's stock value is below the 5/8 bid for two consecutive days
the Company must replenish the escrow account with additional shares until the
escrow value is greater than $1.5 million. Augustine received a warrant to
purchase 100,000 shares of common stock at an exercise price of $1.00 per share
for the commitment.

In April 1999, the Company received the funds and subsequently deposited an
additional 400,000 shares into an escrow account to compensate for the decline
in share price. In May 1999, the note was converted into common stock and the
escrow account was disbursed to Augustine. The agreement with Augustine was then
cancelled.

10.  STOCK-BASED COMPENSATION

In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation" the
Company has elected to continue to account for stock compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". During 2001 and 2000, the Company issued non-qualified stock options
to purchase 1,496,164 and 3,921,832 shares of common stock, respectively, to
certain key employees at exercise prices ranging from $0.50 to $3.875 per share
(approximating the market price at date of grant). The options vest immediately
and expire in three years if the individual is still employed with the Company.
Had the Company accounted for its stock options in accordance with Statement
123, at December 31, 2001 and 2000 pro forma earnings per share would have been:

<TABLE>
<CAPTION>
                                                    December 31, 2001  December 31, 2000
<S>                                                      <C>                <C>
Net loss as reported (000's)                             $  (13,252)        $  (7,515)
Pro forma net loss for Statement 123 (000's)                (15,232)          (11,320)
Basic loss per common share as reported                       (0.21)            (0.13)
Pro forma basic loss per common share                         (0.24)            (0.19)
Diluted loss per common share as reported                     (0.21)            (0.13)
Pro forma diluted loss per common share                       (0.24)            (0.19)
</TABLE>

For purposes of determining the pro forma effect of these options, the fair
value of each option is estimated on the date of grant based on the
Black-Scholes single-option-pricing model:

<TABLE>
<CAPTION>
                                                    December 31, 2001  December 31, 2000
<S>                                                        <C>                <C>
Dividend yield                                             0.0%               0.0%
Risk-free interest rate                                    5.0%               6.0%
Volatility factor                                          433%               224%
Expected life in years                                     2.75               2.60
</TABLE>

                                      F-21

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

10.    STOCK-BASED COMPENSATION - Continued

Information regarding these options for 2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                                                       2001                          2000
                                                                       ----                          ----
                                                                     Weighted                       Weighted
                                                                     Average                        Average
                                                        Shares       Exercise        Shares      Exercise Price
                                                        ------       --------        ------      --------------
                                                                      Price
                                                                      -----
<S>                                                    <C>          <C>             <C>          <C>
Options outstanding beginning of year                  3,913,332      $ 1.1658        50,000       $  0.6563
Options exercised                                        (35,600)       0.8023        (2,000)         0.5000
Options granted                                        1,496,164        1.9679     3,921,832          1.1644
Options forfeited                                              -             -       (56,500)         0.6604
                                                      ----------      --------     ---------          ------
Options outstanding at year end                        5,373,896      $ 1.3913     3,913,332        $ 1.1658
Weighted average fair value of options granted
     during the year                                  $   1.9679                  $   1.0316
Options exercisable at year end                        5,373,896                   3,913,332
Option price range at year end                        $     0.50 to $4.3125       $     0.50 to $4.3125
</TABLE>

The following table summarizes information about the options outstanding at
December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                              Options Outstanding                                   Options Exercisable
- ---------------------------------------------------------------------------  --------------------------------
   Range of              Number of    Weighted Avg.        Weighted Avg.         Number of     Weighted Avg.
 Exercise Prices          Shares     Contractual Life      Exercise Price         Shares       Exercise Price
 --------------           ------     ----------------      --------------        ---------     --------------
 <S>                    <C>          <C>                   <C>                  <C>            <C>
      $0.5000           1,084,500         1.02               $0.5000              1,084,500       $0.5000
      $0.7600               3,750         2.92               $0.7600                  3,750       $0.7600
      $0.7812           1,810,000         1.97               $0.7812              1,810,000       $0.7812
      $0.8700              16,000         2.88               $0.8700                 16,000       $0.8700
      $0.8900             139,066         2.88               $0.8900                139,066       $0.8900
      $0.9531              25,000         1.98               $0.9531                 25,000       $0.9531
      $0.9800              50,000         2.75               $0.9800                 50,000       $0.9800
      $1.0000             416,000         1.09               $1.0000                416,000       $ 1.000
      $1.0500              25,000         2.98               $1.0500                 25,000       $ 1.050
      $1.0800             240,000         2.68               $1.0800                240,000       $ 1.080
      $1.1562              25,000         2.79               $1.1562                 25,000       $1.1562
      $1.1600              50,000         2.84               $1.1600                 50,000       $1.1600
      $1.1900               3,750         2.67               $1.1900                  3,750       $1.1900
      $1.3100              20,000         2.32               $1.3100                 20,000       $1.3100
      $1.3700              10,000         2.75               $1.3700                 10,000       $1.3700
      $1.4100             166,666         2.63               $1.4100                166,666       $1.4100
      $1.4600             200,000         2.50               $1.4600                200,000       $1.4600
      $1.5156              25,000         2.23               $1.5156                 25,000       $1.5156
      $2.7500             142,500         2.29               $2.7500                142,500       $2.7500
      $3.5938             230,000         1.73               $3.5938                230,000       $3.5938
      $3.8750             666,664         2.00               $3.8750                666,664       $3.8750
      $4.3125              25,000         1.73               $4.3125                 25,000       $4.3125
                        ---------         ----               -------              ---------       -------
   Total for 2001       5,373,896         1.84               $1.3913              5,373,896       $1.3913
</TABLE>

                                      F-22

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

10.  STOCK-BASED COMPENSATION - Continued

<TABLE>
<CAPTION>
                         Options Outstanding                                Options Exercisable
- -------------------------------------------------------------------    -----------------------------
    Range of        Number of      Weighted Avg.      Weighted Avg.    Number of      Weighted Avg.
 Exercise Prices      Shares     Contractual Life    Exercise Price     Shares        Exercise Price
 ---------------    ---------    ----------------    --------------    ---------      --------------
<S>                 <C>          <C>                 <C>               <C>            <C>
    $ 0.5000        1,092,500          2.02             $ 0.5000       1,092,500         $ 0.5000
    $ 0.7812        1,810,000          2.97             $ 0.7812       1,810,000         $ 0.7812
    $ 0.9531           25,000          2.99             $ 0.9531          25,000         $ 0.9531
    $ 1.0000          400,000          2.02             $ 1.0000         400,000         $ 1.0000
    $ 2.7500           47,500          2.80             $ 2.7500          47,500         $ 2.7500
    $ 3.5938          180,000          2.61             $ 3.5938         180,000         $ 3.5938
    $ 3.8750          333,332          2.76             $ 3.8750         333,332         $ 3.8750
    $ 4.3125           25,000          2.74             $ 4.3125          25,000         $ 4.3125
                    ---------          ----             --------       ---------         --------
 Total for 2000     3,913,332          2.60             $ 1.1658       3,913,332         $ 1.1658
</TABLE>


11.   WARRANTS

During 2001 and 2000, the Company issued warrants to purchase 983,672 and
6,309,972 shares of common stock, respectively, to certain investors at exercise
prices ranging from $0.20 to $5.481 per share (approximating the market price at
date of grant). The warrants expire in three to five years. The warrants issued
to consultants are measured at fair value and recorded as expense, while the
warrants issued in capital raising are measured in fair value and recorded as an
allocation of the capital received. The warrants are recorded at the fair value
estimated on the date of grant based on the Black- the Black-Scholes
single-option-pricing model:

                                          December 31, 2001    December 31, 2000
Dividend yield                                   0.0%                0.0%
Risk-free interest rate                          5.0%                6.0%
Volatility factor                                433%                224%
Expected life in years                           2.75                2.60

Information regarding these warrants for 2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                                                              2001                            2000
                                                                              ----                            ----
                                                                            Weighted                        Weighted
                                                                            Average                         Average
                                                          Shares         Exercise Price     Shares       Exercise Price
                                                          ------         --------------     ------       --------------
<S>                                                    <C>               <C>             <C>             <C>
Warrants outstanding beginning of year                  8,522,572            $   2.0809    4,221,958          $  0.7258
Warrants exercised                                       (285,000)               0.6221   (2,009,358)            0.6366
Warrants granted                                          983,672                1.3316    6,309,972             2.5264
Warrants expired                                          (22,500)               1.3896            -                  -
                                                       ----------            ----------  -----------          ---------
Warrants outstanding at year end                        9,198,744            $   2.0477    8,522,572          $  2.0809
Weighted average fair value of options granted
   during the year                                     $   1.3316                        $    2.5264
Warrants exercisable at year end                        9,198,744                          8,522,572
Warrant price range at year end                        $0.20 to $5.481                   $0.20 to $5.481
</TABLE>

                                      F-23

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

11.    WARRANTS - Continued

The following table summarizes information about the warrants outstanding at
December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                          Warrants Outstanding                                     Warrants Exercisable
- --------------------------------------------------------------------------    -------------------------------
     Range of         Number of        Weighted Avg.      Weighted Avg.         Number of     Weighted Avg.
 Exercise Prices       Shares        Contractual Life    Exercise Price           Shares      Exercise Price
 ---------------      --------       ----------------    --------------         ---------     --------------
 <S>                  <C>            <C>                 <C>                    <C>           <C>
     $0.2000             60,000            0.97              $0.2000                 60,000      $0.2000
     $0.2300            125,000            0.66              $0.2300                125,000      $0.2300
     $0.2500            924,000            1.01              $0.2500                924,000      $0.2500
     $0.3500            125,000            2.66              $0.3500                125,000      $0.3500
     $0.4600            220,100            2.53              $0.4600                220,100      $0.4600
     $0.5000            877,863            0.77              $0.5000                877,863      $0.5000
     $0.5500            150,000            0.34              $0.5500                150,000      $0.5500
     $0.6000             50,000            0.16              $0.6000                 50,000      $0.6000
     $1.0000            840,000            1.21              $1.0000                840,000      $1.0000
     $1.3064            700,000            4.74              $1.3064                700,000      $1.3064
     $1.0312            125,000            1.99              $1.0312                125,000      $1.0312
     $1.1000            200,000            2.20              $1.1000                200,000      $1.1000
     $1.1452             22,006            2.72              $1.1452                 22,006      $1.1452
     $1.2500             35,000            1.96              $1.2500                 35,000      $1.2500
     $1.3600             70,000            2.31              $1.3600                 70,000      $1.3600
     $1.5000            666,666            1.47              $1.5000                666,666      $1.5000
     $2.0000          1,806,000            1.04              $2.0000              1,806,000      $2.0000
     $3.2668             25,714            1.88              $3.2668                 25,714      $3.2668
     $4.0579             51,751            1.62              $4.0579                 51,751      $4.0579
     $4.2244             49,712            1.66              $4.2244                 49,712      $4.2244
     $4.4369             18,932            1.84              $4.4369                 18,932      $4.4369
     $5.0000          1,806,000            1.04              $5.0000              1,806,000      $5.0000
     $5.4810            250,000            1.27              $5.4810                250,000      $5.4810
                      ---------            ----              -------              ---------      -------
  Total for 2001      9,198,744            1.45              $2.0477              9,198,744      $2.0477

     $0.2000             60,000            1.97              $0.2000                 60,000      $0.2000
     $0.2300            135,000            1.66              $0.2300                125,000      $0.2300
     $0.2500            924,000            2.01              $0.2500                924,000      $0.2500
     $0.3500            125,000            3.66              $0.3500                125,000      $0.3500
     $0.4600            220,100            3.53              $0.4600                220,100      $0.4600
     $0.5000          1,077,863            1.77              $0.5000                877,863      $0.5000
     $0.5500            150,000            1.34              $0.5500                150,000      $0.5500
     $0.6000             50,000            1.16              $0.6000                 50,000      $0.6000
     $1.0000            890,000            2.11              $1.0000                840,000      $1.0000
     $1.0312            125,000            2.99              $1.0312                125,000      $1.0312
     $1.1000            200,000            3.20              $1.1000                200,000      $1.1000
     $1.2500             35,000            2.96              $1.2500                 35,000      $1.2500
     $1.2938             15,000            0.36              $1.2938                 15,000      $1.2938
     $1.5000            500,000            1.03              $1.5000                666,666      $1.5000
     $1.5813              7,500            0.54              $1.5813                  7,500      $1.5813
     $2.0000          1,806,000            2.04              $2.0000              1,806,000      $2.0000
     $3.2668             25,714            2.88              $3.2668                 25,714      $3.2668
     $4.0579             51,751            2.62              $4.0579                 51,751      $4.0579
     $4.2244             49,712            2.66              $4.2244                 49,712      $4.2244
</TABLE>
                                      F-24

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

11.  WARRANTS - Continued

<TABLE>
<CAPTION>
                          Warrants Outstanding                                  Warrants Exercisable
- -----------------------------------------------------------------------   --------------------------------
     Range of          Number of      Weighted Avg.      Weighted Avg.     Number of     Weighted Avg.
  Exercise Prices       Shares      Contractual Life    Exercise Price       Shares     Exercise Price
  ---------------       ------      ----------------    --------------       ------     --------------
  <S>                 <C>           <C>                 <C>               <C>           <C>
     $4.4369             18,932           2.84              $4.4369           18,932        $4.4369
     $5.0000          1,806,000           2.04              $5.0000        1,806,000        $5.0000
     $5.4810            250,000           2.27              $5.4810          250,000        $5.4810
                      ---------           ----              -------        ---------        -------
  Total for 2000      8,522,572           2.05              $2.0809        8,522,572        $2.0809
</TABLE>

In December 2000, the Company re-priced approximately 3,012,000 warrants it had
previously issued to outside consultants. The warrants were originally issued
with an exercise price ranging from $10.00 to $5.00, and were re-priced with
exercise prices ranging from $5.00 to $2.00 per share. The re-pricing created a
charge to earnings of approximately $234,000, which was calculated using the
Black-Scholes pricing model assuming 0% dividend yield, risk free interest rate
of 6%, volatility factor of 224% and an expected life of 2.6 years.

12.    EMPLOYEE BENEFIT PLAN

The Company maintains a salary deferral 401(k) plan covering substantially all
employees who meet specified service requirements. Contributions are based upon
participants' salary deferrals and compensation and are made within Internal
Revenue Service limitations. For the years 2001, 2000 and 1999, the Company did
not make any matching contributions. The Company does not offer post-employment
or post-retirement benefits. The Company does not administer this plan, and
contributions are determined in accordance with provisions of the plan.

13.    IMPAIRMENT OF ASSETS


On an ongoing basis, the Company estimates the future undiscounted cash flows,
before interest, of the operating unit to which the goodwill relates in order to
evaluate its impairment. If there is an indication of impairment exists, the
carrying amount of the goodwill is reduced to its fair value by the estimated
shortfall of cash flows. During the fourth quarter of 2001 the Company
determined that the set-top box design was completed and the design services
business with outside customers was declining, therefore an impairment of the
goodwill associated with the acquisition of ADD occurred. The Company revised
its projections and determined that the projected results would not fully
support the goodwill balance. In accordance with the Company policy, management
assessed the recoverability of goodwill using a cash flow projection based on
the remaining amortization period of three and three quarter years. Based on
this projection, the cumulative cash flow over the remaining period was
insufficient to fully recover the goodwill. The Company estimated there was no
value and the remaining goodwill of decided to write off the remaining
$3,987,500 was written off of goodwill.


In addition, the Company determined that the carrying value of its investment in
non-marketable securities had been impaired since the investment had
discontinued paying dividends in 2001 and due to the overall poor financial
condition of the company. Therefore, the Company wrote off its investment in the
amount of $290,000.

During the fourth quarter of 2001, the Company decided to terminate its
operations at the facilities in McHenry, Illinois and liquidate the remaining
assets. The property and equipment at this facility were written down to an
estimated liquidation value. The result was a total write down of obsolete
assets of $221,000. In addition, during the fourth quarter the Company concluded
that the plastic molds for the Orasis(R) were deemed unusable in the development
and production of a new version of the Orasis(R) and the remaining undepreciated
value of approximately $305,000 was written off.

                                      F-25

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

13.   IMPAIRMENT OF ASSETS - Continued

During the third quarter of 1999 the Company experienced an impairment of the
goodwill associated with the acquisition of RMS, when an estimated cash flow
from the operating unit dramatically decreased. The Company recorded $767,475 as
an expense during 1999.

14.   INCOME TAXES:

A reconciliation of the income tax benefit on losses at the U.S. federal
statutory rate to the reported income tax expense follows:

<TABLE>
<CAPTION>
                                                                        2001               2000               1999
                                                                        ----               ----               ----
     <S>                                                            <C>                <C>                <C>
     U.S. federal statutory rate applied to pretax loss             $(4,117,158)       $(2,379,856)       $(2,143,858)
     Permanent differences and adjustments                               25,269             33,112            785,739
     Net operating losses not recognized                              4,091,889          2,346,744          1,358,119
                                                                    -----------        -----------        -----------
                       Income tax provision                         $         -        $         -        $         -
                                                                    ===========        ===========        ===========
</TABLE>

As of December 31, 2001 and 2000, the Company had generated deferred tax assets
as follows:

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                         ------------
                                                                    2001               2000
                                                                    ----               ----
       <S>                                                       <C>               <C>
       Gross deferred tax assets-
           Net operating loss (NOL) carryforward                 $47,019,457       $33,295,253
           Reserves for inventory obsolescence                     2,981,623         2,491,216
           Bad debt reserve                                           50,621            50,621
           Depreciation                                               86,704            39,349
           Goodwill                                                        -           275,000
           Asset Impairment                                          290,000                 -
           Assets not used in business                               525,691                 -
           Other timing differences                                   10,200            10,200
                                                                 -----------       -----------
                                                                  50,964,296        36,161,639
           Current federal statutory rate                                 34%               34%
                                                                 -----------       -----------
                         Deferred tax assets                      17,327,861        12,294,957
           Less valuation allowance                               17,327,861        12,294,957
                                                                 -----------       -----------
                         Net deferred tax asset                  $         -       $         -
                                                                 ===========       ===========
</TABLE>

Deferred income taxes include the tax impact of net operating loss (NOL)
carryforwards. Realization of these assets, as well as other assets listed
above, is contingent on future taxable earnings by the Company. A valuation
allowance of $17,327,861 and $12,294,957 at December 31, 2001 and 2000,
respectively, has been applied to these assets. During 1995, there was an
ownership change in the Company as defined under Section 382 of the Internal
Revenue Code of 1986, which adversely affects the Company's ability to utilize
the NOL carryforward.

                                      F-26

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

15.  BUSINESS SEGMENTS:

The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information". During 2001, the Company has three
reportable segments: Dauphin Technology, Inc., ("Dauphin"), Advanced Digital
Designs, Inc. ("ADD") and Suncoast Automation, Inc. ("Suncoast"). During 2000,
the Company had two reportable segments: Dauphin and ADD. During 1999, the
Company had two reportable segments: Dauphin and R.M. Schultz & Associates, Inc.
("RMS"). Dauphin is involved in design, manufacturing and distribution of
hand-held pen-based computer systems and accessories. ADD is a design
engineering company performing design services, process methodology consulting
and intellectual property development. Suncoast provides private, interactive
cable systems to the hospitality industry. RMS was an electronic contract
manufacturing firm. The operations of RMS were terminated in 1999 because the
entity was not profitable and used, rather than provided, cash in its
operations.

The reportable segments are managed separately because each business has
different customer requirements, either as a result of the regional environment
of the country or differences in products and services offered. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. Intangible assets are included in each
segment's reportable assets and the amortization of these intangible assets is
included in the determination of a segment's operating profit or loss. The
Company evaluates performance based on profit or loss from operations before
income taxes, interest, and non-operating income (expenses).

<TABLE>
<CAPTION>
                                                        2001            2000           1999
                                                        ----            ----           ----
                       Revenue
                       -------
<S>                                                <C>             <C>             <C>
       Dauphin                                     $  1,138,858    $     63,913    $    273,544
       RMS                                                    -               -
       ADD                                            2,668,599         984,674       2,134,563
       Suncoast                                         135,187               -               -
       Inter-company elimination                     (1,322,437)       (188,750)       (129,049)
                                                   ------------    ------------    ------------
                        Total                         2,620,207         859,837       2,279,058
Operating (Loss)
       Dauphin                                      (13,851,651)     (7,523,421)     (2,947,396)
       RMS                                                    -               -      (4,286,231)
       ADD                                             (186,196)       (195,911)              -
       Suncoast                                        (488,607)              -               -
       Inter-company elimination                       ,322,437          88,750          (4,298)
                                                   ------------    ------------    ------------
                        Total                       (13,204,017)     (7,530,582)     (7,237,925)
                        Assets
                        ------
       Dauphin                                       17,355,029      17,794,438       6,443,079
       RMS                                              106,116         598,782       2,156,937
       ADD                                            2,699,250       6,735,372               -
       Suncoast                                       1,702,791               -               -
       Inter-company elimination                    (17,945,762)    (13,967,815)     (5,227,862)
                                                   ------------    ------------    ------------
                        Total                         3,917,424      11,160,777       3,372,154
                 Capital Expenditures
                 --------------------
       Dauphin                                          377,590           2,195          18,544
       RMS                                                    -               -           7,136
       ADD                                                    -               -               -
       Suncoast                                         283,693               -               -
                                                   ------------    ------------    ------------

                        Total                           661,283           2,195          25,680
</TABLE>

                                      F-27

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

16.  COMMITMENTS AND CONTINGENCIES:

The Company conducts its operations from facilities which are rented under
non-cancelable operating leases. The leases on these facilities expire
throughout 2002 and contain renewal options and escalation clauses. Minimum
rental payments for 2002 amount to approximately $210,000, including real estate
taxes. Total rental expense was approximately $376,000, $294,000 and $300,000
for 2001, 2000 and 1999 respectively.

During 2001 and through the date of this report, the Company has been engaged in
various legal proceedings. Management believes that any existing litigation
would not be material to the overall financial condition of the Company.

17.  RELATED-PARTY TRANSACTIONS:

CADserv, an engineering services company based in Schaumburg, Illinois,
controlled by an Officer and a major shareholder, has contributed to the design
and development of the new version of the Orasis(R) and assisted the Company in
the design of the set-top box. The Company paid $72,573 in 2001 for such
services.

RMS facilities are leased from Enclave Corporation, a company that is owned by
the former President of RMS whose contract with the Company was terminated on
May 14, 1999. The Company paid $182,337 of rent and $32,380 in real estate taxes
or the property lease in 2001, $179,468 of rent and $30,206 of real estate taxes
for the property lease in 2000 and $179,684 of rent and $24,150 of real estate
taxes for 1999.

18.  EQUITY TRANSACTIONS:

2001 Transactions

During the first quarter of 2001, the Company received proceeds in the amount of
$102,300 for the exercise of 210,000 warrants. Additionally, employees exercised
4,000 stock options at a price of $.50 per share.

During the second quarter of 2001, employees exercised 4,000 stock options at a
price of $.50 per share

In April 2001, the Company issued to certain consultants 30,000 shares of common
stock and warrants to purchase 70,000 shares of common stock at an exercise
price of $1.36 per share, as payment for certain promotional and consulting
services. In September 2001, the Company issued additional warrants to purchase
16,666 shares of common stock at an exercise price of $1.395 per share to
finalize the arrangement with the consultants.

Effective July 1, 2001, the Company completed the acquisition of substantially
all of the assets of Suncoast Automation, Inc., a wholly owned subsidiary of
ProtoSource Corporation, pursuant to an Asset Purchase Agreement. The purchase
price was 766,058 shares of the Company's common stock valued at approximately
$1.1 million based on the closing bid price of $1.47 per share on June 29, 2001.

During the third quarter of 2001, the Company received proceeds in the amount of
$75,000 for the exercise of 75,000 warrants.

On August 14, 2001 the Company issued a drawdown notice in connection with the
common stock purchase agreement with Techrich International for $300,000. Upon
receipt of the funds, the Company issued 258,968 shares of common stock and
warrants to purchase 22,006 shares of common stock at an exercise price of
$1.14516.

                                      F-28

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

18.  EQUITY TRANSACTIONS - Continued

On September 13, 2001 the Company filed with the Securities and Exchange
Commission a Form S-3 registration statement relating to 6,964,724 shares of
common stock. The shares were issued by the Company in respect of the following:
(i) 766,058 shares were issued by the Company in connection with the acquisition
of the net assets of Suncoast; (ii) 52,000 shares were issued by the Company as
payment for certain advertising and promotional expenses and consulting
services; and (iii) 6,146,666 shares issuable by the Company to shareholders
upon the exercise by them of issued and outstanding warrants and options. On
September 27, 2001, the Securities and Exchange Commission declared the
registration statement effective.

During the fourth quarter of 2001, employees exercised 27,600 stock options at a
price of $.89 per share.

In November 2001, the Company issued warrants to purchase 175,000 shares of
common stock at exercise prices ranging from $1.00 to $1.50, as payment for
certain advertising and promotional expenses.

On November 19, 2001 the Company filed with the Securities and Exchange
Commission a Form S-1 registration statement relating to 4,000,000 shares of
common stock to be issued upon the conversion of the Convertible Note (see Note
9). This registration statement is still pending approval by the Securities and
Exchange Commission.

Personal Guarantee

On April 3, 2001, the Company and Estel Telecommunications S.A. cancelled the
performance bond issued on October 26, 2000 and the 1,550,000 shares of
restricted stock held by Best S.A. were returned to the Company. In connection
with the cancellation of the shares, Best S.A. executed the personal guarantee
of Mr. Andrew J. Kandalepas, which he had granted to secure the performance of
the Company's obligation to register the 1,550,000 shares issued in connection
with the performance bond and retained the 1,032,118 shares. The set-top box
agreement with Estel Telecommunications S.A. terminated on July 1, 2001 due to
lack of performance on behalf of Estel. This transaction was entered into on
behalf of the Company and therefore the Company recorded an expense of
$1,241,741, with an offsetting entry to additional paid in capital.

On December 20, 2001, the Board of Directors approved the issuance of 1,032,118
shares to the Chairman of the Board and CEO of the Company to replace the shares
that Best S.A. retained under the personal guarantee. The shares were valued at
$1,241,741 based on the closing price of $1.20 on April 3, 2001.

2000 Transactions

During the first and second quarter of 2000, the Company conducted a private
placement of 4,654,613 common shares and approximately 1,300,000 warrants to a
group of accredited investors in exchange for approximately $7,300,000. The
proceeds were used to settle the majority of trade payables, for day-to-day
operations and to start the development of the set-top box.

In January 2000, the Company issued 480,000 shares to a customer in exchange for
cancellation of $300,000 of customer deposits.

In January 2000, the Company issued warrants to an investment banker, for
services rendered, to purchase 350,000 shares at an exercise price of $1.00.

In January 2000, the Company issued 500,000 shares to a consulting firm for
services rendered in relation to the set-top box agreement with Estel
Telecommunications S.A.

                                      F-29

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

18.  EQUITY TRANSACTIONS - Continued

In April 2000, the Company completed its private placement and issued 3,630,000
warrants to an investment banker in lieu of consulting fees.

On April 26, 2000, the Company completed a common stock purchase agreement,
escrow agreement and registration rights agreement with Techrich International
Limited ("Techrich"). These agreements provide a $100,000,000 equity line of
credit as the Company requests over an 18 month period, in return for common
stock and warrants to be issued to the investor. Once every 22 days, the Company
may request a draw of up to $10,000,000 of that money, subject to a maximum of
18 draws. The maximum amount the Company actually can draw down upon each
request will be determined by the volume-weighted average daily price of the
Company's common stock for the 22 trading days prior to its request and the
average trading volume for the 45 trading days prior to the request. Each draw
down must be for at least $250,000. Use of a 22 day trading average was
negotiated to reduce the impact of market price fluctuations over any calendar
month, which generally includes 22 trading days. At the end of a 22-day trading
period following the drawdown request, the amount of shares is determined based
on the volume-weighted average stock price during that 22-day period in
accordance with the formulas in the common stock purchase agreement.

On April 28, 2000, the Company filed with the Securities and Exchange Commission
a Form S-1 registration statement relating to 15,332,560 shares of common stock
issued to stockholders in private transactions, 11,958,963 shares for other
stockholders, and 6,000,000 shares to be issued when the Company requests a
drawdown under the common stock purchase agreement referred to above.

On July 28, 2000, the Securities and Exchange Commission declared the
registration statement effective. Pursuant to the common stock purchase
agreement with Techrich, the Company issued as a placement fee warrants to
purchase 250,000 shares of common stock at an exercise price of $5.481.

On July 31, 2000, the Company issued a drawdown notice in connection with the
common stock purchase agreement with Techrich for $5,000,000. Upon receipt of
the funds, the Company issued 1,354,617 shares of common stock and warrants to
purchase 101,463 shares of common stock at exercise prices ranging from $4.06 to
$4.22.

In September 2000, the Company issued 73,750 stock options to certain employees
under employment agreements. At the time of issuance, the option price was below
the market price and the Company recorded $70,622 as additional compensation
expense.

On October 17, 2000, the Company issued a drawdown notice in connection with the
common stock purchase agreement with Techrich for $2,000,000. Upon receipt of
the funds, the Company issued 781,999 shares of common stock and warrants to
purchase 44,646 shares of common stock at exercise prices ranging from $3.26676
to $4.4369.

On October 20, 2000 the Company entered into an agreement with Best S.A. to act
as its distributor/agent in Greece. On October 26, 2000 the Company issued
1,550,000 shares of restricted stock to Best S.A. as a performance bond to
assure the Company's compliance with the Set-Top Box Agreement by and between
the Company and Estel S.A. These shares have not been included in the issued and
outstanding shares as of December 31, 2000, as Best S.A. has acknowledged that
they would return the shares to the Company upon satisfactory compliance with
the Set-Top Box Agreement. The agreement with Best S.A. requires the Company to
register these shares with the Securities and Exchange Commission during 2000.
To secure performance of the Company's obligation to register these shares,
Andrew J. Kandalepas, Chairman of the Board and CEO of the Company, granted to
Best S.A. a security interest in 1,032,118 shares of Company stock owned by him.

                                      F-30

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

18.  EQUITY TRANSACTIONS - Continued

In December 2000, the Company issued 22,000 shares of common stock and warrants
to purchase 148,265 shares of common stock at exercise prices ranging from
$1.0312 to $1.25, as payment for certain advertising and promotional expenses
and consulting services related to the establishment of an office in Europe.

In December 2000, the Company re-priced approximately 3,012,000 warrants it had
previously issued to outside consultants. The warrants were originally issued
with an exercise price ranging from $10.00 to $5.00, and were re-priced with
exercise prices ranging from $5.00 to $2.00 per share. The re-pricing created a
charge to earnings of approximately $234,000, which was calculated using the
Black-Scholes pricing model assuming 0% dividend yield, risk free interest rate
of 6%, volatility factor of 224% and an expected life of 2.6 years.

1999 Transactions

In January and April 1999, the Company issued a total of 46,373 shares under an
employment contract with Richard M. Schultz, former President of RMS. As of May
14, 1999, the Company no longer employs Richard M. Schultz.

In February and March 1999, the Company issued a total of 87,380 treasury shares
and 1,570,927 shares in exchange for $660,000 of principal, $17,123 of interest
and $32,909 of original issue discount amortization on Convertible Debentures -
2001A. In addition, in March the short-term loan from an investor in the amount
of $250,000 together with $7,500 of interest was converted into 427,667 shares.

In March 1999, the Company issued warrants to an investment banker to purchase
50,000 shares at an exercise price of $0.60 exercisable after the market bid
price of the Company's stock exceeds $1.00 for 15 consecutive trading days. Also
in March of 1999 the Company issued warrants to the same investment banker to
purchase 50,000 shares at an exercise price of $0.50 exercisable after the
market bid price of the Company's stock exceeds $2.00 for 15 consecutive trading
days. The warrants were valued at $48,000 using the Black-Scholes securities
valuation model, assuming among other things, a 6% risk free interest rate, 0%
dividend yield, 1 and 2 year life respectively and 120% volatility.

In March 1999, the Company issued 507,160 shares to five accredited investors in
exchange for $403,492. In addition to the shares, the Company issued warrants to
purchase 300,000 shares of common stock at an exercise price of $1.10 per share
exercisable immediately. The warrants were valued at $165,600 using the
Black-Scholes securities valuation model, assuming among other things, a 7% risk
free interest rate, 0% dividend yield, 5 year life and 120% volatility.

On March 30, 1999, Dauphin signed an agreement with Augustine Funds LP
("Augustine"), an accredited investor operated by Augustine Capital Management,
where Augustine agreed to commit up to $6 million. The first closing for $1
million occurred on April 15, 1999 when the parties executed agreed upon
documentation and Dauphin deposited 2 million common shares in escrow. This
tranche was in the form of an 8% promissory note convertible into stock
beginning sixty days after closing. The conversion was at 15% discount from the
closing bid price of the Company's common stock. The contract also called for
the adjustment in escrowed shares in case stock value decreases, under the 5/8
bid for two consecutive days. As specified on the contract, on April 22 due to
decline in market price of the stock, the Company deposited additional 400,000
shares in an escrow account to replenish the $1.5 million value in the account.
As an incentive, Augustine received a warrant to purchase 100,000 common shares
of stock at an exercise price of $1.00 per share. The warrant was valued at
$52,200 using Black-Scholes securities valuation model, assuming among other
things, a 6% risk free interest rate, 0% dividend yield, 1 and 2 year life
respectively and 120% volatility. On May 24, 1999 $1 million funded under the
note, together with accrued interest, was converted into 2,441,414 shares of
common stock of which 2,400,000 common shares were disbursed to Augustine. The
agreement with Augustine has been cancelled.

                                      F-31

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

18. EQUITY TRANSACTIONS - Continued

In May 1999, the Company issued 150,000 shares to two accredited investors in
exchange for $82,500. In addition to the shares the Company issued warrants to
purchase 150,000 shares of common stock at an exercise price of $0.55 per share.
The warrants are exercisable immediately and expire in three years. The warrants
were valued at $53,250 using the Black-Scholes securities valuation model,
assuming among other things, a 6% risk free interest rate, 0% dividend yield, 5
year life and 120% volatility.

In May 1999, the company issued 586,764 common shares in exchange for $240,000
of the remaining principal of the Convertible Debentures-2001A. That closed out
all debts the Company had in relation to the Convertible Debentures.

On May 28, 1999 the Company signed a Stock Purchase Agreement with Crescent
International Ltd. ("Crescent"), an investment company managed by GreenLight
(Switzerland) SA, which allows the Company and obligates Crescent to purchase
shares from the Company based on terms and conditions outlined in the agreement.
In total Crescent agreed to purchase up to $2,250,000 of the common stock within
the next twenty-four months. Crescent agreed to purchase from the Company shares
based on ninety percent of the daily average trading value, which is computed by
multiplying the closing bid price by the daily volume of the Company's common
stock traded average over the twenty days prior to closing. In connection
therewith the Company sold to Crescent 1,048,951 shares for $450,000 at an
average price of $0.43 per share including $58,000 of closing fees. The Company
has the right to sell additional shares with an interval of 25 business days
with a minimum of $100,000 per sale and a maximum of $500,000 based on the
average daily value as described above. In addition to the stock, Crescent
received an Incentive Warrant to purchase 750,000 common shares at a price of
$0.6435 per share. The Warrants were valued at $235,500 using Black-Scholes
securities valuation model assuming among other things 6% risk free rate, 0%
dividend yield, five years life and 120% volatility.

In connection with the Stock Purchase Agreement signed by the Company on May 28,
1999, the Company sold to Crescent 350,000 shares for $148,050 at an average
price of $0.423 per share, including $2,961 of closing fees.

In the third quarter of 1999, the Company issued 14,963 treasury shares and
2,086,540 common shares to a group of accredited investors in exchange for
$598,817 or an average of $0.29 per share. In addition to the shares the Company
issued warrants to purchase 1,651,600 shares of common stock at an average
exercise price of $0.47 per share. The warrants are exercisable immediately and
expire in three to five years. The Warrants were valued at $443,622 using
Black-Scholes securities valuation model assuming among other things 6% risk
free rate, 0% dividend yield, five years life and 120% volatility.

During the third quarter, the Company agreed to issue a total of 407,868 shares
to satisfy certain payables in the cumulative amount of $223,825 or
approximately $0.55 per share.

In September 1999, a Warrant for a total of 100,000 shares that was issued in
July 1999 was exercised at $0.53 per share. The Company received a total of
$53,000 from such exercise.

On October 26 1999, the Company issued 93,358 shares in exchange for $29,643 or
$0.32 per share net of $605 of closing fees in accordance with the Stock
Purchase Agreement signed by the Company on May 28, 1999 with Crescent.

On October 27, 1999 in connection with the Stock Purchase Agreement signed by
the Company on May 28, 1999 with Crescent, the Company sold to Crescent 447,012
shares for $141,935 at an average price of $0.32 per share, including $2,897 of
closing fees.

                                      F-32

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

18. EQUITY TRANSACTIONS - Continued

In November 1999, the Company issued 457,650 shares to three accredited
investors in exchange for $156,500 or $0.33 per share.

During the third quarter of 1999 a Warrant for 302,858 shares at $0.20 was
exercised. The Company received a total of $60,285 for the shares. As of the
date of this report, these shares have not been issued.

In November 1999, in exchange for services rendered, the Company issued 300,000
shares to a consultant.

In December 1999, the Company converted $70,000 of short-term notes including
$5,000 of interest from an affiliate into 350,000 shares.

In December 1999, the Company issued 362,858 shares in exchange for $72,572 from
two accredited investors. In addition to shares, the Company issued two Warrants
for the total of 362,858 common shares to the investors with a strike price of
$0.20. The Warrants were valued at $68,637 using Black-Scholes securities
valuation model assuming among other things 6% risk free rate, 0% dividend
yield, five years life and 120% volatility.

19. ACQUISITIONS:

On July 1, 2001, the Company acquired substantially all of the assets of
Suncoast Automation, Inc. The purchase price was 766,058 shares of the Company's
common stock valued at $1,126,105 based on the closing bid price of $1.47 per
share on June 29, 2001. The transaction was accounted for under the purchase
method of accounting. The purchase price, was allocated as follows:

                Accounts Receivable              $    14,669
                Inventory                            113,054
                Prepaid expenses                      24,326
                Equipment                            794,170
                Installation contracts               320,000
                                                 -----------
                                                   1,266,105

                Less Accounts payable                140,114
                                                 -----------

                Total                            $ 1,126,105
                                                 ===========

Pro Forma operating results as if the acquisition had occurred at the beginning
of the respective for the years ending December 31, 2001 an d 2000, as required
under Financial Accounting Standards No. 141, Business Combinations, are as
follows:

                                                  2001               2000
                                                  ----               ----

                 Revenue                      $ 2,620,207       $ 1,064,676
                 Operating loss               (13,652,231)       (8,489,753)
                 Net loss                     (13,702,198)       (8,365,215)
                 Net loss per share
                          Basic               $     (0.22)      $     (0.14)
                          Diluted             $     (0.22)      $     (0.14)

                                      F-33

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

19. ACQUISITIONS - Continued

On August 28, 2000, the Company acquired T & B Designs, Inc. (formerly known as
Advanced Digital Designs, Inc.), Advanced Technologies, Inc. and 937 Plum Grove
Road Partnership in exchange for $3 million in cash and $3 million to be held in
escrow and disbursed in accordance with the terms and conditions of an Escrow
Agreement. The transaction was accounted for under the purchase method of
accounting. Goodwill was recorded and is to be amortized under the straight-line
method over a 5-year period.

The purchase price, plus direct costs of the acquisition, were allocated as
follows:

                Building                                    $   400,000
                Computer equipment                              110,000
                Other equipment                                  15,000
                Excess of Cost over Net Assets Acquired       5,500,000
                                                            -----------

                Total                                       $ 6,025,000
                                                            ===========

Pro Forma operating results as if the acquisition had occurred at the beginning
of the respective for the years ending December 31, 2000 and 1999, as required
under APB 16 (Accounting Principles Board Opinion number 16, regarding Business
Combinations), are as follows:

                                                     2000             1999
                                                     ----             ----

                Revenue                         $ 3,548,801       $ 5,513,493
                Operating loss                   (7,023,058)       (6,594,083)
                Net loss                         (8,253,941)       (8,650,289)

                Net loss per share
                         Basic                  $     (0.14)      $     (0.19)
                         Diluted                $     (0.14)      $     (0.19)

20. RESTATEMENT:

Selling, general and administrative expenses, interest expense, net loss and per
share amounts have been adjusted from previously reported amounts to offset the
difference between the quoted market price and the proceeds from stock sales
under a private placement in the first quarter of 2000 against additional paid
in capital rather than interest expense amounting to $1,302,383 ($0.02 per
share).

                                      F-34

<PAGE>

                            Dauphin Technology, Inc.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

21.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

A summary of selected quarterly information for 2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                                 2001 Quarter Ended
                                                 ------------------
                                March 31,        June 30,           Sept. 30,          Dec. 31,
                                ---------        ----------------------------          --------
         <S>                    <C>              <C>                <C>              <C>
         Revenues               $  445,154       $  382,087         $  421,544       $ 1,371,422
         Gross Profit (Loss)       116,569           67,272             50,737
         (359,370)

         Net Loss               (1,015,162)      (3,070,590)*       (1,405,379)       (7,761,229)

         Net Loss per share
                    Basic       $    (0.02)      $    (0.05)*       $    (0.02)      $     (0.12)
                     Diluted    $    (0.02)      $    (0.05)*       $    (0.02)      $     (0.12)

<CAPTION>
                                                 2000 Quarter Ended
                                                 ------------------
                                March 31,         June 30,           Sept. 30,        Dec. 31,
                                ---------         --------           ---------        --------
         <S>                    <C>              <C>                <C>              <C>
         Revenues               $    4,736      $    11,305         $  344,975       $   498,821
         Gross Profit (Loss)       238,886         (346,256)            27,747        (1,936,167)
         Net Loss               (2,312,421)**    (1,249,631)        (1,173,789)**     (4,081,521)

         Net Loss per share
                   Basic        $    (0.04)**   $     (0.02)        $    (0.02)**    $     (0.07)
                    Diluted     $    (0.04)**   $     (0.02)        $    (0.02)**    $     (0.07)
</TABLE>

* Net loss and per share amounts for the quarter ended June 30, 2001 have been
adjusted from previously reported amounts to reflect the issuance of 1,032,118
shares of common stock to the Chairman of the Board and CEO of the Company to
replace shares issued under a personal guarantee amounting to $1,241,741 (0.02
per share).

** Net loss and per share amounts for the quarters ended March 31, 2000 and
September 30, 2000 have been adjusted from previously reported amounts to offset
the difference between the quoted market price and the proceeds from stock sales
under the private placement against additional paid in capital rather than
interest expense amounting to $1,721,939 ($0.03 per share) for the quarter ended
March 31, 2000 and $343,416 ($0.01 per share) for the quarter ended September
30, 2000.

                                      F-35

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses in connection with the sale
and distribution of the securities being registered hereby. All amounts are
estimated except the Securities and Exchange Commission registration fee.

                                                              Amount
                                                              ------
SEC registration fee                                      $      890.00
Accounting fees and expenses                                  14,000.00
Legal fees and expenses                                       16,000.00
Miscellaneous fees and expenses                                6,500.00
                                                          -------------

                  Total                                   $   37,390.00
                                                          -------------


Item 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

Registrant is incorporated in the State of Illinois. Section 8.75 of the
Illinois Business Corporation Act defines the powers of registrant to indemnify
officers, directors, employees and agents.

In additional to the provisions of Illinois Business Corporation Act Section
8.75, and pursuant to the power granted therein, registrant has adapted Article
XII of its Bylaws which provides as follows:

ARTICLE XII

INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS

SECTION 1 The corporation shall indemnify any person who was or is a party, or
is threaten to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a directors, officer, employee or agent of the
corporation or fiduciary of any employee benefit plan maintained by the
corporation, or who is or was a director, officer, employee or agent of the
corporation of a fiduciary as aforesaid, or who is or was serving at the request
of the corporation as a director, officer, employee, agent of fiduciary of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation (or, in the case of a fiduciary, the best interests of the plan and
plan participants) and, with respect to any criminal action proceeding, had no
reasonable cause to believe his conduct was unlawful. This termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contender or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that this conduct was unlawful.

SECTION 2 The corporation shall indemnify any person who was or is a party, or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation or fiduciary as aforesaid, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to
the best interests of the corporation (or, in the case of a fiduciary, the best
interests of the plan and plan participants), except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless, and only to the extent that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, but in view

                                      II-1

<PAGE>

of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses as the court shall deem proper.

SECTION 3 To the extent that a director, officer, employee or agent of a
corporation or fiduciary as aforesaid has been successful, on the merits or
otherwise, in the defense of any action, suit or proceeding referred to in
proceeding sections, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorney's fees) actually and
reasonably incurred by him in connection therewith.

SECTION 4 Any indemnification under section 1 and 2 hereof (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case,
upon a determination of the director, officer, employee, agent of fiduciary is
proper on the circumstances because he has met the applicable standard of
conduct set forth in said sections. Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtained, or even if obtainable, a quorum of disinterest directors so
directs, by independent legal counsel in a written opinion, or (3) by the
shareholders.

SECTION 5 Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding, as authorized by the board of directors in the
specific case, upon receipt of an undertaking by or oh behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this Article.

SECTION 6 The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaws, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent, and shall
incur to the benefit of the heirs, executors and administrators of such person.

SECTION 7 The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation
of fiduciary, or who is or was serving at the request of the corporation as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article.

SECTION 8 In the case of a merger, the term "corporation" shall include, in
additional to the surviving corporation, any merging corporation absorbed in a
merger, which if its separate existence had continued, would have had the power
and authority to indemnify its directors, officers and employees or agents, so
that any person who was a director, officer, employee or agent of such merging
corporation, or was serving at the request of another corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this section with respect to the surviving corporation as such
person would have with respect to such merging if its separate existence had
continued.

SECTION 9 For the purpose of this Article, referenced to "other enterprises"
shall include employee benefit plans; reference to "fines" shall include any
excise tax assessed on a person with respect to an employee benefit plan; and
references to the phrase "serving at the request of the corporation" shall
include any service as a director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries. A person who acted
in good faith and in a manner he or she reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Article.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of registrant pursuant
to the foregoing provisions, or otherwise, registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, enforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by registrant of expenses incurred in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction

                                      II-2

<PAGE>

the questions whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such an
issue.

Except to the extent herein above set forth, there is no charter provision,
bylaw, contract, arrangement or statute pursuant to which any director or
officer of registrant is indemnified in any manner against any liability which
he may incur in his capacity as such.

Item 15.  Recent Sales of Unregistered Securities

Within the past three years, the registrant has sold the following securities
that were not registered under the Securities Act. The purchases and sales were
exempt pursuant to Section 4(2) of the Securities Act and/or Regulation D
promulgated thereunder, as transactions by an issuer not involving a public
offering, where the purchasers represented their intention to acquire the
securities for investment only, not with a view to distribution, and received or
had access to adequate information about the registrant.


     1. In May 1999, the Company issued 150,000 shares to two accredited
investors, Peter Tsolinas and Ernest Kezios, in exchange for $82,500. We
undertook this transaction to raise funds for general working capital purposes.
In addition to the shares the Company issued warrants to purchase 150,000 shares
of common stock at an exercise price of $0.55 per share. The warrants are
exercisable immediately and expire in three years. The warrants were valued at
$53,250 using the Black-Scholes securities valuation model, assuming among other
things, a 6% risk free interest rate, 0% dividend yield, 5 year life and 120%
volatility. The purchase and sale were exempt pursuant to Rule 506 and
Regulation D as transactions by an issuer not involving a public offering, where
the purchases represented their intention to acquire the securities for
investment only, not with a view to distribution, and received or had access to
adequate information about the registrant, consisting of periodic reports filed
pursuant to Section 13(a) and 15 (d) of the Exchange Act. The securities were
issued without use of advertising or general solicitation following the
Company's delivery of a copy of the most recent Form 10-K, proxy statement and
interim Forms 10-Q to the investors and the investors delivery of a subscription
agreement stating the investors qualification as accredited investors, including
the investor's statement of intent to acquire the securities for the investors'
own investment purposes and not with a view toward further distribution.

     2. In May 1999, the Company issued 586,764 common shares to Augustine
Funds, LP, an institutional investor, in exchange for $240,000 of the remaining
principal of the Convertible Debentures-2001A. That closed out all debts the
Company had in relation to the Convertible Debentures with Augustine Funds LP.


     3. On May 28, 1999 the Company signed a Stock Purchase Agreement with
Crescent International Ltd. ("Crescent"), an investment company managed by
GreenLight (Switzerland) SA, which allows the Company and obligates Crescent to
purchase shares from the Company based on terms and conditions outlined in the
agreement. We undertook this transaction to raise funds for general working
capital purposes. In total Crescent agreed to purchase up to $2,250,000 of the
common stock within the next twenty-four months. Crescent agreed to purchase
from the Company shares based on ninety percent of the daily average trading
value, which is computed by multiplying the closing bid price by the daily
volume of the Company's common stock traded average over the twenty days prior
to closing. In connection therewith the Company sold to Crescent 1,048,951
shares for $450,000 at an average price of $0.43 per share including $58,000 of
closing fees. The Company has the right to sell additional shares with an
interval of 25 business days with a minimum of $100,000 per sale and a maximum
of $500,000 based on the average daily value as described above. In addition to
the stock, Crescent received an Incentive Warrant to purchase 750,000 common
shares at a price of $0.6435 per share. The Warrants were valued at $235,500
using Black-Scholes securities valuation model assuming among other things 6%
risk free rate, 0% dividend yield, five years life and 120% volatility. Under
this agreement, on May 28, 1999 the Company sold to Crescent 350,000 shares for
$148,050 at an average price of $0.423 per share, including $2,961 of closing
fees.

     4. In the third quarter of 1999, the Company issued 14,963 treasury shares
and 2,086,540 common shares to a group of eight accredited investors in exchange
for $598,817 or an average of $0.29 per share. . We undertook this transaction
to raise funds for general working capital purposes. In addition to the shares
the Company issued warrants to purchase 1,651,600 shares of common stock at an
average exercise price of $0.47 per share. The warrants are exercisable
immediately and expire in three to five years. The Warrants were valued at
$443,622 using Black-Scholes securities valuation model assuming among other
things 6% risk free rate, 0% dividend yield, five years life and 120%
volatility. The purchase and sale were exempt pursuant to Rule 506 and
Regulation D as transactions by an issuer not involving a public offering, where
the purchasers represented their intention to acquire the securities for
investment only, not with a view to distribution, and received or had access to
adequate information about the registrant,

                                      II-3

<PAGE>

consisting of periodic reports filed pursuant to Section 13(a) and 15 (d) of the
Exchange Act.

     5.  During the third quarter, the Company agreed to issue a total of
407,868 shares to satisfy certain payables in the cumulative amount of $223,825
or approximately $0.55 per share. The issuance was exempt pursuant to Section
4(2) as transactions by an issuer not involving a public offering.


     6.  In September 1999, a Warrant for a total of 100,000 shares that was
issued in July 1999 was exercised by James Stella at $0.53 per share. The
Company received a total of $53,000 from such exercise. We used the funds for
general working capital purposes. The securities were issued without use of
advertising or general solicitation following the Company's delivery of a copy
of the most recent Form 10-K, proxy statement and interim Forms 10-Q to the
investor and the investor's delivery of a subscription agreement stating the
investor's qualification as an accredited investor, including the investor's
statement of intent to acquire the securities for its own investment purposes
and not with a view toward further distribution.


     7.  On October 27, 1999 in connection with the Stock Purchase Agreement
signed by the Company on May 28, 1999 with Crescent, the Company sold to
Crescent 447,012 shares for $141,935 at an average price of $0.32 per share,
including $2,897 of closing fees.

     8.  In November 1999, the Company issued 457,650 shares to three accredited
investors, Brian Smith, Dan Schlaphohl and Paul Zeedyk, in exchange for $156,500
or $0.33 per share. We undertook this transaction to raise funds for general
working capital purposes. The purchase and sale were exempt pursuant to Rule 506
and Regulation D as transactions by an issuer not involving a public offering,
where the purchasers represented their intention to acquire the securities for
investment only, not with a view to distribution, and received or had access to
adequate information about the registrant, consisting of periodic reports filed
pursuant to Section 13(a) and 15 (d) of the Exchange Act.


     9.  During the third quarter of 1999 a Warrant for 302,858 shares at $0.20
was exercised by Dan Schlapkohl. The Company received a total of $60,285 for the
shares. We applied these proceeds to general working capital. The securities
were issued without use of advertising or general solicitation following the
Company's delivery of a copy of the most recent Form 10-K, proxy statement and
interim Forms 10-Q to the investor and the investor's delivery of a subscription
agreement stating the investor's qualification as an accredited investor,
including the investor's statement of intent to acquire the securities for its
own investment purposes and not with a view toward further distribution.

     10. In November 1999, in exchange for financial advisory services rendered,
the Company issued 300,000 shares to Nick Fegen, a consultant. The purchase and
sale were exempt pursuant to Section 4(2) as a transaction by an issuer not
involving a public offering. The securities were issued without use of
advertising or general solicitation following the Company's delivery of a copy
of the most recent Form 10-K, proxy statement and interim Forms 10-Q to the
investor and the investor's delivery of a subscription agreement stating the
investor's qualification as an accredited investor, including the investor's
statement of intent to acquire the securities for its own investment purposes
and not with a view toward further distribution.


     11. In December 1999, the Company converted $70,000 of short-term notes
including $5,000 of interest from Jim Lekos into 350,000 shares. The purchase
and sale were exempt pursuant to Rule 506 and Regulation D as transactions by an
issuer not involving a public offering, where the purchaser represented its
intention to acquire the securities for investment only, not with a view to
distribution, and received or had access to adequate information about the
registrant, consisting of periodic reports filed pursuant to Section 13(a) and
15 (d) of the Exchange Act.

     12. In December 1999, the Company issued 362,858 shares in exchange for
$72,572 from two accredited investors, Steve Notaro and Dan Schlapkohl. We
undertook this transaction to raise funds for general working capital purposes.
In addition to shares, the Company issued two Warrants for the total of 362,858
common shares to the investors with a strike price of $0.20. The Warrants were
valued at $68,637 using Black-Scholes securities valuation model assuming among
other things 6% risk free rate, 0% dividend yield, five years life and 120%
volatility. The purchase and sale were exempt pursuant to Rule 506 and
Regulation D as transactions by an issuer not involving a public offering, where
the purchasers represented their intention to acquire the securities for
investment only, not with a view to distribution, and received or had access to
adequate information about the registrant, consisting of periodic reports filed
pursuant to Section 13(a) and 15 (d) of the Exchange Act.


     13. During the first and second quarter of 2000, the Company conducted a
private placement of 4,654,613 common shares and approximately 1,300,000
warrants to a group of approximately 135 accredited investors in


                                      II-4

<PAGE>


exchange for approximately $7,300,000. A listing of all accredited investors
appears in the Company's Form S-1 filing dated July 21, 2000, File No. 333-35808
effective July 28, 2000. The proceeds were used to settle the majority of trade
payables, for day-to-day operations and to start the development of the set-top
box. The purchases and sales were exempt pursuant to Rule 506 and Regulation D
as transactions by an issuer not involving a public offering, where the
purchasers represented their intention to acquire the securities for investment
only, not with a view to distribution, and received or had access to adequate
information about the registrant, consisting of periodic reports filed pursuant
to Section 13(a) and 15 (d) of the Exchange Act. The securities were issued
without use of advertising or general solicitation following the Company's
delivery of a copy of the most recent Form 10-K, proxy statement and interim
Forms 10-Q to the investor and the investor's delivery of a subscription
agreement stating the investor's qualification as an accredited investor,
including the investor's statement of intent to acquire the securities for its
own investment purposes and not with a view toward further distribution.


     14. In January 2000, the Company issued 480,000 shares to Bulfon S.A. in
exchange for cancellation of $300,000 of customer deposits. The purchase and
sale were exempt pursuant to Section 4(2) as a transaction by an issuer not
involving a public offering.


     15. In January 2000, the Company issued warrants to Nick Fegen, a
consultant (see #10 above), for financial advisory services rendered, to
purchase 350,000 shares at an exercise price of $1.00. The purchase and sale
were exempt pursuant to Section 4(2) as a transaction by an issuer not involving
a public offering. The securities were issued without use of advertising or
general solicitation following the Company's delivery of a copy of the most
recent Form 10-K, proxy statement and interim Forms 10-Q to the investor and the
investor's delivery of a subscription agreement stating the investor's
qualification as an accredited investor, including the investor's statement of
intent to acquire the securities for its own investment purposes and not with a
view toward further distribution.


     16. In January 2000, the Company issued 500,000 shares to Provonat
Technologies Limited for services rendered in relation to the set-top box
agreement with Estel Telecommunications S.A. The purchase and sale were exempt
pursuant to Section 4(2) as a transaction by an issuer not involving a public
offering.

     17. In April 2000, the Company completed its private placement and issued
3,630,000 warrants to an investment banker, Cutter and Co., in lieu of
consulting fees. The purchase and sale were exempt pursuant to Rule 506 and
Regulation D as transactions by an issuer not involving a public offering, where
the purchaser represented its intention to acquire the securities for investment
only, not with a view to distribution, and received or had access to adequate
information about the registrant.

     18. On April 26, 2000, the Company completed a common stock purchase
agreement, escrow agreement and registration rights agreement with Techrich
International Limited ("Techrich"), an accredited institutional investor. These
agreements provide a $100,000,000 equity line of credit as the Company requests
over an 18 month period, in return for common stock and warrants to be issued to
the investor. Once every 22 days, the Company may request a draw of up to
$10,000,000 of that money, subject to a maximum of 18 draws. The maximum amount
the Company actually can draw down upon each request will be determined by the
volume-weighted average daily price of the Company's common stock for the 22
trading days prior to its request and the average trading volume for the 45
trading days prior to the request. Each draw down must be for at least $250,000.
Use of a 22 day trading average was negotiated to reduce the impact of market
price fluctuations over any calendar month, which generally includes 22 trading
days. At the end of a 22-day trading period following the drawdown request, the
amount of shares is determined based on the volume-weighted average stock price
during that 22-day period in accordance with the formulas in the common stock
purchase agreement. We undertook this transaction to raise funds for general
working capital purposes.

     19. On April 28, 2000, the Company filed with the Securities and Exchange
Commission a Form S-1 registration statement relating to 15,332,560 shares of
common stock issued to stockholders in private transactions, 11,958,963 shares
underlying options and warrants previously issued to employees, and 6,000,000
shares to be issued when the Company requests a drawdown under the Techrich
common stock purchase agreement.

     20. On July 28, 2000, the Securities and Exchange Commission declared the
registration statement effective. Pursuant to the common stock purchase
agreement with Techrich, the Company issued to Ladenburg, Thalman, an
institutional investor, as a placement fee warrants to purchase 250,000 shares
of common stock at an exercise price of $5.481.

     21. On July 31, 2000, the Company issued a drawdown notice in connection
with the common stock purchase

                                      II-5

<PAGE>

agreement with Techrich for $5,000,000. We undertook this transaction to raise
funds for general working capital purposes. Upon receipt of the funds, the
Company issued 1,354,617 shares of common stock and warrants to purchase 101,463
shares of common stock at exercise prices ranging from $4.06 to $4.22.

     22. In September 2000, the Company issued 73,750 stock options to certain
employees under employment agreements. At the time of issuance, the option price
was below the market price and the Company recorded $70,622 as additional
compensation expense. The purchase and sale were exempt pursuant to Section 4(2)
as transactions by an issuer not involving a public offering.

     23. On October 17, 2000, the Company issued a drawdown notice in connection
with the common stock purchase agreement with Techrich for $2,000,000. We
undertook this transaction to raise funds for general working capital purposes.
Upon receipt of the funds, the Company issued 781,999 shares of common stock and
warrants to purchase 44,646 shares of common stock at exercise prices ranging
from $3.26676 to $4.4369.

     24. On October 20, 2000 the Company entered into an agreement with Best
S.A. to act as its distributor/agent in Greece. On October 26, 2000 the Company
issued 1,550,000 shares of restricted stock to Best S.A. as a performance bond
to assure the Company's compliance with the Set-Top Box Agreement by and between
the Company and Estel S.A. These shares have not been included in the issued and
outstanding shares as of December 31, 2000, as Best S.A. has acknowledged that
they would return the shares to the Company upon satisfactory compliance with
the Set-Top Box Agreement. The agreement with Best S.A. requires the Company to
register these shares with the Securities and Exchange Commission during 2000.
To secure performance of the Company's obligation to register these shares,
Andrew J. Kandalepas, Chairman of the Board and CEO of the Company, granted to
Best S.A. a security interest in 1,032,118 shares of Company stock owned by him.

     25. In December 2000, the Company issued to Brian Smith, Mark Thompson and
Stavros Galanakis, 22,000 shares of common stock and warrants to purchase
148,265 shares of common stock at exercise prices ranging from $1.0312 to $1.25,
as payment for certain advertising and promotional expenses and consulting
services related to the establishment of an office in Europe. The purchase and
sale were exempt pursuant to Section 4(2) as a transactions by an issuer not
involving a public offering.


     26. In December 2000, the Company re-priced approximately 3,012,000
warrants it had previously issued to outside consultants, Cutter and Company, in
consideration of additional services rendered to the Company pertaining to
financing. The warrants were originally issued with an exercise price ranging
from $10.00 to $5.00, and were re-priced with exercise prices ranging from $5.00
to $2.00 per share. The re-pricing created a charge to earnings of approximately
$234,000, which was calculated using the Black-Scholes pricing model assuming 0%
dividend yield, risk free interest rate of 6%, volatility factor of 224% and an
expected life of 2.6 years.


     27. During the first quarter of 2001, the Company received proceeds in the
amount of $102,300 for the exercise of 210,000 warrants issued to Joe Lemberger
and Ryan Miller. Additionally, employees exercised 4,000 stock options at a
price of $.50 per share. The proceeds were used for general working capital
purposes.

     28. During the second quarter of 2001, employees exercised 4,000 stock
options at a price of $.50 per share.

     29. On April 3, 2001, the Company and Estel Telecommunications S.A.
cancelled the performance bond issued on October 26, 2000 and the 1,550,000
shares of restricted stock held by Best S.A. were returned to the Company. In
connection with the cancellation of the shares, Best S.A. executed the personal
guarantee of Mr. Andrew J. Kandalepas, which he had granted to secure the
performance of the Company's obligation to register the 1,550,000 shares issued
in connection with the performance bond and retained the 1,032,118 shares. The
set-top box agreement with Estel Telecommunications S.A. terminated on July 1,
2001 due to lack of performance on behalf of Estel. This transaction was entered
into on behalf of the Company and therefore the Company recorded an expense of
$1,241,741, with an offsetting entry to additional paid in capital.

     30. In April 2001, the Company issued to The DeClan Group, consultants,
30,000 shares of common stock and warrants to purchase 70,000 shares of common
stock at an exercise price of $1.36 per share, as payment for certain
promotional and consulting services. In September 2001, the Company issued
additional warrants to purchase 16,666 shares of common stock at an exercise
price of $1.395 per share to finalize the arrangement with the consultants. The
purchase and sale were exempt pursuant to Section 4(2) as transactions by an
issuer not involving a public offering.

     31. Effective July 1, 2001, the Company completed the acquisition of
substantially all of the assets of Suncoast

                                      II-6

<PAGE>

Automation, Inc., a wholly owned subsidiary of ProtoSource Corporation, pursuant
to an Asset Purchase Agreement. The purchase price was 766,058 shares of the
Company's common stock valued at approximately $1.1 million based on the closing
bid price of $1.47 per share on June 29, 2001. The purchase and sale were exempt
pursuant to Section 4(2) as a transaction by an issuer not involving a public
offering.

     32. During the third quarter of 2001, the Company received proceeds in the
amount of $75,000 for the exercise of 75,000 warrants by TDG Limited. Proceeds
were used for general working capital purposes.

     33. On August 14, 2001 the Company issued a drawdown notice in connection
with the common stock purchase agreement with Techrich for $300,000. We
undertook this transaction to raise funds for general working capital purposes.
Upon receipt of the funds, the Company issued 258,968 shares of common stock and
warrants to purchase 22,006 shares of common stock at an exercise price of
$1.14516.

     34. On September 13, 2001 the Company filed with the Securities and
Exchange Commission a Form S-3 registration statement relating to 6,964,724
shares of common stock. The shares were issued by the Company in respect of the
following: (i) 766,058 shares were issued by the Company in connection with the
acquisition of the net assets of Suncoast; (ii) 52,000 shares were issued by the
Company as payment for certain advertising and promotional expenses and
consulting services; and (iii) 6,146,666 shares issuable by the Company to
shareholders upon the exercise by them of issued and outstanding warrants and
options. On September 27, 2001, the Securities and Exchange Commission declared
the registration statement effective.

     35. During the fourth quarter of 2001, employees exercised 27,600 stock
options at a price of $.89 per share.

     36. In November 2001, the Company issued to Ensign Resources and Brian
Smith warrants to purchase 175,000 shares of common stock at exercise prices
ranging from $1.00 to $1.50, as payment for certain advertising and promotional
expenses. The purchase and sale were exempt pursuant to Section 4(2) as a
transaction by an issuer not involving a public offering.

     37. On December 20, 2001, the Board of Directors approved the issuance of
1,032,118 shares to the Chairman of the Board and CEO of the Company to replace
the shares that Best S.A. retained under the personal guarantee. The shares were
valued at $1,241,741 based on the closing price of $1.20 on April 3, 2001. The
purchase and sale were exempt pursuant to Section 4(2) as a transaction by an
issuer not involving a public offering.


Except as set forth above, no underwriters were employed in any of the above
transactions. Appropriate legends were affixed to the share certificates and
warrants issued in the above transactions.


                                      II-7

<PAGE>

Item 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibit No.       Description of Document

*3(1)    Certificate of Incorporation filed July 27, 1990, incorporated herein
         by reference to exhibit 7(c)(1) of Form 8-K filed May 14, 1991.

*3(2)    By-Laws as amended, incorporated herein by reference to exhibit 3(2) of
         Form 10-K for the fiscal year ended December 31, 1997.

*4(1)    Specimen Common Stock Certificate incorporated herein by reference to
         exhibit 4(1) of Form S-18 filed June 1, 1990.

*10(1)   Agreement and Plan of Reorganization incorporated herein by reference
         to exhibit 7(c) of Form 8-K filed April 4, 1991.

*10(2)   Plan and Agreement of Merger incorporated herein by reference to
         exhibit 7(c)(1) of Form 8-K filed May 14, 1991.

*10(3)   Computer Technology License Agreement dated November 12, 1997, between
         Phoenix Technology, Inc. and Dauphin Technology, Inc. included as an
         exhibit to Form S-1 filed march 17, 1998, incorporated herein by
         reference.

*10(4)   License Agreement dated May 3, 1996, between Microsoft Corporation and
         Dauphin Technology, Inc. included as an exhibit to Form S-1 filed March
         17, 1998, incorporated herein by reference.

*10(5)   Equity line of credit agreement by and between Techrich International
         Limited and Dauphin Technology, Inc. dated April 12, 2000 including
         Common Stock Purchase Agreement, Registration Rights Agreement, Escrow
         Agreement and Form of a stock Purchase Warrant included as an exhibit
         to Form 8-K filed on April 20, 2000 incorporated herein by reference.

*10(6)   Amendment No. 1 to Common Stock Purchase Agreement dated July 10, 2000
         between Dauphin Technology, Inc. and Techrich International Limited.

*10(7)   Asset Purchase Agreement, by and among the Company, ADD Acquisition
         Corp., T & B Design, Inc. (f/k/a Advanced Digital Designs, Inc.),
         Advanced Technologies, Inc., 937 Plum Grove Road Partnership, the
         Stockholders of T & B Design, Inc. and Advanced Technologies, Inc. and
         the partners of 937 Plum Grove Road Partnership, dated August 18, 2000
         included as an exhibit to Form 8-K/A filed on September 25, 2000
         incorporated herein by reference.

*10(8)   Asset Purchase Agreement, by and among the Company, Suncoast
         Acquisition Corp., ProtoSource Corporation and Suncoast Automation,
         Inc. dated July 1, 2001 included as an exhibit to Form 8-K filed on
         July 14, 2001 incorporated herein by reference.

*10(9)   Securities Purchase Agreement, by and between the Company and Crescent
         International Ltd. dated September 28, 2001 including Registration
         Rights Agreement and Form of Stock Purchase Warrant included as an
         exhibit to Form 8-K filed on October 12, 2001 incorporated herein by
         reference.

24(1)    Consent of Grant Thornton LLP., independent public accountants.

24(2)    Consent of Rieck and Crotty, P.C.

* Previously filed or incorporated by reference.

                                      II-8

<PAGE>

Item 17.  UNDERTAKINGS

(A) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Company hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in the section.

(B) The undersigned Company hereby undertakes:

         (1) To file, during any period in which offers or sales are being made,
         post-effective amendment to this registration statement:

                  (i)   To include any Prospectus required by Section 10(a) of
                  the Securities Act of 1993;

                  (ii)  To disclose in the Prospectus any change in the offering
                  price at which any registering shareholders subject to the
                  requirement of a Pricing Amendment are offering their
                  registered securities for sale;

                  (iii) To reflect in the Prospectus any facts or events arising
                  after the effective date of the registration statement (or the
                  most recent post-effective amendment thereof) which,
                  individually or in the aggregate, represent a fundamental
                  change in the information set forth in the registration
                  statement;

                  (iv)  To include any material information with respect to the
                  plan of distribution not previously disclosed in the
                  registration statement or any material change to such
                  information in the registration statement;

         (2) That for the purpose of determining any liability under the
         Securities Act of 1933, each such post-effective amendment shall be
         deemed to be a new registration statement relating to the securities
         offered therein, and the offering of such securities at that time shall
         be deemed to be the initial bona fide offering thereof.

         (3) To remove from registration by means of a post-effective amendment
         any of the securities being registered which remain unsold at the
         termination of the offering.

(C) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the forgoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjustment of
such issue.

                                      II-9

<PAGE>

                                   SIGNATURES


Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palatine
and State of Illinois, on the 12th day of June, 2002.


DAUPHIN TECHNOLOGY, INC.


By: /s/Andrew J. Kandalepas
   -------------------------------
   Andrew J. Kandalepas, President

                  Pursuant to the requirement of the Securities Act of 1933, as
amended, this registration statement has been duly signed by the following
persons in the capacity and on the dates indicated.


SIGNATURE                       TITLE                             DATE

/s/ Andrew J. Kandalepas        Chairman of the Board/President/  June 12, 2002
- ------------------------
    Andrew J. Kandalepas        Chief Executive Officer

/s/ Harry L. Lukens, Jr.        Chief Financial Officer/          June 12, 2002
- ------------------------
    Harry L. Lukens, Jr.        Assistant Secretary

/s/ Christopher L. Geier        Executive Vice President          June 12, 2002
- ------------------------
    Christopher L. Geier

/s/ Jeffrey Goldberg            Secretary/Director                June 12, 2002
- -------------------==---
    Jeffrey Goldberg

/s/ Gary E. Soiney              Director                          June 12, 2002
- ------------------------
    Gary E. Soiney

/s/ Mary Ellen W. Conti         Director                          June 12, 2002
- ------------------------
    Mary Ellen W. Conti


                                      II-10

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24.1
<SEQUENCE>3
<FILENAME>dex241.txt
<DESCRIPTION>CONSENT OF GRANT THORNTON LLP
<TEXT>
<PAGE>

EXHIBIT 24(1)

Consent of Independent Public Accountants

Board of Directors
Dauphin Technology, Inc.

We have issued our report dated April 9, 2002, on the consolidated balance sheet
of Dauphin Technology, Inc. and Subsidiaries as of December 31, 2001 and 2000,
and the related statements of operations, changes in shareholders equity, and
cash flows of Dauphin Technology, Inc. for the three years ended December 31,
2001, included in its Annual Report on Form 10-K for the year ended December 31,
2001 and 2000 filed with the Securities and Exchange Commission. We hereby
consent to the incorporation by reference of our report in this Registration
Statement on Form S-1/A and the use of our name as it appears under the caption
"Experts".

                                       /s/Grant Thornton LLP

                                       Grant Thornton LLP


Chicago, Illinois
June 12, 2002


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24.2
<SEQUENCE>4
<FILENAME>dex242.txt
<DESCRIPTION>CONSENT OF RIECK & CROTTY, P.C.
<TEXT>
<PAGE>

EXHIBIT 24(2)

June 12, 2002

Dauphin Technology, Inc.
800 East Northwest Highway
Suite 950
Palatine, Illinois 60067

In re: Form S-1/A Registration Statement

Gentlemen:

         We have acted as counsel to Dauphin Technology, Inc., an Illinois
corporation (the "Company'), in connection with the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), of this Registration Statement on Form S-1/A (the
"Registration Statement") relating to the registration of 6,605,977 Shares of
the Company's common stock (the "Shares").

         As such counsel, we have examined the Registration Statement and such
other papers, documents and certificates of public officials and certificates of
officers of the Company as we have deemed relevant and necessary as a basis for
the opinions hereinafter expressed. In such examinations, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals and the conformity to original documents of all documents
submitted to us and conformed or photocopies.

         Based upon and subject to the foregoing, it is our opinion that the
Shares covered by the Registration Statement have heretofore been legally issued
by the Company and are fully paid and non-assessable and shall continue to be
such when and if sold by the Selling Shareholders.

         We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus constituting a part of the Registration Statement.

                                       Very truly yours,


                                       /s/Rieck and Crotty, P.C.

                                       Rieck and Crotty, P.C.



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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