Dauphin Files for Bankruptcy

The once-promising company has hung investors out to dry

Dauphin Technology Inc., once an up-and-coming player in the mobile computing market, is distinctly down and out these days. The Lombard, Ill.-based company filed for Chapter 11 protection earlier this month.

The company listed debts of $43.4 million versus assets of $2.7 million. Approximately 90 percent of Dauphin's outstanding debt, the company reported, represents obligations to a major - unidentified - supplier.

The brief Jan. 3 announcement said the 60-employee company is negotiating for financing and will continue operations as it restructures. Neither president Alan Yong nor anyone else with Dauphin returned repeated phone calls.

Dauphin made its name with the DTR-1, the world's smallest Windows-based, 486 computer. The award-winning unit was pen and keyboard compatible, featured 80 megabytes of hard drive storage, 4 to 8 megabytes of RAM, a six-inch backlit screen, an Ethernet adapter, and an internal fax modem in a compact, 2.2 pound package. The DTR-1 also allowed users to attach an expanded keyboard, larger monitor and external hard drive to the 9- by 5- by 1.25-inch computer.

In a February 1993 interview with Washington Technology, Yong extolled the virtues of the DTR-1, which he said would render desktop computers obsolete.

"If you can put everything a desktop computer does in a small package, how do you justify having a 25 to 40 pound unit sitting on your desk?" asked Yong. "The desktop computer as we know it is running on borrowed time."

With industry accolades and a lucrative Pentagon contract in his pocket, Yong appeared capable of making good on his boast. Now, however, it appears that Dauphin itself is living on borrowed time.

Yong founded Dauphin in 1988 after two previous entrepreneurial efforts. The first involved hand-held devices to monitor manufacturing applications, while the second explored the possibility of joint ventures with mobile computing manufacturers in the Pacific Rim. Though no deal emerged from the latter effort, he learned enough to avoid the fiercely competitive Asian market and instead set his sights on the federal marketplace.

Yong's strategy was simple and seemingly impeccable: Win a major Pentagon supply contract and leverage it to launch a broader mobile computing business.

So the company earned a spot on the Lapheld II contract to supply 75,000 laptops to the Pentagon. It then began acquiring additional investors and focusing on designing what it hoped would be the next-generation mobile computing device. And by contracting as much of the manufacturing as possible, the Malaysian-born entrepreneur hoped to keep costs down, even while setting the pace in an increasingly competitive industry.

IBM signed an agreement in 1993 to manufacture Dauphin's flagship Desktop Replacement 1, better known as the DTR-1. Earlier, Dauphin penned a manufacturing deal with SCI Systems Inc., Rapid City, S.D.

In a 1992 interview, Yong anticipated the Lapheld contract alone would generate $80 million in revenues that year and another $200 million in 1993.

In reality, Dauphin's total 1992 revenues were just $23.5 million, which remained flat in 1993. Indeed, since winning the contract, the company has not enjoyed a profitable year.

From the fourth quarter of 1993 to the third quarter of 1994, Dauphin's net sales eroded steadily, from $10.3 million to $500,000. During that time, net income and earnings per share were consistently in the red. The second quarter of 1994 was particularly punishing, with net loss jumping from $600,000 to $37 million, and loss per share climbing from $.04 to $2.58 per share. For the third quarter of 1994, the latest figures available, Dauphin reported a net loss of $1.9 million, or $0.13 per share.

Insiders, including Yong, had been unloading thousands of shares - valued at 3/8 as of Jan. 9 - at an increasing rate during the past several months. From Oct. 28 to Dec. 30 , 21 separate insider filings represented more than 476,000 shares sold. On Jan. 3, Dauphin itself filed for Chapter 11.

Exactly what led to this situation remains unclear, since Dauphin and others associated with the company aren't saying. Certainly, pen-based computing, into which Dauphin was plowing 90 percent of its research and development, failed to live up to its initial expectations.

One analyst not surprised by the Chapter 11 filing characterized Dauphin as marginal player that got squeezed out of the market by more resourceful players.

"The mobile computing marketplace is getting very crowded, and smaller companies such as Dauphin didn't have resources to bring new products and innovations to market," said Susan Cohen, an analyst with Forrester Research. "With people such as Motorola, Sharp and Apple in the market, they just didn't stand a chance."


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