Dauphin Technology, Inc. Reports Year End Results; Anticipating a Strong Year 2000.

Business Editors

PALATINE, Ill.--(BUSINESS WIRE)--March 31, 2000

Dauphin Technology, Inc. (OTCBB:DNTK), today announced year-end results for 1999. Even more important, the Company anticipates a strong year 2000 with significant increases in sales from both product lines; hand-held computers and digital Set-Top Boxes.

Dauphin Technology, the world's leader with the first integrated modular device, the Orasis(TM), a high-end hand-held computer, has started the year 2000 with unparalleled financial strength and a large multi-year sales contract within the European Union to provide xDSL Set-Top Boxes. This rapid transformation from last year will bolster the Company's ability to generate sizeable revenues, develop additional innovative products and strengthen its global marketing position.

As a result of the Company's recent successful private placement during the first quarter of 2000, Dauphin has the funds necessary to complete the development of the Set-Top Box and increase its marketing efforts for the Orasis hand-held computer. "With the success of our private placement, we are beginning the year with the strongest balance sheet in Dauphin's recent history," commented Christopher Geier, Dauphin's Executive Vice President. "With additional funding forthcoming, our financial strength gives us the flexibility to pursue vigorously every opportunity in the Set-Top Box arena as well as in mobile computing with our Orasis(TM)."

The year 1999, was a very difficult year for the Company due to financial constraints, which prevented the Company from functioning properly and realizing its large sales potential of the Orasis(TM) computer. Throughout the entire year of 1999, Dauphin's management pursued various avenues seeking financial assistance for the Company in order to secure its stability and produce its Orasis(TM) product and associated accessories. While the demand for the product remained sizeable throughout the year, numerous sales opportunities were not converted into actual sales due to the lack of necessary financing.

Beginning in 2000, Dauphin has demonstrated its commitment to advancements in technology and to becoming a leader in mobile computing and broadband telecommunications. Operational costs on a going forward basis are a mere fraction of what they were a year ago. Dauphin has focused on their core competency, hand-held computers, and the development of next generation technology, turning their attention away from non-core business, such as contract manufacturing services. In addition, inventory associated with contract manufacturing has been written off and interest expense resulting from convertible debenture financing has been realized in 1999, paving the way for a brighter earnings picture in 2000.

Certain matters discussed in this news release are forward-looking statement involving certain risks and uncertainties including, without limitations, changes in product demand, the availability of products, change in competition, economic conditions, various risks due to changes in market conditions and other risks detailed in the Company's Securities and Exchange Commission filings and reports.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations 1999 Compared to 1998 and 1997

The Company and its subsidiary are primarily engaged in electronic product engineering, development and sales. Contract manufacturing services were conducted through the second quarter of 1999, at which time such activities ceased. All of these activities are highly competitive and sensitive to many factors outside of the control of the Company, including general economic conditions affecting the Company's clients and availability of components.

Dauphin Technology, Inc.

Revenue for Dauphin Technology, Inc. increased from $72,000 in 1997 to $386,000 in 1998 and then decreased to $274,000 in 1999. The revenue decrease from 1998 to 1999 was a result of financial constraints on the Company, which prohibited the purchase of components necessary to complete the production of Orasis(TM) units.

The gross profit margins are not comparable for the periods due to the inventory write downs and fluctuation in sales. During 1997 and 1998, the Company wrote down all obsolete inventory. Originally, such inventory was to be used in the design of Orasis(TM), but the introduction of new components and newer design methods rendered such inventory obsolete.

Selling, general and administrative expenses increased to approximately $2.63 million in 1999 from $2.55 million in 1998 and $1.25 million in 1997. The increase from 1998 to 1999 was due to increase in professional and consulting fees incurred as a result of capital raising efforts. During the third and fourth quarters of 1999 the Company began cost reduction measures managing to reduce certain expenses by as much as fifty percent. The increase from 1997 to 1998 was due to additional staffing in sales and marketing departments and expense related to product demonstrations. The Company supplied its sales force with 200 Orasis(TM) demonstration units, at an average cost of $2,500 per unit, to present the product at trade shows and sales opportunities. Also, the Company advertised its flagship product Orasis(TM) in several trade magazines. Further, internal operations were enhanced with additional personnel.

R.M. Schultz & Associates, Inc.

Revenue for RMS increased from $2.7 million in 1997 to $5.6 million in 1998, but decreased to $2.13 million in 1999 due to management's change in corporate strategy moving away from contract manufacturing and towards new product design and development.

The gross profit from 1998 to 1999 is not comparable due to the inventory write down and the decrease in revenue. The gross profit margin for RMS has gone down from 9% in 1997 to 6% in 1998 due to an increase in reserve for obsolescence and startup inefficiencies in manufacturing of Orasis(TM).

Selling, general and administrative expenses increased in 1999 to approximately $1.5 million from $712,000 in 1998 and $233,000 in 1997. The increase in 1999 from 1998 was primarily due to impairment of goodwill and cost associated with cost reductions. The increase from 1997 to 1998 was primarily due to full year of operations under the Dauphin umbrella.

Other Expenses and Net Loss

The net operating loss increased to approximately $9.3 million in 1999 from $6.1 million in 1998 and $4.0 million in 1997. The increase in net loss from 1998 to 1999 was due to all items mentioned in the RMS sections above. The increase in the net loss from 1997 to 1998 was due to an increase in research and development expense from $827,000 to $1.6 million, an increase in sales and marketing expense, an increase of interest expense from $76,000 to $1 million in 1998 and additional inventory write-downs. The Company spent in excess of $2.4 million on the development and an additional $676,000 on tooling for Orasis(TM).

Liquidity and Capital Resources

Absence of Operating Profit 

The Company has incurred a net operating loss in each year since its founding and as of December 31, 1999 has an accumulated deficit of $38,826,736. The Company expects to incur operating losses over the near term. The Company's ability to achieve profitability will depend on many factors including the Company's ability to manufacture and market commercially acceptable products. There can be no assurance that the Company will ever achieve a profitable level of operations or if profitability is achieved that it can be sustained.

Early Stage of Development of the Company's Products

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

Financing Considerations

Currently, the Company is working to ensure it has appropriate funding to finance future operations. During the first quarter of 2000, through private placements, management raised in excess of $7.5 million. As of the date hereof the Company has approximately $5 million of cash on deposit in the bank. Management is seeking additional financing and is negotiating final terms and conditions with several potential funding sources. Management believes the combination of existing funds, additional financing and future sales of its products will generate sufficient capital to sustain future operations.

Inflation and Seasonality

Due to the nature of the Company's products and current market trends, an increase in the volume of production s hould generally result in a reduction of cost per unit. 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 retail outlets, the Company should not be affected by the seasonal nature of consumer purchasing.