SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
Registration Statement Under the Securities Act of 1933
DAUPHIN TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
ILLINOIS
(State or Other Jurisdiction of Incorporation or Organization)
3570
(Primary Standard Industrial Classification Code Number)
87-0455038
(I.R.S. Employer 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 Stockholders
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, check the following. X
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Common Stock $0.001 Par Value
Amount to be Registered
39,866,422
Proposed Maximum Offering Price Per Share (1)
$ 1.12
Proposed Maximum Aggregate Offering Price
$ 44,650,393
Amount of Registration Fee
$ 15,404.39
(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457, based on the average of the high and low reported sales
on September 11, 1996. Registrant has recently emerged from Chapter 11 of the
Federal Bankruptcy Code and has elected to file a registration statement
relating to 24,770,179 Shares of its Common Stock currently issued and
outstanding, which are owned by and which may be resold by the Selling
Shareholders, and 15,096,243 Reserve Shares which are being registered for
sale by the Registrant.
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.
Cross-Reference Sheet Between Items of Form S-1 and
Form of Prospectus Pursuant to Regulation S-K, Item 501(b)
Item No. Location in Prospectus
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus........................Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.......................Inside Front and Outside Back
Cover Pages
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Charges....Prospectus Summary; Risk Factors;
The Company
4. Use of Proceeds........................Use of Proceeds
5. Determination of Offering Price........Outside Front Cover Page; Selling
Stockholders and Plan of Distribution
6. Dilution...............................Dilution
7. Selling Security Holders...............Selling Stockholders and Plan of
Distribution
8. Plan of Distribution...................Outside Front Cover Page; Selling
Stockholders and Plan of Distribution
9. Description of Securities to be
Registered................................Outside Front Cover Page; Description
of Capital Stock
10. Interests of Named Experts and
Counsel...................................Legal Matters
11. Information with Respect to the
Registrant................................Risk Factors; The Company; Market
Price of Common Stock and Dividend
Policy; Selected Management's
Financial Data; Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Description of Property; Management;
Executive Compensation: Stock Option
Plan; Reorganization; Certain
Relationships and Related Party
Transactions; Principal Stockholders;
Description of Capital Stock; Share
Transfer Restrictions; Financial
Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities...........................Not Applicable
39,866,403 COMMON SHARES
DAUPHIN TECHNOLOGY, INC.
COMMON STOCK
The Shares of Common Stock ("the "Common Stock") of Dauphin Technology, Inc.
("Dauphin" or the "Company") offered hereby include 24,770,179 Shares owned
by stockholders of the Company (the "Selling Stockholders") and 15,096,243
Shares offered by the Company. The Shares offered by the Selling Stockholders
may be sold from time to time in privately negotiated transactions at
negotiated price without the use of broker-dealer or in the over-the-counter
market at prices and with terms prevailing at the time of sale. The Company
will not receive any of the proceeds from the sale of the Shares owned by
the Selling Stockholders. The Shares offered by the Company may be issued
by the Company from time to time without the use of a broker or underwriter.
The Selling Stockholders may be deemed to be "Underwriters" as defined in the
Securities Act of 1933, as amended (the "Securities Act"). If any broker-
dealers are used by the Selling Stockholders, any commissions paid to broker-
dealers and, if broker-dealers purchase any Shares of Common Stock as
principals, any profits received by such broker-dealers on the resale of the
Shares, may be deemed to be underwriting discounts or commissions under the
Securities Act. In addition, any profits realized by the Selling Stockholders
may be deemed to be underwriting commissions. All costs, expenses and fees in
connection with the registration of the Shares offered by the Selling
Stockholders will be borne by the Company. Brokerage commissions, if any,
attributable to the sale of the Shares will be borne by the Selling
Stockholders. (See "Plan of Distribution.")
All of the outstanding shares have been "Restricted Securities" under the
Securities Act of 1933, as amended (the "Act") prior to their registration
hereunder. The Company issued 11,650,000 Shares to Selling Stockholders under
the terms of the Third Amended Plan of Reorganization between May 9, 1996, the
date the Plan was approved by the United States Bankruptcy Court for the
Northern District of Illinois, Eastern Division, and September 11, 1996, the
date hereof. The Company, also issued 2,600,000 Shares in exchange for certain
inventory in possession of Technology Partners, LLC. ("TPL"), an affiliate of
Dauphin. The Company issued 888,757 of the Reserve Shares (as hereafter
defined) to Selling Stockholders in a private transaction during 1996. Also,
there were 9,631,422 shares, that were issued and outstanding, that have not
registered. The Company wishes to register an additional 15,096,243 Shares to
be issued at a later date by the Company without the use of a broker or
underwriter. This Prospectus has been prepared so that future sales of the
Shares by the Selling Stockholders will not be restricted under the Act. In
connection with any sales, the Selling Stockholders and any brokers
participating in such sales may be deemed to be "underwriters" within the
meaning of the Act. See "Selling Stockholders and Plan of Distribution."
The Common Stock of the Company is quoted in the National Quotation Bureau's
Pink Sheets under the symbol "DNTK".
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
COMMON STOCK
$0.001 Par Value
$1.40 Bid Price on September 11, 1996
The Date of this Prospectus is September 11, 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files, reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington D.C., and at the Commission's Chicago Regional
Office, 500 West Madison Street, Chicago, Illinois; and New York Regional
Office, 75 Park Place, New York, New York. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock and Preferred Stock.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is
made to the Registration Statements and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete and, in each instance, reference
is made to the copy of such contract or document filed as an exhibits to the
Registration Statements, each such statement being qualified in all respects
by such reference. Copies of the Registration Statement, including all exhibits
thereto may be obtained from the Commission's principal office in Washington
D.C. upon payment off the fees prescribed by the Commission, or may be examined
without charge at the offices of the Commission.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and should
be read in conjunction with more detailed information and Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. Any
reference to "Dauphin" or the "Company" in this prospectus mean Dauphin
Technology, Inc., an Illinois corporation.
Dauphin Technology, Inc. is presently headquartered at 800 E. Northwest HWY.,
Suite 950, Palatine, Illinois 60067. Corporate phone number is (847)358-4406.
THE COMPANY
The Company's predecessor, Successo, Inc. ("Successo"), was incorporated on
September 8, 1987, as a Utah corporation. On April 4, 1991, Successo entered
into an agreement whereby the stockholders of Successo exchanged 100% of the
common stock for 10,355,800 shares of common stock of Dauphin Technology, Inc.
Dauphin was founded to design, manufacture and market mobile computing systems,
including laptop, notebook, handheld and pen-based computers, components and
accessories. From 1988 through 1992, the Company functioned primarily as a
development-stage company. Historically, the Company marketed directly and
through other distribution channels to both the commercial and government
segments.
In early 1993, the Company introduced the Desk-Top Replacement, version 1
("DTR-1"), a pen-based notebook computer with fax/modem features that was
considered a leading edge product with commercial appeal. Sales of the DTR-1
did not meet the Company's expectations and financial problems developed.
During the fourth quarter of 1994, the Company sold the majority of its
finished goods inventory, but was unable to meet its operating expenses. On
January 3, 1995, the Company filed a petition for relief under Chapter 11 of
the Federal Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Illinois, Eastern Division. During 1995 and the first six
months of 1996, the Company operated under Chapter 11 as a Debtor-in-Possession
and was in a dormant stage for all practical purposes. On May 9, 1996, the
Company's Third Amended Plan of Reorganization was approved by the Court. On
July 23, 1996 the Company was discharged as Debtor-in-Possession and the
bankruptcy case was closed.
The main product of the Company is a handheld computer - Desk Top Replacement,
2nd generation ("DTR-2"). The basic unit has a 486 central processing unit with
50 megahertz of processing speed. The unit also has eight to sixteen megabytes
of random access memory, a flat liquid crystal display, a 170 megabytes hard
drive, voice and pen recognition, and wireless communications capability. The
units measure 9 inches in length, 5.5 inches width, 1.25 inches thick and weigh
2.7 pounds. The Company also offers various options and accessories to support
customer configuration requirements.
In February 1996 the Company acquired the business plan of Industrial Controls
Inc. ("Intercon"), with the intent to produce industrial control panels. In
management's view, the products of Intercon would diversify the products
offered by Dauphin and offer access to a large and steady market place. It is
important to note that Intercon's products, for the most part, are expected to
use the same technology and parts as DTR but will be marketed through a
different channel of distribution. The primary uses for the control panels
are machine control and human to machine interface. The development of the
Intercon products is expected to commence in the near future. At the present
time, the management of the Company is focusing their efforts on further
diversifying Dauphin through additional acquisitions.
THE REGISTRATION
Total Number of Common Shares to be
Registered by the Company.......................39,866,422 shares
Total Number of Common Shares to be
Registered by the Selling Stockholders..........24,770,179 shares
Total Number of Common Shares Registered
but not Outstanding.............................15,096,243 shares
Total Number of Common Shares Outstanding
Immediately After the Registration..............29,547,111 shares
Use of Proceeds to the Company..................The Company will receive no
proceeds from this registration of Shares, other than the proceeds
derived from the 15,096,243 Common Shares to be sold at a later date by
the Company without the use of a broker or underwriter.
Trading Symbol..................................DNTK
SUMMARY FINANCIAL INFORMATION
(In thousands, except per share data)
The following financial information has been derived from the audited financial
statements and other records of the Company. The summary financial data should
be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", the Financial Statements and accompanying
Notes contained in this Prospectus. The results for the interim periods have
not been audited and are not necessarily indicative of results for the full
year.
Year Ended December 31 Six Months
Ended June 30
1991 1992 1993 1994 1995 1995 1996
INCOME STATEMENT DATA:
Revenues $911 $23,540 $23,561 $9,603 $183 $148 $23
Cost of Sales 898 20,607 22,005 47,867 94 75 13
----- ------ ------ ------ ----- ----- -----
Gross Profit
(Loss) 13 2,933 1,556 (38,264) 89 73 10
Loss before
Extraordinary
Item (1,736) (630) (3,398) (49,173) (795) (239) (506)
Extraordinary
Items - 215 - - - - 38,065
Net Income
(Loss) (1,736) (416) (3,398) (49,173) (795) (239) 37,559
EARNINGS PER COMMON SHARE (1):
Loss Before
Extraordinary
Item (0.15) (0.05) (0.24) (3.41) (0.06) (0.01) (0.03)
Extraordinary
Item - 0.02 - - - - 1.98
Net Income
(Loss) (0.15) (0.03) (0.24) (3.41) (0.06) (0.01) 1.95
As of December 31 As of June 30
1991 1992 1993 1994 1995 1995 1996
BALANCE SHEET DATA:
Total Assets 3,035 6,670 15,838 298 426 345 3,151
Long Term Debt 318 568 - - - - -
Working Capital
(Deficit) 1,032 160 (2,123)(50,167) (49,968) (50,464) 2,916
Shareholders
Equity
(Deficit) 1,039 622 (850)(50,028) (50,910) (50,354) 3,009
(1) Income(Loss) per common share is calculated based on the monthly weighted
average number of Common Shares outstanding which were 14,408,354 and
19,277,401 for the six months periods June 30, 1995 and 1996. Also, weighted
average number of Common Shares at December 31, 1991, 1992, 1993, 1994, and
1995 were 11,298,106, 13,570,901, 14,137,100, 14,408,354, and 14,408,354
respectively.
USE OF PROCEEDS
The Company intends to use Reserve Shares to pay for past and/or future
acquisitions, to raise capital, if needed, or to use as incentives for its
employees. At the present time, the Reserve Shares are not designated for a
specific purpose.
DILUTION
As and to the extent, Reserve Shares will be issued in the future transactions,
current equityholders ownership percentages will de diluted.
RISK FACTORS
AN INVESTMENT IN THE SHARES BEING REGISTERED INVOLVES A HIGH DEGREE OF RISK
AND, THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. SHARES SHOULD NOT
BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS OF THEIR
ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER AMONG THE
OTHER FACTORS AND FINANCIAL DATA DESCRIBED HEREIN, THE FOLLOWING RISK FACTORS
INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY:
BANKRUPTCY PROCEEDING On January 3, 1995 the Company filed a petition for
relief under Chapter 11 of the Federal Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Illinois, Eastern Division. On
May 9, 1996, the Company's Third Amended Plan of Reorganization was approved
by the creditors and shareholders and confirmed by the Court. On July 23, 1996,
the provisions of the Plan having been implemented, the Company was discharged
as Debtor-in-Possession and the bankruptcy case was closed. The effect of this
bankruptcy proceeding on past or potential future customers, vendors or
employees cannot be determined. Though the Company is no longer a Debtor-in-
Possession in any bankruptcy proceeding, there can be no assurance that the
Company will ever operate at a profit or that an investment in the Company
will result in any gain to shareholders.
SIGNIFICANT HISTORICAL LOSSES The Company had significant operating losses
since its inception. Recent emergence from bankruptcy resulted in a one time
addition to income, due to debt forgiveness, recorded on books as an
Extraordinary Gain of $38,065,373. For the six months ended June 30, 1995 and
1996, the Company had a loss of $239,000 and income of $37,559,000
respectively. For the year ended December 31, 1993, 1994 and 1995, the
Company had losses of $3,398,000, $49,173,000 and $795,000, respectively.
ADDITIONAL CAPITAL REQUIRED In order to succeed with its business plan, the
Company must obtain additional capital. Possible sources of capital could come
from operating revenue, from bank borrowing, or from the sale of the Company's
debt or equity securities. There can be no assurance that the Company will be
able to obtain the capital necessary to carry out its business plan or sustain
its operations in the future.
POSSIBILITY OF LOSS OF ENTIRE INVESTMENT An investment in the Company is
extremely speculative and involves a very high risk. As stated elsewhere
herein, the Company was in bankruptcy, has operated at a significant loss
since its inception and at the present time has limited business operations.
The possibility exists that the Company will never be successful and that an
investment in the Company will result in a total loss to the investor. No
person should invest in the Company unless such person can afford the total
loss of his or her investment.
DEPENDENCE UPON LIMITED CUSTOMERS During 1995 and the first six months of
1996, the Company operated under Chapter 11 as a Debtor-in-Possession and was
in a dormant stage for all practical purposes. For this reason, the Company
has to rebuild its entire customer base. The effect of this bankruptcy
proceeding on past or potential future customers cannot be determined.
COMPETITION The Company's primary business is the design, manufacture, and
sale of handheld personal computers and industrial control panels. Both
industries are highly competitive and are affected by frequent introduction
of new or improved products. Continuous improvement in product price/
performance characteristics is the key to future success in both industries.
At all levels of competition, pricing has become very aggressive, and the
Company expects pricing pressures to continue to be intense. Many of the
Company's competitors have significantly greater financial, marketing,
manufacturing resources, broader product lines, brand name recognition and
larger existing customer bases than the Company. There can be no assurance
that the Company will be able to compete in any new market in which it
enters.
OBSOLESCENCE OF TECHNOLOGY In the computer industry, hardware and software
products and technology are subject to rapid change, and the Company's future
success will depend on its ability to successfully introduce enhancements to
its present products and to develop new products. The Company must produce
products that are technologically advanced and are comparable to and
competitive with those made by others. Otherwise, the Company's products may
become obsolete. There can be no assurance that the Company's products will
not be rendered obsolete by changing technology or that it will be able to
continue to respond to such advances in technology in a manner as to be
commercially successful.
UNCERTAINTY OF MARKET ACCEPTANCE The DTR-2 is a solutions oriented, pen-based,
mobile computer system. The market for the DTR-2 is, to a large degree,
dependent upon software applications developed for specific users or type of
users, such as insurance adjusters, marketing companies and other users
requiring powerful, yet extremely mobile, pen-based computer systems. As the
availability of software applications geared to pen-based computer systems has
increased, the Company anticipates its market will increase. Although the
current trend for pen-based computers is on the rise and third-party software
developers are expected to increase developing software for pen-based
applications, there is no assurance that such trend will continue in the
future. Although the Company believes that its DTR-2 product may offer
advantages over competition, no assurance can be given that the DTR-2 product
will attain any degree of market acceptance or that it will generate revenues
sufficient for profitable operations.
Due to the nature of the product, industrial control panels are less technology
driven. The Company believes that its industrial control panels will be
superior in design to the current state in technology of the industrial market.
On the other hand there is no assurance that such panels, when developed, will
achieve any market acceptance.
AVAILABILITY OF COMPONENTS The Company's products are manufactured and/or
fabricated from various component parts, such as printed circuit boards,
microchips and fabricated metal parts. The Company must obtain such components
from third-party-vendors. The Company's reliance on those manufacturers and
vendors, as well as industry component supply, yields many risks. Identifiable
risks include the possibility of a shortage of components, increases in
component costs, component quality, reduced control over delivery schedules
and potential manufacturer/vendor reluctance to extend credit with the Company
due to its recent bankruptcy. In the event that there is a shortage of
component parts or that the costs of these parts substantially increases, the
operations of the Company and its success in the marketplace could be
adversely affected.
DEPENDENCE ON KEY PERSONNEL The success of the Company and of its business
strategy is dependent in large part on its key management and operating
personnel. The Company believes that its future success will also depend on
its ability to retain the services of its executive officers. The Company will
also have an ongoing need to expand its management personnel and support staff.
The loss of the services of one or more members of management or key employees
or the inability to hire additional personnel as needed may have a material
adverse effect on the Company.
DEPENDENCE ON PROPRIETARY TECHNOLOGY The Company relies on a combination of
trade secrets, copyright and trademark laws, nondisclosure and other
contractual provisions, and technical measures to protect its proprietary
rights in its products. There can be no assurance that these protections will
be adequate or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to its technology.
Although the Company believes that its products do not infringe upon the
proprietary rights of third-parties, there can be no assurance that third-
parties will not assert infringement claims against the Company 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 the Company to incur substantial litigation expenses or
subject it to significant liabilities that could have a material adverse
effect on its business.
GENERAL ECONOMIC CONDITIONS General economic climate and conditions impact
the operations of the Company. Adverse economic conditions could have the
effect of reduced demand for Company products, increasing customer defaults
and increasing overall credit risks. The availability of alternative financing
from banks, finance companies, insurance companies and other sources may affect
the availability of funds necessary for operations. There can be no assurance
that general economic conditions will be such that the Company will be able to
generate significant revenues or operate at a profit.
SUBJECT TO GOVERNMENT REGULATION To a great extent, the business of the
Company is dependent upon federal, state and local government regulations.
Government regulations which interfere with the Company's business plan could
have an adverse effect on the future business of the Company.
DIVIDEND POLICY The Company has not declared, paid, nor distributed any cash
dividends on its Common Stock in the past, nor are any cash dividends
contemplated in the foreseeable future. There is no assurance that the
Company's operations will generate any profits from which to pay cash
dividends. Even if profits are generated through the Company's operations in
the future, the Company's present intent is to retain any such profits, within
the foreseeable future, to be used as additional working capital.
SHARES ELIGIBLE FOR FUTURE SALE AND LIMITED PUBLIC MARKET Following the
completion of the bankruptcy proceedings, there were 28,658,354 Company Shares
issued and outstanding. An additional 888,757 Company Shares were issued in a
private placement of unsecured promissory notes convertible to Company shares
concluded in July, 1996. A large portion, approximately 16,700,000, of the
shares issued to Company's affiliates are restricted under certain transfer
restriction agreements between the Company and/or its affiliates. There is only
a limited market for the Company's common stock. If a large portion of the
Company 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, which could result in a
significant reduction in current market prices. There can be no assurance that
investors will be able to resell Company Shares at the price they paid for the
Company Shares or at any price.
POTENTIAL LOSS OF NET OPERATING LOSS CARRY FORWARD The Company has a
significant net operating loss ("NOL") carry forward resulting from prior
operations which, if it continues to be available, may be used to offset
future income. An NOL can be of significant benefit to a company as it allows
the company to reduce future income taxes payable. In 1995 and 1996, changes
in the Company's ownership resulted from the transfer of shares by Alan Yong
to TPL and others in connection with bankruptcy proceedings. Furthermore,
additional Shares were issued in connection with the private placement of
certain convertible notes concluded in July, 1996 and additional shares may be
issued in the future. The result of the issuance and transfer of Shares during
1995 and 1996, or in the future, may have the effect of reducing or eliminating
the Company's NOL and therefore, reducing or eliminating a potential
significant tax benefit.
LIQUIDITY The Company believes that the funds it currently has on hand, when
coupled with anticipated operating revenues, the additional funds it may borrow
from TPL and/or Kandila in the future, and the funds that the Company may be
able to raise through the registered or private offering of shares to the
public, is expected to provide sufficient funds for the Company to fund
current and continuing operations. There can be no assurance that any of the
events mentioned above will occur and therefore no assurance can be made that
the Company will be able to fund current and future operations.
LITIGATION Due to the Company's filing for protection under Chapter 11 of the
Federal Bankruptcy Code, all legal proceedings and claims were subject to the
automatic stay. By entry of the Bankruptcy Court Order confirming the Company's
Plan, all such proceedings and claims have been satisfied and discharged
pursuant to the provisions of the Plan. As of the date of this filing,
management of the Company is not aware of any pending or threatened litigation
against the Company.
BROKER-DEALER SALES OF COMPANY STOCK The Company's stock is covered by a
Securities and Exchange Commission Rule that implies 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. Consequently, the rule
may affect the ability of broker-dealers to sell the Company's stock and also
may affect the ability of stockholders to sell their stock in the secondary
market.
RECENT EVENTS
BANKRUPTCY On January 3, 1995, the Company filed a petition for relief under
Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court
for the Northern District of Illinois, Eastern Division. Following that date,
the Company operated under Chapter 11 as a Debtor-in-Possession. Under Chapter
11, certain claims against the Company in existence prior to the filing of the
petition for relief under the Federal Bankruptcy Code were stayed while the
Company continued business operations as a Debtor-in-Possession. These claims
are reflected in the December 31, 1995 balance sheet as "Liabilities Subject
to Compromise."
During operations as a Debtor-in-Possession, the Company was in a dormant stage
for all practical purposes. On April 9, 1996, the Company's Third Amended Plan
and Disclosure Statement was filed with the Court. Simultaneously, an Order was
entered to gather credit holders' and stockholders' votes for approval or
rejection of the Plan. On May 6, 1996, the votes from all classes of credit
holders and stockholders were tallied. On May 9, 1996, the Plan, having been
approved through affirmative vote of over 90% of all ballots, was approved.
The Plan was confirmed by Court Order entered May 14, 1996. The Financial
Statements presented reflect the effect of confirmation of the Plan and Debt-
for-Equity exchange as specified in the Plan. On July 23, 1996, the final
Court Order was entered, taking the Company out of bankruptcy and closing the
bankruptcy proceedings.
INDUSTRIAL CONTROLS In February 1996, the Company acquired a business plan
from Industrial Controls Inc. ("Intercon"), with the intent to produce
industrial control panels. It is important to note that Intercon's products,
once developed are expected, for the most part, to use the same technology
and parts as Dauphin products, but will be marketed through a different
channel of distribution with a different use in mind. The primary uses for
the control panels are machine control and human to machine interface. In
management's view, the products of Intercon would diversify the risks
associated with a single product entity, and would offer Dauphin access to an
additional market.
PRIVATE PLACEMENT During the second quarter of 1996, Technology Partners LLC.
("TPL") conducted a private placement of promissory notes convertible to
Company Shares. Upon conclusion of the private placement, and in exchange for
888,757 Shares of Common Stock to convert the notes, the Company received
$995,407.
PRODUCTION OF DTR-2 On June 19, 1996, the Company contracted with a
manufacturing facility to restart production of the DTR-2. Five DTR-2 units
have been produced under this contract and the Company expects to produce an
additional 150 units under the contract within the next three months from the
date of this report.
NEW HEADQUARTERS During May, the Company occupied new corporate offices
located at 800 E. Northwest Hwy., Suite 950, Palatine, Illinois 60067, and
its new telephone number is 847-358-4406.
MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the over-the-counter market in the
National Quotation Bureau's Pink Sheets electronic bulletin board. The
following table shows the range of representative bid prices for the Common
Stock. The prices represent quotations between dealers and do not include
retail mark-up, mark-down, or commission, and do not necessarily represent
actual transactions. The number of stockholders on record as of September 11,
1996, is approximately 2,000. Some of the stockholders on record are brokerage
firms that hold shares in the "street name". Therefore, the Company believes
the total number of stockholders may be greater than 2,000.
1994 1995 1996
High Low High Low High Low
First Quarter $2.7500 $0.7500 $1.8125 $0.2500 $1.6250 $0.8750
Second Quarter 1.0000 0.2500 1.2500 0.2500 1.7188 1.1250
Third Quarter 0.7500 0.1250 1.0675 0.6250
Fourth Quarter 1.5675 0.1250 1.0000 0.5675
The closing bid price of a share of the Company's Common Stock on September 10,
1996 was $1.40. The Company has never paid dividends on its Common Stock and
does not anticipate paying any dividends in the foreseeable future. The Company
currently intends to retain its earnings, if any, to use as working capital.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The following financial information has been derived from the Company's
Financial Statements. The results of interim periods are not audited and are
not necessary indicative of operation for the full year. This selected
financial information should be read in conjunction with "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS",
the Company's Financial Statements and Notes thereto, and the other financial
information appearing in this Prospectus.
Year Ended December 31 Six Months
Ended June 30
1991 1992 1993 1994 1995 1995 1996
INCOME STATEMENT DATA:
Revenues $911 $23,540 $23,561 $9,603 $183 $148 $23
Cost of Sales 898 20,607 22,005 47,867 94 75 13
----- ------ ------ ------ ----- ------ -----
Gross Profit
(Loss) 13 2,933 1,556 (38,264) 89 73 10
Loss before
Extraordinary
Item (1,736) (630) (3,398) (49,173) (795) (239) (506)
Extraordinary
Items - 215 - - - - 38,065
Net Income
(Loss) (1,736) (416) (3,398) (49,173) (795) (239) 37,559
EARNINGS PER COMMON SHARE (1):
Loss Before
Extraordinary
Item (0.15) (0.05) (0.24) (3.41) (0.06) (0.01) (0.03)
Extraordinary
Item - 0.02 - - - - 1.98
Net Income
(Loss) (0.15) (0.03) (0.24) (3.41) (0.06) (0.01) 1.95
As of December 31 As of June 30
1991 1992 1993 1994 1995 1995 1996
BALANCE SHEET DATA:
Total Assets 3,035 6,670 15,838 298 426 345 3,151
Long Term Debt 318 568 - - - - -
Working Capital
(Deficit) 1,032 160 (2,123) (50,167) (49,968) (50,464) 2,916
Stockholders
Equity
(Deficit) 1,039 622 (850) (50,028) (50,910) (50,354) 3,009
(1) Income(Loss) per common share is calculated based on the monthly weighted
average number of Common Shares outstanding which were 14,408,354 for the
period June 30, 1995, and 19,277,401 for the six month period June 30, 1996.
Also, weighted average number of Common Shares at December 31, 1991, 1992,
1993, 1994, and 1995 were 11,298,106, 13,570,901, 14,137,100, 14,408,354, and
14,408,354, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements, related notes and other financial information included
elsewhere in this prospectus.
GENERAL
The Company's predecessor, Successo, Inc. ("Successo"), was incorporated on
September 8, 1987, as a Utah corporation. On April 4, 1991, Successo entered
into an agreement whereby the stockholders of Successo exchanged 100% of the
common stock for 10,355,800 shares of common stock of Dauphin Technology, Inc.
Dauphin was founded to design, manufacture and market mobile computing systems,
including laptop, notebook, handheld and pen-based computers, components and
accessories. From 1988 through 1992, Dauphin functioned primarily as a
development-stage company. Historically, the Company marketed directly and
through other distribution channels to both the commercial and government
segments.
In early 1993, the Company introduced the Desk-Top Replacement, version 1
("DTR-1"), a pen-based notebook computer with fax/modem features that was
considered a leading edge product with commercial appeal. Sales of the DTR-1
did not meet the Company's expectations and financial problems developed.
During the fourth quarter of 1994, the Company sold the majority of its
finished goods inventory but was unable to meet its operating expenses.
Bankruptcy On January 3, 1995, the Company filed a petition for relief under
Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court
for the Northern District of Illinois, Eastern Division. During 1995 and the
first six months of 1996, the Company operated under Chapter 11 as a Debtor-in-
Possession and was in a dormant stage for all practical purposes. On May 9,
1996, the Company's Third Amended Plan of Reorganization was approved by the
Court. On July 23, 1996, the Company was discharged as Debtor-in-Possession
and the bankruptcy case was closed.
Interactive Controls, Inc. Transaction On February 6, 1996, the Company
entered into an agreement (the "Intercon Agreement") with Interactive Controls,
Inc. and Victor Baron and Savely Burd, its sole shareholders. Intercon has
developed and is the owner of a business plan (the "Intercon Business Plan")
for the development, production, sale and installation of miniature computers
for industrial control panels and operation. Under the terms of the Intercon
Agreement, the Company acquired the rights to the Intercon Business Plan, and
hired Baron to act as the Company's Chief Operating Officer and President of
the Company's new "Intercon Division". It also hired Burd to act as its Chief
Financial Officer. Messrs. Baron and Burd joined Mr. Kandalepas to comprise a
three person Executive Committee.
Under the terms of the Intercon Agreement, and in addition to an annual salary
and bonus which will be paid by the Company to Baron and Burd, Intercon will be
entitled to receive certain shares of the reorganized Company's stock as
payment for the transfer to the Company of the Intercon Business Plan. The
Intercon Agreement provides that commencing upon the effective date of the Plan
and thereafter during the balance of the term of the Agreement, Intercon (or
its successors) will be issued Asset Acquisition Shares determined as follows:
Subject to the adjustment procedures set forth below, during the term, Intercon
will receive:
(a) 1 million Asset Acquisition Shares the first fiscal year in which the
Company realizes aggregate gross revenue of $5 million (determined by
reference to the Company's year end financial statement which shall be
prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis).
(b) 200,000 Asset Acquisition Shares for each additional $1 million in gross
sales realized by the Company in excess of $5 million and less than the
aggregate of $10 million in a single fiscal year (determined by reference
to the Company's year end financial statement which shall be prepared in
accordance with GAAP applied on a consistent basis). Intercon's right to
receive Asset Acquisition Shares under the provisions of this paragraph
(b) shall terminate when the aggregate number of Asset Acquisition Shares
issued to Intercon under the provisions of this paragraph (b) equals 1
million.
(c) After Intercon has received the Asset Acquisition Shares called for in
paragraph (a) and (b) above, but not prior thereto, it should also be
entitled to 0.25 Asset Acquisition Shares for each dollar in net earnings
before taxes which the Company realizes (determined by reference to the
Company's year end financial statement which shall be prepared in
accordance with GAAP applied on a consistent basis.)
Notwithstanding the forgoing, Intercon will not receive Asset Acquisition
Shares which would result in Intercon and/or Baron and Burd, in the aggregate,
in excess of 25% of the total of the Company's outstanding shares of common
stock, on a fully diluted basis.
Current Operations The main product of the Company is a handheld computer -
Desk Top Replacement, 2nd generation ("DTR-2"). The basic unit has a 486
central processing unit with 50 megahertz of processing speed. The unit also
has eight to sixteen megabytes of random access memory, a flat liquid crystal
display, a 170 megabytes hard drive, voice and pen recognition, and wireless
communications capability. The units measure 9 inches in length, 5.5 inches
width, 1.25 inches thick and weigh 2.7 pounds. The Company also offers various
options and accessories to support customer configuration requirements.
On June 19, 1996, the Company placed a purchase order with a manufacturing
facility to start the production of DTR-2. In total, 155 units were ordered to
be delivered in three stages; five test units which were delivered in June;
following with fifty and then one hundred additional units to be delivered
shortly thereafter. In conjunction with this purchase order, Dauphin signed an
Irrevocable Letter of Credit in the amount of $232,000. As of the date of
hereof, no funds have been released under the Letter of Credit.
RESULTS OF OPERATIONS
June 30, 1996 Compared to June 30, 1995
Revenues Total sales revenue in the six months decreased from $148,000 at June
30, 1995 to $23,000 at June 30, 1996. During the six months ending June 30,
1995 and 1996, the Company was operating under Chapter 11 of the Federal
Bankruptcy Code and was in a dormant stage for all practical purposes. Due to
the small dollar value of sales the change in the gross profit margin cannot
be compared to historical margins and is not indicative of future margins.
Expenses During the six months ending June 30, 1996, the Company was in a
dormant stage and expenses were minimal. Salaries of current employees were
the major expenses. The other large expense was for professional fees related
to the Chapter 11 proceedings. Since the Company was extremely short of cash
and its Chapter 11 case pending, there were no expenditures on research and
development.
Net Income(Loss) Due to debt forgiveness, the Company recognized income,
including the Extraordinary Item, in the amount of $37,559,000 or $1.95 per
share during the first half of 1996. The Income(Loss) After Tax but before
Extraordinary Item for the six months decreased from ($239,000) or ($0.01)
per share in 1995 to ($506,000) or ($0.03) in 1996 per share on a fully diluted
basis, due primarily to salaries paid to employees and bankruptcy costs.
Year Ended December 31, 1993 Compared to 1994 and 1995
Revenues Total sales revenues decreased at December 31, from $23,561,000 in
1993 to $9,603,000 in 1994 and $183,000 in 1995. This sharp decline in
revenue, from 1993 to 1994, was primarily due to Company's inability to service
its debts and subsequent liquidation of the DTR inventory by manufacturer.
During 1995, the Company was operating under Chapter 11 of the Federal
Bankruptcy Law and was in a dormant stage for all practical purposes.
Expenses Selling, general and administrative expenses decreased in 1995 to
$681,000 from $4,954,000 in 1994 and $3,436,000 in 1993. The decrease resulted
from the Company operating under Chapter 11 of the Federal Bankruptcy Law.
During 1995, over $180,000 was spent on professional services relating to the
Bankruptcy.
Research and development (R & D) expenses decreased to $22,000 in 1995 from
$937,000 in 1994 and $1,403,000 in 1993. Litigation settlement expense
incurred in 1994 was the result of an out-of-court settlement of an
outstanding claim.
Net Loss Net loss in 1995 was $795,000 or $0.06 per share compared to
$49,173,000 or $3.41 per share in 1994 and $3,398,000 or $0.24 per share in
1993. During 1994, the Company expensed a purchase commitment to a contract
manufacturer in the amount of $32,978,000 and a litigation settlement in the
amount of $4,935,000. For these reasons and the other items discussed above,
the loss was smaller in 1995 than prior years.
The gross profit margins are not comparable for the periods due to the extreme
fluctuations in sales and the recording, as cost of sales, due to a purchase
commitment to a contract manufacturer in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that the funds it currently has on hand, when coupled with
anticipated operating revenues, the additional funds it may borrow from TPL
and/or Kandila in the future, and the funds that the Company may be able to
raise through the registered or private offering of shares to the public, is
expected to provide sufficient funds for the Company to fund current and
continuing operations. There can be no assurance that any of the events
mentioned herein will occur and therefore no assurance can be made that the
Company will be able to fund current and future operations.
Stockholders Equity (Deficit) increased in the second quarter from
($50,910,000) at June 30, 1995 to $3,009,000 at June 30, 1996 due to
culmination of the bankruptcy proceedings and capital infusion from the private
placement.
INFLATION AND SEASONALITY
Due to the nature of the Company's products and current market trends, increase
in volume of production should generally result in a reduction of cost per unit
produced. Management does not anticipate any major shifts in this trend in a
foreseeable future. Also, due to the fact that the Company targets industrial
customer and not a retail outlet, the Company should not be effected by the
seasonal nature of the consumer purchasing.
ACCOUNTING MATTERS
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of"
(effective for fiscal years beginning after December 15, 1995), in the first
quarter of 1996. The adoption did not have a material impact on the Company.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
based Compensation" (effective for fiscal years beginning after December 15,
1995) encourages, but does not require, employers to adopt a fair value method
of accounting for employee stock-based compensation, and requires increased
stock-based compensation disclosures if the fair value method is not adopted.
The Company has not implemented this Statement. Future implementation will
have an immaterial effect on the Company's operating results or financial
condition.
BUSINESS
SUMMARY The Company commenced operations in 1988 and from 1988 to 1992, it
functioned primarily as a development stage company which focused most of its
efforts on developing mobile computers that would meet the specifications of
certain government contracts. The Company identified the federal government
market place as one of the areas in which it could potentially compete in
designing and marketing mobile computers.
In December 1993, the Company introduced the DTR-1. The DTR-1 was a 2.7 pound,
486 SLC-Based computer with DOS/Windows capability. It had a mini-keyboard, a
six inch backlit VGA display, a variety of ports, pen input and an internal
Ethernet and modem. Due to some production delays and start-up manufacturing
problems with the product, the Company ran into serious financial troubles.
The Company proceeded to develop and market the DTR-1 and it's next generation
DTR-2, up to January 3, 1995, when financial difficulties forced the Company
into voluntary bankruptcy under Chapter 11 protection of the Federal Bankruptcy
Code.
During 1995 and the first five months of 1996, the Company operated under
bankruptcy protection and for all practical purposes was in a state of
dormancy. On May 9, 1996 the Third Amended Plan of Reorganization was approved
by the creditors and stockholders and confirmed by the Court. On July 23,
1996, Dauphin was officially discharged as a Debtor-in-Possession and the
bankruptcy case was closed.
PLAN OF OPERATION The Company is in the process of restarting the
manufacturing process and marketing of the DTR-2, a second generation hand-
held, pen-based 486 computer with voice, pen, and keyboard inputs. The unit
also incorporates provisions to support the leading technologies of wireless
communications and the Internet. Management believes that the DTR-2 can
successfully compete with products sold by competitors. The Company is also
planning to implement the Intercon Business Plan.
Along with its immediate plans with the DTR-2, the Company plans to: (i)
continue to develop new generations of DTR-type products; (ii) attempt to
develop other mobile computer products and applications; and (iii) diversify
its operations through acquisitions of other businesses and implementation of
Intercon Business Plan.
DTR SALES The DTR (an acronym for "Desk Top Replacement") products developed
and manufactured by the Company are full featured DOS/Windows, Windows 95
capable Personal Computers ("PC") in a package that would fit into the palm of
a person's hand. The DTR-1, developed in 1992 and early 1993, had features such
as a pen-based keyboard/mouse replacement with hand-writing recognition and an
assortment of external peripherals that made it a versatile alternative to
traditional desktop or laptop computers. DTR-2 was developed in 1993 and early
1994. Unfortunately, due to its financial troubles, the Company did not have the
opportunity to allow full product development and production cycle to occur.
In addition, the DTR-2, unlike the DTR-1, features two type II or one type III
PCMCIA ("Memory Card International Association" standard) slots for wireless
communication capabilities, voice recognition and improved connectivity with
external systems.
During the development stages, other manufacturers were concentrating their
efforts on similar, but less capable versions of palmtop computing devices, the
Personal Digital Assistants ("PDA"). The most notable of the PDAs was Apple's
Newton. Initially, PDAs received negative reaction by the market that caused an
erroneous perception about the capabilities of hand-held computers in general.
Unlike the DTR, these products were designed to be electronic data communicators
capable only of pen sketch capture and communications to the host PC or among
themselves, but did not have the Windows capabilities as the DTR computers. The
advent of PCMCIA options, improvements in sound and pen recognition, mobile
wireless communication and the recent explosion of the Internet, raised public
interest in palmtop computers.
The DTR-2 is a significant technological step forward among mobile computing
devices. It is a time, labor, and money-saving device that is designed to
free users from their desks. The DTR-2, which weighs about 2.7 pounds,
continues the trend toward smaller, more portable computers. Much more
flexible and powerful than a PDA, the DTR-2 is DOS/Windows, Windows 95
compatible. New developments in battery technology allow the device to be
portable and useful to customers who need computing capacity in remote
locations. In addition to a small keyboard, the DTR-2 allows "pen input" which
is ideal for note taking, record keeping, organization and on-the-road fax
communications. The DTR-2 has the ability to recognize handwriting and convert
it to ASCII text as well as recognizing and transcribing verbal commands.
Lastly, the DTR-2 can use wireless technology, either radio frequency or
cellular technology, to transmit data. This allows users to send and receive
"e-mail" and facsimiles from nearly anywhere in the world while being part of
a local area network at the same time. Future generations of the DTR series
may incorporate global positioning systems and other innovations that will
service particular vertical market needs.
The DTR-2 is designed to be a pen-based mobile computer solution. Until
recently, there has been limited pen-based software applications available.
During the last year, the number of pen-based software application has
increased significantly with additional applications expected in the future.
As more applications become available, the Company's management believes that
the market for the of DTR-2 will continue to grow.
The management of the Company believes today's mobile computer and wireless
communication markets provide an opportunity to further develop the DTR line
of products. Based upon this belief, the Company started the production of
the DTR-2. Production has started and will thereafter proceed in accordance
with financial capabilities of the Company and market demand for the product.
The Company purchased certain inventory from TPL, which TPL acquired in
connection with its purchase of IBM's pre-bankruptcy claims against the Company.
The Company presently owns sufficient inventory to start production of the
DTR-2 in small quantities. Production schedules and further product
developments will be correlated with market requirements and sales performance.
Accordingly, adjustments in product configurations will be made to satisfy the
price and functionality requirements of the targeted OEM markets. The research
and development of the future generations of DTR computers will commence as
soon as it is financially feasible.
The Company has only recently commenced marketing the DTR-2 and just recently
re-started production of DTR-2 units. Historically, the Company has marketed
computers and not solutions to specific problems or needs. The Company intends
to offer not only the DTR-2 as a mobile computer, but to develop and market the
DTR-2 as part of a solution to a specific customer use or need. Management
believes that the DTR-2 will find acceptance for uses such as insurance
adjusting and claim work, development of medical records, sales and marketing
tools and defense industry related uses.
OTHER PRODUCTS Currently, the Company's management is in the process of
establishing an organizational structure that will enable its Intercon Division
to launch the first phase of development of Intercon's products. Pursuant to
the provisions of the Intercon Agreement described above, the Company has
acquired the right to utilize the Intercon Business Plan. The primary market
for Intercon's control systems and software will be industrial and commercial
manufacturing enterprises in need of high-efficiency low cost process/machine
control and touch-screen graphics interface solutions. Revenue will be
generated through the sales and support of "Expanel" and "FLEX-Control" parts
of "Interactive Solution" systems and "FLEX-Design" software.
DIVERSIFICATION PLAN At the present time, the management of the Company is
actively seeking strategic acquisitions to further diversify its operations.
It is anticipated that some portion of the Shares may be used to effect
acquisitions but the number of shares that might be used for this purpose, if
any, cannot be determined. The Company's diversification plan is intended to
strengthen its short, mid and long term business and sales. Diversification
will take place on the basis of strategic partnerships with vendors or
customers, or through an acquisition of related technologies. Engagements
will be selected and decided upon with the objective of expanding the
Company's customer base and diversifying its products.
MANUFACTURING The DTR-2 units, currently being demonstrated to potential
customers, are first-production models. The Company has entered into a
manufacturing agreement and relationship with a qualified manufacturing company
for the production of DTR-2 units. The DTR-2 will be manufactured by using a
variety of components which are generally available from a number of sources.
The Company currently has sufficient inventory to assemble a small number of
DTR-2's.
COMPETITION The Company's only fully developed product is the DTR-2. This
product competes in the mobile computer market. Worldwide, there are 40 or so
companies competing in this market. Some of these competitors are large, well
financed entities. In order to be competitive, the Company must have its
products on the leading edge of technology. When new products are introduced,
there is a small window of opportunity before clones are developed. The
remaining windows of opportunity for the DTR-2 cannot be precisely determined,
but is expected to be approximately one year. However, being a small company,
management believes that Company's strength is its flexibility and low
overhead.
RESEARCH AND DEVELOPMENT The Company has a history of developing and bringing
to market products on the leading edge of technology. Due to the financial
problems the Company had experienced during the last several years, Dauphin
reduced the size of the engineering and technical staff dedicated to research
and development. The challenge for the Company is to develop strategic partners
or an in-house staff, which will enable it to expand its product line and to
continue to be the development leader in mobile computing.
SOURCE AND AVAILABILITY OF RAW MATERIALS The Company subcontracts the
assembly of the finished product from component parts, which are obtained from
suppliers throughout the world. The Company presently owns sufficient inventory,
which it purchased from TPL, which should allow the company to produce or cause
to be manufactured sufficient quantities of DTR-2 to re-enter the marketplace.
However, the purchase of this inventory does not mean that the Company will
have sufficient raw material of each and every component to build DTR-2 in
larger quantities.
STRATEGIC PARTNERING The Company is in the process of reviewing and possible
renewing its existing strategic partnership agreement with Phoenix Technologies
Ltd. ("Phoenix"). Phoenix designs, develops, markets and licenses proprietary
compatibility software products for original equipment manufacturers, including
BIOS (basic input output system) and related system software for personal
computers.
The Company has entered into a Pen Products Original Equipment Manufacturing
Distribution License Agreement and Sublicense 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 Microsoft's DOS, Windows 3.11, Windows 95, and Windows
for Pen, amongst others, on computers it sells. For this right, the Company
must pay Microsoft through Annabooks royalties for each units sold, with
quantity discounts available.
PATENTS, COPYRIGHTS AND TRADEMARKS The computers offered by the Company are
the result of engineering design by its employees and strategic partners. The
Company will attempt 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 the Company could
therefore be adversely affected by duplication and sales. However, in view of
the rapid technological and design changes incident to the computer industry,
the Company does not believe that, in general, patent and/or copyright
protection would be an effective means to protect its interest.
CUSTOMER DEPENDENCE During 1995 and the first six months of 1996, the Company
operated under Chapter 11 as a Debtor-in-Possession and was in a dormant stage
for all practical purposes. For this reason, the Company has no current
customer base. Notwithstanding this, prior to bankruptcy, the DTR-2 has been
approved for several military contracts. The management is in the process of
renegotiating some of these contracts. The effect of the bankruptcy proceeding
on past or potential future customers cannot be determined.
SALES AND MARKETING As a result of its financial problems, the Company had
limited inventory to sell during the last two years. Many of the distribution
channels that were previously used by or available to the Company are in
question. Furthermore, the DTR-2 is a niche product which has a long sales
cycle. The Company has rehired an employee, who was formerly involved in sales
of Company's products, to head up its marketing and sales efforts. Since it
inception, a significant portion of the Company's revenue had been derived from
sales of products to government agencies including the Department of Defense.
The Company intends to continue to attempt to market products to government
agencies but also attempt to expand its marketing efforts to commercial users.
EMPLOYEES As of September 11, 1996, the Company has eleven employees. These
employees are executives, sales, production, technical support and
administrative personnel. None of the Company's personnel are represented by a
union. The management believes its employee relations to be good.
DESCRIPTION OF PROPERTY
FACILITIES The Company's executive offices consist of 7,300 square feet of
office space and 2,700 square feet of warehouse space located at 800 E.
Northwest Hwy., Suite 950, Palatine, Illinois 60067. The Company pays
approximately $10,000 per month to rent the facilities. The lease has a three
year term with a five year renewal option. The Company believes the space will
be adequate for the foreseeable future.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OFFICERS The following table sets forth the
name, age, date appointed a director, executive officer or officer, position
with Company or present principal occupation and employment history for the
past five years of each person who is a director, executive officer or officer.
Name Age Date Appointed Present Office
Andrew J. Kandalepas 44 1995 Chairman of the Board of Directors
Chief Executive Officer, President
Mr. Kandalepas joined Dauphin Technology, Inc. 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 Corporation, an engineering services company based in Schuamburg,
Illinois. 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 just prior to
founding CADServ Corporation.
Victor I. Baron 40 1996 Chief Operating Officer
Mr. Baron was appointed Chief Operating Officer of Dauphin Technology,
Inc. and as President of the Intercon Division in 1996. He has extensive
experience in strategic planning, design and technical sales of
industrial controls. An engineering graduate of Riga Poly Technical
Institute, (Riga, Latvia), in 1977, Mr. Baron has worked for over
nineteen years in the high-tech design field during which he has
developed a wide range of long-term relationships within the
manufacturing industry. Before his appointment with Dauphin, Mr. Baron
worked for Total Control Products, an operator interface manufacturer.
Savely Burd 32 1996 Chief Financial Officer
Mr. Burd was appointed Chief Financial Officer of Dauphin Technology,
Inc. in 1996. After graduation from the University of Illinois in 1987,
Mr. Burd began his career as a staff auditor at Arthur Andersen LLP.
After several promotions and a career move, Mr. Burd was hired as a
Controller for Clarklift of Chicago North, Inc., a materials handling
equipment dealer. Before his appointment with Dauphin, Mr. Burd was
employed by Merrill Lynch. Mr. Burd, a CPA, is a graduate of J. L.
Kellogg Graduate School of Management.
Jeffrey L. Goldberg 44 1995 Secretary, Director
Mr. Goldberg has served as Secretary and a Director of Dauphin
Technology, Inc. since June of 1995. Mr. Goldberg is a President of
Financial Consulting Group, Ltd., a Northfield, Illinois financial
planning firm he founded in 1983. Mr. Goldberg was formerly with a
Chicago law firm, Goldberg and Goodman, and prior to that, was a tax
senior with Arthur Andersen LLP. He is an attorney, CPA and a Certified
Financial Planner.
Alan S. K. Yong 50 1988 Director
Mr. Yong served as President, Chief Executive Officer and a Director of
Dauphin Technology, Inc., from June 1988 when he founded the Company to
June 1995. Since June 1995, he has served as a Director of the Company.
From 1981 through the present, he has been serving as President of
Manufacturing and Maintenance Systems, (MMS) Inc. a privately held
company based in Lombard, Illinois that he founded in 1981. MMS
designs, manufactures and markets industrial computers for the
alignment of rotating equipment. He is a graduate of George Williams
College and received his Masters in Business Administration from Northern
Illinois University.
Wm. Paul Bunnell 37 1995 Director
Mr. Bunnell has served as a Director of Dauphin Technology, Inc. since
June of 1995. Mr. Bunnell is a Vice President of Financial Consulting
Group, Ltd. a Northfield, Illinois financial planning firm he founded in
1983. He was previously a corporate accounting and financial manager
with expertise in business planning and long range strategic planning.
Gary E. Soiney 56 1995 Director
Mr. Soiney has served as a Director of Dauphin Technology, Inc. since
November of 1995. He graduated from the University of Wisconsin in
Milwaukee as a marketing major 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.
Douglas P. Morris 40 1995 Director
Mr. Morris has been a Director of Dauphin Technology since November of
1995. He is also the owner of H & M Capital Investments, Inc. and
Hyacinth Resources Inc., which are privately-held business consulting
firms that consult privately and publicly held companies in the matters
related to management, debt and equity financing. Mr. Morris received his
Bachelor of Arts Degree in Judicial Administration from Brigham Young
University in 1978 and his Masters Degree in Public Administration from
the University of Southern California in 1982.
Andrew Prokos 34 1995 Director
Mr. Prokos has served as a Director of Dauphin Technology, Inc. since
February 1995. He is also Vice-President of CADServ Corporation in
Schaumburg, Illinois. Mr. Prokos is a graduate of DeVry Institute with
an Associate Degree in Electronics.
Dean F. Prokos 32 1995 Director
Mr. Prokos has served as a Director of Dauphin Technology, Inc. since
August 1995. He is the Regional Manager for the Secretary of State
Drivers Services Department. He attended Loyola University and received
a degree in Business Management and has been previously involved with
management of various food establishments.
All Directors will be elected annually and hold office until the next annual
meeting of the stockholders of the Company or until their successors have been
elected and qualified.
INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company has adopted a by-law
provision which stipulates that it shall indemnify any director or 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 reasonable 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 reasonable believed to be in, or not opposed
to, the best interest of the Company, 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 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 reasonable 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 officers under federal
securities laws.
EXECUTIVE COMPENSATION
Although the Company does not have a formal Compensation Committee, the Board
of Directors performs the equivalent functions of a Compensation Committee,
and seeks to align compensation with business strategy, Company value,
management initiatives and Company performance. Securities and Exchange
Commission regulations mandate disclosure of all compensation, including
salary, bonus and stock options, paid to executive officers and directors,
that exceeds $100,000. No executive officer or director was paid compensation
exceeding $100,000 during 1993, 1994 or 1995.
During 1995 and first half of 1996, Andrew J. Kandalepas worked full time for
the Company in various management positions and was not compensated for these
services. Other members of the Board of Directors do not get compensated for
their participation in management of the Company.
STOCK OPTION PLAN
At the Company's 1992 Annual Meeting of Stockholders, the stockholders approved
the 1992 Stock Option Plan pursuant to which stock options to purchase up to
1,500,000 shares of the Company's common stock could be granted to employees
of the Company. In 1995, all options granted under the Plan expired due to the
termination of these employees and their failure to exercise their options in a
timely manner within the time period established under the plan. The Plan
itself was terminated during 1995.
REORGANIZATION
1995 Events
On January 3, 1995, the Company filed a petition for relief under Chapter 11 of
the Federal Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Illinois, Eastern Division. At the time of the filing,
the Company an outstanding trade payable to IBM of approximately $40,000,000.
During 1995, the Company operated under Chapter 11 as a Debtor-in-Possession
without an approved Plan of Reorganization.
On January 19, 1995, the Court entered an Order authorizing the Company to use
IBM's cash collateral pursuant to the terms set forth in the Order. Despite
its continued use of 100% of the cash collateral, the Company did not have
sufficient funds to continue operations or to proceed with reorganization. On
March 31, 1995, all employees were terminated and all remaining assets were put
in storage while the Company pursued potential Debtor-in-Possession financing.
In an attempt to save the Company, TPL, an Illinois limited liability company
then controlled by Kevin Koy and Andrew J. Kandalepas, purchased IBM's claim.
On June 20, 1995, the Court entered an Order approving an employment agreement
between the Company, Alan Yong, its then majority shareholder, Kevin Koy and
Andrew J. Kandalepas. The terms of the employment agreement were as follows:
Term - One year with automatic successive one-year renewals unless
either party gives one month prior written notice of an intention not to renew.
Compensation - Annual rate of $70,000 for the first three months
increasing to an annual rate of $150,000 in the fourth month. The Company
granted Alan Yong options to purchase 700,000 shares of stock at $0.75 a
share. These options were exercisable twelve months from the time they become
registered.
Purchase Inventory from Executive - The Company agreed to purchase
inventory valued at $50,000 over a five-month period at $10,000 per month.
Executive's Stock - Alan Yong and his family transferred 8,000,000
shares of the Company's stock to the designee of TPL pursuant to certain
transfer provisions.
As of July 15, 1995, all the transfer provisions had been met and the Yong
shares were transferred. This transaction resulted in a change in control of
the Company.
On July 10, 1995, the Bankruptcy Court entered an Order approving Debtor-in-
Possession financing between the Company and TPL.
On July 31, 1995, the Company filed a Preliminary Plan of Reorganization and
Related Disclosure Statement. On October 3, 1995, the Company filed its First
Amended Plan of Reorganization.
On October 11, 1995, the Company, TPL, the directors, officers and employees
of both organizations, including but not limited to Kevin Koy and Andrew J.
Kandalepas as guarantors and Alan Yong, entered into a settlement and general
release of the above Alan Yong employment agreement. Alan Yong was in
possession of certain assets of the Company with an approximate cost of
$60,000. Yong's stock options were also canceled. As part of the consideration
for this agreement, the Company conveyed ownership of the assets then held by
Yong to Yong.
On November 16, 1995, the Bankruptcy Court entered an Interim Order approving
additional Debtor-in-Possession financing between the Company and TPL.
During November 1995, certain disagreements arose between the members of the
Board of Directors and Kevin Koy and Russ Felker. The Company's then President
and Chief Financial Officer, concerning the management of the Company. Because
of such disagreements, Kevin Koy and Russ Felker were removed from their
positions as Chief Executive Officer and President of the Company,
respectively, on November 20, 1995. Andrew J. Kandalepas was then appointed to
serve as Chief Executive Officer and President of the Company.
On November 30, 1995, the Bankruptcy Court entered an Interim Order approving
Debtor-in-Possession financing between the Company and Kandila, an Illinois
limited liability company controlled by Andrew J. Kandalepas.
1996 Events
On January 16, 1996, the Company's counsel filed motions with the Bankruptcy
Court to retrieve all funds mistakenly paid to professional advisors of TPL,
Kevin Koy and Russ Felker, and to terminate the employment agreements with
Messrs. Koy and Felker. In addition, the motions sought to terminate a letter
of intent and related employment and stock incentive agreements related to a
proposed purchase of Cormark, Inc., an Illinois corporation engaged in the
manufacture and sale of point of purchase displays and controlled by John
Prinz. Return of a $60,000 deposit made to Cormark in anticipation of the
proposed purchase was also requested. Pursuant to the motions, all employment
and incentive agreements, as well as the letter of intent to purchase Cormark,
Inc., were terminated. The $60,000 deposit was returned to the Company and
an additional $107,000 in mistaken payments was recovered, and Messrs. Koy,
Felker and Prinz resigned from the Company as Directors. Mr. Koy terminated all
capacities with TPL and released all ownership interests in TPL.
On February 6, 1996, the Company entered into an agreement with Victor Baron,
Savely Burd and Interactive Controls, Inc., an Illinois corporation
("Intercon") relating to the Companys purchase of the Intercon Business Plan
for the development, production, sale and installation of miniature computers
for industrial control and operation. At that time, the Company Baron to act as
the Company's Chief Operating Officer and President of the Company's new
"Intercon Division." It also hired Burd to act as its Chief Financial Officer.
Messrs. Baron and Burd joined Mr. Kandalepas to comprise a three person
Executive Committee.
On February 14, 1996, the Company filed its Second Amended Plan of
Reorganization. On April 1, 1996, the Company filed the Third Amended Plan of
Reorganization. On May 9, 1996, the Third Amended Plan of Reorganization was
approved by the stockholders and creditors and confirmed by the Court.
Under this Plan, the creditors/equity holders were assigned to one of nine
classes. Satisfaction of claims of each class under this Plan was provided
as follows:
Class 1 - Post-Petition Administrative Claims
- To be paid in full on the effective date of the Plan
(the "Effective Date") or soon thereafter.
Class 2 - Priority Tax Claims
- To be paid in full with 9% interest in monthly payments.
Class 3 - Non-Tax Priority Claims
- To be paid in full on the Effective Date or soon thereafter.
Class 4 - Pre-Petition Claims of TPL and IBM
- To receive 6,400,000 Shares of the Company's Common Stock
on the Effective Date or soon thereafter.
Class 5 - Post-Petition Claims of TPL and Kandila
- To receive 4,200,000 Shares of the Company's Common Stock
on the Effective Date or soon thereafter.
Class 6 - Claims of Wong's Electronics
- To receive, along with Class 8 creditors, a prorated share
of 1,000,000 Shares of the Company's Common Stock on the
Effective Date for their unsecured portion of the claims.
- To receive 50,000 shares in settlement of their secured
portion of the claims on the Effective Date or soon
thereafter.
Class 7 - Claims Under Expressed or Implied Warranties
- To receive 10% product discount certificates on the
Effective Date or soon thereafter.
Class 8 - Claims Unsecured Creditors Not Otherwise Classified Under
the Plan
- To receive, along with Class 6 creditors, a prorated shares
of 1,000,000 shares of the Company's Stock on the Effective
Date or soon thereafter.
Class 9 - Equity Interest of Debtor's Stockholders
- To retain their shares of the Company's Stock.
On July 23, 1996 the Court approved the implementation of the Third Amended
Plan of Reorganization and discharged the Company as Debtor-in-Possession.
This terminated the Company's bankruptcy proceedings.
The Company has issued the 11,650,000 Shares of its Common Stock pursuant to
the Plan. This has effectively converted all pre-petition credit holders to
equity holders. Shares issued under the Plan have a certain holding period,
during which the Shares cannot be traded. The holding period continues through
the earlier of nine months from the Effective Date or the date the Shares are
registered by the Company.
According to the Plan, in addition to the stock issued to satisfy creditors'
claims, the Company is authorized to issue and register up to 16 million
additional shares (the "Reserve Shares") which can be used by the Company for
future business operations and growth and to satisfy potential share issuance
requirements under the Intercon agreement.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
CADServ Corporation, an engineering services company based in Schuamburg,
Illinois, controlled by Andrew J. Kandalepas, has contributed to the design,
packaging and manufacturing of Dauphin's DTR product line and will likely
continue in this capacity in the future. CADServ is compensated on
substantially the same terms which could be obtained from non-related companies
in the marketplace.
Manufacturing and Maintenance Systems, Inc., an Illinois corporation controlled
by Alan S. K. Yong ("MMS"), made advances to, and payments on behalf of the
Company from time to time; however, all claims of MMS were released in
connection with the settlement and general release entered into on October 11,
1995 by the Company, TPL and Mr. Yong.
On July 10, 1995, the Bankruptcy Court entered an Order approving Debtor-in-
Possession financing between the Company and TPL. TPL agreed to make available
for the Company's use from time to time, loans not to exceed $400,000, in the
aggregate, to be used by the Company for general working capital purposes.
Interest accrues on the principal balance at the rate of 11% per annum.
On November 16, 1995, the Bankruptcy Court entered an Interim Order approving
additional Debtor-in-Possession financing between the Company and TPL. TPL
agreed to make available for the Company's use from time to time, loans not to
exceed $150,000, in the aggregate, to be used by the Company for general
working capital purposes. Interest accrues on the principal balance of such
loan at the rate of 11% per annum.
On November 30, 1995, the Bankruptcy Court entered an Interim Order approving
Debtor-in-Possession financing between the Company and Kandila Investments,
Ltd., an Illinois limited liability company controlled by Mr. Kandalepas.
Kandila agreed to make available for the Company's use from time to time
during, loans not to exceed $500,000, in the aggregate, to be used by the
Company for general working capital purposes. Interest accrues on the principal
balance of such loan at the rate of 11% per annum. All loans made by TPL and
Kandila, together with interest accrued thereon, were converted and exchanged
for 4,200,000 Shares pursuant to the Plan.
On April 19, 1996, TPL commenced a private placement of certain 9% unsecured
promissory notes convertible to certain Dauphin shares received by it in
connection with debtor-in-possession financing provided by TPL to Dauphin.
As a result of the private placement and conversion of notes as specified in
the Offering Memorandum, Dauphin received $995,408, or sixty percent of the
proceeds of the private placement, in exchange for 888,757 Reserve Shares at
$1.12 per share.
PRINCIPAL STOCKHOLDERS
INFORMATION ON OUTSTANDING STOCK The following table sets forth certain
information regarding Shares of Common Stock of the Company owned beneficially
as of September 11, 1996, by (i) each Officer and Director of the Company, (ii)
all Officers and Directors as a group, and (iii) each person known by the
Company to beneficially own more than 5% of the Common Stock of the Company:
Name and Address of Amount and Nature Percent
Beneficial Owner Position of Beneficial Shares Owned of Class
Alan S.K. Yong
1 N. 756 Hillcrest
West Chicago, IL 60185 Director 825,126(1) 2.8%
Andrew J. Kandalepas
770 Michigan Ave.
Elk Grove Village,
IL 60007 Chairman,
Chief Executive
Officer & President 3,448,242(2)(6)(7) 11.7%
Victor L. Baron
759 North Ave.
Highland Park, IL 60035 Chief Operating Officer 15,000 0.0%
Savely Burd
9445 Kenton, #411
Skokie, IL 60076 Chief Financial Officer 0 0.0%
Jeffrey L. Goldberg
2800 Acacia Terrace
Buffalo Grove, IL 60089 Secretary, Director 3,520,471(3)(6) 11.9%
Wm. Paul Bunnell
9049 N. Bronx 2-S
Skokie, IL 60077 Director 5,912,471(3)(6) 20.0%
Gary E. Soiney
4524 Maple Rd.
East Troy, WI 53120 Director 0 0.0%
Douglas P. Morris
515 Red Cyprus Dr.
Cary, IL 60013 Director 0(4)(5) 0.0%
Andrew Prokos
2359 N Windsor Drive
Arlington Hts., IL 60004 Director 204,000 0.0%
Dean F. Prokos
415 Pheasant Ridge Drive
Lake Zurich, IL 60047 Director 0 0.0%
Hyacinth Resources Inc.
515 Red Cyprus Dr.
Cary, IL 60013 ------ 300,000(5) 1.0%
Northfield Technology Group
790 Frontage Rd.
Northfield, IL 60093 ------ 3,283,000(3) 11.1%
H & M Capital Investment
330 E. Maine St.
Barrington, IL 60010 ------ 11,167(4) 0.0%
Technology Partners LLC
790 Frontage Rd.
Northfield, IL 60093 ------ 237,471(6) 0.8%
DNS Escrow Trust
790 Frontage Rd.
Northfield, IL 60093 ------ 2,392,000 8.1%
K & L Trust
322 N. Prospect Rd.
Park Ridge, IL 60068 ------ 235,800(2)(7) 0.8%
Marinis Loukas Trust
322 N. Prospect Rd.
Park Ridge, IL 60068 ------ 2,032,500 6.9%
Virtual Technology LTD.
C/O TrustNet
CIDB Building
Avarua, Rarotonga
Cook Islands ------ 2,133,000 7.2%
Tiedemann/Economos Global Emerging Growth L.F.
P.O Box N-920A Charlotte House
Charlotte Street
Nassau, Bahamas ------ 4,200,000 14.2%
Others ------ 848,337 2.8%
Officers and Directors and
5% Beneficial Owners (as a group) 17,589,372 59.5%
1. The 825,126 Shares listed for Alan S. K. Yong include Shares owned by
members of his family.
2. The 3,448,242 Shares listed for Andrew J. Kandalepas include 2,944,167
Shares held individually, 30,804 Shares held by CADServ Corporation, 237,471
Shares held by Technology Partners, and 235,800 beneficially owned in the
K&L Trust.
3. Jeffrey L. Goldberg and Wm. Paul Bunnell are managing members of Northfield
Technology Group and share voting.
4. Douglas P. Morris is President of H & M Capital Investments, Inc. which owns
11,167 Shares.
5. Douglas P. Morris is President of Hyacinth Resources which owns 300,000
Shares.
6. Andrew J. Kandalepas, Jeffrey L. Goldberg and Wm. Paul Bunnell are managing
members of Technology Partners LLC, and share voting.
7. Andrew J. Kandalepas is a beneficiary of K & L Trust and shares voting.
VOTING RIGHTS OF CONTROL PERSONS
INFORMATION ON OUTSTANDING STOCK The following table sets forth certain
information regarding Shares of Common Stock of the Company voted by control
persons as of September 11, 1996, by (i) each Officer and Director of the
Company, (ii) all Officers and Directors as a group, and (iii) each person
known by the Company to beneficially own more than 5% of the Common Stock of
the Company:
Name and Address of Amount and Nature of Percent
Beneficial Owner Position Beneficial Shares Owned of Class
Alan S.K. Yong
1 N. 756 Hillcrest
West Chicago, IL 60185 Director 825,126(1) 2.8%
Andrew J. Kandalepas
770 Michigan Ave.
Elk Grove Village,
IL 60007 Chairman, Chief
Executive Officer &
President 6,873,242(2) 23.3%
Victor L. Baron
759 North Ave.
Highland Park, IL 60035 Chief Operating Officer 15,000(3) 0.0%
Savely Burd
9445 Kenton, #411
Skokie, IL 60076 Chief Financial Officer 0 0.0%
Jeffrey L. Goldberg
2800 Acacia Terrace
Buffalo Grove, IL 60089 Secretary, Director 3,520,471(2) 11.9%
Wm. Paul Bunnell
9049 N. Bronx 2-S
Skokie, IL 60077 Director 9,412,471(2) 31.9%
Gary E. Soiney
4524 Maple Rd.
East Troy, WI 53120 Director 0 0.0%
Douglas P. Morris
515 Red Cyprus Dr.
Cary, IL 60013 Director 311,167 0.0%
Andrew Prokos
2359 N Windsor Drive
Arlington Hts., IL 60004 Director 204,000(4) 0.0%
Dean F. Prokos
415 Pheasant Ridge Drive
Lake Zurich, IL 60047 Director 0 0.0%
Tiedemann/Economos Global Emerging Growth L.F.
P.O Box N-920A Charlotte House
Charlotte Street
Nassau, Bahamas ------ 4,200,000 14.2%
Officers and Directors and
5% Beneficial Owners (as a group) 21,388,568 72.4%
1. The 825,126 Shares listed for Alan S. K. Yong include Shares owned by
members of his family.
2. Andrew J. Kandalepas, Jeffrey L. Goldberg, and Wm. Paul Bunnell are managing
members of Technology Partners LLC, and share voting 237,471 shares.
3. Andrew J. Kandalepas votes these shares.
4. Andrew J. Kandalepas has voting rights of 200,000 of these shares.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 Shares of Common
Stock, par value $0.001 per share ("Common Stock") and 10,000,000 Shares of
Preferred Stock, par value $0.01 per share ("Preferred Stock"). As of September
11, 1996, there were 29,547,111 Shares of Common Stock outstanding and
beneficially owned by approximately 2,000 beneficial stockholders, and no
Shares of Preferred Stock were outstanding. The following summary is qualified
in its entirety by reference to the Company's Certificate of Incorporation,
which is available from the Company.
COMMON STOCK The Common Stock possesses ordinary voting rights for the
election of directors and in respect of other corporate matters, each share
being entitled to one vote. There are no cumulative voting rights, meaning
that the holders of a majority of the Shares voting for the election of
directors can elect all the directors if they choose to do so. The Common Stock
carries no preemptive rights and is not convertible, redeemable, assessable, or
entitled to the benefits of any sinking fund. The holders of Common Stock are
entitled to dividends in such amounts and at such times as may be declared by
the Board of Directors out of funds legally available therefor. See " Market
Price for Common Stock and Dividend Policy" for information regarding dividend
policy. Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company available after payment or provision for payment of all debts and other
liabilities, subject to the prior rights of any outstanding Preferred Stock.
PREFERRED STOCK The Board of Directors of the Company is empowered, without
approval of the stockholders, to cause Shares of Preferred Stock to be issued
in one or more series, with the numbers of Shares of each series to be
determined by it. The Board of Directors is authorized to fix and determine
variations in the designations, preferences, and relative, optional or other
special rights (including, without limitation, special voting rights,
preferential rights to receive dividends or assets upon liquidation, rights
of Conversion into Common Stock or other securities, redemption provisions
and sinking fund provisions) between series and between the Preferred Stock
or any series thereof and the Common Stock, and the qualifications, limitations
or restrictions of such rights; and the Shares of Preferred Stock or any series
thereof may have full or limited voting powers or be without voting powers.
Although the Company has indicated that it has no present intention to issue
Shares of Preferred Stock, the issuance of Shares of Preferred Stock or the
issuance of rights to purchase such Shares, could be used to discourage an
unsolicited acquisition proposal. For instance, the issuance of a series of
Preferred Stock might impede a business combination by including class voting
rights that would enable the holders to block such a Conversion; or such
issuance might facilitate a business combination by including voting rights
that would provide a required percentage vote of the stockholders. In addition,
under certain circumstances, the issuance of Preferred Stock could adversely
affect the voting power of the holders of the Common Stock. Although the Board
of Directors is required to make any determination to issue such stock based on
its judgments as to the best interests of the stockholders of the Company, the
Board of Directors could act in a manner that would discourage an acquisition
attempt or other Conversion that some or a majority of the stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then market price of such stock. The Board of
Directors does not at present intend to seek stockholder approval prior to any
issuance of currently authorized stock.
SHARE TRANSFER RESTRICTIONS
The Company intends to hereby register all Shares issued in the connection with
the Plan as well as other shares. Accordingly, if the securities registration
is declared effective by the SEC and state securities administrators,
substantially all of the Company Shares then issued and outstanding would be
freely tradable in market transactions, other then Shares held by affiliates,
which will remain subject to volume limits. To assist the Company in attempting
to maintain an orderly trading market, TPL, its members, and certain of their
affiliates (the "Restricted Persons"), have agreed to restrict their right to
transfer their Shares in market transactions.
The Restricted Persons have entered into a Share Transfer Restriction
Agreement whereby they have agreed to limit their collective sales of Company
Shares in market transactions to an aggregate of 50,000 Shares per calendar
month. This means that all of the Restricted Persons, as a group, may not sell
more than 50,000 Company Shares in market transactions in any calendar month.
The following persons who are currently stockholders of the Company have agreed
to restrict their transfer of Shares following the Effective Date:
Number of
Restricted Persons Restricted Shares
Andrew J. Kandalepas 5,000
Technology Partners 237,471
K & L Trust 235,800
Northfield Technology Group 3,283,000
DNS Escrow Trust 2,392,000
Virtual Technology LTD. 2,133,000
Marinis Loukas Trust 2,032,500
Fox Investment Co. 1,367,000
Hyacinth Resources, Inc. 300,000
Patriotes Fund Escrow 300,000
Metamorphosis Tou Soteros 250,000
Maloha Trust 225,000
October 1994 Redemption Trust Fund 195,000
Andrew J. Kandalepas TTEE 2,939,167
Others 838,137
----------
TOTAL 16,733,075
The Share Transfer Restriction Agreement has a term of two (2) years commencing
on the Effective Date of the Plan. The restriction on transfers is limited to
public market transactions effected through a broker-dealer. There are no
restrictions on privately negotiated transactions which are not effected
through a broker-dealer, provided however, that the transferee agrees to be
bound by the terms and conditions of the Share Transfer Restriction Agreement.
In addition to the Share Transfer Restriction Agreement described above, Alan
S. K. Yong has entered into an agreement to limit his sales of shares to not
more than 10,000 per month. Such restriction terminates twenty-four (24) months
from the confirmation of the Plan.
TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the
Company's Shares is American Stock Transfer and Trust Company, 40 Wall Street,
New York, NY 10005 (212) 936-5100.
PLAN OF DISTRIBUTION
The Company is registering 24,770,179 Shares of Common Stock for the Selling
Stockholders. All costs, expenses and fees (estimated to be not more then
$44,000) in connection with the registration of the Shares offered hereby, will
be borne by the Company. Brokerage commissions, if any, attributable to the
sale of the Shares by the Selling Stockholders will be borne by the Selling
Stockholders. The Company will not receive any proceeds from the sale of Shares
by Selling Stockholders.
The Selling Stockholders' sale of Shares may be effective from time to time in
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, or a combination of such methods of sale,
or at negotiated prices. The Selling Stockholders may also transfer a portion
of their Shares registered pursuant to this Prospectus by way of a gift or
other gratuitous transactions.
The Selling Stockholders may effect transactions by selling Shares directly to
purchasers or to or though broker-dealers which may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both. The Selling Stockholders and any
broker-dealers that act in connection with the sale of the Shares might be
deemed to be "underwriter' within the meaning of Section 2(11) of the
Securities Act and any commissions received by them and any profit on the
resale of the Shares as principal might be deemed to be underwriting discounts
and commissions under the Securities Act.
Because the Selling Stockholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the Selling Stockholders will
be subject to prospectus delivery requirement under the Securities Act.
Furthermore, in the event of a "distribution" of his or her Shares, such
Selling Stockholders, any selling broker or dealer and any "affiliated
purchasers" may be subject to Rule 10b-6 under the Exchange Act until his or
her participation in the distribution is completed. In addition, Rule 10b-7
under the Exchange Act prohibits any "stabilizing bid" or "stabilizing
purchase" for the purpose of pegging, fixing or stabilizing the price of Common
Stock in connection with the offering.
There is no assurance that the Selling Stockholders will be able to sell all or
any of the Shares offered hereby.
SELLING STOCKHOLDERS
The shares to be registered hereunder were issued in accordance with the Third
Amended Plan of Reorganization and a private placement during 1996. Certain of
these shares have registration rights. See "Description of Capital Stock". The
shares are being registered to remove their restricted status under the 1933
Act. Although the Selling Stockholders have not advised the Company that they
currently intend to sell Shares, pursuant to this registration the Selling
Stockholders may choose to sell all or 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 Stockholders include approximately 413 private and institutional
investors. Shares registered for persons who are or have been affiliates of
the Company or who hold more than five percent of the outstanding Common Stock
are as follows: Andrew J. Kandalepas, Jeffrey L. Goldberg, Wm. Paul Bunnell,
Technology Partners, L.L.C., Northfield Technology Group L.L.C., DNS Escrow
Trust, Virtual Technology Ltd., and Tiedemann/Economos Global Emerging Growth
L.F.; Transfers of Shares by these parties are restricted by lock up agreements
described above in "Share Transfer Restriction".
Registered
Beneficially Beneficially Shares
Beneficially Owned Owned Beneficially
Owned Shares to be Shares to be Owned
Shares Registered Sold After Registration
Number % Number % Number Number %
- -------------------------------------------------------------------------------
Dauphin Technology
Inc. Reserve
Shares 15,096,243 38% 15,096,243 38% 0 15,096,243 38%
Tiedemann/Economos
Global Emerging
Growth L.F. 4,200,000 11% 4,200,000 11% 0 4,200,000 11%
Northfield
Technolgy Group 3,283,000 8% 3,283,000 8% 0 3,283,000 8%
Kandalepas, Andrew J. ,
Declaration
of Trust 2,939,167 7% 2,939,167 7% 0 2,939,167 7%
DNS Escrow Trust 2,392,000 6% 2,392,000 6% 0 2,392,000 6%
Virtual
Technology
Limited 2,133,000 5% 2,133,000 5% 0 2,133,000 5%
Marinis Loukas
Trust 2,032,500 5% 2,032,500 5% 0 2,032,500 5%
Fox Investment
Co. 1,367,000 3% 1,367,000 3% 0 1,367,000 3%
Lionville MFG.
Corp, C/O Chuhak
& Tecson P.C. 453,700 1% 453,700 1% 0 453,700 1%
Yong, Lucy 319,289 1% 319,289 1% 0 319,289 1%
Hyacinth
Resources, Inc. 300,000 1% 300,000 1% 0 300,000 1%
Patriotes Fund
Escrow 300,000 1% 300,000 1% 0 300,000 1%
Yong, Lucy 296,926 1% 296,926 1% 0 296,926 1%
Metamorphosis Tou
Soteros 250,000 1% 250,000 1% 0 250,000 1%
Technology
Partners, LLC 237,471 1% 237,471 1% 0 237,471 1%
K&L Trust 235,800 1% 235,800 1% 0 235,800 1%
Maloha Trust,
Dimitrios N.
Lekkos, Trustee 225,000 1% 225,000 1% 0 225,000 1%
Inspectech Corp 224,693 1% 224,693 1% 0 224,693 1%
Prokos, Andrew 200,000 1% 200,000 1% 0 200,000 1%
October 1994
Redemption Trust
Fund 195,000 0% 195,000 0% 0 195,000 0%
Dimitropoulos,
Angelo 170,857 0% 150,000 0% 0 170,857 0%
Senglaub, Jeffrey 169,643 0% 169,643 0% 0 169,643 0%
Jones, Rick G. 133,155 0% 133,155 0% 0 133,155 0%
Douros, John 122,000 0% 122,000 0% 0 122,000 0%
Mikroulis,
Anastasios 96,786 0% 96,786 0% 0 96,786 0%
Yong, Alan 79,723 0% 79,723 0% 0 79,723 0%
Murphy, Margaret J. 66,965 0% 66,965 0% 0 66,965 0%
Messineo, Leonard, TTEE,
Leonard E. Messineo
Revocable Trust 65,000 0% 65,000 0% 0 65,000 0%
Swislow, Sidney, TTEE
of the Sidney
Swislow Trust
UA Dated 9/10/87 65,000 0% 65,000 0% 0 65,000 0%
Pierce, J. Brian 60,000 0% 60,000 0% 0 60,000 0%
Watson, John V. 54,643 0% 54,643 0% 0 54,643 0%
Hiotos Hrysikos
Building 50,108 0% 50,108 0% 0 50,108 0%
ASIC Designs Inc. 50,000 0% 50,000 0% 0 50,000 0%
Huang, Nick, Trustee
for David Yong 50,000 0% 50,000 0% 0 50,000 0%
Klose, Clifford F.
Trust IRA 50,000 0% 50,000 0% 0 50,000 0%
Wongs Electronics
Inc. 50,000 0% 50,000 0% 0 50,000 0%
Yong, Caroline 50,000 0% 50,000 0% 0 50,000 0%
Erwin, Lisa M. 44,643 0% 44,643 0% 0 44,643 0%
Ferguson, Kirk 44,643 0% 44,643 0% 0 44,643 0%
Jachec, Lawrence 44,643 0% 44,643 0% 0 44,643 0%
Mayer, Harold M. 44,643 0% 44,643 0% 0 44,643 0%
Phillips, Jerry A. 44,643 0% 44,643 0% 0 44,643 0%
Rutkowski,
Barbara Ann 44,643 0% 44,643 0% 0 44,643 0%
Wong's Electronics
Inc. 41,882 0% 41,882 0% 0 41,882 0%
Forman, Franklin &
Joan, JTWROS 41,779 0% 41,779 0% 0 41,779 0%
Darraugh, Mike P. 35,715 0% 35,715 0% 0 35,715 0%
Felger, Joseph &
Carol A., JTWROS 35,715 0% 35,715 0% 0 35,715 0%
Tzortzis, John &
Jane 35,000 0% 35,000 0% 0 35,000 0%
Kandalepas, Andrew 35,000 0% 5,000 0% 0 35,000 0%
Michel, James E.,
TTEE, James E.
Michel Trust 33,333 0% 33,333 0% 0 33,333 0%
Cadserv Corp 30,804 0% 30,804 0% 0 30,804 0%
Delaware Charter
Trust Co. FBO
Jane Rodgers IRA 30,000 0% 30,000 0% 0 30,000 0%
Dellis, Steve 30,000 0% 30,000 0% 0 30,000 0%
Larsen, Donald 30,000 0% 30,000 0% 0 30,000 0%
Phoenix Technologies28,490 0% 28,490 0% 0 28,490 0%
Nickerson,
Orlando E. 26,786 0% 26,786 0% 0 26,786 0%
Mitsumi
Electronics Corp 25,399 0% 25,399 0% 0 25,399 0%
Lakeshore Consulting22,322 0% 22,322 0% 0 22,322 0%
Voutiritsas, Nick D.22,322 0% 22,322 0% 0 22,322 0%
Shipley, Richard W. (TR)
Fragments, Inc.
Pft Shg Pln #001 22,000 0% 22,000 0% 0 22,000 0%
Velavidas, Jim 21,333 0% 21,333 0% 0 21,333 0%
Yong, Alan 21,324 0% 21,324 0% 0 21,324 0%
Vasilopoulos,
Gust P. 20,200 0% 20,200 0% 0 20,200 0%
MFG & Maintenance
System 19,055 0% 19,055 0% 0 19,055 0%
Baumann, Angela & Denapoli,
Phillip, JTWROS 17,858 0% 17,858 0% 0 17,858 0%
Enriquez, Rick F. 17,858 0% 17,858 0% 0 17,858 0%
Lutheran Church of
Redeemer 17,858 0% 17,858 0% 0 17,858 0%
McMahon, James F. 17,858 0% 17,858 0% 0 17,858 0%
Schuhknecht, Wesley
H.& Joseph, JTWROS 17,858 0% 17,858 0% 0 17,858 0%
Steckel, Iven H. 17,858 0% 17,858 0% 0 17,858 0%
Duval, Casimir J. 17,000 0% 17,000 0% 0 17,000 0%
Huberfel, Robert 15,727 0% 15,727 0% 0 15,727 0%
Patti, Robert 15,727 0% 15,727 0% 0 15,727 0%
Microsoft Corp. 15,112 0% 15,112 0% 0 15,112 0%
Baron, Victor 15,000 0% 15,000 0% 0 15,000 0%
Schak, Donald 15,000 0% 15,000 0% 0 15,000 0%
Sears Logistic
Services 14,644 0% 14,644 0% 0 14,644 0%
Terminal Handling D/B/A
Sears Logistics
Services 13,624 0% 13,624 0% 0 13,624 0%
Collins, Roger L & Sandra
R, JTWROS 13,393 0% 13,393 0% 0 13,393 0%
Tumilty, James R. & Marlene
A., JTWROS 13,393 0% 13,393 0% 0 13,393 0%
Ashkinazi, Gregory 13,000 0% 13,000 0% 0 13,000 0%
Vreugdenhil, John &
Helen, JTWROS 12,580 0% 8,580 0% 0 12,580 0%
Resources Trust IRA FBO
Richard Farmer 12,000 0% 12,000 0% 0 12,000 0%
H & M Capital Investments,
Inc. 11,167 0% 11,167 0% 0 11,167 0%
Richmond, Thomas E. &
Eleanor, JTWROS 11,000 0% 11,000 0% 0 11,000 0%
Van Hyfte, Robert J.11,000 0% 11,000 0% 0 11,000 0%
Berman, Seymour 10,715 0% 10,715 0% 0 10,715 0%
Defensor, Dennis 10,481 0% 10,481 0% 0 10,481 0%
Rollinge, Dennis 10,481 0% 10,481 0% 0 10,481 0%
Pernini, Robert B. 10,045 0% 10,045 0% 0 10,045 0%
Collins, Thomas 10,000 0% 10,000 0% 0 10,000 0%
Forret, James G. 10,000 0% 10,000 0% 0 10,000 0%
Heydenberk, David D. &
Constance R., JTWROS10,000 0% 10,000 0% 0 10,000 0%
Pragalz, William F. 10,000 0% 10,000 0% 0 10,000 0%
Schramek, Percy J. Revocable Living
Trust DTD 10/22/91 10,000 0% 10,000 0% 0 10,000 0%
Senglaub, James 10,000 0% 10,000 0% 0 10,000 0%
Thanos, Tom 10,000 0% 10,000 0% 0 10,000 0%
Trendel, Sheila A. 10,000 0% 10,000 0% 0 10,000 0%
Baigh, Margie, Cal Central Trust
Bank TTEE FBO 9,900 0% 9,900 0% 0 9,900 0%
Kreider, Larry W. 9,900 0% 9,900 0% 0 9,900 0%
Roberts, Alfred 9,900 0% 9,900 0% 0 9,900 0%
Stofac, Robert L. 9,900 0% 9,900 0% 0 9,900 0%
Yoon, Mi Ran 9,900 0% 9,900 0% 0 9,900 0%
Delaware Charter Trust Co. FBO
Sean Ryan IRA 8,942 0% 8,942 0% 0 8,942 0%
Devlin, Paul A. 8,929 0% 8,929 0% 0 8,929 0%
Schuhknecht, Wesley H.&
Vincent, JTWROS 8,929 0% 8,929 0% 0 8,929 0%
Yacullo, David G. 8,929 0% 8,929 0% 0 8,929 0%
Gillogly, Russell R. 8,801 0% 8,801 0% 0 8,801 0%
Carlson, Terry W. 8,250 0% 8,250 0% 0 8,250 0%
Yong, Alan S. K. 7,864 0% 7,864 0% 0 7,864 0%
Keevins, Edward &
Heidi, JTWROS 7,700 0% 7,700 0% 0 7,700 0%
Meizels, Philip &
Carol, JT 7,700 0% 7,700 0% 0 7,700 0%
Wagner, Dennis J. 7,500 0% 7,500 0% 0 7,500 0%
Ryan, Sean F. 7,465 0% 7,465 0% 0 7,465 0%
Tobias, Eli 6,666 0% 6,666 0% 0 6,666 0%
Baigh, Neal 6,600 0% 6,600 0% 0 6,600 0%
Axarides, Tim & Betty6,000 0% 6,000 0% 0 6,000 0%
Circuit Systems, Inc.6,000 0% 6,000 0% 0 6,000 0%
Dellis, Louis & Karen6,000 0% 6,000 0% 0 6,000 0%
Saramadis, George 6,000 0% 6,000 0% 0 6,000 0%
Oetter, Donald R. 5,800 0% 5,500 0% 0 5,800 0%
Halbreiter, Peter J. 5,500 0% 5,500 0% 0 5,500 0%
Smith, James G. 5,500 0% 5,500 0% 0 5,500 0%
Curtco Publishing 5,490 0% 5,490 0% 0 5,490 0%
Star Die Molding 5,418 0% 5,418 0% 0 5,418 0%
DeBouvre, Gerald &
Darlene, JTWROS 5,358 0% 5,358 0% 0 5,358 0%
Halicki, Christine 5,246 0% 5,246 0% 0 5,246 0%
Plahm, David 5,246 0% 5,246 0% 0 5,246 0%
Radiometrics Midwest 5,173 0% 5,173 0% 0 5,173 0%
Homann, Charles &
Delores, JT 5,081 0% 5,081 0% 0 5,081 0%
Obartuch, Wm Henry II5,081 0% 5,081 0% 0 5,081 0%
Gross, Jeffrey T. &
Joanne E., JTWROS 5,023 0% 5,023 0% 0 5,023 0%
Appert, David 5,000 0% 5,000 0% 0 5,000 0%
Manolis, Thomas K. 5,000 0% 5,000 0% 0 5,000 0%
OSL Orthopedic
Surgery Limited 5,000 0% 5,000 0% 0 5,000 0%
Patras, James 5,000 0% 5,000 0% 0 5,000 0%
Mitsul Comtex Corp 4,997 0% 4,997 0% 0 4,997 0%
Penright Inc./Telxon 4,574 0% 4,574 0% 0 4,574 0%
Merisel 4,506 0% 4,506 0% 0 4,506 0%
Baerson, Charles 4,465 0% 4,465 0% 0 4,465 0%
Deerbrook Travel 4,465 0% 4,465 0% 0 4,465 0%
Johnson, Jr.,
Grant H. 4,465 0% 4,465 0% 0 4,465 0%
Kaskel, Leonard 4,465 0% 4,465 0% 0 4,465 0%
Patel, Bhupen D. & Meena
B., JTWROS 4,465 0% 4,465 0% 0 4,465 0%
Richards, Gregory S. 4,465 0% 4,465 0% 0 4,465 0%
Rubin, Scott A. & Desnet,
Holly D., JTWROS 4,465 0% 4,465 0% 0 4,465 0%
Witonski, Daniel M. &
Shirley, JTWROS 4,465 0% 4,465 0% 0 4,465 0%
Hersey, James M. 4,400 0% 4,400 0% 0 4,400 0%
Hivon, Mark 4,400 0% 4,400 0% 0 4,400 0%
Majerus, Robert L. 4,400 0% 4,400 0% 0 4,400 0%
Lo, Shiung-Yin 4,108 0% 4,108 0% 0 4,108 0%
Michel, Charlette J. 4,000 0% 4,000 0% 0 4,000 0%
Ministor Peripherals 3,988 0% 3,988 0% 0 3,988 0%
Goulet, Michel 3,841 0% 3,841 0% 0 3,841 0%
Kramer, Francis &
Jean, JTWROS 3,841 0% 3,841 0% 0 3,841 0%
Mann, Michael B. 3,841 0% 3,841 0% 0 3,841 0%
Schottmueller, Werner3,520 0% 3,520 0% 0 3,520 0%
Chelios, Tracee 3,333 0% 3,333 0% 0 3,333 0%
Kenyeres, Peter 3,333 0% 3,333 0% 0 3,333 0%
Larmer, Steve 3,333 0% 3,333 0% 0 3,333 0%
Drosos, George 3,300 0% 3,300 0% 0 3,300 0%
Wolln Products Inc 3,176 0% 3,176 0% 0 3,176 0%
Stotis, Bill George 3,000 0% 3,000 0% 0 3,000 0%
Tackett, Terry L. 3,000 0% 3,000 0% 0 3,000 0%
Telecommunicaitons
Devices Inc 2,893 0% 2,893 0% 0 2,893 0%
Colletier, Pascal &
Barbara, JT 2,750 0% 2,750 0% 0 2,750 0%
Jaskolski, James A. 2,750 0% 2,750 0% 0 2,750 0%
Lockhart, Alex 2,750 0% 2,750 0% 0 2,750 0%
Hansen, Joe 2,500 0% 2,500 0% 0 2,500 0%
Tru-Cut Employees Profit
Sharing Plan 2,500 0% 2,500 0% 0 2,500 0%
Kurta 2,348 0% 2,348 0% 0 2,348 0%
Willie, Scott W. 2,268 0% 2,268 0% 0 2,268 0%
Bates, Marion D. 2,200 0% 2,200 0% 0 2,200 0%
Collins, Thomas N. 2,200 0% 2,200 0% 0 2,200 0%
Danna, Rosalie F. 2,200 0% 2,200 0% 0 2,200 0%
Dodd, Loyal 2,200 0% 2,200 0% 0 2,200 0%
Hivon, Patrick M. 2,200 0% 2,200 0% 0 2,200 0%
Robert W. Baird &
Co. Inc 2,200 0% 2,200 0% 0 2,200 0%
Summers, Richard &
Debra 2,200 0% 2,200 0% 0 2,200 0%
Venetos, John 2,200 0% 2,200 0% 0 2,200 0%
SRT Lab 2,191 0% 2,191 0% 0 2,191 0%
Rosenthal, Howard 2,175 0% 2,175 0% 0 2,175 0%
Chresanthakes, Peter 2,143 0% 2,143 0% 0 2,143 0%
Columbia Graphics 2,089 0% 2,089 0% 0 2,089 0%
Fisher, Donald 2,000 0% 2,000 0% 0 2,000 0%
Fisher, Donald R &
Anna M, JTWROS 2,000 0% 2,000 0% 0 2,000 0%
Hanley, Patrick 2,000 0% 2,000 0% 0 2,000 0%
Joyce, Bernard J. 2,000 0% 2,000 0% 0 2,000 0%
Kourtis, Peter 2,000 0% 2,000 0% 0 2,000 0%
Stotis, George 2,000 0% 2,000 0% 0 2,000 0%
Taylor, Jr., Reuben W., TTEE, Reuben
W Taylor Trust 1,900 0% 1,900 0% 0 1,900 0%
Haberman, Harry &
Margret, JT 1,769 0% 1,769 0% 0 1,769 0%
Milgray Electronics 1,685 0% 1,685 0% 0 1,685 0%
Beyer, Wolfgang 1,667 0% 1,667 0% 0 1,667 0%
Telesystem/Aironet 1,643 0% 1,643 0% 0 1,643 0%
Parker, John E. 1,625 0% 1,625 0% 0 1,625 0%
Trinity Mortgage 1,625 0% 1,625 0% 0 1,625 0%
Belford, Daniel J. 1,524 0% 1,524 0% 0 1,524 0%
Internal Revenue
Service 1,520 0% 1,520 0% 0 1,520 0%
Santa Rita Bottling 1,518 0% 1,518 0% 0 1,518 0%
SCI Mfg 1,472 0% 1,472 0% 0 1,472 0%
LCS Telegraphics 1,427 0% 1,427 0% 0 1,427 0%
Endlichhofer,
Sigfreid 1,361 0% 1,361 0% 0 1,361 0%
Ericsson, GE
Mobile Comm 1,162 0% 1,162 0% 0 1,162 0%
Collins, Nicholas &
Ismene, JTWROS 1,100 0% 1,100 0% 0 1,100 0%
Danna, Rosalie & Kimberly
T Danna-Mulick, JT 1,100 0% 1,100 0% 0 1,100 0%
Eckwall, Donald W. 1,100 0% 1,100 0% 0 1,100 0%
Kenyeres, Peter 1,100 0% 1,100 0% 0 1,100 0%
Armonis, John 1,050 0% 1,050 0% 0 1,050 0%
Aspen, Robert J. 1,016 0% 1,016 0% 0 1,016 0%
Hanifen Imhoff
Clearing 1,016 0% 1,016 0% 0 1,016 0%
Watson, Ray 1,016 0% 1,016 0% 0 1,016 0%
Watts, Earl &
Lova, JT 1,016 0% 1,016 0% 0 1,016 0%
Antonakos, Anagyros &
Antonia 1,000 0% 1,000 0% 0 1,000 0%
Barton, John &
Michael, JTWROS 1,000 0% 1,000 0% 0 1,000 0%
Braun, Mark &
Jill, JT 1,000 0% 1,000 0% 0 1,000 0%
Christ Ross Economy 1,000 0% 1,000 0% 0 1,000 0%
Coules, Jr., Peter 1,000 0% 1,000 0% 0 1,000 0%
Cusinier, Francis X 1,000 0% 1,000 0% 0 1,000 0%
Grant, Kathy 1,000 0% 1,000 0% 0 1,000 0%
Lambke, David G. &
Elizabeth O., JTWROS 1,000 0% 1,000 0% 0 1,000 0%
Meizels, Kane, Fox &
Boroian, DDS PC 1,000 0% 1,000 0% 0 1,000 0%
Meizels, Phillip &
Jeffery, JTWROS 1,000 0% 1,000 0% 0 1,000 0%
Munro, William H. 1,000 0% 1,000 0% 0 1,000 0%
Nordheim, Alan &
Willis I., JTWROS 1,000 0% 1,000 0% 0 1,000 0%
Ortiz, Gloria 1,000 0% 1,000 0% 0 1,000 0%
Peters, Ron 1,000 0% 1,000 0% 0 1,000 0%
Rycroft, Mary 1,000 0% 1,000 0% 0 1,000 0%
Shogren, Ronald 1,000 0% 1,000 0% 0 1,000 0%
Swanson, Donald &
Janet, JTWROS 1,000 0% 1,000 0% 0 1,000 0%
Willert, James &
Carol, JTWROS 1,000 0% 1,000 0% 0 1,000 0%
Zouras, Pete 1,000 0% 1,000 0% 0 1,000 0%
UV Tek Corp 947 0% 947 0% 0 947 0%
Future Active Ind Elec.940 0% 940 0% 0 940 0%
O'Neill, Bruce C. 933 0% 933 0% 0 933 0%
Gillogly, Russell R. 907 0% 907 0% 0 907 0%
Scriptel Corp 894 0% 894 0% 0 894 0%
Tech Data Corp 860 0% 860 0% 0 860 0%
Federal Express corp 820 0% 820 0% 0 820 0%
Ameritech 784 0% 784 0% 0 784 0%
LDDS Communications 780 0% 780 0% 0 780 0%
Wireless for the
Corp User 764 0% 764 0% 0 764 0%
Miller, Thomas J. 763 0% 763 0% 0 763 0%
Ultratech Inc 761 0% 761 0% 0 761 0%
Power Sensors Corp 730 0% 730 0% 0 730 0%
Nelson, Terry L. 700 0% 700 0% 0 700 0%
Seagate Technology Inc 657 0% 657 0% 0 657 0%
Sub-Sem Inc 635 0% 635 0% 0 635 0%
J-Tech Metal Products 608 0% 608 0% 0 608 0%
NEC Technologies 608 0% 608 0% 0 608 0%
Airborne Freight Corp 607 0% 607 0% 0 607 0%
Airborne Express 587 0% 587 0% 0 587 0%
Phoenix Co 564 0% 564 0% 0 564 0%
RC Dredge 563 0% 563 0% 0 563 0%
International Data
Products 559 0% 559 0% 0 559 0%
Trimberger, John R. 558 0% 558 0% 0 558 0%
Anderson, Millie C. 550 0% 550 0% 0 550 0%
Eakright, Lee &
Gail, JT 550 0% 550 0% 0 550 0%
Frey, Ann C. 550 0% 550 0% 0 550 0%
Wesley, William W. 550 0% 550 0% 0 550 0%
Metro Graphx Inc. 543 0% 543 0% 0 543 0%
Field Data Systems 537 0% 537 0% 0 537 0%
Assurance Agency Ltd 531 0% 531 0% 0 531 0%
KDA Photo Systems 519 0% 519 0% 0 519 0%
Baurer, Sr., Thomas N. 508 0% 508 0% 0 508 0%
Chellos, Tracee 508 0% 508 0% 0 508 0%
Doyle, Michael J. 508 0% 508 0% 0 508 0%
Hanson, Edward &
Roberta, JT 508 0% 508 0% 0 508 0%
Kenyeres, Peter 508 0% 508 0% 0 508 0%
Monroe, James &
Jeri, JT 508 0% 508 0% 0 508 0%
Van Gorden, Shuyler H. 508 0% 508 0% 0 508 0%
Blinstrup, Karen, C/F Bryan M
Blinstrup UTMA IL 500 0% 500 0% 0 500 0%
Blinstrup, Karen, C/F Ian M
Blinstrup UTMA IL 500 0% 500 0% 0 500 0%
Blinstrup, Karen, C/F Jason M
Blinstrup UTMA IL 500 0% 500 0% 0 500 0%
Blinstrup, Karen, C/F Kyrsten J
Blinstrup UTMA IL 500 0% 500 0% 0 500 0%
Daniels, Thomas E. 500 0% 500 0% 0 500 0%
Gounaris, Jonothan
Glenn 500 0% 500 0% 0 500 0%
Savvakis, Damianos 500 0% 500 0% 0 500 0%
Taylor, Laurent 500 0% 500 0% 0 500 0%
Metal Threads 490 0% 490 0% 0 490 0%
Caseworks of Chicago 464 0% 464 0% 0 464 0%
Ridgemoor Electronics 463 0% 463 0% 0 463 0%
Ball, Derk R. 454 0% 454 0% 0 454 0%
Copot, Stephen & Olga 454 0% 454 0% 0 454 0%
Larmer, Steve 454 0% 454 0% 0 454 0%
South Bay Circuits 449 0% 449 0% 0 449 0%
Hodes & Pilon 442 0% 442 0% 0 442 0%
Huck Bourna Martin 427 0% 427 0% 0 427 0%
Steering Electronics 403 0% 403 0% 0 403 0%
United Parcel Service 402 0% 402 0% 0 402 0%
Karowski, Tony 400 0% 400 0% 0 400 0%
Taylor, Charles E. 400 0% 400 0% 0 400 0%
Taylor, Elizabeth 400 0% 400 0% 0 400 0%
Taylor, William R. 400 0% 400 0% 0 400 0%
PEN Computing Magazine 387 0% 387 0% 0 387 0%
AM Standard Circle 371 0% 371 0% 0 371 0%
Custom Computer 367 0% 367 0% 0 367 0%
Kingston Technology
Inc. 355 0% 355 0% 0 355 0%
Consolidated
Freightways 349 0% 349 0% 0 349 0%
First Colony Life 340 0% 340 0% 0 340 0%
KSO Metalfab Inc 335 0% 335 0% 0 335 0%
Federal Insurance co. 329 0% 329 0% 0 329 0%
Trace Laboratories 311 0% 311 0% 0 311 0%
Helsey, Mulcahy &
Fesler 295 0% 295 0% 0 295 0%
Plumbline Inc 294 0% 294 0% 0 294 0%
Prototec Engineering 294 0% 294 0% 0 294 0%
Max Group 272 0% 272 0% 0 272 0%
Computer City
Super Center 266 0% 266 0% 0 266 0%
Commonwealth Edison 256 0% 256 0% 0 256 0%
Miller, Eleanor 254 0% 254 0% 0 254 0%
Hi-Tech Hut 231 0% 231 0% 0 231 0%
Assembly International 216 0% 216 0% 0 216 0%
Humphrey, Jerrianne 200 0% 200 0% 0 200 0%
Nale, David S. 200 0% 200 0% 0 200 0%
Pen Magazine/Pen World 197 0% 197 0% 0 197 0%
Cameo Container Corp 192 0% 192 0% 0 192 0%
Wyant, Roseda 181 0% 181 0% 0 181 0%
AT&T Capital Services 179 0% 179 0% 0 179 0%
Gamino, David &
Lourdes, JT 179 0% 179 0% 0 179 0%
Mobile Mark, Inc. 175 0% 175 0% 0 175 0%
AFCO 172 0% 172 0% 0 172 0%
Unick, Ervin 172 0% 172 0% 0 172 0%
QPS Electronics 166 0% 166 0% 0 166 0%
Cyrix Corp 163 0% 163 0% 0 163 0%
Maxtor Corp 158 0% 158 0% 0 158 0%
Pyramid
Broadcasting Pub 158 0% 158 0% 0 158 0%
Impression Unlimited 156 0% 156 0% 0 156 0%
East Coast
Concepts corp 152 0% 152 0% 0 152 0%
Omiotek Coil Spring Co 148 0% 148 0% 0 148 0%
Fanning Grafx 140 0% 140 0% 0 140 0%
SND Electronics Inc 138 0% 138 0% 0 138 0%
Niro Scavone
Haller & Niro 137 0% 137 0% 0 137 0%
Chilcott, John C. 133 0% 133 0% 0 133 0%
American Speedy
Printing 128 0% 128 0% 0 128 0%
Details Inc 127 0% 127 0% 0 127 0%
Technology Group Inc 122 0% 122 0% 0 122 0%
Carlson Paint/Glass Art116 0% 116 0% 0 116 0%
Huang, Nai-Yu 115 0% 115 0% 0 115 0%
Timmers, Sr., John C 112 0% 112 0% 0 112 0%
Tumilty, James R. 110 0% 110 0% 0 110 0%
General Electric
Rental Lease 108 0% 108 0% 0 108 0%
Hague, Sidney 100 0% 100 0% 0 100 0%
Yoon, Joseph 100 0% 100 0% 0 100 0%
ANLE Paper Co. 98 0% 98 0% 0 98 0%
Electronic Distributor 97 0% 97 0% 0 97 0%
D & L Offset Lithograph 96 0% 96 0% 0 96 0%
Warehouse Direct 95 0% 95 0% 0 95 0%
AM Stock Transfer Trust 91 0% 91 0% 0 91 0%
Belford Electronics 91 0% 91 0% 0 91 0%
Cadtrack Corp 91 0% 91 0% 0 91 0%
Business Wire 86 0% 86 0% 0 86 0%
Computer Bay 84 0% 84 0% 0 84 0%
KRL/Bantry Components 82 0% 82 0% 0 82 0%
PTC Electronics Prepress76 0% 76 0% 0 76 0%
Business Machine Agent 74 0% 74 0% 0 74 0%
Langas, Peter 74 0% 74 0% 0 74 0%
Century Container Corp 71 0% 71 0% 0 71 0%
Perfect Image 70 0% 70 0% 0 70 0%
Vision Components 70 0% 70 0% 0 70 0%
Abdulghany, Yosu 69 0% 69 0% 0 69 0%
Post Modern Computing 61 0% 61 0% 0 61 0%
Dietrich & Associates 60 0% 60 0% 0 60 0%
Nalwad, Vijendra 60 0% 60 0% 0 60 0%
Hirose Electric USA 57 0% 57 0% 0 57 0%
Looi, Joan 57 0% 57 0% 0 57 0%
Oce Brunning Inc 55 0% 55 0% 0 55 0%
Joseph Electronics 52 0% 52 0% 0 52 0%
Chang, Jesse C K 47 0% 47 0% 0 47 0%
Georgia World Congress 47 0% 47 0% 0 47 0%
Minute Men Press 46 0% 46 0% 0 46 0%
Healthcare Informatics 45 0% 45 0% 0 45 0%
Media Link 45 0% 45 0% 0 45 0%
Chen, Ho-FA 41 0% 41 0% 0 41 0%
AXON Cable Inc. 39 0% 39 0% 0 39 0%
Behna, Remy 36 0% 36 0% 0 36 0%
Quade, Julianne M. 36 0% 36 0% 0 36 0%
JST Corporation 35 0% 35 0% 0 35 0%
Omni Computer Products 35 0% 35 0% 0 35 0%
Tree Town Repo Services 35 0% 35 0% 0 35 0%
Roseville Telephone Co 25 0% 25 0% 0 25 0%
United Ribbon Co 25 0% 25 0% 0 25 0%
Inacom FSG 23 0% 23 0% 0 23 0%
Rubachem Inc 20 0% 20 0% 0 20 0%
Ostrego, Michael M. 18 0% 18 0% 0 18 0%
Quill Corp 18 0% 18 0% 0 18 0%
Abbas, Nidal 15 0% 15 0% 0 15 0%
Deltnet Technology Inc 15 0% 15 0% 0 15 0%
Nu-Horizons Elec Corp 15 0% 15 0% 0 15 0%
Central Supplies 13 0% 13 0% 0 13 0%
Emery Worldwide 13 0% 13 0% 0 13 0%
Knight Protective Ind 13 0% 13 0% 0 13 0%
Vantage Communications 11 0% 11 0% 0 11 0%
Simon & Shuster 10 0% 10 0% 0 10 0%
Victorin Business Machine9 0% 9 0% 0 9 0%
McGraw Hill Publiching 7 0% 7 0% 0 7 0%
Pitney Bowes Credit Corp 7 0% 7 0% 0 7 0%
B&H Industries 6 0% 6 0% 0 6 0%
Dean Witter Reynolds 5 0% 5 0% 0 5 0%
DHL Airway 5 0% 5 0% 0 5 0%
EZI America Corp 4 0% 4 0% 0 4 0%
Philadelphia Depository
Trust Co 4 0% 4 0% 0 4 0%
Zalud Motor Express 4 0% 4 0% 0 4 0%
Homann, Charles &
Delores JTWROS 3 0% 3 0% 0 3 0%
Lep Profit Int'l 3 0% 3 0% 0 3 0%
Obartuch, Wm Henry II 3 0% 3 0% 0 3 0%
PCS Special Interest GP 3 0% 3 0% 0 3 0%
TNT Skypak 3 0% 3 0% 0 3 0%
John V. Carr & Sons 2 0% 2 0% 0 2 0%
Aspan, Robert J. 1 0% 1 0% 0 1 0%
Commscan 1 0% 1 0% 0 1 0%
PBB USA Inc 1 0% 1 0% 0 1 0%
Peace International 1 0% 1 0% 0 1 0%
Tape Products 1 0% 1 0% 0 1 0%
Tobias, Eli 1 0% 1 0% 0 1 0%
---------- ---------- ----------
39,921,579 39,866,422 39,921,579
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock offered
hereby have been passed upon for the Company by Rieck and Crotty, P.C., Chicago,
Illinois. Reick and Crotty , P.C. own 2,000 Shares of Common Stock and the
Rieck and Crotty, P.C. Profit Sharing Plan owns 5,000 Shares of Common Stock.
EXPERTS
The audited financial statements of the Company included in this Prospectus and
appearing in registration statement, have been by Arthur Andersen LLP
independent public accountants. Their reports thereon appear elsewhere herein
and in the registration statement, and are included in reliance upon the
authority of such firm as experts in giving said reports.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants
F-2 Debtor-in-Possession Balance Sheets as of December 31, 1994 and 1995 and
June 30, 1996 (Unaudited)
F-3 Debtor-in-Possession Statements of Operations for the Years Ended December
31, 1993, 1994 and 1995 and the Six Months Ended June 30, 1995 (Unaudited)
and June 30, 1996 (Unaudited)
F-4 Debtor-in-Possession Statements of Stockholders' Equity (Deficit) for the
Years Ended December 31, 1993, 1994 and 1995 the Six Months Ended June 30,
1996 (Unaudited)
F-5 Debtor-in-Possession Statements of Cash Flows for the Years Ended December
31, 1993, 1994 and 1995 and the Six Months Ended June 30, 1995 (Unaudited)
and June 30, 1996 (Unaudited)
F-6 Notes to Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of
Dauphin Technology, Inc.:
We have audited the accompanying debtor-in-possession balance sheets of DAUPHIN
TECHNOLOGY, INC. (an Illinois corporation) as of December 31, 1994 and 1995, and
the related debtor-in-possession statements of operations, shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dauphin Technology, Inc. as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced
significant recurring losses from operations, and has a net capital deficiency
of $50,910,187 at December 31, 1995. In addition, as described in Note 2 to
the accompanying financial statements, in January, 1995, the Company filed a
voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code.
These matters, among others, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters, including a Plan of Reorganization, are also described in Note 2. In
the event a Plan of Reorganization is accepted, continuation of the business
thereafter is dependent on the Company's ability to achieve successful future
operations. The accompanying financials do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 15, 1996
DAUPHIN TECHNOLOGY, INC.
(debtor-in-possession)
BALANCE SHEETS
December 31, June 30,
1994 1995 1996
(unaudited)
CURRENT ASSETS:
Cash $ - $ 92,604 $ 374,260
Accounts receivable-
Trade 44,676 5,791 9,336
Other (Note 2) - 167,266 312
Prepaid Expenses - - 9,189
Inventory, net 113,786 91,142 2,665,072
----------- ----------- -----------
Total current assets 158,462 356,803 3,058,169
PROPERTY AND EQUIPMENT,
net of accumulated depreciation
of $78,537, $78,516 and $92,583
(unaudited) at December 31, 1994,
1995 and June 30, 1996
respectively 139,632 69,690 93,169
------------ ----------- ------------
Total assets $ 298,094 $ 426,493 $3,151,338
============ =========== ============
LIABILITIES NOT SUBJECT TO COMPROMISE-CURRENT LIABILITIES:
Accounts payable and accrued
expenses $ - $ 252,228 $ 142,214
Short-term borrowings - 759,947 -
Bank overdraft 1,299 - -
------------ ----------- ------------
Total liabilities not subject
to compromise-
current liabilities 1,299 1,012,175 142,214
------------ ----------- ------------
LIABILITIES SUBJECT TO COMPROMISE:
Accounts payable 11,186,395 11,186,395 -
Short-term borrowings 46,500 46,500 -
Accrued purchase commitment 32,977,790 32,977,790 -
Accrued liabilities 617,898 617,898 -
Debentures payable 317,500 317,500 -
Advances from related
parties (Note 11) 208,422 208,422 -
Claim payable 4,970,000 4,970,000 -
------------ ----------- ------------
Total liabilities
subject to compromise 50,324,505 50,324,505 -
------------ ----------- ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par
value, 10,000,000 shares
authorized but unissued - - -
Common stock, $.001 par value,
100,000,000 shares authorized;
14,408,354 shares issued and
outstanding at December 31, 1994
and 1995, and 29,015,496 shares
outstanding at June 30,
1996 (unaudited) 14,408 14,408 29,015
Paid-in capital 5,232,597 5,144,932 21,490,325
Accumulated equity deficit (55,274,715) (56,069,527) (18,510,216)
------------ ------------ ------------
Total shareholders'
equity (deficit) (50,027,710) (50,910,187) 3,009,124
------------ ------------ ------------
Total liabilities and
shareholders' equity (deficit) $ 298,094 $ 426,493 $ 3,151,338
============ ============ ===========
The accompanying notes are an integral part of these balance sheets.
DAUPHIN TECHNOLOGY, INC.
(debtor-in-possession)
STATEMENTS OF OPERATIONS
Years Ended December 31, Six Months Ended June 30,
1993 1994 1995 1995 1996
(unaudited) (unaudited)
REVENUES-sales of
computers and
accessories, net
(Notes 1, 2 and 3) $23,560,986 $9,603,021 $183,083 $147,913 $23,154
COST OF SALES 22,004,922 47,867,060 93,852 74,853 12,655
----------- ------------ --------- --------- --------
Gross profit (loss) 1,556,064 (38,264,039) 89,231 73,060 10,499
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 3,436,276 4,953,588 681,335 231,848 320,533
RESEARCH AND
DEVELOPMENT EXPENSE 1,402,801 937,029 22,388 - -
LITIGATION SETTLEMENT - 4,934,985 - - -
INTEREST EXPENSE 115,142 82,943 - - -
----------- ---------- --------- --------- --------
Loss before reorganization
items, income taxes and
extraordinary item (3,398,155) (49,172,584) (614,492) (158,788) (310,034)
REORGANIZATIONAL ITEMS:
Professional fees - - 180,320 79,751 196,028
----------- ----------- --------- -------- --------
Loss before income
taxes and
extraordinary item (3,398,155) (49,172,584) (794,812) (238,593) (506,062)
INCOME TAXES (Note 9) - - - - -
EXTRAORDINARY ITEM net
of income taxes of $0 - - - - 38,065,373
----------- ----------- --------- -------- -----------
Net loss $(3,398,155)$(49,172,584) $(794,812)$(238,593)$37,559,311
EARNINGS PER COMMON SHARE
Loss Before
extraordinary item (0.24) (3.41) (0.06) (0.01) (0.03)
Extraordinary item - - - - 1.98
--------- ---------- -------- -------- ---------
Income(Loss) per
common share ($0.24) ($3.41) ($0.06) ($0.01) $1.95
The accompanying notes are an integral part of these statements.
DAUPHIN TECHNOLOGY, INC.
(debtor-in-possession)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
BALANCE, December 31, 1992
13,570,901 $13,571 $3,352,772 $(2,703,976) $662,367
Exchange and conversion of
warrants
outstanding 413,380 413 431,757 - 432,170
Issuance of
common stock 424,073 424 1,218,259 - 1,218,683
Contribution of
capital by
shareholder - - 88,168 - 88,168
Compensatory effect
of stock options
granted, net - - 146,618 - 146,618
Net loss - - - (3,398,155) (3,398,155)
---------- ------- ----------- ----------- ---------
BALANCE, December 31,
1993 14,408,354 14,408 5,237,574 (6,102,131) (850,149)
Contribution of capital
by shareholder - - 93,132 - 93,132
Reverse accumulated
compensatory effect of
stock options granted,
net - - (98,109) - (98,109)
Net loss - - - (49,172,584)(49,172,584)
---------- ------- ----------- ----------- ----------
BALANCE, December 31,
1994 14,408,354 14,408 5,232,597 (55,274,715)(50,027,710)
Reverse accumulated
compensatory effect of
stock options granted,
net - - (87,665) - (87,665)
Net loss - - - (794,812) (794,812)
---------- ------ ------------ ---------- ---------
BALANCE, December 31,
1995 14,408,354 14,408 5,144,932(56,069,527)(50,910,187)
Issuance of Common Stock in Connection with:
Private Placement
(unaudited) 357,142 357 399,643 - 400,000
Purchase of Inventory
(unaudited) 2,600,000 2,600 2,909,400 - 2,912,000
Bankruptcy Conversion
(unaudited) 11,650,000 11,650 13,036,350 - 13,048,000
Net Income for the Period
(unaudited) - - - 37,559,311 37,559,311
---------- ------ ------------ ---------- ----------
BALANCE, June 30, 1996
(unaudited) 29,015,496 $29,015 $21,490,325$(18,510,216)$3,009,124
The accompanying notes are an integral part of these statements.
DAUPHIN TECHNOLOGY, INC.
(debtor-in-possession)
STATEMENTS OF CASH FLOWS
Years Ended December 31, Six Months Ended June 30,
1993 1994 1995 1995 1996
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,398,155) $(49,172,584) $(794,812) $(238,539) $37,559,311
Noncash items included in net loss-
Loss on disposition of property
and equipment - 434,874 41,053 - -
Depreciation and
amortization 571,149 710,516 39,698 30,000 14,067
Extraordinary
item - - - - (38,065,373)
Compensatory effect of stock
options earned 146,618 (98,109) (87,665) (87,665) -
Changes in-
Accounts
receivable (104,079) 4,590,050 (128,381) 32,868 (3,545)
Inventory, net (8,337,512) 8,527,314 22,644 57,511 10,197
Prepaid software and other
current assets (728,773) 1,255,499 - (1,667) (9,189)
Other assets (3,650) 40,951 - - 166,945
Bank overdraft - 1,299 (1,299) (1,299) -
Accounts payable, accrued expenses and claims
payable 10,649,343 34,416,231 252,228 206,055 (110,015)
Net cash provided by (used for) operating
activities (1,205,059) 706,041 (656,534) (2,736) (437,602)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture,
net (284,898) (53,116) (10,809) - (37,546)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term
borrowing 350,495 (615,941) 759,947 169,000 356,804
Contribution of capital by
shareholders - 93,132 - - -
Proceeds from issuance of common
shares 1,095,853 - - - 400,000
Advances from (payments to) related parties,
net (83,196) (164,260) - - -
Net cash provided by (used in) financing
activities 1,363,152 (687,069) 759,947 169,000 756,804
NET CHANGE IN
CASH (126,805) (34,144) 92,604 166,264 281,656
CASH, beginning
of year 160,949 34,144 - - 92,604
CASH, end of
year $ 34,144 $ - $ 92,604 $ 166,264 $ 374,260
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 111,816 $ 82,943 $ - $ - $ -
Income taxes paid - - - - -
Reorganization costs
paid - - 180,320 - 165,670
NONCASH TRANSACTIONS:
Common stock issued in payment of-Accounts
payable $ 400,000 $ - $ - $ - $ -
Notes payable 155,000 - - - -
Contributed common stock used for payment of
accounts payable 88,168 - - - -
Stocks for inventory
exchange - - - - 2,584,127
The accompanying notes are an integral part of these statements.
DAUPHIN TECHNOLOGY, INC.
(debtor-in-possession)
NOTES TO FINANCIAL STATEMENTS
(Data with respect to six months ended June 30, 1995 and 1996 are unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Dauphin Technology, Inc. (the "Company") was founded to design, manufacture and
market mobile computing systems, including laptop, notebook, handheld and pen-
based computers, components and accessories. Historically, the Company marketed
directly and through other distribution channels to both the commercial and
government market segments.
In the opinion of management, the financial statements for the six month period
ended June 30, 1995 and 1996 are presented on a basis consistent with the
audited financial statements and contain all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation. The results of
operations for the interim periods are not necessarily indicative of results
for the full year.
Basis of Presentation
On January 3, 1995, the Company filed petitions for relief under Chapter 11 of
the federal bankruptcy laws in the United States Bankruptcy Court for the
Northern District of Illinois Eastern Division. During 1995, the Company
operated under Chapter 11 and without an approved Plan of Reorganization.
The accompanying financial statements have been prepared on the basis of
accounting principles applicable to a going concern that presume the
realization of assets and the settlement of liabilities in the ordinary course
of business, rather than through a process of forced liquidation. Accordingly,
the statements do not purport to present the realizable values of all assets or
the settlement amounts of all liabilities.
Under Chapter 11, certain claims against the Company in existence prior to the
filing of the petitions for relief under the federal bankruptcy laws are stayed
while the Company continues business operations as debtor-in-possession. These
claims are reflected in the December 31, 1995 and 1994, balance sheets as
"liabilities subject to compromise." Additional claims (liabilities subject
to compromise) may arise subsequent to the filing date resulting from rejection
of executory contracts, including leases, and from the determination by the
court (or agreed to by parties in interest) of allowed claims for contingencies
and other disputed amounts. The ultimate settlement amount of these claims
could differ from the reported amounts.
2. LIQUIDITY:
1994 Events
For the year ended December 31, 1994, the Company had a net loss of $49,172,584.
Of this loss, $32,977,790 was the result of accruing a purchase commitment to
an equipment manufacturer (see Note 3), $4,934,985 was the result of the
settlement of a claim against the Company (see Note 4), $1,712,959 was the
result of a write-down of inventory, $672,000 from the write-down of prepaid
software costs and $435,000 was the result of bad debts. Historically,
operating deficiencies were funded with capital contributions, debt financing
and sale of common stock and subordinated debentures. During the current
year, the Company was unable to use these conventional methods of financing
and, on April 4, 1994, the Company signed a series of agreements
("Restructuring Documents") (see Note 3) with its equipment manufacturer.
These documents allowed the Company to sell equipment and use the proceeds to
fund its operations and delay the payment to the equipment manufacturer.
They also allowed the equipment manufacturer to sell excess inventory in its
possession and to recall unsold inventory in the Company's possession. During
the third quarter, the equipment manufacturer sold 13,500 units of DTR-1 at
prices far below the Company's cost. Of these units, 11,000 were from the
equipment manufacturer's excess inventory and 2,500 were recalled from the
Company. This transaction created a serious problem for the Company since it
reduced its inventory of DTR-1 units to 800 units and established a new market
price for these units far below the Company's cost.
In July of 1994, the Company introduced the DTR-2. This product improves upon
the DTR-1 but is still a vertical market product, which means the sales cycle
is long and sales, if any, will be application specific. The Company was able
to have manufactured a small number of preproduction units. These units were
either used as test units to debug the product or sold as trial units.
During the fourth quarter, the Company sold the majority of its finished goods
inventory but was unable to generate enough cash flow to meet its operating
expenses. It was also unable to meet its obligations under the "Restructuring
Documents", its obligations under the claim settlement agreement and its
obligation to retire the debentures.
On December 31, 1994, the Company had a cash deficit and less than $160,000
of accounts receivable and inventory.
1995 Events
On January 3, 1995, the Company filed a petition for relief under Chapter 11
of the Federal Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Illinois Eastern Division. During 1995, the Company
operated under Chapter 11 and without an approved Plan of Reorganization.
On January 19, 1995, the Court entered an order authorizing the Company to use
International Business Machines Corporation's ("IBM") cash collateral pursuant
to the terms set forth in the order. Despite its continued use of 100% of the
cash collateral, the Company did not have sufficient funds to continue
operations or to proceed with its reorganization. On March 31, 1995, all
employees were terminated and all remaining assets were put in storage while
the Company pursued potential debtor-in-possession financing. In an attempt
to save the Company, Technology Partners L.L.C. ("TPL") purchased IBM's claim.
On June 20, 1995, the Court entered an order approving an employment agreement
between the Company, Alan Yong, its majority shareholder, Kevin Koy and Andy
Kandalepas. The terms of the employment agreement are as follows:
Term--One year with automatic successive one-year renewals unless either party
gives one month prior written notice of an intention not to renew.
Compensation--Annual rate of $70,000 for the first three months, increasing to
an annual rate of $150,000 in the fourth month. The Company granted Yong
options to purchase 700,000 shares of stock at $0.75 a share. These options
may be exercised 12 months from the time they are registered.
Purchase Inventory from Executive--The Company will purchase inventory valued
at $50,000 over a five-month period at $10,000 per month.
Executive's Stock--Mr. Yong and his family transferred 8,000,000 shares of the
Company's stock to the designee of TPL pursuant to certain transfer provisions.
As of July 15, 1995, all the transfer provisions had been met and the shares
have been transferred. After this transaction, there is a change in control
of the Company.
On October 11, 1995, the Company, TPL, the directors, officers and employees of
both organizations, including but not limited to Kevin Koy and Andrew Kandalepas
as guarantors and Alan Yong entered into a settlement and general release of the
above employment agreement. Alan Yong was in possession of certain assets of
the Company with an approximate cost of $60,000. As part of the consideration
for this agreement, the Company grants title to and conveys ownership of the
equipment currently held by Yong to Yong.
On July 10, 1995, the Bankruptcy Court entered an Order approving debtor-in-
possession financing between the Company and TPL. The terms of the facility
are as follows:
General Terms--TPL will make available for the Company's use from time to time
during the term, loans not to exceed $400,000, in the aggregate, to be used by
the Company for general working capital purposes.
Interest--11% per annum for actual days elapsed on a 360-day year basis.
Interest shall be paid monthly. After a continuing event of default, the
interest rate shall be equal to 14%.
Term--12 months.
Security--All assets and tangible and intangible property of the Company.
On November 16, 1995, the Bankruptcy Court entered an Interim Order approving
additional debtor-in-possession financing between the Company and TPL. The
terms of the facility are as follows:
General Terms--TPL will make available for the Company's use from time to time
during the term, loans not to exceed $150,000, in the aggregate, to be used by
the Company for general working capital purposes.
Interest--11% per annum for actual days elapsed on a 360-day year basis.
Interest shall be paid monthly. After a continuing event of default, the
interest rate shall be equal to 14%.
Term--12 months.
Security--All assets and tangible and intangible property of the Company.
On November 30, 1995, the Bankruptcy Court entered an Interim Order approving
debtor-in-possession financing between the Company and Kandila Investments Ltd.
The terms of the facility are as follows:
General Terms--Kandila Investments Ltd. will make available for the Company's
use from time to time during the term, loans not to exceed $500,000, in the
aggregate, to be used by the Company for general working capital purposes.
Interest--11% per annum for actual days elapsed on a 360-day year basis.
Interest shall be paid monthly. After a continuing event of default, the
interest rate shall be equal to 14%.
Term--All loans together with interest accrued thereon under the Facility
shall be due and payable upon the earlier of (a) the date upon which any the
LLC's debtor-in-possession loans to the debtor become due, (b) upon the
occurrence of an event of default hereunder or (c) an entry of an order of the
Bankruptcy Court that confirms a Plan of Reorganization in the debtor's Chapter
11 case.
Security--All assets and tangible and intangible property of the Company
subject to the prior claims of TPL.
Subsequent Events
On January 16, 1996, the Company's counsel filed motions with the Bankruptcy
Court to retrieve all funds mistakenly paid to professional advisors of TPL and
to terminate the employment agreements with Kevin Koy and Russ Felker, as well
as the letter of intent and related employment and stock incentive agreements
related to the proposed purchase of Cormark, Inc. In addition, the $60,000
advance to Cormark, Inc. is being returned. Kevin Koy, Russ Felker and John
Prinz have resigned as officers and directors of the Company.
On February 6, 1996, the Company entered into an agreement with Victor Baron,
Savely Burd and Interactive Controls, Inc., an Illinois corporation
("Intercon"). Intercon has developed and is the owner of a business plan (the
"Intercon Business Plan") for the development, production, sale and
installation of miniature computers for industrial control and operation.
Under the terms of the agreement ("the Intercon Agreement"), the Company
acquired the rights to the Intercon Business Plan. Under the Intercon
Agreement, the Company hired Baron to act as the Company's Chief Operating
Officer and President of the Company's new "Intercon Division" and it hired
Burd to act as its Chief Financial Officer.
Under the terms of the Intercon Agreement, in addition to an annual salary and
bonus which will be paid to Baron and Burd, Intercon will be entitled to receive
certain shares of the reorganized Company's stock as payment for the transfer
to the Company of the Intercon Business Plan and Intercon's other assets. The
Intercon Agreement provides that commencing upon the plan effective date and
thereafter during the balance of the term of the agreement, Intercon (or its
successors) will be issued certain shares of the Company's common stock (the
"Asset Acquisition Shares") determined as follows:
Subject to the adjustment procedures set forth below, during the term, Intercon
will receive:
a. One million Asset Acquisition Shares the first fiscal year in which the
Company realizes aggregate gross revenue of $5 million (determined by reference
to the Company's year-end financial statements which shall be prepared in
accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis).
b. Two hundred thousand Asset Acquisition Shares for each additional $1
million in gross sales realized by the Company in excess of $5 million and less
than the aggregate of $10 million in a single fiscal year (determined by
reference to the Company's year-end financial statements which shall be
prepared in accordance with GAAP applied on a consistent basis). Intercon's
right to receive Asset Acquisition Shares under the provisions of this
Paragraph b. shall terminate when the aggregate number of Asset Acquisition
Shares issued to Intercon under the provisions of this Paragraph b. equals one
million.
c. After Intercon has received the Asset Acquisition Shares called for in
Paragraphs a. and b. above, but not prior thereto, .25 Asset Acquisition Shares
for each dollar in net earnings before taxes which the Company realized
(determined by reference to the Company's year-end financial statements which
shall be prepared in accordance with GAAP applied on a consistent basis).
Notwithstanding the forgoing, Intercon will not receive Asset Acquisition
Shares which would result in Intercon and/or employees holding, in the
aggregate, in excess of 25% of the total of the Company's outstanding shares of
common stock as of the plan effective date on a fully diluted basis.
On July 31, 1995, the Company filed a Preliminary Plan of Reorganization and
Related Disclosure Statement. On October 3, 1995, the Company and TPL filed
the First Amended Joint Plan of Reorganization. And on February 14, 1996, the
Company filed the Second Amended Plan of Reorganization. Under this plan, the
creditors/equity holders were assigned to one of nine classes. The distribution
under the proposed plan to each class is as follows:
Class 1--Postpetition Administrative Claims--To be paid in full on the effective
date.
Class 2--Priority Tax Claims--To be paid in full with 9% interest in monthly
payments.
Class 3--Nontax Priority Claims--To be paid in full on the effective date.
Class 4--Prepetition Claims of TPL and IBM--Will receive 6,450,000 shares of
the debtor's stock upon the effective date.
Class 5--Postpetition Claims of TPL and Kandila--Will receive 4,200,000 shares
of the debtor's stock on the effective date.
Class 6--Claims of Wong's Electronics--Will, along with Class 8 creditors,
receive a prorated share of 750,000 shares of the debtor's stock on the
effective date.
Class 7--Claims Under Expressed or Implied Warranties--Will receive 10% discount
certificates upon the effective date.
Class 8--Claims Unsecured Creditors Not Otherwise Classified Under the Plan--
Will, along with Class 6 creditors, receive a prorated share of 750,000 shares
of the debtor's stock on the effective date.
Class 9--Equity Interest of Debtor's Shareholders--Will retain their shares of
the debtor's stock.
If the plan is approved, the Company will be issued an additional 11,400,000
shares of its common stock.
The alternative to the plan as proposed would be the liquidation of the debtor's
assets by the Chapter 11 trustee or, in the event of the conversion of the
Chapter 11 case to a Chapter 7 case, the liquidation of the debtor's assets
by an appointed or elected Chapter 7 trustee. The debtor believes that, in
the event of such liquidation, 100% of the proceeds of such liquidation would
be distributed to TPL and Kandila and no distribution whatsoever would be
received by any other creditors or any of the debtor's equity holders.
With the debtor-in-possession financing which the Company procured from TPL and
Kandila, the Company currently has sufficient funds on hand to fund its
immediate cash needs. The plan contemplates that, in addition to the stock to
be issued under the plan, the Company will register 16 million shares which
will be held by the Company for future business operations and growth. It is
contemplated that these registered shares may be offered to the public after
the company completes the contemplated registration of all of the Company's
stock, which the Company anticipated may take up to nine months after the
effective date to complete. In the interim, as and to the extent needed and
provided the Company obtains any authorization required from the Bankruptcy
Court, the Company may enter into additional borrowings with TPL and Kandila,
on terms substantially similar to the Company's prior borrowings from them.
The Company believes that the funds it currently has on hand, when coupled
with its anticipated operating profits, the additional funds it may borrow
from TPL and/or Kandila in the future, and the funds that the Company may be
able to raise through the offering of the above described registered shares to
the public at the end of the registration process will provide sufficient fund
for the Company to fund its operations and complete its reorganization.
3. RESTRUCTURING DOCUMENTS:
On April 4, 1994, the Company signed the Restructuring Documents defining a
payment schedule and a method of handling the Company's commitments under open
purchase orders with IBM. The Restructuring Documents include a Promissory
Note, Sales Agreement, Lockbox "A" Agreement, Lockbox "B" Agreement and a
Security Agreement.
The terms of the Promissory Note required weekly payments to start on November
25, 1994. The Company was unable to make these payments and, as of December
31, 1994, the Company was in default on these Restructuring Documents.
These agreements and the Promissory Note were acquired from IBM by Technology
Partners L.L.C. (see Note 2).
4. LITIGATION SETTLEMENT:
In March, 1991, LMC Viktron Limited Partnership ("LMC") filed a complaint
against the Company and Alan Yong in the Circuit Court of DuPage County,
Illinois. The complaint demanded $2,996,646 for a breach of an alleged "cost
plus" manufacturing agreement for several models of the Company's laptop
computers, principally the LapPro and the Dauphin 2000. The Company and Yong
claimed in a counterclaim that they incurred substantial damages as the result
of LMC's breach of the manufacturing agreement and breach of the warranty for
failure to manufacture working, marketable machines.
LMC, the Company and Yong reached an out-of-court settlement on September 21,
1994. The general terms and conditions of the settlement are as follows:
a. Defendant Dauphin agreed to pay plaintiff LMC the negotiated sum of one
million dollars ($1,000,000) in accordance with the terms of this settlement
order.
b. That, plaintiff LMC will take no action to execute or satisfy this debt as
long as payments are being made as aforesaid or unless a bankruptcy or
reorganization petition is filed by or against defendant Dauphin. In the event
of a default in the negotiated sum and failure to cure said default within seven
(7) days after notice to defendant Dauphin, then plaintiff LMC shall be entitled
to entry of a judgment in the amount of five million dollars ($5,000,000), less
credit for payments received.
The Company was unable to make the January 1, 1995, payment and declared Chapter
11 bankruptcy before it could cure this default within seven days. Since the
Company filed for Chapter 11 bankruptcy, the entire $5,000,000 judgment was
recorded in these financial statements.
5. SUMMARY OF MAJOR ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue on the sale of computers and accessories upon
delivery and the expiration of certain return provisions, if applicable.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined on the
first-in, first-out (FIFO) basis. Inventory consists of the following at:
December 31 June 30 1996
1994 1995 (unaudited)
Finished goods $ 74,848 $ - $ -
Computer accessories,
components and supplies 1,641,786 111,731 2,685,661
---------- -------- -----------
1,716,634 111,731 2,685,661
Less- Reserve for
obsolescence (1,602,848) (20,589) (20,589)
---------- -------- -----------
$ 113,786 $ 91,142 $ 2,665,072
The majority of the computer accessories, components and supplies relate to
product lines that were discontinued in 1994; accordingly the Company reserved
for these items as of December 31, 1994.
Prepaid Software Costs
The Company capitalizes all minimum royalty payments under software licensing
agreements based on a fixed payment schedule. Additionally, the Company
capitalizes costs related to the modification of certain software used in the
Company's products. These costs are charged to cost of sales upon the shipment
of product. At December 31, 1994, the Company had minimal finished goods in
inventory and no means of obtaining additional finished goods. For this reason,
all prepaid software costs were expensed during 1994.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using
straight-line methods over the estimated lives of the related assets, which
range between two and seven years. The estimated lives of certain equipment
such as tooling and evaluation units depends upon the product life of the
related computers. Since the bulk of this equipment was for product lines that
were discontinued in 1994, this equipment was written off during 1994.
Research and Development
Costs incurred in connection with research and development are expensed as
they are incurred.
Income (Loss) Per Common Share
Income(Loss) per common share is calculated based on the monthly weighted
average number of Common Shares outstanding which were 14,408,354 for the
period June 30, 1995, and 19,277,401 for the six month period June 30, 1996.
Also, weighted average number of Common Shares at December 31, 1993, 1994, and
1995 were 14,137,100, 14,408,354, and 14,408,354, respectively.
6. SHORT-TERM BORROWINGS:
Short-term borrowings consist of the following at:
December 31, June 30, 1996
1994 1995 (unaudited)
Debtor-in-possession per July 10, 1995,
order (Note 2) $ - $400,000 $ -
Debtor-in possession per November 16, 1995,
interim order (Note 2) - 150,000 -
Debtor-in-possession per November 30, 1995,
interim order (Note 2) - 209,947 -
Unsecured, non-interest-bearing demand note
payable to individual 46,500 46,500 -
-------- -------- --------
Total notes payable $46,500 $806,447 $ 0
======== ======== ========
7. DEBENTURES PAYABLE:
During 1991, the Company authorized the issuance of 333,333 shares of common
stock and $500,000 of 12% subordinated debentures in a private placement. Upon
completion of this offering, 212,000 shares and $317,500 debentures were sold.
The principal amount of the debentures matures on December 31, 1994. Interest
at 12% per annum is payable on December 31 and July 1 of each year, beginning
January 1, 1992. The Company did not pay the interest which was due on July 1,
1994, and December 31, 1994, nor did it retire these debentures on the maturity
date. The Company is in default on these debentures.
8. INCOME TAXES:
A reconciliation of the income tax expense on income before extraordinary item
per the U.S. federal statutory rate to the reported income tax expense follows:
Years Ended December 31, Six Months Ended June 30
1993 1994 1995 1995 1996
(unaudited) (unaudited)
U.S. federal statutory rate applied to
pretax income $(1,155,373) $(16,718,679) $(270,236) $(81,103) $172,061
Permanent differences and
adjustments 65,538 10,020 (153) (153) -
Tax assets and net operating loss
carryforwards not recognized
for financial reporting purposes
(changes in valuation
allowances) 1,089,835 16,708,659 270,389 81,256 (172,061)
----------- ------------ --------- --------- -----------
Income tax provision $ - $ - $ - $ - $ -
=========== ============ ========= ========= ===========
The Company had generated deferred tax assets as follows:
December 31, June 30,
1994 1995 1996
(unaudited)
Gross deferred tax assets-
Net operating loss (NOL)
carryforward $14,412,296 $17,149,842 $ 17,655,904
Reserves for warranty items and
inventory obsolescence 1,528,000 20,589 20,589
Accrual for officer's
salary 385,414 385,414 -
Commitment payable 32,977,790 32,977,790 -
Litigation reserve 4,970,000 4,970,000 -
Other timing differences 434,874 - -
----------- ---------- ------------
54,708,374 55,503,635 17,676,493
Current federal
statutory rate 34% 34% 34%
Deferred tax assets 18,600,847 18,871,236 6,010,008
Less- SFAS 109 valuation
allowance (18,600,847) (18,871,236) (6,010,008)
----------- ---------- ------------
Net deferred tax asset $ - $ - $ -
Deferred income taxes include the tax impact of NOL carryforwards. Realization
of these assets, as well as other assets listed above, is contingent on future
taxable earnings by the Company. In accordance with the provisions of SFAS 109,
a valuation allowance of $(18,600,847) and $(18,871,236) at December 31, 1994
and 1995, 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.
9. OPTIONS:
In March, 1992, the Board of Directors of the Company adopted and the
shareholders of the Company subsequently approved the 1992 Stock Option Plan
(the "Plan"). The Plan provides for the availability of an aggregate of
1,500,000 shares of the Company's common stock for issuance to eligible
employees at not less than 85% of the market value of the stock, as determined
by the Board of Directors. The Plan is administered by a Stock Option
Committee (the "Committee"), which consists of the Board of Directors.
Options issued under the Plan vest over a period of time based on the year of
issuance, as stated in the Plan. Compensation expense associated with these
options totaled $146,618, $(98,109) and $(87,665) for 1993, 1994 and 1995,
respectively, and is included in selling, general and administrative
expenses.
The following table contains information on stock options:
1 9 9 4 1 9 9 5
Shares Average Option Shares Average Option
Price Per Share Price Per Share
Outstanding, beginning
of year 500,936 $ 5 121,083 $ 5
Granted during the
year 1,115,000 - - -
Exercised during the
year - - - -
Canceled during the
year (593,130) (2) (121,083) (5)
Outstanding, end of
year 1,022,806 $ 1 - $ -
Exercisable, end of
year 121,083 $ 5 - $ -
During 1994 and 1995, certain employees were terminated from the Company.
Options granted to these employees (121,083 in 1995 and 593,130 in 1994) expired
due to the terminations and related compensation expense previously recognized
was reversed in the 1994 and 1995 statement of operations.
10. COMMITMENTS AND CONTINGENCIES:
Numerous suppliers have claims against the Company for amounts owed. Since the
Company filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code on January 3, 1995, the final amount paid to
vendors, including the landlord and other suppliers with claims, will be
determined by the reorganization plan to be completed by the Company and
submitted for approval by the Bankruptcy Court.
11. RELATED-PARTY TRANSACTIONS:
Manufacturing and Maintenance Systems, Inc. ("MMS"), a company wholly owned by
Alan and Lucy Yong has made advances to, and payments on behalf of, the Company
from time to time. Amounts due to MMS related to these advances, net of amounts
repaid, are approximately $208,422 at December 31, 1995 and 1994, respectively,
and are payable upon demand and do not accrue interest.
12. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF AUDITORS' REPORT:
Emergence from Bankruptcy On July 23, 1996 the District Court of Northern
Illinois approved the implementation of Dauphin's Third Amended Plan of
Reorganization and discharged the Company as Debtor-in-Possession. This
closed Dauphin's bankruptcy proceedings.
Prior to discharge, the Company issued the 11,650,000 shares of its common
stock pursuant to the Plan. This has effectively converted all pre-petition
credit holders to equity holders. Each present equity holder's position has
been diluted since additional shares of stock have been issued. Shareholder's
Equity - Common Stock and Paid-in-Capital and the Extraordinary Item reflect
the consequence of issuance of additional shares in exchange for the debt at
$1.12 per share.
Private Placement On April 19, 1996, TPL commenced a private placement of
certain 9% unsecured promissory notes convertible into Dauphin shares at $1.12
per share. In connection with this private placement, the Company received
$995,407 in conversion and exchange for 888,757 Shares.
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained
in this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Company or the Selling Stockholders. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that information contained herein is correct as of any time
subsequent to its date. This Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any securities other than the registered
securities to which it relates. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.
- ------------
TABLES OF CONTENTS
Prospectus Summary 3
The Company 4
Risk Factors 7
Market Price of Common Stock
and Dividend Policy 12
Selected Financial Data 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Business 17
Description of Property 20
Management 20
Executive Compensation 22
Principal Stockholders 26
Description of Capital Stock 27
Selling Stockholders and
Plan of Distribution 31
Legal Matters 40
Experts 40
Available Information 41
Index to Financial Statements F-1
39,866,422 COMMON SHARES
DAUPHIN TECHNOLOGY, INC.
COMMON STOCK
$0.001 Par Value
$1.40 Bid Price on September 11, 1996
__________
PROSPECTUS
__________
------------
September 11, 1996
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 $ 15,404.39
Blue Sky fees and expenses 5,000.00
Accounting fees and expenses 7,500.00
Legal fees and expenses 10,000.00
Printing 0.00
Registrar and transfer agent's fees 5,000.00
Miscellaneous fees and expenses 1,000.00
------------
Total $ 43,904.39
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), judgements, fines,
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation (or, in the case of a fiduciary, the best
interests of the plan and plan participants) and, with respect to any criminal
action proceeding, had no reasonable cause to believe his conduct was unlawful.
This termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contender or its equivalent,
shall not, of itself, create a presumption that the person did not act in
good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe that this
conduct was unlawful.
SECTION 2 The corporation shall indemnify any person who was or is a party, or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation or fiduciary as aforesaid, or is or was serving at
the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit, if
he acted in good faith and in a manner he reasonably believed to be in, or not
opposed to the best interests of the corporation (or, in the case of a
fiduciary, the best interests of the plan and plan participants), except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation, unless, and only
to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view 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 stockholders.
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 stockholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent, and shall
incur to the benefit of the heirs, executors and administrators of such person.
SECTION 7 The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation
of fiduciary, or who is or was serving at the request of the corporation as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article.
SECTION 8 In the case of a merger, the term "corporation" shall include, in
additional to the surviving corporation, any merging corporation absorbed in
a merger, which if its separate existence had continued, would have had the
power and authority to indemnify its directors, officers and employees or
agents, so that any person who was a director, officer, employee or agent of
such merging corporation, or was serving at the request of another corporation,
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under the provisions of this section with respect to the surviving corporation
as such person would have with respect to such merging if its separate
existence had continued.
SECTION 9 For the purpose of this Article, referenced to "other enterprises"
shall include employee benefit plans; reference to "fines" shall include any
excise tax assessed on a person with respect to an employee benefit plan; and
references to the phrase "serving at the request of the corporation" shall
include any service as a director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries. A person who acted
in good faith and in a manner he or she reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests
of the corporation" as referred to in this Article.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of registrant pursuant
to the foregoing provisions, or otherwise, registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, enforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by registrant of expenses incurred in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction 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
I. In the third quarter of 1993, the Company issued 50,000 Shares to Donald
Larsen at $2.00 a Share when $100,000 of a $350,000 loan was converted into
Company Stock according to the loan agreement.
II. In the fourth quarter of 1993, the Company issued 30,000 Shares as
additional compensation for a 145 day extension of a $250,000 loan and issued
6,000 shares at $3.50 a Share to Circuit Systems, Inc. and 50,000 Shares at
$4.00 a Share to Asic Design, Inc.
III. On May 9, 1996, the Third Amended Plan of Reorganization was approved by
the stockholders and creditors and confirmed by the Court. Under this Plan, the
creditors/equity holders were assigned to one of nine classes. Satisfaction of
claims of each class under this approved Plan is as follows:
Class 1 - Post-Petition Administrative Claims
- To be paid in full on the effective date of the Plan (the
"Effective Date") or soon thereafter.
Class 2 - Priority Tax Claims
- To be paid in full with 9% interest in monthly payments.
Class 3 - Non-Tax Priority Claims
- To be paid in full on the Effective Date or soon thereafter.
Class 4 - Pre-Petition Claims of TPL and IBM
- To receive 6,400,000 Shares of the Company's Stock on the
Effective Date or soon thereafter.
Class 5 - Post-Petition Claims of TPL and Kandila
- To receive 4,200,000 Shares of the Company's Stock on the
Effective Date or soon thereafter.
Class 6 - Claims of Wong's Electronics
- To receive, along with Class 8 creditors, a prorated share
of 1,000,000 shares of the Company's Stock on the Effective
Date for their unsecured portion of the claims.
- To also receive 50,000 shares in settlement of their secured
portion of the claims on the Effective Date or soon thereafter.
Class 7 - Claims Under Expressed or Implied Warranties
- To receive 10% product discount certificates on the
Effective Date or soon thereafter.
Class 8 - Claims Unsecured Creditors Not Otherwise Classified Under
the Plan
- To receive, along with Class 6 creditors, a prorated shares
of 1,000,000 Shares of the Company's Stock on the Effective
Date or soon thereafter.
Class 9 - Equity Interest of Debtor's Shareholders
- To retain their Shares of the Company's Stock.
On July 23, 1996 the District Court approved the implementation of the Third
Amended Plan of Reorganization and discharged the Company as Debtor-in-
Possession. This terminated the Company's bankruptcy proceedings.
The Company issued the 11,650,000 Shares of its Common Stock pursuant to the
Plan. This effectively converted all pre-petition credit holders to equity
holders. Shares issued under the Plan have a holding period, during which the
shares cannot be traded. The holding period continues through the earlier of
nine months from the Effective Date of the Plan or the date the Shares are
registered by the Company.
According to the Plan, in addition to the stock issued to satisfy creditors'
claims, the Company is authorized to issue and register up to 16 million
additional Shares (the "Reserve Shares") which can be used by the Company for
future business operations and growth and to satisfy potential Share issuance
requirements under the Intercon Agreement.
IV. On April 19, 1996, TPL commenced a private placement of certain 9% unsecured
promissory notes convertible into Dauphin shares at $1.12 per share. In
connection with this private placement, the Company received $995,407 in
conversion and exchange for 888,757 Shares.
V. On July 22, 1996, the Company issued 15,000 Shares to Donald Schak as rental
consideration for execution of the office lease to the Company's present office
space.
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, 1991.
*4(1) Specimen Common Stock Certificate incorporated herein by reference to
exhibit 4(1) of Form S-18 filed June 1, 1990.
*4(2) Specimen Common Stock Purchase Warrant incorporated herein by reference
to exhibit 4(2) of Form S-18 filed June 1, 1990.
*4(3) Warrant Agreement between the Company and Warrant Agent incorporated
herein by reference to exhibit 4(3) 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)1992 Stock Option Plan adopted by the Board of Directors on March 1, 1992,
incorporated herein by reference to exhibit 10(6) of Form 8-K for the year
ended December 31, 1991.
*10(4)Computer Technology License Agreement dated September 23, 1991, between
Phoenix Technology, Inc. and amendments, incorporated herein by reference
to exhibit 10(11) to Form 10-K for the fiscal year ended December 31, 1993.
*10(5)Lisence Agreement dated January 1, 1993, between Microsoft Corporation and
Dauphin Technology, Inc. and amendments, incorporated herein by reference
to exhibit 10(12) to Form 10-K for the fiscal year ended December 31, 1993.
*10(6)DIP Credit Facility dated June 16, 1995 between Technology Partners,
L.L.C. and Dauphin Technology, Inc. incorporated herein by reference to exhibit
7(u) of Form 8-K for the year ended July 5, 1995.
*10(7)Interim Order Approving Debtor's Motion to authorize DIP Financing and
Granting Liens and Administrative Priority pursuant to Section 364 of
Bankruptcy Code dated June 20, 1995 incorporated herein by reference to
exhibit 7(b) of Form 8-K filed July 5, 1995.
*10(8)Employment Agreement dated as of May 22, 1995 between Alan Yong, Dauphin
Technology, Inc., Kevin Koy and Andrew Kandalepas incorporated herein by
reference to exhibit 7(c) of Form 8-K for the year ended July 5, 1995.
*10(9)Interim Order Approving Debtors Motion to authorize Kandila Investments
Ltd. DIP Financing and Granting Liens and Administrative Priority pursuant
to Section 364 of the Bankruptcy Code dated November 30, 1995 incorporated
herein by reference to exhibit 7(h) of Form 8-K filed November 30, 1995.
*10(10)Debtor's Motion Seeking Entry of Order Authorizing the Debtor to enter
into Settlement Agreement with Cormark, Inc. and Certain of its Employees
filed January 16, 1996 with United States Bankruptcy Court incorporated
herein by reference to exhibit 7(b) of Form 10-Q filed January 26, 1996.
*10(11)Debtor's Motion Seeking Entry of Order Authorizing the Debtor to enter
into Settlement Agreement with Technology Partners LLC., Kevin Koy, Russ
Felker and John Prinz filed January 16, 1996 with United States Bankruptcy
Court incorporated herein by reference to exhibit 7(b) of Form 10-Q filed
January 26, 1996.
*10(12)Debtor's Motion Seeking Entry of Order Authorizing the Debtor to enter
into Asset Purchase Agreement with Victor Baron, Savely Burd and Interactive
Controls, Inc. filed February 6, 1996 with United States Bankruptcy Court
incorporated herein by reference to exhibit 7(b) of Form 10-Q filed May 15,
1996.
*10(13)Debtor's Third Amended and reststed Plan of Reorganization filed May 9,
1996 with United States Bankruptcy Court incorporated herein by reference
to exhibit 7(b) of Form 10-Q filed January 26, 1996.
24(1) Consent of Arthur Andersen LLP., independent public accountants.
24(2) Consent of Rieck and Crotty, P.C. (contained in the opinion filed as
Exhibit 5.1 hereto).
*28(1)Confidential Private Placement Memorandum dated April 19, 1996, included
in Form 10-Q filed May 15, 1996, incorporated herein by reference.
* Previously filed or incorporated by reference.
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Pre-Effective Amendment No. 1 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 6th day of
September, 1996.
DAUPHIN TECHNOLOGY, INC.
By:____________________________
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
Principal Executive Officer
Chairman of the Board of Directors
President/Chief Executive Officer 9/11/96
Andrew J. Kandalepas
Secretary
Secretary/Director 9/11/96
Jeffrey Goldberg
Chief Financial Officer
Chief Financial Officer 9/11/96
Savely Burd
Exhibit __24(1)__
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made part of this
Registration Statement on Form S-1 for Dauphin Technology, Inc.
Arthur Andersen LLP
Chicago, Illinois
September _____, 1996
Exhibit __24(2)__
Dauphin Technology, Inc.
800 East Northwest Hwy., Suite 950
Palatine, IL 60067
In re: Form S-1 Registration Statement No.___________________
Gentlemen:
We have acted as counsel to Dauphin Technology, Inc., an Illinois
corporation (the "Company"), in connection with the preparation and filing
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended (the "Act"), of a Registration Statement on Form S-1 (the
"Registration Statement") relating to the registration of 39,866,422 Shares
of the Company's common stock (the "Shares").
As such counsel, we have examined the Registration Statement and such
other papers, documents and certificates of public officials and certificates
of officers of the Company as we have deemed relevant and necessary as a basis
for the opinions hereinafter expressed. In such examinations, we have assumed
the genuiness of all signatures and the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us and conformed or photocopies.
Based upon and subject to the foregoing, it is our opinion that the Shares
covered by the Registration Statement have heretofore been legally issued by the
Company and are fully paid and non-assessable and shall continue to be such when
and if sold by the Selling Stockholders.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus constituting a part of the Registration
Statement.
Very truly yours,
Rieck and Crotty, P.C.
