SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Amendment No. 2

to
FORM S-1

Registration Statement under the Securities Act of 1933

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

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)

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

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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 Per Share (2) Price(2) Fee
- ---------------------------------------------------------------------------------------------------------------------

Common Stock
$0.001 Par Value 5,507,636 $0.66 $3,635,040 $897

(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.

(2) In accordance with a registration rights agreement with a shareholder, the
Company is required to register for resale an aggregate 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 April 23, 2002, such shares would
convert into 4,807,693 of common stock assuming a conversion price of $0.52
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.

DAUPHIN TECHNOLOGY, INC.

5,507,636 Shares of Common Stock

$0.66 Bid Price as of April 23, 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 5,507,636shares 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
April 23, 2002, Crescent would have received 4,807,636 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 April 25, 2002

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

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 5,507,636 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 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 5,507,636 shares

Total number of shares outstanding
immediately after the registration 70,558,282 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.

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.

Year ended December 31,
-----------------------
(amounts in thousands, except per share amounts)
INCOME STATEMENT DATA: 1997 1998 1999 2000 2001
---- ---- ---- ---- ----

Revenues $ 2,730 $ 5,368 $ 2,279 $ 860 $ 2,620
Cost of Sales 4,345 5,758 4,834 2,876 2,745
-------- -------- -------- ------- --------
Gross Profit (Loss) (1,615) (390) (2,555) (2,016) (125)
Net (Loss) (3,988) (6,132) (9,306) (7,515) (13,252)

EARNINGS PER COMMON SHARE(1):
Net Income (Loss) (1) (0.13) (0.16) (0.20) (0.13) (0.21)

As of December 31,
------------------

BALANCE SHEET DATA: 1997 1998 1999 2000 2001
---- ---- ---- ---- ----

Total Assets 7,269 6,719 3,372 11,161 3,917
Long Term Debt 430 303 185 102 1,197
Working Capital (Deficit) 4,511 260 (917) 3,015 680
Stockholders Equity 5,676 2,885 552 10,521 2,049

(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

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 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 April 10, 2002, the conversion price of the Convertible Note was $0.5233,
which would result in the issuance of 4,777,375 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 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.

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
. 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.

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 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.

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
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

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);
. 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:

. 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 nerarest 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 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.

Purchase Number %
Price of Shares of shares (e)
---------- ---------- -------------

$0.660 (a) 15,151,515 18.9%

0.495 (b) 20,202,020 23.7%

0.330 (c) 30,303,030 31.8%

0.165 (d) 60,606,060 48.2%

(a) Represents bid price at close of business on April 23, 2002.
(b) Represents a 25% decrease from the bid price at close of business on
April 23, 2002.
(c) Represents a 50% decrease from the bid price at close of business on
April 23, 2002.
(d) Represents a 75% decrease from the bid price at close of business on
April 23, 2002.
(e) Securities purchase agreement limits Crescent's ownership to 9.9% of
outstanding shares.

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 April
23, 2002 is approximately 20,000. 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 20,000.

1998 1999 2000 2001
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---

First Quarter $1.625 $1.016 $1.219 $0.453 $12.375 $0.266 $2.812 $1.062
Second Quarter 1.391 0.875 0.938 0.391 6.219 2.750 1.990 1.125
Third Quarter 2.031 0.875 0.750 0.266 6.562 3.234 1.970 0.900
Fourth Quarter 0.906 0.500 0.703 0.219 4.312 0.781 1.550 0.660

The closing bid price of a share on April 23, 2002 was $0.66. 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)

Year Ended December 31,
-----------------------
(amounts in thousands, except per share amounts)
1997 1998 1999 2000 2001
---- ---- ---- ---- ----

INCOME STATEMENT DATA:
Revenues $ 2,730 $ 5,368 $ 2,279 $ 860 $ 2,620
Cost of Sales 4,345 5,758 4,834 2,876 2,745
-------- -------- -------- --------- ---------
Gross Profit (Loss) (1,615) (390) (2,555) (2,016) (125)
Net Income (Loss) (3,988) (6,132) (9,306) (7,515) (13,252)

EARNINGS PER COMMON SHARE:
Net Income (Loss) (0.13) (0.16) (0.20) (0.13) (0.21)

As of December 31,
------------------
(amounts in thousands)
BALANCE SHEET DATA: 1997 1998 1999 2000 2001
---- ---- ---- ---- ----

Total Assets 7,269 6,719 3,372 11,161 3,917
Long Term Debt 430 303 185 102 1,197
Working Capital (Deficit) 4,511 260 (917) 3,015 680
Stockholders Equity 5,676 2,885 552 10,521 2,049

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

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

Results of Operations 2001 Compared to 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.

Fourth-Quarter 2001 Compared with Fourth-Quarter 2000

Net sales for the fourth-quarter 2001 were approximately $1,195,000 as compared
to fourth-quarter net sales in 2000 of approximately $30,000. The Company began
shipping set-top boxes in the fourth quarter to OTE, the Hellenic
Telecommunications Organization S.A. with which the Company has a sales and
marketing agreement. Also included in the fourth quarter are revenues from the
Suncoast operations, amounting to approximately $70,000. The net assets of
Suncoast were acquired on July 1, 2001. Design services revenue in the
fourth-quarter amounted to $176,000 as compared to $469,000 in the
fourth-quarter of 2000. The decrease in revenue of 62% is a result of the
reduction in engineering projects available in the marketplace. Customers for
our type of services have experienced layoffs and cutbacks within their own
industries, and outside consulting is another area where companies reduced their
costs. Cost of sales in the fourth-quarter of 2001 includes the write-off of the
remaining inventory associated with the Orasis(R). Cost of sales in the
fourth-quarter of 2000 includes $1,950,000 of write down of inventory and
adjustment to the net realizable carrying value. Because of the above, gross
loss decreased from $1,936,000 in the fourth-quarter of 2000 to $359,000 for the
fourth-quarter of 2001.

Selling, general and administrative expenses for fourth-quarter of 2001 include
the operations of the Suncoast subsidiary as well as the operations of the
branch office in Greece, whereas neither of these two operations existed in
2000. Selling, general and administrative expenses for the fourth- quarter of
2000 include expenses associated with the Comdex2000 trade show, advertising,
expenses associated with exploring foreign markets and the charges to increase
the reserve for bad debts. All other selling, general and administrative
expenses are comparable between the fourth quarter of 2001 and 2000. Research
and Development costs decreased by approximately $325,000 from approximately
$999,000 in the fourth-quarter 2000 to approximately $674,000 in the
fourth-quarter 2001. This is attributable to the completion of the development
of the OraLynx(TM) set-top box in 2001.

Interest expense increased from $4,000 in the fourth-quarter 2000 to
approximately $258,000 in the fourth-quarter of 2001. This increase is
attributable to the amortization of the beneficial conversion feature associated
with the Convertible Note in 2001.

Results of Operations 2000 Compared to 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 December 31, 2001, has an accumulated deficit of approximately
$59,342,000. 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 year ended December 31, 2001 the Company used $4,213,000 of cash in
operating activities, used $661,000 in investing activities and generated
$2,916,000 of cash from financing activities that produced a decrease in cash of
$1,958,000 for the year. The net loss of $13,252,000 was partially offset by the
non-cash items of depreciation and amortization of $1,630,000, the asset
impairment loss of $4,277,000, write off of assets not used in the business of
$526,000, write off of inventory of $490,000 and the issuance of common stock
for reimbursement pursuant to a personal guarantee for $1,242,000. Investing
activities consisted of the purchase of equipment, which is primarily leasehold
improvements in the establishment of the Company's sales and marketing branch
office in Greece amounting to approximately $316,000 and additions of equipment
at Suncoast. Investing activities consisted primarily of the issuance of
convertible debentures and warrants for $2,500,000, the drawdown against the
equity line of $300,000 and the exercise of warrants and stock options for
$206,000. As of December 31, 2001 the Company had a current asset to current
liabilities ratio of 2.0 as compared to a ratio of 6.6 at December 31, 2000. The
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.

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.

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
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 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
. 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 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 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 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 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.

Name Age Present Office
---- --- --------------

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

Jeffrey L. Goldberg 50 Secretary, Director

Gary E. Soiney 61 Director

Mary Ellen W. Conti, MD 57 Director

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, 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.

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

- ---------------------------------------------------------------------------------------------------------------------
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 ($)
- ---------------------------------------------------------------------------------------------------------------------

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 2000 106,000 -0- -0- -0- -0-
Officer, Assistant
Secretary
- ---------------------------------------------------------------------------------------------------------------------

(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.

$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.

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.

Amount and Nature Percent of
of Beneficial Shares of
Name Title Ownership Common Stock
- -------------------------------------------------------------------------------------------------------------

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. 5,507,636 (7) 7.8%
---------- -------
Executive Officers, Directors and 5%
Beneficial Owners as a group (7 persons) 11,814,173 (8) 16.7%
========== =======

___________________
* 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

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 April 23, 2002 there were 65,050,646 shares of common stock outstanding and
beneficially owned by approximately 22,000 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 April 23, 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.

As of April 23, 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

We are registering 5,507,636 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 April 23,
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.

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.

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 %
- ---- ------ - ------ - ------ ------ -

Crescent International Ltd. 0 0.0% 5,507,636 7.8% 0 5,507,636 7.8%

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 April 23, 2002, such shares would convert
into 4,807,693 of common stock assuming a conversion price of $0.52 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.

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.

Dauphin Technology, Inc.

INDEX TO 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

F-1

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-2

Dauphin Technology, Inc.

CONSOLIDATED BALANCE SHEETS

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

2001 2000
---- ----
RESTATED

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

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

F-3

Dauphin Technology, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

2001 2000 1999
---- ---- ----
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

The accompanying notes are an integral part of these statements.

F-4

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

Common Stock Paid-in
Shares Amount Capital Warrants
------ ------ ------- --------

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

Treasury Stock Accumulated
Shares Amount Deficit Total
------ ------ ------- -----

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

The accompanying notes are an integral part of these statements.

F-5

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

2001 2000 1999
---- ---- ----
RESTATED
--------

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 obligations (89,675) (87,907)
------------- ------------ ------------

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

The accompanying notes are an integral part of these statements

F-6

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-7

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-8

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-9

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-10

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:

2001 2000
---- ----
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
========== ==========

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-11

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:

2001 2000
---- ----

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 lease, 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 option. - 23,269
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
========= =========

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-12

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 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-13

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:

December 31, 2001 December 31, 2000

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)

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:

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

F-14

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:

2001 2000
---- ----
Weighted Weighted
Average Average
Shares Exercise Shares Exercise Price
------ -------- ------ --------------
Price
-----

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

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

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

$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

F-15

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

10. STOCK-BASED COMPENSATION - Continued

$ 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

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:

2001 2000
---- ----
Weighted Weighted
Average Average
Shares Exercise Shares Exercise Price
------ -------- ------ --------------
Price
-----

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

F-16

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:

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

$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

F-17

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

11. WARRANTS - Continued

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

$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

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 valueby 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-18

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:

2001 2000 1999
---- ---- ----

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 $ - $ - $ -
============ ============ ===========

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

December 31,
------------
2001 2000
---- ----

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 $ - $ -
============ ============

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-19

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).

2001 2000 1999
---- ---- ----
Revenue
-------

Dauphin $ 1,138,858 $ 63,913 $ 273,544
RMS - - 2,134,563
ADD 2,668,599 984,674 -
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

F-20

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-21

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-22

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-23

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.

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-24

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-25

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-26

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-27

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:

2001 Quarter Ended
------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- ----------------------------- --------

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)

2000 Quarter Ended
------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- -------- --------- --------

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)

* 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-28

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

II-1

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 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

II-2

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
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

2. 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.

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

II-3

information about the registrant, 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.

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.

10. In November 1999, in exchange for 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

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 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. 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.

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.

II-4

15. In January 2000, the Company issued warrants to Nick Fegen, an
accredited investor, for 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

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 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

II-5

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. 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 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

II-6

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 wre affixed to the share certificates and
warrants issued in the above transactions.

II-7

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

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

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 24th day of April, 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/ April 24, 2002
- ------------------------
Andrew J. Kandalepas Chief Executive Officer

/s/ Harry L. Lukens, Jr. Chief Financial Officer/ April 24, 2002
- ------------------------
Harry L. Lukens, Jr. Assistant Secretary

/s/ Christopher L. Geier Executive Vice President April 24, 2002
- ------------------------
Christopher L. Geier

/s/ Jeffrey Goldberg Secretary/Director April 24, 2002
- --------------------
Jeffrey Goldberg

/s/ Gary E. Soiney Director April 24, 2002
- ------------------
Gary E. Soiney

/s/ Mary Ellen W. Conti Director April 24, 2002
- -----------------------
Mary Ellen W. Conti