<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1996.
REGISTRATION NO. 333-3784
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DELTAPOINT, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 7372 77-0216760
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
------------------------------
<TABLE>
<S> <C>
22 LOWER RAGSDALE DRIVE JOHN J. AMBROSE
MONTEREY, CALIFORNIA 93940 CHIEF EXECUTIVE OFFICER
(408) 648-4000 DELTAPOINT, INC.
(Address, including zip code, and 22 LOWER RAGSDALE DRIVE
telephone number, including area code, MONTEREY, CALIFORNIA 93940
of registrant's principal executive (408) 648-4000
offices) (Name, address, including zip code,
and telephone number, including area
code, of agent for service)
</TABLE>
------------------------------
COPIES TO:
BROOKS STOUGH, ESQ.
MARYANNE MINALGA, ESQ.
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
600 Hansen Way, Second Floor
Palo Alto, California 94304
(415) 843-0500
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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, as amended, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY (1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value (1)........ 250,000 $9.625(2) $2,406,250 $830.00
Warrants (1).......................... 261,172 $ -- --
Common Stock issuable upon exercise of
Warrants (3)......................... 261,172 $7.20(4) 1,880,439 649.00
Totals................................ -- -- $4,286,689 $1,479.00
</TABLE>
(1) Such securities have been registered for resale by the Selling Shareholders
and their assigns and transferees on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933, as amended (the "Act").
(2) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457(c) promulgated under the Securities Act of
1933.
(3) Represents shares of Common Stock issuable upon exercise of the Warrants.
(4) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457(g) promulgated under the Act.
------------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION OCTOBER 15, 1996
PROSPECTUS
178,625 SHARES OF COMMON STOCK
261,172 COMMON STOCK PURCHASE WARRANTS
261,172 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF COMMON STOCK WARRANTS
THE 178,625 SHARES (THE "SHARES") OF COMMON STOCK (THE "COMMON STOCK") OF
DELTAPOINT, INC., A CALIFORNIA CORPORATION (THE "COMPANY"), AND THE 261,172
WARRANTS, EACH REPRESENTING THE RIGHT TO PURCHASE ONE SHARE OF COMMON STOCK (THE
"WARRANTS"), COVERED BY THIS PROSPECTUS ARE OUTSTANDING SECURITIES OF THE
COMPANY THAT MAY BE SOLD FROM TIME TO TIME BY CERTAIN SHAREHOLDERS OF
DELTAPOINT, INC. (THE "SELLING SHAREHOLDERS"). THE COMPANY WILL NOT RECEIVE ANY
OF THE PROCEEDS FROM THE SALE OF THE SHARES OR THE WARRANTS BY THE SELLING
SHAREHOLDERS. THE 261,172 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE
WARRANTS (THE "WARRANT SHARES") MAY BE ISSUED FROM TIME TO TIME BY THE COMPANY
UPON EXERCISE OF THE WARRANTS. THE EXERCISE PRICE OF THE WARRANTS IS $7.20 PER
SHARE OF COMMON STOCK IF THE WARRANTS ARE EXERCISED ON OR BEFORE JUNE 26, 1998
AND $8.40 PER SHARE OF COMMON STOCK FROM SUCH TIME UNTIL NOVEMBER 6, 2000.
The Company has been advised by the Selling Shareholders that they may sell
all or a portion of the Shares and the Warrants from time to time in the Nasdaq
Small Cap Market System, or the Pacific Stock Exchange, to the extent such
securities may be traded on such markets, in negotiated transactions or
otherwise, and on terms and at prices then obtainable. The Selling Shareholders
and any broker-dealers, agents or underwriters that participate with the Selling
Shareholders in the distribution of any of the Shares and Warrants may be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the Shares and
Warrants purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution." The Warrant
Shares may be issued from time to time by the Company upon exercise of the
Warrants.
The Company will bear all of the cost of preparing and printing the
Registration Statement, and Prospectus and any Prospectus Supplements and all
filing fees and legal and accounting expenses associated with registration under
federal and state securities laws estimated at $100,000. The Selling
Shareholders will pay all other expenses including brokerage fees, if any,
related to the distribution of the Shares and Warrants. See "Plan of
Distribution."
On October 11, 1996, the last sale price of the Company's Common Stock, as
reported on the Nasdaq Small Cap Market System under the symbol DTPT, was
$11.25. Prior to this offering, there has been no public market for the
Warrants, and there can be no assurance that an active market will develop. The
Company has submitted an application to list the Warrants on the Nasdaq Small
Cap Market.
------------------------
THE COMMON STOCK AND WARRANTS OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK AND WARRANTS
OFFERED HEREBY.
---------------------
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.
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, registration statements and certain other
documents filed with the Commission through its Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system are publicly available through the
Commission's site on the Internet's World Wide Web, located at
HTTP://WWW.SEC.GOV. The Registration Statement, including all exhibits thereto
and amendments thereof, has been filed with the Commission through EDGAR. Copies
of such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Company's Common Stock is traded on the Nasdaq Small Cap Market under
the symbol "DTPT." Reports, proxy statements and other information concerning
the Company may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
SB-2, including amendments thereto, under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of Common Stock and the
warrants to purchase shares of Common Stock offered hereby (the "Warrants").
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 and Warrants
offered hereby, reference is made to the Registration Statement and the exhibits
and schedules filed therewith. Statements contained in this Prospectus regarding
the contents of any contract or any other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission, each statement being qualified in all
respects by such reference. The Registration Statement may be inspected without
charge at the offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part thereof may be obtained from such
office upon the payment of the fees prescribed by the Commission.
------------------------
DeltaPoint and DeltaGraph are registered trademarks of the Company and Chart
Server, Drag 'n Draw, DeltaPoint, WebAnimator, Web Tools and QuickSite are or
may be trademarks of the Company. All other product, brand or trade names are
trademarks or registered trademarks of their respective owners.
2
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND FINANCIAL STATEMENTS AND NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS
URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
THE COMPANY
DeltaPoint, Inc. ("DeltaPoint" or the "Company") develops and markets
Internet software tools designed to allow users to effectively and easily
create, manage and enhance sites on the Internet's World Wide Web. The Company
introduced QuickSite in February 1996 to enable novice and experienced site
publishers to rapidly create, maintain and enhance robust Web sites. Since its
introduction, the Company believes that QuickSite has received more awards than
any other Web site creation and management tool, winning the PC WEEK Analyst's
Choice award in March 1996, WINDOWS MAGAZINE recommended seal and the PC WEEK
Labs IT Excellence Award in April 1996, and the PC COMPUTING 5 Star rating in
June 1996. The Company introduced WebTools in March 1996 to allow developers,
value-added resellers ("VARs") and corporate MIS directors to add Web publishing
capabilities to existing applications and introduced WebAnimator in July 1996 to
allow a broad range of Web users to easily add multimedia and interactive
animation to a Web site. In addition, in September 1996 the Company introduced
QuickSite Developer's Edition, a new high end version of QuickSite designed for
professional Web developers and corporate Intranet developers.
A key element of the Company's objective of becoming a leading Internet
software tools provider is to increase its strategic alliances with key
partners. In September 1996, the Company entered into an agreement with IBM to
develop and license a customized version of QuickSite for inclusion in IBM's
recently announced World Distributor, an on-line interactive electronic commerce
service. The Company has also entered into agreements with Borland
International, Sony, McGraw-Hill, Earthlink, Compaq and Netcom Interactive to
distribute existing or planned versions of QuickSite with their products or
services.
In the past, the Company has derived most of its revenues from the sale of
charting and graphics software products. The Company currently offers
DeltaGraph, an advanced cross-platform charting and graphics product. The
Company plans to de-emphasize its charting and graphics products and expects
that they will represent a declining percentage of its business in the future.
The Company was incorporated in California in 1989, its headquarters are
located at 22 Lower Ragsdale Drive, Monterey, California 93940, and its
telephone number is (408) 648-4000.
------------------------
NOTICE TO CALIFORNIA INVESTORS
Each purchaser of shares of Common Stock in California must meet one of the
following suitability standards: (i) a liquid net worth (excluding home,
furnishings and automobiles) of $250,000 or more and gross annual income during
1995, and estimated during 1996, of $65,000 or more from all sources; or (ii) a
liquid net worth (excluding home, furnishings and automobiles) of $500,000 or
more. Each California resident purchasing shares of Common Stock offered hereby
will be required to execute a representation that it comes within one of the
aforementioned categories.
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.......................................................... $ 4,885 $ 4,043 $ 2,261 $ 1,893
Gross profit.......................................................... 3,923 2,706 1,547 1,272
Income (loss) from operations......................................... 518 (2,486) (189) (2,828)
Net income (loss)..................................................... 350 (2,632) (250) (2,789)
Net income (loss) per share (1)....................................... $ 0.38 $ (2.42) $ (0.25) $ (1.27)
Shares used to compute net income (loss) per share (1)................ 997 1,086 1,001 2,193
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------- JUNE 30, 1996
-------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................................... $ 4,629 $ 2,802
Working capital............................................................... 2,915 764
Total assets.................................................................. 6,764 4,689
Accumulated deficit........................................................... (8,818) (11,607)
Total shareholders' equity.................................................... $ 3,449 $ 1,450
</TABLE>
- ------------------------
(1) For an explanation of the number of shares used to compute net income (loss)
per share, see Note 1 of Notes to Financial Statements.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling
Shareholders.......................... 178,625 shares
Warrants offered by the Selling
Stockholders.......................... 261,172 Common Stock Purchase Warrants ("Warrants")
Common Stock issuable upon exercise of
Warrants.............................. 261,172 shares
Exercise price and term of Warrants.... Each Warrant entitles the registered holder thereof
to purchase, at any time over a five-year period
commencing on November 6, 1995, one share of
Common Stock at a price of $7.20 per share through
June 26, 1998 and at a price of $8.40 per share
thereafter through November 6, 2000.
Common Stock to be outstanding after
the offering (1)...................... 2,254,243 shares
Nasdaq Small Cap Symbol................ Common Stock -- DTPT; Warrants -- DTPTW (Proposed)
</TABLE>
- ------------------------
(1) Excludes (i) 110,000 shares of Common Stock issuable upon exercise of a
warrant (the "Representative's Warrant") granted to the representative of
the several underwriters (the "Representative") in connection with the
initial public offering of the Company's Common Stock on December 20, 1995
("IPO"), (ii) 261,172 shares of Common Stock issuable pursuant to warrants
outstanding at June 30, 1996 at an exercise price of $7.20 per share, (iii)
653,133 shares of Common Stock issuable pursuant to outstanding options at
June 30, 1996, (iv) up to 555,556 shares of Common Stock issuable upon
exercise of Notes (as defined below) that may be issued in the proposed Debt
Financing (as defined below), based upon an assumed conversion price of
$9.00 per share, and (v) up to 26,316 shares of Common Stock issuable upon
exercise of a placement agent's warrant (the "Placement Agent's Warrant")
that would be issued in the proposed Debt
4
<PAGE>
Financing. See "Management -- 1990 Key Employee Incentive Stock Option
Plan," "Management -- 1992 Non-Statutory Stock Option Plan," "Management --
1995 Stock Option Plan," "Description of Capital Stock -- Warrants" and
Notes 4, 8 and 9 of Notes to Financial Statements.
RISK FACTORS
The shares of Common Stock and the Warrants offered hereby involve a high
degree of risk and should be considered only by persons who can afford the loss
of their entire investment. See "Risk Factors" beginning on page 6.
------------------------
EXCEPT AS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS DOES NOT
REFLECT THE EXERCISE OF OPTIONS OR WARRANTS AFTER JUNE 30, 1996. IN ADDITION,
THIS PROSPECTUS CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS."
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, EACH PROSPECTIVE
INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK AND THE
WARRANTS OFFERED HEREBY. NO INVESTOR SHOULD PARTICIPATE IN THE OFFERING UNLESS
SUCH INVESTOR CAN AFFORD A COMPLETE LOSS OF HIS OR HER INVESTMENT. THE
DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
RECENT AND EXPECTED LOSSES; ACCUMULATED DEFICIT; QUARTERLY FLUCTUATIONS IN
PERFORMANCE
The Company incurred a net loss of $2,632,000 for the year ended December
31, 1995 and a net loss of $2,789,000 for the six months ended June 30, 1996,
and had an accumulated deficit of $11,607,000 as of June 30, 1996. The Company
expects to incur losses for at least the next 12 months, and perhaps longer.
There can be no assurance that the Company will not incur significant additional
losses until it successfully markets and sells existing Internet software tools
or develops or acquires new Internet software tools or enhancements to existing
Internet software tools that generate significant revenues. Included in the
results of operations for 1995 is a charge to operations of $1,240,000 resulting
from the acquisition of WebAnimator, WebTools and QuickSite for the portion of
the purchase price determined to be in-process research and development.
The Company's results of operations have historically varied substantially
from quarter to quarter and the Company expects they will continue to do so. In
the past, the Company's operating results have varied significantly as a result
of a number of factors, including the size and timing of customer orders or
license agreements, product mix, the revenues derived from product sales and
license fees, the existence and terms of royalty and packaging arrangements,
seasonality, the timing of the introduction and customer acceptance of new
products or product enhancements by the Company's competitors, new product or
version releases by the Company, changes in pricing policies by the Company or
its competitors, marketing and promotional expenditures, research and
development expenditures and changes in general economic conditions.
Furthermore, the Company has often recognized a substantial portion of its
revenues in the last month of the quarter, with these revenues frequently
concentrated in the last week or weeks of the quarter.
The Company's operating and other expenses are relatively fixed in the short
term. As a result, variations in timing of revenues can cause significant
variations in quarterly results of operations. For example, the Company intends
to make significant expenditures to enhance its sales and marketing activities
and to continue to make significant expenditures for research and development
activities. As such expenditures occur, the Company may be unable to reduce such
expenditures quickly if revenue is less than expected. The Company generally
does not operate with a significant order backlog and a substantial portion of
its revenue in any quarter is derived from orders booked in that quarter, which
are difficult to forecast and which are typically concentrated at the end of the
quarter. Accordingly, the Company's sales expectations are based almost entirely
on its internal estimates of future demand and not on firm customer orders. Due
to the foregoing factors, the Company believes that quarter to quarter
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. In addition,
there can be no assurance the Company will be profitable on a quarter to quarter
or any other basis in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Financial Statements.
CRITICAL NEED FOR ADDITIONAL CAPITAL; NO ASSURANCE OF FUTURE FINANCING
The Company completed its IPO in December 1995; the net proceeds to the
Company were $5,979,000 (including proceeds from the exercise of the
overallotment option in January 1996). The Company estimates that as of
September 30, 1996 its cash and cash equivalents was approximately
6
<PAGE>
$1,530,000. The Company's existing and available cash resources are not
sufficient to fund its operations at desired levels without obtaining additional
outside financing. The Company presently plans to seek up to approximately
$4,500,000 in net proceeds from a convertible debt financing (the "Debt
Financing"). As presently contemplated, the Company would issue 6% convertible
subordinated notes (the "Notes") that would be convertible at the option of the
holder(s) thereof, into shares of Common Stock of the Company in three (3)
separate tranches beginning 60, 90 and 120 days after the latest date of initial
issuance (the "Debt Financing Closing"), at a conversion price ("Conversion
Price") equal to 80% of the Common Stock Price (as defined), subject to certain
adjustments and limitations. All unconverted Notes will convert automatically
into shares of Common Stock of the Company upon the earlier to occur of certain
events, including the first anniversary of the Debt Financing Closing. Although
the Company believes that its existing and available cash resources, together
with the anticipated net proceeds from the Debt Financing, should be sufficient
to meet its needs for at least the next 12 months, there can be no assurance
that such cash resources will be sufficient to satisfy the Company's operating
requirements. The Company's actual capital needs, however, will depend upon
numerous factors, including the progress of the Company's software development
activities, the cost of increasing the Company's sales and marketing activities
and the amount of revenues generated from operations, none of which can be
predicted with certainty. There can be no assurance that the Company will not
require additional capital sooner than currently anticipated. There can be no
assurance that the Debt Financing or any additional required financing will be
available to the Company on acceptable terms, or at all. The inability to
successfully consummate the Debt Financing or to obtain required financing would
have a material adverse effect on the Company's business, financial condition
and results of operation. For example, if the Company is unable to successfully
complete the Debt Financing, it may be required to significantly curtail its
planned operations or seek alternative financing on highly dilutive terms. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Financial Statements.
SUBSTANTIAL DEPENDENCE ON RECENTLY INTRODUCED INTERNET SOFTWARE TOOLS
In the past, DeltaPoint has derived substantially all of its product
revenues from licenses of DeltaGraph, its advanced charting and graphics
software product. However, DeltaPoint's future revenue growth will depend
largely on the successful development, introduction and commercial acceptance of
its recently introduced Internet software tools. These consist of: QuickSite,
its Web page creation and site management product introduced in February 1996;
WebTools, its Web publishing capability tool introduced in March 1996;
WebAnimator, its multimedia authoring tool for the Web introduced in July 1996;
and QuickSite Developer's Edition, its enhanced version of QuickSite for Web
site developers and corporate Intranet developers introduced in September 1996.
Commercial acceptance of the Company's Internet software tools will require the
Company to establish additional distribution channels and sales and marketing
methods, of which there can also be no assurance, because these products will be
targeted to existing customers as well as to a significantly different potential
end user population. There can be no assurance that the Company can successfully
manage the introduction of its existing Internet software tools or any other
potential Internet software tools or that any of its existing or potential
products will achieve significant market acceptance. Failure of any of the
Company's existing or potential products to achieve significant market
acceptance will have a material adverse effect on the Company's business,
financial condition and results of operation. See "Business -- Strategy," "--
Products" and "-- Marketing and Distribution."
DEPENDENCE ON INTERNET
Sales of the Company's Internet software tools will depend in part upon a
robust industry and infrastructure for providing Internet access and carrying
Internet traffic. The Internet is at an early stage of development. There can be
no assurance that the infrastructure or complementary products necessary to make
the Internet a viable commercial marketplace will be developed, or, if
developed, that the Internet will become a viable commercial marketplace. If the
Internet does not become a
7
<PAGE>
viable commercial marketplace, the commercial benefits derived from the
Company's Internet software tools would be materially adversely effected. See
"Business -- Products" and "-- Marketing and Distribution."
RISKS ASSOCIATED WITH RETAIL DISTRIBUTION; SUBSTANTIAL CUSTOMER CONCENTRATION
DeltaPoint sells its products to distributors for resale to certain
retailers, including computer superstores and mass merchandisers. Sales to a
limited number of distributors and retailers have constituted, and are
anticipated to continue to constitute, a significant portion of DeltaPoint's
retail software sales. In particular, revenues from licenses sold to Nippon
Polaroid Kabushiki Kaisha, the Company's Japanese distributor, constituted
approximately 12%, 38%, 35% and 8% of the Company's net revenues for the years
ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996,
respectively. Sales to Ingram constituted approximately 8%, 17%, 13% and 18% of
the Company's net revenues for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1996, respectively. Any termination or
significant disruption of DeltaPoint's relationship with any major distributor
or retailer, or a significant reduction in sales volume attributable to any of
such entities, could, unless or until replaced, materially adversely affect the
Company's business, financial condition and results of operations. A
deterioration in financial condition or other business difficulties of a
distributor or retailer could render the Company's accounts receivable from such
entity uncollectible, which could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that DeltaPoint's existing distributors and retailers will continue
to provide DeltaPoint's products with adequate levels of shelf space or
promotional support. In addition, personal computer hardware and software
companies have generally reported declines in gross margins and greater product
returns as they have increased sales through the mass merchandise distribution
channel. The Company expects that its margins will be similarly affected as it
increases sales through this channel. See "Business -- Marketing and
Distribution."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company's revenues from international operations accounted for
approximately 20%, 42%, 40% and 15% of the Company's net revenues in 1993, 1994
and 1995 and the six months ended June 30, 1996, respectively, of which
approximately 62%, 90%, 87% and 52%, respectively, were derived from sales in
Japan. The Company expects that revenues from these international operations
will continue to represent a large percentage of its net revenues. International
revenues are subject to a number of risks, including greater difficulties in
accounts receivable collection, longer payment cycles, exposure to currency
fluctuations, political and economic instability and the burden of complying
with a wide variety of foreign laws and regulatory requirements. The Company
also believes that it is exposed to greater levels of software piracy in
international markets because of the weaker protection afforded to intellectual
property in some foreign jurisdictions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business --
Strategy" and "-- Marketing and Distribution."
RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DELAYS; RISK OF PRODUCT DEFECTS
The markets in which the Company competes are characterized by ongoing
technological developments, frequent new product announcements and
introductions, evolving industry standards and changing customer requirements.
The introduction of products embodying new technologies and the emergence of new
industry standards and practices can render existing products obsolete and
unmarketable. The Company's future success depends upon its ability on a timely
basis to enhance its existing products, introduce new products that address the
changing requirements of its customers and anticipate or respond to
technological advances, emerging industry standards and practices in a timely,
cost-effective manner. There can be no assurance that the Company will be
successful in developing, introducing and marketing new products or enhancements
to existing products or will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of these products,
or that its new products and product enhancements will adequately meet the
requirements of the marketplace and achieve any significant degree of commercial
acceptance.
8
<PAGE>
Software products such as those offered by the Company often contain errors or
"bugs" that can adversely affect the performance of the product or damage a
user's data. The Company has in the past discovered software defects in its
products that have adversely affected its business and operating results. If the
Company is unable, for technological or other reasons, to develop and introduce
new products or enhancements of existing products in a timely manner or if new
versions of existing products contain unacceptable levels of product defects or
do not achieve a significant degree of market acceptance, or any of the above
situations occur there could be a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Marketing and Distribution" and "-- Research and Development."
COMPETITION
The Company competes on the basis of certain factors, including product
quality, first-to-market product capabilities, product performance, ease of use,
customer support and price. The Company believes it currently competes favorably
overall with respect to these factors.
The markets in which the Company competes are highly competitive and
characterized by rapid technological change, frequent new product introductions,
short product lives, evolving industry standards and significant price erosion
over the life of the product. The Company anticipates increased competition in
these markets from both existing vendors and new market entrants. In the
charting market, the Company has, to date, encountered competition primarily
from larger vendors such as Adobe Systems Incorporated, Microsoft Corporation
("Microsoft"), Software Publishing Corporation, Lotus, Corel and Computer
Associates International, Inc. In the structured drawing market, the Company
has, to date, encountered competition primarily from larger vendors such as
Corel, Visio and Micrografx Incorporated. In the Internet software tools market,
the Company anticipates competition primarily from Netscape Communications
Corporation, Macromedia, Inc., Adobe Systems Incorporated, Microsoft, NetObjects
and Quarterdeck, Inc. In addition, the Company expects that existing vendors and
new market entrants will develop products that will compete directly with the
Company's products and that competition will increase significantly to the
extent that markets for the Company's products grow. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share, any of which could have material adverse effect on the Company's
business, financial condition and results of operations. Most of the Company's
current and potential competitors have substantially greater financial,
technical, marketing, sales and customer support resources, greater name
recognition and larger installed customer bases than the Company. Because there
are minimal barriers to entry into the software market, the Company believes
sources of competition will continue to proliferate. The market for the
Company's products is characterized by significant price competition, and the
Company expects it will face increasing pricing pressures. There can be no
assurance the Company will be able to maintain its historic pricing structure,
and an inability to do so would have a material adverse effect on the Company's
business, financial condition and results of operations. If the Company is
unable to compete effectively against current and future competitors, the
Company's business, financial condition and results of operations will be
materially adversely affected. See "Business -- Competition."
RELIANCE ON MICROSOFT
Microsoft Windows has gained widespread market acceptance as the dominant
computer operating system. Accordingly, the Company's products have been and it
is intended that they will continue to be designed to function in the Microsoft
Windows, Windows '95 or Windows NT environments, and anticipates future products
will also be designed for use in these Microsoft environments. Because the
Company expects that its Microsoft-based applications of these products will
account for a significant portion of new license revenue for the foreseeable
future, sales of these products would be materially and adversely affected by
market developments adverse to Microsoft Windows, Windows '95 and Windows NT.
The Company's ability to develop products using the Microsoft Windows, Windows
'95 and NT environments is substantially dependent on its ability to gain timely
access to, and to develop expertise in, current and future developments by
Microsoft, of which there can be no assurance. Moreover, the abandonment by
Microsoft of its current operating system, product line or strategy, or
9
<PAGE>
the decision by Microsoft to develop and market products that directly or
indirectly compete with the Company's products would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Strategy" and "-- Competition."
DEPENDENCE ON LIMITED NUMBER OF KEY PERSONNEL
The Company's success depends to a significant extent upon the contributions
of several key personnel, some of whom were only recently hired by the Company.
The failure to attract and retain key personnel could have a material adverse
affect on the Company's business, financial condition and results of operations.
See "Management -- Executive Officers and Directors" and " -- Employment
Contracts."
RISKS ASSOCIATED WITH MANAGING GROWTH
In recent years, the growth of the Company's customer base and expansion of
its product line has challenged, and is expected to continue to challenge, the
Company's management and operations, including its sales, marketing, customer
support, research and development and finance and administrative operations. The
Company's future performance will depend in part on its ability to manage
growth, should it occur, both in its domestic and international operations and
to adapt its operational and financial control systems, if necessary, to respond
to changes resulting from such growth. The Company intends to continue to invest
in improving its financial systems and controls in connection with anticipated
increases in the level of its operations. Although the Company believes that its
systems and controls are adequate for its current level of operations, the
Company anticipates that it may need to add additional personnel and expand and
upgrade its financial systems to manage any future growth. The failure of the
Company's management to respond to and manage growth effectively could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RELIANCE ON SOLE PRODUCT ASSEMBLER
All of the Company's software products are currently assembled (i.e., the
disk media, operating manual and other documentation are inserted in shrink wrap
packaging) by a related third party assembler that beneficially owns
approximately 1.7% of the Company's Common Stock as of June 30, 1996. Although
reliance on third party assemblers is common in the software industry and
DeltaPoint believes that other assemblers are available, the Company has no
formal contract with the assembler and the termination or interruption of this
assembly arrangement could have a material adverse effect on the Company's
business, financial condition and results of operations until an alternate
assembler is secured.
RISKS ASSOCIATED WITH PRODUCT RETURNS; PRICE PROTECTION
Consistent with industry practice, the Company allows distributors,
retailers and end users to return products for credits towards the purchase of
additional products. In addition, DeltaPoint's promotional activities, including
free trial and satisfaction guaranteed offers, and competitors' promotional or
other activities could cause returns to increase sharply at any time. Further,
the Company expects that the rate of product returns could increase to the
extent that the Company introduces new versions of its existing products. For
example, product returns may increase above historical levels as a result of new
product introductions. In addition, if the Company reduces its prices, the
Company credits its distributors for the difference between the purchase price
of products remaining in their inventory and the Company's reduced price for
such products. Although the Company provides allowances for anticipated returns
and price protection obligations, and believes its existing policies have
resulted in the establishment of allowances that are adequate and have been
adequate in the past, there can be no assurance that such product returns and
price protection obligations will not exceed such allowances in the future and
as a result will not have a material adverse effect on future operating results,
particularly since the Company seeks to continually introduce new and enhanced
products and is likely to face increasing price competition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
10
<PAGE>
DEPENDENCE ON NONEXCLUSIVE SOFTWARE LICENSE FOR DRAG 'N DRAW-TM-
DeltaPoint publishes Drag 'n Draw under a three-year non-exclusive,
royalty-bearing agreement licensed from a third party. Under the terms of the
license, the Company currently does not have access to the source code for Drag
'n Draw, which may be obtained upon payment of a specified fee. Therefore,
without paying such fee, the Company has no right to the technology underlying
Drag 'n Draw and is dependent on the third party licenser to modify or customize
Drag 'n Draw in a timely manner. The license agreement requires that DeltaPoint
achieve sufficient net revenue from the sale of Drag 'n Draw to pay the licenser
a specified minimum royalty, which minimum was achieved in the first quarter
term of the license. In addition, the license agreement does not contain a
non-compete clause and the licenser is therefore free to allow other third
parties, including competitors of DeltaPoint, to publish a product similar to
Drag 'n Draw. Termination of the license would, or the grant of a non-exclusive
license to a third party on the same or more favorable terms as those granted to
DeltaPoint could, have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Proprietary
Rights and Licenses."
LIMITED INTELLECTUAL PROPERTY PROTECTION; TRADEMARK DISPUTE
The Company's ability to compete effectively depends in large part on its
ability to develop and maintain proprietary aspects of its technology. Despite
precautions taken by the Company, it may be possible for unauthorized third
parties to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Moreover, the laws of some
foreign countries do not protect the Company's proprietary rights in its
products to the same extent as do the laws of the United States. The Company
licenses some of its products under "shrink wrap" license agreements that are
included in products shipped by the Company and are not signed by licensees,
therefore they may be unenforceable under the laws of certain jurisdictions. In
addition, some aspects of the Company's products are not subject to intellectual
property protection.
The Company cannot be certain that others will not independently develop
substantially equivalent or superseding proprietary technology, or that an
equivalent product will not be marketed in competition with the Company's
products, thereby substantially reducing the value of the Company's proprietary
rights. There can be no assurance that any confidentiality agreements between
the Company and its employees will provide adequate protection for the Company's
proprietary information in the event of any unauthorized use or disclosure of
such proprietary information. See "Business -- Proprietary Rights and Licenses."
Since July 1995, the Company has received correspondence from Visio
contesting the Company's right to use the product name Drag 'n Draw and
asserting that it is confusingly similar to a registered trademark owned by
Visio. Although the Company believes that this assertion lacks merit, there can
be no assurance that the ultimate resolution of the matter will not have a
material adverse impact on the Company's business, financial condition or
results of operations. Although the Company is not currently engaged in any
intellectual property litigation or proceedings regarding this matter or any
other similar matters, there can be no assurance that the Company will not
become involved in such proceedings. An adverse outcome in litigation or similar
adversarial proceedings could subject the Company to significant liabilities to
third parties, require disputed rights to be licensed from others or require the
Company to cease the marketing or use of certain products, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company may be required to obtain licenses to
patents or proprietary rights of others, and there can be no assurance that any
licenses required under any patents or proprietary rights would be made
available on terms acceptable to the Company, if at all. See "Business --
Property Rights and Licenses."
11
<PAGE>
CONCENTRATION OF SHARE OWNERSHIP
As of September 30, 1996, the executive officers and directors of the
Company and their affiliates, as a group, will continue to own or control
approximately 26.8% of the outstanding capital stock of the Company. As a
result, such persons and entities will continue to exert significant influence
over the business and affairs of the Company. See "Principal and Selling
Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sale of substantial amounts of the Company's Common Stock in the public
market or the prospect of such sales could materially adversely affect the
market price of the Common Stock. As of September, 1996 the Company had
outstanding 2,254,243 shares of Common Stock. Of these total outstanding shares
of Common Stock 1,798,354 shares are, freely tradeable without restriction under
the Securities Act of 1933, as amended (the "Securities Act"), unless purchased
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act, including 1,265,000 shares sold to the public in the Company's
IPO and (ii) the remaining 455,889 shares are restricted shares ("Restricted
Shares") under the Securities Act. Holders of approximately 654,050 Restricted
Shares have entered into contractual "lockup" agreements providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of the shares of stock owned by them or that could be
purchased by them through the exercise of options to purchase stock of the
Company, until January 20, 1997 without the prior written consent of H.J. Meyers
& Co. In addition 62,500 Shares of Common Stock ("Special Restricted Shares")
and 125,000 of the Warrant Shares offered hereby have entered into contractual
lockup agreements providing that they will not offer, sell, contract to sell or
grant any option to purchase or otherwise dispose of the shares of stock owned
by them or that could be purchased by them through the exercise of options to
purchase stock of the Company, until December 26, 1996 and January 20, 1997,
respectively. The remaining Restricted Shares are not subject to contractual
"lock-up" agreements. If the holders of Special Restricted Shares exercise
registration rights relating to such shares, additional shares of Common Stock
could be available for sale during the periods indicated in this paragraph.
Sales in the public market of substantial amounts of Common Stock (including
sales in connection with an exercise of certain registration rights relating to
approximately shares of Common Stock) or the perception that such sales could
occur could depress prevailing market prices for the Common Stock. In addition,
the Company has agreed to use its best efforts to register for resale under the
Securities Act the shares of Common Stock underlying the Notes before the date
60 days after the Debt Financing Closing and to maintain the effectiveness of
such registration for a minimum of two years. See "Description of Capital Stock
- -- Registration Rights."
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED
The Company has reserved 261,172 shares of Common Stock for issuance upon
exercise of outstanding warrants and 887,223 shares of Common Stock for issuance
to key employees, officers, directors and consultants pursuant to option
exercises or sales of Common Stock under the Stock Plans. The Company has also
issued to the Representative in connection with the initial public offering of
the Company's Common Stock in December 1995, a warrant to purchase 110,000
shares of Common Stock. In addition, if the Company completes the Debt Financing
as presently contemplated, it would be required to reserve shares of Common
Stock for issuance upon exercise of the Notes and the Placement Agent's Warrant.
The existence of the aforementioned warrants, options and notes and any other
options or warrants may prove to be a hindrance to future equity financing by
the Company. Further, the holders of such warrants, options and notes may
exercise them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company. See
"Description of Capital Stock."
VOLATILITY OF STOCK PRICE; NO PRIOR MARKET FOR WARRANTS; POSSIBLE ILLIQUIDITY OF
TRADING MARKET
The Company's stock price has exhibited volatility since the Company's
initial public offering in December 1995. There has been no prior market for the
Company's Warrants and there can be no assurance that a public market for the
Warrants will develop or be sustained after the Offering. In the absence of such
a market, purchasers of the Warrants may experience substantial difficulty in
selling
12
<PAGE>
their securities. The trading price of the Company's Common Stock and Warrants
could be subject to significant fluctuations in response to variations in
quarterly operating results, changes in analysts' estimates, announcements of
technological innovations by the Company or its competitors, general conditions
in the Internet tools and visualization software industries and other factors.
In addition, the stock market is subject to price and volume fluctuations that
affect the market prices for companies in general, and small capitalization,
high technology companies in particular, and are often unrelated to their
operating performance.
The shares of Common Stock are traded on the Nasdaq Small Cap Market, which
is a significantly less liquid market than the Nasdaq National Market, and the
Pacific Stock Exchange, and the Company has submitted an application to permit
trading of the Warrants on the Nasdaq Small Cap Market. Moreover, if the Company
should continue to experience losses from operations, it may be unable to
maintain the standards for continued trading on the Nasdaq Small Cap Market or
the Pacific Stock Exchange, and the shares of Common Stock and the Warrants, if
traded, could be subject to removal from the Nasdaq Small Cap Market or the
Pacific Stock Exchange, as the case may be. Trading, if any, in the Common Stock
and the Warrants would therefore be conducted in the over-the-counter market on
an electronic bulletin board established for securities that do not meet the
Nasdaq Small Cap Market listing requirements, or in what are commonly referred
to as the "pink sheets." As a result, an investor would find it more difficult
to dispose of, or to obtain accurate quotations as to the price of, the
Company's securities. In addition, if the Company's securities were removed from
the Nasdaq Small Cap Market, they would be subject to so-called "penny stock"
rules that impose additional sales practice and market making requirements on
broker-dealers who sell and/or make a market in such securities. Consequently,
removal from the Nasdaq Small Cap Market, if it were to occur, could affect the
ability or willingness of broker-dealers to sell and/or make a market in the
Company's securities and the ability of purchasers of the Company's securities
to sell their securities in the secondary market. In addition, if the market
price of the Company's Common Stock is less than $5.00 per share, the Company
may become subject to certain penny stock rules even if still quoted on the
Nasdaq Small Cap Market. While such penny stock rules should not affect the
quotation of the Company's Common Stock on the Nasdaq Small Cap Market, such
rules may further limit the market liquidity of the Common Stock and Warrants
and the ability of purchasers in this Offering to sell such securities in the
secondary market.
The Company has not previously paid any dividends on its Common Stock and
for the foreseeable future intends to continue its policy of retaining any
earnings to finance the development and expansion of its business. See "Dividend
Policy."
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
As permitted by California General Corporation Law, the Company has included
in its Restated Articles of Incorporation a provision to eliminate the personal
liability of its directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors, subject to certain exceptions. In addition,
the Bylaws of the Company provide that the Company is required to indemnify its
officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary, and the
Company is required to advance expenses to its officers and directors as
incurred in connection with proceeding against them for which they may be
indemnified. The Company has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the California General
Corporation Law. See "Management -- Limitations on Liability and Indemnification
Matters."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq Small Cap Market under
the symbol DTPT and on the Pacific Stock Exchange under the symbol DTP.P. The
table below sets forth the high and low closing sale prices of the Common Stock
for the periods indicated, as reported by the Nasdaq Small Cap Market.
13
<PAGE>
Prior to this offering, there has been no public market for the Warrants,
and there can be no assurance that an active market will develop. The Company
plans to submit an application to list the Warrants on the Nasdaq Small Cap
Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Fourth quarter (from December 20,1995)............................................. $ 8.75 $ 8.00
YEAR ENDED DECEMBER 31, 1996
First quarter...................................................................... $ 9.75 $ 6.50
Second quarter..................................................................... $ 17.25 $ 9.50
Third Quarter...................................................................... $ 13.75 $ 5.87
Fourth quarter (through October 11, 1996).......................................... $ 11.25 $ 9.75
</TABLE>
On October 11, 1996, the closing sale price for a share of the Company's
Common Stock, as reported on the Nasdaq Small Cap Market, was $11.25.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock, and the Company currently intends to retain any future earnings to fund
the development of its business and therefore does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at June 30, 1996:
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
(IN
THOUSANDS)
<S> <C>
LONG-TERM DEBT........................................................................... $ 0
-------------
-------------
SHAREHOLDERS' EQUITY:
PREFERRED STOCK, NO PAR VALUE, 4,000,000 SHARES AUTHORIZED, NONE ISSUED OR
OUTSTANDING........................................................................... $ --
COMMON STOCK, NO PAR VALUE, 25,000,000 SHARES AUTHORIZED, 2,222,243 SHARES ISSUED AND
OUTSTANDING; (1)...................................................................... $ 13,057
ACCUMULATED DEFICIT.................................................................... (11,607)
-------------
TOTAL SHAREHOLDERS' EQUITY........................................................... $ 1,450
-------------
TOTAL CAPITALIZATION............................................................... $ 1,450
-------------
-------------
</TABLE>
- ------------------------
(1) Excludes: (i) warrants outstanding as of June 30, 1996 to purchase 371,172
shares of Common Stock, (ii) options outstanding as of June 30, 1996 to
purchase 653,133 shares of Common Stock (iii) up to 555,556 shares of Common
Stock issuable upon exercise of Notes that may be issued in the proposed
Debt Financing, based upon an assumed conversion price of $9.00 per share,
and (iv) up to 555,556 shares of Common Stock that may be issuable upon
exercise of the Placement Agent's Warrant that would be issued in the
proposed Debt Financing. See "Management -- 1990 Key Employee Incentive
Stock Plan," "Management -- 1992 Non-Statutory Stock Option Plan,"
"Management -- 1995 Stock Option Plan," "Description of Capital Stock --
Warrants" and Notes 5, 8 and 9 of Notes to Financial Statements.
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Financial Statements and related Notes thereto appearing elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The statement of operations data for the years ended
December 31, 1994 and 1995 and the balance sheet data at December 31, 1994 and
1995 have been derived from the audited financial statements of the Company
included elsewhere in this Prospectus. The statement of operations data for the
six months ended June 30, 1995 and 1996 and the balance sheet data at June 30,
1996 are derived from unaudited financial statements of the Company. The
unaudited financial statements, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations for the periods. The results of
operations for the six months ended June 30, 1996 are not necessarily indicative
of results that may be expected for the full year or in any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED JUNE
31, 30,
---------------------- ----------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT FOR PER SHARE
DATA):
Net revenues.......................................................... $ 4,885 $ 4,043 $ 2,261 $ 1,893
Cost of revenues...................................................... 962 1,337 714 621
---------- ---------- ---------- ----------
Gross profit........................................................ 3,923 2,706 1,547 1,272
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing................................................. 1,636 1,922 759 2,051
Research and development............................................ 930 2,036 389 1,088
General and administrative.......................................... 839 1,234 588 961
---------- ---------- ---------- ----------
3,405 5,192 1,736 4,100
---------- ---------- ---------- ----------
Income (loss) from operations......................................... 518 (2,486) (189) (2,828)
Interest income (expense)............................................. (168) (146) (61) 39
---------- ---------- ---------- ----------
Net income (loss)..................................................... $ 350 $ (2,632) $ (250) $ (2,789)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per share (1)....................................... $ 0.38 $ (2.42) $ (0.25) $ (1.27)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Shares used to compute net income (loss) per share (1)................ 997 1,086 1,001 2,193
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- -----------
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Working capital (deficit).................................................... $ (2,050) $ 2,915 $ 764
Total assets................................................................. 1,147 6,764 4,689
Current liabilities.......................................................... 2,970 3,315 3,239
Mandatorily redeemable convertible preferred stock........................... 4,177 -- --
Total shareholders' equity (deficit)......................................... $ (6,041) $ 3,449 $ 1,450
</TABLE>
- ------------------------
(1) For an explanation of the number of shares used to compute net income (loss)
per share, see Note 1 of Notes to Financial Statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SECTION AND OTHER PARTS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW AND IN "RISK FACTORS" AND "BUSINESS."
OVERVIEW
DeltaPoint was incorporated on February 1, 1989 to design, develop and
market visualization software products for personal computers. DeltaPoint
commenced shipments of its initial product, DeltaGraph, at the end of 1989. In
June 1995, the Company shipped the initial version of Drag 'n Draw for Windows.
In November 1995, the Company acquired technology required to develop
WebAnimator, a multimedia authoring tool for the Web. In December 1995, the
Company acquired technology to develop QuickSite, a Web site creation and
management tool which was released in February 1996. The Company introduced
WebTools in March 1996, WebAnimator in July 1996 and QuickSite Developer's
Edition in September 1996. The Company plans to incur additional expenditures to
develop Internet software tools or new versions of existing software tools over
the next several quarters. Although the Company has historically derived
substantially all of its revenues from charting and graphics software products
for desktop applications, the Company's strategy is to realize a significant and
growing percentage of future revenues from the sale of Internet software tools.
The Company's revenues consist of license revenues from sales of software
products to distributors, resellers and end users. In addition, the Company
derives license revenues from royalty and packaging agreements with certain
customers. Under these agreements, the Company typically receives a large
percentage of the aggregate revenues in the form of a nonrefundable royalty paid
upon shipping of the master copy of software, which allows the customer to
license a specified number of copies of the Company's software, and a smaller
percentage of aggregate revenues in the form of packaging fees, which are paid
to the Company based on the manufacturing cost of products that the Company
packages and ships for the customer over the life of the agreement. As a result,
these agreements can lead to quarterly fluctuations in revenues and gross
profit.
Software product sales are recognized upon shipment of the product, net of
appropriate allowances for estimated returns. Revenues from software royalty and
packaging agreements are recognized upon shipment of a master copy of the
software product and packaging if no significant vendor obligations remain under
the term of the license agreements and any amounts to be paid are nonrefundable.
Payments received in advance of revenue recognition are recorded as deferred
revenue. The Company grants distributors and resellers certain rights of return,
price protection and stock rotation rights on unsold merchandise. Accordingly,
reserves for estimated future returns and credits for price protection and stock
rotation rights are accrued at the time of shipment.
The Company sustained significant operating losses in 1992 and 1993 as a
result of expenses incurred in connection with the introduction of the initial
Windows version of DeltaGraph and the Company's attempt to market and sell this
product primarily through retail channels (including mass merchandisers and
other retail stores). The Company's sales through these channels were lower than
anticipated during 1992 and 1993. Since the first quarter of 1994, the Company
has focused on marketing and selling DeltaGraph through direct channels to end
users (including direct mail and catalogs).
Net revenues declined from $4,885,000 in 1994 to $4,043,000 in 1995. The
decline of net revenues was comprised of a decline in domestic revenues, from
$2,833,000 in 1994 to $2,433,000 in 1995, and a decline in international
revenues, from $2,052,000 in 1994 to $1,610,000 in 1995. Net revenues declined
primarily because of lower than anticipated customer demand for the Company's
Windows version of DeltaGraph, the de-emphasis of sales through retail
distribution channels and sales of graphics utilities products, the reduction of
sales and marketing expenditures until late, 1995 due to
17
<PAGE>
cash constraints, and a refocusing of the Company's business into the Internet
market. The Company had anticipated that sales of its Windows version DeltaGraph
would be above historical sales levels of DeltaGraph. The Company believes that
net revenues may remain flat or continue to decline until it has realized
significant revenues from recently introduced Internet software tools, such as
QuickSite, QuickSite Developer's Edition, WebTools and WebAnimator, and from
products that the Company develops or acquires in the future.
The Company's gross profit has historically fluctuated from quarter to
quarter based on the mix of revenues derived from software product sales, and,
for the reasons discussed above, royalty fees and packaging fees. The Company
obtains higher than average gross profit on revenues derived from royalty fees
on its traditional charting and graphing software products because of the
negligible costs associated with generating such revenues, and lower than
average gross profit on packaging fees from these products, because packaging is
sold at a price based on the manufacturing cost of the finished software
product. The Company's gross profit has also fluctuated based on the mix of
product revenues derived from sales of the Company's higher-margin DeltaGraph
product and sales of lower-margin graphics utilities products where the Company
must pay royalties to third parties. The Company believes these factors may
impact its gross profit in the future. In addition, to the extent the Company's
QuickSite and WebAnimator product revenues increase, gross profit may be
negatively impacted in the future as the Company must pay royalties to third
parties on sales of these products. See "Risk Factors -- Substantial Dependence
on Recent and Anticipated Product Introductions" and "-- Dependence on
Nonexclusive Software License for Drag 'n Draw."
The Company's limited operating history makes the prediction of future
operating results difficult or impossible. Future operating results will depend
on many factors, including demand for the Company's products, the mix of
revenues derived from product sales and royalty and packaging fees, the level of
product and price competition, the Company's success in expanding its direct
sales efforts for its software products and indirect distribution channels for
its new or anticipated Internet products and the ability of the Company to
successfully develop and market new products and control costs. In particular,
the Company's ability to achieve revenue growth and profitability in the future
will be significantly dependent on the timely introduction and market acceptance
of products the Company has recently introduced or is developing and the ability
of the Company to successfully develop products for new and existing markets.
The Company incurred a loss for the year ended December 31, 1995, in part
due to a charge to operations recorded in the fourth quarter of approximately
$1,240,000 resulting from the acquisition of certain Internet technologies for
the portion of the purchase price determined to be in-process research and
development and a decline in revenues from traditional products. In addition,
the Company incurred a loss of $2,789,000 for the first half of 1996, in part
due to a continued decline in revenues from traditional products that has not
been offset by revenues from recently introduced products. The Company expects
to incur losses from operations for at least the next 12 months, and perhaps
longer, particularly if revenues do not increase significantly above current
levels. There can be no assurance that the Company will not incur significant
additional losses until it successfully develops or acquires new products or
enhancements to existing products that generate significant revenues and
profits. See "Risk Factors -- Recent and Expected Losses; Accumulated Deficit;
Quarterly Fluctuations in Performance."
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain statement
of operations data as a percentage of net revenues.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues........................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................................... 19.7 33.1 31.6 32.8
----- ----- ----------- -----------
Gross profit....................................... 80.3 66.9 68.4 67.2
----- ----- ----------- -----------
Operating expenses:
Sales and marketing.................................. 33.5 47.5 33.6 108.4
Research and development............................. 19.0 50.4 17.2 57.5
General and administrative........................... 17.2 30.5 26.0 50.8
----- ----- ----------- -----------
Total operating expenses........................... 69.7 128.4 76.8 216.7
----- ----- ----------- -----------
Income (loss) from operations.......................... 10.6 (61.5) (8.4) (149.4)
Interest income (expense).............................. (3.4) (3.6) (2.7) 2.1
----- ----- ----------- -----------
Net income (loss).................................. 7.2% (65.1)% (11.1)% (147.3)%
----- ----- ----------- -----------
----- ----- ----------- -----------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
NET REVENUES. Net revenues for the six month period ended June 30, 1996
decreased by 16.3% to $1,893,000 from $2,261,000 for the corresponding period in
the prior year. The decrease in revenue is primarily due to a new release of the
Company's Windows version of DeltaGraph for the U.S. and Japan in the six month
period ended June 30, 1995 and no corresponding releases in the six month period
ended June 30, 1996. In addition, the decrease in revenue was due to the refocus
of the Company's business to the Internet market. For the six month period ended
June 30, 1996, international revenue decreased to 14.8% of net revenues compared
to 42.5% for the period ended June 30, 1995. The decrease in international
revenues was due to fewer Japanese license agreements and the timing of new
product introductions including the Windows version of DeltaGraph. The Company's
domestic and international sales are principally denominated in United States
dollars. Movements in currency exchange rates did not have a material impact on
the total revenue in the periods presented. However, there can be no assurance
that future movements in currency exchange rates will not have a material
adverse effect on the Comapany's future revenues and results of operations.
GROSS PROFIT. Cost of revenues consists of direct material, labor,
overhead, freight, post contract customer support, royalties and contract
manufacturing costs associated with the manufacturing of the Company's products.
The Company believes that these and other factors will contribute to the
fluctuations of gross profit as a percentage of revenue. Gross profit for the
six month period ended June 30, 1996 decreased as a percentage of net revenues
to 67.2% from 68.4% for the corresponding period in the prior fiscal year. The
Company's gross profit has varied from quarter to quarter as a result of changes
in customer and product mix, inventory write-offs due to new product releases,
third party royalty obligations for the Company's recently released Internet
products and packaging revenues to the Company's Japanese distributor. To the
extent that the newly released QuickSite and WebAnimator products increase in
the future as a percentage of the Company's overall net revenues and to the
extent that the Company continues to release updated versions of the existing
product line, the Company's gross profit as a percentage of revenues will
continue to vary.
SALES AND MARKETING. Sales and marketing expenses include sales
commissions, compensation of sales and marketing personnel and cost of
promotional activities. Sales and marketing expenses for the six month period
ended June 30, 1996 increased to $2,051,000 or 108.4% of net revenues compared
to $759,000 or 33.6% of sales for the corresponding period in the prior year.
The increase in sales and marketing expenses in absolute dollars and as a
percentage of net revenues was primarily due to an
19
<PAGE>
increase in headcount and an increase in the use of direct mail, telemarketing,
consultants, print advertising, tradeshows and channel promotions used to
promote DeltaGraph, QuickSite, and WebAnimator. The Company expects that sales
and marketing expenses will increase in future periods because the Company
intends to add sales and marketing personnel to support the anticipated
introduction of new products and updated versions of the Company's existing
products.
RESEARCH AND DEVELOPMENT. Research and development expenses for the six
month period ended June 30, 1996 increased to $1,088,000 or 57.5% of net
revenues compared to $389,000 or 17.2% of net revenues for the corresponding
period in the prior year. The increase in research and development expenses was
primarily due to a staffing increase for the development of QuickSite,
WebAnimator and DeltaGraph. In addition, the Company retained several
consultants to aid in the development process. The Company expects that research
and development expenses will increase in future periods due to further
development of new products and updated and cross platform versions of the
Company's existing products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the six
month period ended June 30, 1996 increased to $961,000 or 50.8% of net revenues
compared to $588,000 or 26.0% of net revenues for the corresponding period in
the prior year. The increase in general and administrative expenses was
primarily attributable to a severance expense charge of $505,000 relating to the
departure of the Company's former Chief Executive Officer.
PROVISION FOR INCOME TAXES. There was no provision for taxes during the six
month periods ended June 30, 1996 and 1995 due to net operating losses.
YEARS ENDED DECEMBER 31, 1994 AND 1995
NET REVENUES. Net revenues decreased by 17.2% from $4,885,000 in 1994 to
$4,043,000 in 1995. Net revenues declined primarily because of lower than
anticipated sales of the Company's Windows version of DeltaGraph, the
de-emphasis of sales through indirect distribution channels and sales of
graphics utilities products, an overall reduction of sales and marketing
expenditures and a refocusing of the Company's business into the Internet
market. International sales accounted for 42.0% of net revenues during 1994 and
40.0% for 1995. The decrease in international revenues was partly due to slower
than anticipated DeltaGraph sales in the fourth quarter of 1995 and the delay in
release of the Japanese version of the Drag 'n Draw product. The Company's
domestic and international sales are principally denominated in United States
dollars. Movements in currency exchange rates did not have a material impact on
the total revenue in the periods presented. However, there can be no assurance
that future movements in currency exchange rates will not have a material
adverse effect on the Company's future revenues and results of operations.
COST OF REVENUES. Cost of revenues consists of direct material, labor,
overhead, freight, post contract customer support, royalties and contract
manufacturing costs associated with the manufacturing of the Company's products.
Cost of revenues increased from $962,000, or 19.7% of net revenues, in 1994 to
$1,337,000, or 33.1% of net revenues in 1995. The increase in cost of revenues
was primarily due to royalties paid by the Company on sales of Drag 'n Draw in
1995 and to a lesser extent translation costs associated with the French version
of DeltaGraph. The increase in cost of revenues on a percentage of net revenues
in 1994 to 1995 was also partially caused because overhead and related costs did
not decrease at the same rate as net revenues in 1995.
GROSS PROFIT. The Company's gross profit has varied from quarter to quarter
as a result of changes in the mix of revenues derived from license fees from
sales to the Company's Japanese distributor and other customers. The Company
believes that the decrease in gross profit on a percentage basis for the year
ended December 31, 1995 was the result of sales of lower margin upgrades of
DeltaGraph in Japan and royalties paid by the Company in connection with initial
sales of Drag 'n Draw.
SALES AND MARKETING. Sales and marketing expenses include sales
commissions, compensation of sales and marketing personnel and cost of
promotional activities. Sales and marketing expenses
20
<PAGE>
increased by 17.5% from $1,636,000 in 1994 to $1,922,000 in 1995. The increase
in sales and marketing expenses in absolute dollars and as a percentage of net
revenues was primarily due to an increase in the use of direct mail,
telemarketing and channel promotions used to promote Drag 'n Draw.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
118.9% from $930,000 in 1994 to $2,036,000 in 1995. The increase in research and
development expenses in absolute dollars and as a percentage of net revenues was
due to a charge to operations of $1,240,000 resulting from the acquisition of
certain Internet technologies for the portion of the purchase price determined
to be in-process technology as such technology had not reached technological
feasibility and had no alternative future use. This increase in research and
development expenses was offset by a decrease in spending in research and
development because of a lack of sufficient cash during most of 1995 to
adequately fund development of anticipated new products. The increase was also
offset by the reduced development of the Company's graphics utilities products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
47.1% from $839,000 for 1994 to $1,234,000 for 1995. The increase in general and
administrative expenses in absolute dollars and as a percentage of net revenues
was primarily attributable to additional provisions for specific doubtful
accounts receivable related to receivables from a distributor which is
experiencing financial difficulties. At June 30, 1996, the distributor had no
outstanding payment obligations to the Company. Management believes that the
allowance for doubtful accounts receivable is adequate to provide for losses
incurred in connection with the ultimate realization of accounts receivable.
PROVISION FOR INCOME TAXES. There was no provision for taxes in 1994 or
1995 due to net operating losses and the availability of net operating loss
carryforwards. Due to certain changes in the Company's ownership, the net
operating loss carryforwards available to offset against future income is
limited to approximately $2,345,000 or $142,000 per year. If certain additional
changes in the Company's ownership occur, the Company's use of net operating
loss carryforwards may be subject to a lower annual limitation.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had a working capital balance of $764,000
and shareholders' equity of $1,450,000. The Company has financed its operations
primarily through private and public sales of equity securities, borrowings
under a term loan and the private sale of debt securities. Since inception, the
Company has received $13,129,000 in proceeds from private sales of preferred
stock and from the Company's initial public offering of common stock and the
related overallotment exercise in December 1995 and January 1996, respectively.
The Company used net cash in operations of $308,000 in 1994 and $1,646,000
in 1995. Net cash used in 1994 consisted primarily of decreases in accounts
payable and accrued liabilities, partially offset by net income of $350,000 and
depreciation and amortization of $241,000. Net cash used in 1995 consisted
primarily of a net loss of $2,632,000, an increase in accounts receivable of
$642,000, largely because of significant sales of the Company's products in the
last 30 days of the third quarter of 1995 with extended payment terms, a
decrease in accounts payable of $751,000, partially offset by a $1,240,000
charge to operations from the acquisition of certain Internet technologies for
the portion of the purchase price determined to be in-process technology and an
increase in accrued liabilities of $670,000.
The Company used net cash in operations of $2,300,000 in the six-month
period ended June 30, 1996 and $909,000 for the corresponding period of the
prior year. Net cash used in the six-month period ended June 30, 1996 consisted
primarily of a net loss of $2,789,000 offset by a decrease in accounts
receivable of $336,000 and a decrease in inventories of $65,000. Net cash used
in 1995 consisted primarily of a net loss of $250,000 and a decrease in accounts
payable of $627,000.
21
<PAGE>
The Company obtained net cash from financing activities of $359,000 in 1994
and $6,499,000 in 1995. Net cash obtained in 1995 consisted primarily of
$5,143,000 in net proceeds in 1995 from the Company's initial public offering of
common stock completed in 1995 and other equity financing.
Net cash provided by financing activities totalled $745,000 in the six-month
period ended June 30, 1996 and $927,000 for the corresponding period of the
prior year. Net cash from financing activities in the six-month period ended
June 30, 1996 consisted primarily of $831,000 in net proceeds from the exercises
of the Company's overallotment from the initial public offering of common stock
offset by $77,000 in expenses relating to the registration statement on Form
SB-2 for the Company's Series E Preferred Stock and related warrants. Net cash
from financing activities in the six-month period ended June 30, 1995 consisted
primarily of proceeds from the sale of preferred stock for a total of
$1,050,000.
The Company's capital expenditures related primarily to purchases of
personal computers and computer workstations to support the Company's
development work and other property and equipment. For the year ended December
31, 1995, the Company's capital expenditures totaled approximately $29,000. The
Company anticipates capital expenditures for 1996 will be approximately $350,000
due to an anticipated increase in personal computers and computer workstation
equipment needs to support the increased development work. For the six month
period ended June 30, 1996 the Company's capital expenditures totaled
approximately $272,000.
In November and December of 1995, the Company acquired technology required
to develop WebAnimator, QuickSite, and WebTools. The Company acquired the
technologies for an aggregate purchase price of $1,690,000 of which $1,090,000
will be paid in aggregate cash payments. As of June 30, 1996, $815,000 of these
aggregate cash payments had been made. The Company recorded a charge of
$1,240,000 to operations in 1995 from the acquisition of these technologies for
the portion of the purchase price determined to be in-process technology.
The Company estimates that as of September 30, 1996 its cash and cash
equivalents was approximately $1,530,000. The Company's existing and available
cash resources are not sufficient to fund its operations at desired levels
without obtaining additional outside financing. The Company plans to seek up to
approximately $4,500,000 in net proceeds from the proposed Debt Financing.
Although the Company believes that its existing and available cash resources,
together with the anticipated net proceeds from the Debt Financing, should be
sufficient to meet its cash requirements for at least the next 12 months, there
can be no assurance that such cash resources will be sufficient to satisfy the
Company's operating requirements. To the extent the Company continues to incur
losses or grows in the future, its operating and investing activities may use
cash and, consequently, such losses or growth may require the Company to obtain
additional sources of financing. In addition, the Company's actual capital needs
will depend upon numerous factors, including the progress of the Company's
software development activities, the cost of increasing the Company's sales and
marketing activities and the amount of cash generated from operations, none of
which can be predicted with certainty. There can be no assurance that the
Company will not require additional capital sooner than currently anticipated.
There can be no assurance that the Debt Financing or any additional required
financing will be available to the Company on acceptable terms, or at all. The
inability to successfully consummate the Debt Financing or to obtain required
financing would have a material adverse effect on the Company's business,
financial condition and results of operation. For example, if the Company is
unable to successfully complete the Debt Financing, it may be required to
significantly curtail its planned operations or seek alternative financing on
highly dilutive terms. See "Risk Factors -- Future Capital Needs; No Assurance
of Future Financing."
22
<PAGE>
BUSINESS
DeltaPoint, Inc. ("DeltaPoint" or the "Company") develops and markets
Internet software tools designed to allow users to effectively and easily
create, manage and enhance sites on the Internet's World Wide Web. The Company
introduced QuickSite in February 1996 to enable novice and experienced site
publishers to rapidly create, maintain and enhance robust Web sites. Since its
introduction, the Company believes that QuickSite has received more awards than
any other Web site creation and management tool, winning the PC WEEK Analyst's
Choice award in March 1996, WINDOWS MAGAZINE recommended seal and the PC WEEK
Labs IT Excellence Award in April 1996, and the PC COMPUTING 5 Star rating in
June 1996. The Company introduced WebTools in March 1996 to allow developers,
value-added resellers ("VARs") and corporate MIS directors to add Web publishing
capabilities to existing applications and introduced WebAnimator in July 1996 to
allow a broad range of Web users to easily add multimedia and interactive
animation to a Web site. In addition, in September 1996 the Company introduced
QuickSite Developer's Edition, a new high end version of QuickSite designed for
professional Web developers and corporate Intranet developers.
A key element of the Company's objective of becoming a leading Internet
software tools provider is to increase its strategic alliances with key
partners. In September 1996, the Company entered into an agreement with IBM to
develop and license a customized version of QuickSite for inclusion in IBM's
recently announced World Distributor, an on-line interactive electronic commerce
service. The Company has also entered into agreements with Borland
International, Sony, McGraw-Hill, Earthlink, Compaq and Netcom Interactive to
distribute existing or planned versions of QuickSite with their products or
services.
In the past, the Company has derived most of its revenues from the sale of
charting and graphics software products such as DeltaGraph, an advanced
multi-platform charting and graphics product. The Company plans to de-emphasize
its charting and graphing products and expects that they will represent a
declining percentage of its business.
BACKGROUND
The rapid growth of the Internet, combined with the emergence of the World
Wide Web, the graphical multimedia-rich portion of the Internet, has resulted in
the development of the Internet as a new mass communications medium. The demand
to access the World Wide Web has fueled the rapid growth and proliferation of
"Web browsers," such as the Netscape Navigator and Microsoft Internet Explorer,
which allow users to passively view information on the World Wide Web. In
addition, search engines such as those provided by Yahoo! and InfoSeek simplify
the process of locating information on the Web.
Increasingly, however, Web users are no longer satisfied simply to browse
and search the Web. The worldwide, cost-effective communication benefits of the
Web are leading many individuals and organizations to actively "publish"
information on the Web by creating a Web "site," a collection of individual Web
pages, each hand-crafted using a relatively new and quickly evolving tagging
language called HTML.
Many large corporations, having already established sophisticated Web sites
for external communications, and are now encouraging smaller internal groups and
departments to build private "Intranet" Web sites. Small businesses, home-based
businesses, individuals and others are also creating Web sites to reach target
audiences.
For many individuals and organizations, establishing a robust Web site
remains a time-consuming and expensive proposition. The free-form nature of HTML
has inhibited the emergence to date of a standard for HTML page creation.
Further, an increasing number of competing extensions and modifications to the
HTML language continue to be proposed, making it difficult for Web site
publishers to support the latest technical advances.
A first generation of third-party Web "page creation" tools has emerged.
These limited-function tools focus on the creation of a single page at a time.
Content within pages and between pages must be
23
<PAGE>
manually linked and manually maintained. Further, the content of the site has no
inherent structural intelligence, making global changes, consistency of design
and reorganization of sections difficult and time-consuming. A second generation
of Web page creation tools, such as Microsoft's Front Page and NetObjects'
Fusion, has also been introduced. Although this generation offers some
ease-of-use improvements over the first generation, these products continue to
be based on architectures that primarily emphasize the layout and design aspects
of individual pages.
The Company believes that a compelling Web site consists of a robust and
growing collection of interrelated pages and links. As a result, the Company
believes that effective software tools for creating and managing Web sites must
not only simplify initial content creation but enable site authors to easily
update, maintain, expand and manage their sites on an ongoing basis, regardless
of whether the sites consist of five pages or 5,000 pages. Further, the Company
believes that an open architecture is important to maintaining maximum
flexibility as Internet standards emerge and evolve rapidly.
DELTAPOINT APPROACH
The Company offers a family of products that enables Web site creators to
easily and cost-effectively generate, manage and enhance Web content using a
structured approach. QuickSite and QuickSite Developer's Edition, the Company's
Web site creation and management products, utilize an advanced product design
featuring a database architecture and incorporate a series of query-based
"wizards" that guide the site developer through a "point and click" process that
results in a completed, fully linked Web site structure in minutes. The
Company's database design enables the automatic generation and maintenance of
links between Web pages, eliminating or reducing the need for any programmer or
technical intervention. Additionally, this approach enables all components of an
entire Web site to be captured, collected and easily managed as fully indexed
data objects within the database engine. The Company believes that its database
approach to Web site creation and management provides fundamental advantages
over existing page creation methodologies which will become increasingly
apparent as the volume and complexity of content contained in the Web sites
increases.
The Company's Web site creation and management tools are designed with full
client-side functionality to free the site designer from costly server
connection time during the site creation and testing process. Further, these
tools utilize an open architecture that provides browsers and server
independence. The Company intends to incorporate this level of flexibility into
all of its Internet software tools.
DELTAPOINT STRATEGY
DeltaPoint's objective is to be a leading provider of software products that
enable users of all experience levels to quickly and easily create, manage and
enhance compelling sites on the World Wide Web. The Company's strategy for
achieving this objective includes the following elements:
CREATE BRAND AWARENESS. The Company intends to increase its brand awareness
through a coordinated strategy of building brand equity in the QuickSite product
name, emphasizing QuickSite's Web site management capabilities and database
architecture, and demonstrating its growing acceptance through a growing array
of relationships with industry leaders. Since March 1996, the Company has
entered into agreements with companies such as IBM, Borland International, Sony,
McGraw-Hill, Earthlink, Compaq and Netcom Interactive. To build brand identity,
the Company also plans to increase and expand its print and online advertising
efforts and to increase its participation in major industry conferences and
trade shows.
EXPAND DISTRIBUTION. The Company plans to expand distribution of its
Internet software tools by increasing its retail distribution relationships to
ensure wide commercial availability of its shrink-wrapped products and by
partnering with alternative channel and vertical segment leaders, including
distribution and co-marketing relationships with key PC manufacturers and
Internet Service Providers (ISPs) that can increase market penetration and that
offer revenue sharing business models.
24
<PAGE>
BROADEN PRODUCT OFFERING. The Company intends to identify and develop,
license or acquire technologies or products to extend market position in two
areas: Web site creation and Web site management. In the area of Web site
creation, the Company intends to continue expanding the range of pre-designed
templates, graphics, forms and wizards contained within the QuickSite product.
The Company also plans to develop and market complementary content enhancement
products, such as WebAnimator, which allow Web site creators to improve content
through special effects. In the area of Web site management, the Company expects
to continue to update and enhance the management features of QuickSite.
DEVELOP PRODUCTS THAT SUPPORT OPEN ARCHITECTURE. The Company plans to
introduce Internet software tools based on an open, client-based architectures.
The Company intends to develop Web products which will support any widely used
Web browser, including Netscape Navigator and Microsoft Internet Explorer, as
well as any major server software environment, including Windows NT, Netscape
Commerce Server and Unix. Additionally, the Company plans to architech
additional products that will enable the entire Web site creation process to
occur on a client-side desktop personal computer.
TARGET CORPORATE INTRANET MARKET. The design of the Company's Internet
software tools enable them to be used with little or no modification in the
corporate Intranet environment. The Company plans to develop and implement a
focused effort to target the Intranet marketplace. Specifically, the Company
plans to create a dedicated market development and sales team with specialized
expertise in providing corporate solutions.
DELTAPOINT PRODUCTS
The Company has introduced four Internet software tools in 1996. QuickSite
is designed as a low cost, easy to use Web site creation and management tool
that is designed to enable novice and experienced site publishers to rapidly
create, maintain and grow a robust Web site. QuickSite Developer's Edition
offers additional functionality and is targeted for software programmers,
Webmasters, commercial Web site developers and corporate Web site managers.
WebTools has been designed to enable developers, VAR's and corporate MIS
directors to add Web publishing capabilities to existing applications.
WebAnimator is designed to allow a broad range of Web users to easily add
multimedia and interactive animation to a Web site.
The Company's charting and graphics software products currently include
DeltaGraph, a cross platform application which is used to transform numerical
data into charts and graphs.
QUICKSITE
In December 1995, the Company acquired an exclusive license to core
technologies which serve as the basis for a family of Web site creation and
management software tools. QuickSite, the first of these tools which began
shipping to retail distributors on March 28, 1996, is designed to enable non-
technical individuals and organizational users to rapidly create and efficiently
manage a Web site. The following are the key attributes of the DeltaPoint
solution:
EASE OF SITE CREATION. The Company has designed a collection of site
creation wizards aimed at eliminating the initial stumbling blocks encountered
by novice Web site authors. These wizards guide the user through a
point-and-click process that designs and builds an entire Web site, complete
with page links, table of contents, and other important site creation elements
such as e-mail return addresses, copyright notices, consistent menu designs and
flags for pages containing special content. The Company believes that QuickSite
can significantly shorten the time required to design and build a Web site.
Wizards also enable users to select and modify the stylistic elements of a site
such as the colors and textures of backgrounds, graphics, headers and footers.
By masking the complexities of HTML, Java and other site creation conventions,
these wizards eliminate the requirement for Web site authors to develop
specialized technical expertise before they can become productive.
EASILY UPDATABLE CONTENT. The Company's product architecture passively
enforces a Web structure such that as the author populates the site, content
components are captured as data objects which
25
<PAGE>
are automatically indexed and stored within the product's database engine. As a
result, content can be more quickly updated and global changes can be reflected
through an entire Web site with a few simple keystrokes. Further, any content
element, including text, graphics, data files, and images, can be stored and
re-used, savings users time as they build additional sites or add to existing
sites.
EXTENSIBLE ARCHITECTURE. By employing a componentized architecture, the
Company provides an extensible platform that can adapt as new technical
innovations evolve. Tables, forms, and other new extensions to HTML, as well as
user-definable functions, are supported through a point-and-click component
library management system.
BROWSER AND SERVER INDEPENDENCE. QuickSite supports most Web browsers,
including Netscape Navigator and Microsoft Internet Explorer, which together are
estimated to account for over 90% of the current marketplace. Additionally,
QuickSite is architected to enable all the entire Web site creation process to
occur on a client-side desktop personal computer. The Company believes that this
client-biased approach provides several key advantages, including: (i)
elimination of dependencies on any single third-party Internet or network-server
technology; (ii) lower overall cost by eliminating the need to connect to a
server for interim testing of an in-progress site; and (iii) reduced risk of
investing in the "wrong" server environment.
QUICKSITE DEVELOPER'S EDITION
QuickSite Developer's Edition is designed for Internet Web site developers
and corporate Intranet developers. The QuickSite Developer's Edition gives
professional Web site developers significantly enhanced control over the web
site creation and management process. Among the new features included in
QuickSite Developer's Edition are: (i) support for the emerging WWW Consortium
web style sheets standard; (ii) 3D Web Site Builder, a visual VRML (virtual
reality mark-up language) creation tool from Virtus included with the product;
(iii) advanced web site automation, including the QuickScript scripting
language, powerful page macros and unique caret technology that automate
repetitive tasks that bog down large-scale projects; (iv) embedded "graphics
factory" technology, based on a variety of DigitalStyle templates, that allows
developers to create custom graphics and style elements on-the-fly, and also
helps to enforce stylistic consistency throughout a site; and (v) sophisticated
project reporting capabilities that help the developer track and document the
on-going status of their work.
WEBTOOLS
WebTools is designed to allow database developers to add Web-enabling
features to existing database applications. DeltaPoint will license WebTools to
software development companies including Borland International in return for a
license fee or royalty arrangement. Currently WebTools is available for Visual
dBASE for Windows and for CA Clipper.
WEBANIMATOR
In November 1995, the Company acquired core technologies which serve as the
basis for WebAnimator, a multimedia authoring tool for the Web from Richard
Blum, d.b.a. Knowledge Vision ("Knowledge Vision"). WebAnimator is designed to
enable a broad range of Web users to easily add multimedia and interactive
animation to a Web site. The Company believes that WebAnimator represents an
advance over current commercially available products by offering the following
key attributes: (i) extensive use of predefined templates that will enable users
to combine text, graphics and sound to produce multimedia rich content
components; (ii) content components created in WebAnimator's native format are
vector based and therefore are expected to be compressed to small files that can
be quickly downloaded and played from within a Web browser; (iii) graphic
objects in WebAnimator act as interactive buttons that enable users to branch to
different Web site locations; and (iv) advanced digital sound and motion
synchronization tools are expected to enable users to easily and accurately add
sound and motion to an animated content component.
26
<PAGE>
GRAPHICS PRODUCTS
The Company's charting and graphics software product, DeltaGraph, can be
used as either a stand-alone product or as a complement to software programs
such as spreadsheets, databases and presentation graphics. DeltaGraph offers a
broad range of business, scientific and technical charts with flexible
formatting features that enables charts to be fine tuned with high resolution
output. Presentation tools such as slide show managers and outliners enhance
DeltaGraph's functionality. DeltaGraph is primarily used by chemists,
biologists, geologists, pharmacists, and professionals in the financial
services, aerospace and publishing industries.
PRODUCTS UNDER DEVELOPMENT
The Company believes that its future success depends in part on its ability
to maintain and improve its core technologies, enhance and expand its products
and develop new products that meet evolving customer requirements and industry
standards. The Company's current efforts are focused on the development of
products that further enhance development capablities in the areas of Web site
creation and Web site management.
COMPETITION
The Company competes on the basis of certain factors, including product
quality, first-to-market product capabilities, product performance, ease of use,
customer support and price. The Company believes it currently competes favorably
overall with respect to these factors.
The markets in which the Company competes are highly competitive and
characterized by rapid technological change, frequent new product introductions,
short product lives, evolving industry standards and significant price erosion
over the life of a product. The Company anticipates increased competition in
these markets from both existing vendors and new market entrants. In the
charting market, the Company has, to date, encountered competition primarily
from larger vendors such as Adobe Systems Incorporated, Microsoft Corporation
("Microsoft"), Software Publishing Corporation, Lotus, Corel and Computer
Associates International, Inc. In the structured drawing market, the Company
has, to date, encountered competition primarily from larger vendors such as
Corel, Visio and Micrografx Incorporated. In the Internet add-in market, the
Company anticipates competition primarily from Netscape Communications
Corporation, Macromedia, Inc., Adobe Systems Incorporated, Microsoft and
Quarterdeck, Inc. In addition, the Company expects that existing vendors and new
market entrants will develop products that will compete directly with the
Company's products and that competition will increase significantly to the
extent that markets for the Company's products grow. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Most of the Company's
current and potential competitors have substantially greater financial,
technical, marketing, sales and customer support resources, greater name
recognition and larger installed customer bases than the Company. Because there
are minimal barriers to entry into the software market, the Company believes
sources of competition will continue to proliferate. The market for the
Company's products is characterized by significant price competition, and the
Company expects it will face increasing pricing pressures. There can be no
assurance the Company will be able to maintain its historic pricing structure,
and an inability to do so would adversely affect the Company's business,
financial condition and results of operations. If the Company is unable to
compete effectively against current and future competitors, the Company's
business, financial condition and results of operations will be materially
adversely affected.
MARKETING AND SALES
The Company markets and sells its products through the coordinated efforts
of its corporate marketing department and its direct sales organization. For
retail, the Company uses a two-tier distribution model with product sold through
Ingram, TechData Merisel and other distributors to more than 500 retail outlets
such as Best Buy, Computer City, Comp USA, Egghead, Fry's and others. The
Company intends to expand the number of U.S. retail locations through the
balance of 1996 and will seek to selectively add major new distributors.
27
<PAGE>
Internationally, the Company's strategy is to work with highly-motivated
publishers who can invest in a full array of local services including marketing
and localization support as well as provide access to distribution. The Company
will continue to localize its products first for the Japanese market, which
accounted for 35% of revenues in 1995 and 8% of revenue in the first six months
of 1996. Furthermore, the Company intends to pursue the expansion of its
international presence by establishing new partnerships in key European markets
such as the U.K. and Germany.
The Company also allows fully functional versions of many of its products to
be downloaded from its secure Web site server (Deltapoint.com). The downloadable
versions enable worldwide access to the products 24-hours a day and allow people
to become productive with and reliant on the product functionality. Users are
prompted to purchase a license to the product with a 30-day grace period after
which encrypted technology within the downloadable versions automatically
disables the product. The Company will promote and encourage the availability of
its downloadable products.
The Company pursues relationships and alliances with a broad spectrum of
industry leaders. Distribution alliances in the PC manufacturing area have been
announced with Compaq and Sony, and in the ISP marketplace with Netcom
Interactive, Earthlink, HoloNet and more than half a dozen regional ISPs. In
addition, the Company has entered into an agreement with IBM to develop and
license a customized version of QuickSite for inclusion in IBM's recently
announced World Distributor electronic service and announced a relationship with
McGraw Hill which will offer site licenses to QuickSite to school districts and
State Boards of Education. To address the developers market, the Company has
established an alliance with Borland International, a leading provider of
language tools for software programmers. Under the agreement, Borland licenses
the Company's WebTools product and bundles a version of QuickSite with all
Borland products through the end of 1996. The Company also has announced
relationships with technology partners such as DigitalStyle, a leading maker of
on-the-fly graphics generation tools, and Virtus, a leading developer of Virtual
Reality Modeling Language technology for creating 3D Web sites.
Historically a significant portion of the Company's revenues have been
derived from sales of upgrades of its DeltaGraph charting product to its user
base through direct mail campaigns. Presently the Company is focusing on
strengthening its distribution network by adding distributors and retailers, and
entering into additional partner relationships that will enhance the
distribution of the Company's Internet products. In addition, the Company
intends to continue to implement its OEM strategy by pursuing other major PC
manufactures of the Sony and Compaq caliber.
In support of its sales organization, the Company conducts a number of
marketing programs intended to promote and market the Company's Internet
products. These efforts include product advertising, public relations and press
tours, trade show participation, direct mail and telemarketing campaigns,
preparation of marketing collateral and participation in industry programs, user
groups and forums. The Company also maintains a QuickSite Web site on the World
Wide Web that contains information on its products, distribution channels,
awards, personnel and other information relating to the Company.
As of June 30, 1996, the Company had 10 employees in marketing and sales.
For the six-month period ending June 30, 1995, the Company spent $759,000 or
33.6% of revenue as compared to $2.1 million and 108.3% of revenue in the period
ending June 30, 1996.
STRATEGIC ALLIANCES
A key element of the Company's strategy is the continued creation and
development of strategic alliances with key participants. The Company's goals in
establishing these relationships are to create marketing alliances that will
endorse and promote the Company's products to a larger potential customer base
than can be reached through the Company's direct marketing efforts. To date the
Company has entered into strategic alliances with companies such as IBM, Borland
International, Sony, McGraw-Hill, Earthlink, Compaq and Netcom Interactive.
28
<PAGE>
IBM. The Company entered into an agreement with IBM to develop and license
to IBM a customized version of QuickSite for inclusion in IBM's recently
announced World Distributor, an on-line interactive electronic commerce service.
The agreement requires the Company to develop a customized version of QuickSite
and requires IBM, to the extent it sublicenses or otherwise provides QuickSite
on a revenue-bearing basis as part of its electronic commerce service, to pay
the Company a royalty based on the number of copies of QuickSite so sublicensed
or provided. The agreement may be terminated by IBM on 60 days' advance notice.
BORLAND INTERNATIONAL. The Company entered into an agreement with Borland
International in May 1996 under which Borland may bundle and distribute
QuickSite with its programming tools through December 1996 in consideration for
license fees, brand promotion activities and certain marketing services.
SONY. The Company entered into an agreement in June 1996 whereby Sony will
pre-install a custom version of the Company's QuickSite product on its new line
of Vaio personal computer systems. This version of the product incorporates an
encrypted algorithm that allows the Sony customers to use the full functionality
of the product for a 30-day trial period after which the user is required to
purchase the product electronically from DeltaPoint for continued use.
MCGRAW-HILL SCHOOL SYSTEMS. In June 1996, the Company entered into an
agreement under which McGraw-Hill will market and distribute QuickSite products
and site licenses to the education sector, including school districts and state
boards of education.
EARTHLINK. The Company entered into an agreement in June 1996 with
Earthlink, a leading Internet Service Provider, under which the companies will
perform mutually beneficial cross-bundling and cross merchandising. Earthlink
has agreed to purchase a minimum number of QuickSite licenses.
COMPAQ. In July 1996, the Company entered into an agreement under with
Compaq will offer QuickSite as part of an optional software bundle on one of its
Pressario systems and has rights to bundle on other platforms for a per unit
license fee.
NETCOM INTERACTIVE. The Company entered into an agreement with Netcom
Interactive in July 1996 under which the companies intend to cooperate on a
custom developed, jointly marketed integrated offering.
Many of these relationships are in the early stages of development and have
not yet resulted in material revenue for the Company. Generally, existing
agreements outlining the Company's alliances do not impose significant financial
obligations or liabilities on either party and have terms no longer than one
year. There can be no assurance these relationships will successfully develop to
the extent that they will contribute materially to the Company's financial
results in the future.
RESEARCH AND DEVELOPMENT
Historically, the Company has licensed or acquired core technologies and has
expended its development expertise on transforming these technologies into
commercially viable, easy-to-use products. In November 1995, the Company
acquired core technology including source code and related documentation,
required to develop WebAnimator from KnowledgeVision. The purchase price for the
technology was $250,000, payable in installments. The Company will also pay a
royalty based on net revenue from sales of WebAnimator, if any, subject to a
maximum. Under the terms of the acquisition agreement, the individual will work
as a consultant to the Company to assist in developing WebAnimator.
In December 1995, the Company acquired core technology, including source
code and related documentation, required to develop QuickSite, from Global
Technologies, and individuals. The purchase price for the technology was (i)
$800,000 in cash, payable in installments and (ii) the issuance of 100,000
shares of Common Stock. The Company will also pay a royalty during the first two
years of commercial shipments of QuickSite based on net revenues from sales of
QuickSite, if any, subject to a
29
<PAGE>
maximum and subject to the right of the Company to pay a portion of the royalty
in its Common Stock. Pursuant to the agreement, the individual became an
employee of the Company to assist in the development of QuickSite.
The Company has made substantial investments in research and development
through both internal development and technology acquisition. The Company
believes its future performance will depend in large part on its ability to
maintain and enhance its current product line, develop new products, maintain
technological competitiveness and meet an expanding range of customer
requirements.
As of June 30, 1996 the Company had 15 employees in its research and
development organization. The Company's research and development expenses for
the six months ended June 30, 1995 and 1996 were $389,000 and $1.1 million,
respectively. The Company plans to continue to make significant investments in
research and development. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PROPRIETARY RIGHTS AND LICENSES
The Company relies on a combination of copyright, trademark, trade secret
laws, confidentiality procedures and other intellectual property protection
methods to protect its proprietary rights. The Company owns certain registered
trademarks in the United States and abroad. Although the Company relies to a
great extent on trade secret protection for much of its technology, and
generally obtains written confidentiality agreements from its employees, there
can be no assurance that third parties will not independently develop the same
or similar technology, obtain unauthorized access to the Company's proprietary
technology or misuse the technology to which the Company has granted access. The
Company believes that, due to the rapid proliferation of new technology in the
industry, legal protection through means such as the patent and copyright laws
will be less influential on the Company's ability to compete than such factors
as the creativity of its development staff and its ability to develop new
markets and to service its customers. The Company licenses its products to
individual end users primarily under "shrink wrap" license agreements that are
included in products shipped by the Company and that are not signed by the
licensees and therefore may be unenforceable under the laws of certain
jurisdictions. These agreements provide that by breaking the "shrink wrap" a
software purchaser agrees to be bound by the terms and conditions of the license
agreement.
There has been substantial industry litigation regarding patent, trademark
and other intellectual property rights involving technology companies. In the
future, litigation may be necessary to enforce any patents issued to the
Company, to protect trade secrets, trademarks and other intellectual property
rights owned by the Company, to defend the Company against claimed infringement
of the rights of others and to determine the scope and validity of the
proprietary rights of others. Any such litigation could be costly and result in
a diversion of management's attention, which could have material adverse effects
on the Company's business, financial condition and results of operations.
Adverse determinations in such litigation could result in the loss of the
Company's proprietary rights, subject the Company to significant liabilities,
require the Company to seek licenses from third parties or prevent the Company
from manufacturing or selling its products, any of which could have material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Limited Intellectual Property Protection;
Trademark Dispute."
The laws of certain foreign countries treat the protection of proprietary
rights of the Company in its products differently from those in the United
States, and in many cases the protection afforded by such foreign laws is weaker
than in the United States. The Company believes that its products and their use
do not infringe the proprietary rights of third parties. There can be no
assurance, however, that infringement claims will not successfully be made.
30
<PAGE>
The Company has received and will continue to receive from time to time
communications from third parties asserting infringement upon intellectual
property rights of such parties as a result of either features or content of its
software products. Since July 1995 the Company has received various
correspondence from Visio Corporation ("Visio") each contesting the Company's
right to use the product name Drag 'n Draw and asserting that it is confusingly
similar to a registered trademark owned by Visio. Visio markets a structured
drawing product that competes with Drag 'n Draw. See "Competition." Although the
Company believes that this assertion lacks merit, there can be no assurance that
the ultimate resolution of the matter will not have a material adverse impact on
the Company's business, financial condition or results of operations. Although
the Company is not currently engaged in any intellectual property litigation or
proceedings regarding this matter or any other similar matters, there can be no
assurance that the Company will not become involved in such proceedings for
which the ultimate resolution could have a material adverse effect on the
Company's business financial condition and results of operations.
In April 1995, SmartDraw Software, Inc. ("SmartDraw") granted the Company a
non-exclusive license to prepare, package, reproduce, use, sub-license,
distribute and sell SmartDraw Pro, version 2.00 ("SmartDraw Pro") for use with
Microsoft Windows 3.1, Microsoft Windows 95 and the Macintosh (the "SmartDraw
Products") and any derivative of the above products developed by SmartDraw that
incorporates any part of the licensed source code or modifications of such
source code. The license has a three-year term and is renewable upon the mutual
written consent of the parties upon such terms and conditions as agreed to by
the parties. SmartDraw Pro is packaged software designed for use in drawing
flowcharts and other business graphics. The Company's product, Drag 'n Draw, is
a derivative product of SmartDraw Pro. The Company pays SmartDraw a royalty on a
per product basis from the licensing, sale or other commercial exploitation of
the SmartDraw Products. In addition, the Company pays royalties on its revenues
from the derivative products developed by SmartDraw. Under the terms of the
agreement, SmartDraw is required to indemnify the Company to the extent
SmartDraw does not own SmartDraw Pro or to the extent that SmartDraw Pro
infringes any copyright, patent, trademark, trade secret or other intellectual
property rights of any third party. The agreement may be terminated if the
Company fails to generate net revenues derived from SmartDraw Products
sufficient to pay SmartDraw a specified minimum in royalty payments in any
twelve-month period. The Company has the right during the term of the agreement
to obtain a license to view and modify the source code for the SmartDraw
Products for a specified fee.
In June 1992, the Company entered into an agreement (the "Halcyon License
Agreement") with Halcyon Software, Inc. ("Halcyon") pursuant to which Halcyon
granted the Company a non-exclusive, perpetual, sub-licensable license to
prepare, make, reproduce, use, perform, modify, adapt, sell or otherwise dispose
of or distribute the following programs and derivative works thereof, whether or
not in combination with or incorporated into any other product: Snap, Thumbnail,
Viewer, Conversion, Trace and Paint (the "Products"). The Company pays Halcyon a
royalty equal to two to five percent of the Company's net revenues received from
sales of the Products, depending on the extent to which the Products incorporate
technology not provided by Halcyon. To date, the Company has paid Halcyon
non-refundable license fees in the amount of $150,000. No further royalty
payments are payable until accrued royalty payments exceed $150,000. Pursuant to
the Halcyon License Agreement, in November 1992 the Company granted Don Hsi an
option to purchase 18,867 shares of Common Stock at an exercise price of $6.63
per share. The option lapsed on February 20, 1996 without being exercised. The
Halcyon License Agreement has an indefinite term, but is terminable at the
Company's option upon written notice if the Company determines in good faith
that it is not technically and commercially advantageous to continue with a
Product.
The Company has also licensed from Altura Software Inc. ("Altura") the
Mac2Win Software for use in creating a Windows platform version of DeltaGraph.
The Company was granted a non-exclusive license to copy, distribute and
sublicense the Mac2Win Software only when packaged with, and as part of,
DeltaGraph ported to run on the Windows platforms. The Company has made a series
of payments to Altura in the total amount of $36,000. License fees of $3,000 per
month are payable by the Company
31
<PAGE>
in advance during each month the agreement remains in effect. The Company also
pays a royalty equal to three percent of net revenues received from sales of
DeltaGraph ported for the Windows platform with a first year minimum of $36,000
and a minimum of $48,000 for the next two years. The license agreement is
terminable by the Company upon 30 days prior written notice and the payment of
all amounts owed to Altura.
In November 1995, the Company acquired core technology, including source
code and related documentation, required to develop WebAnimator from Knowledge
Vision. The purchase price for the technology was $250,000, payable in
installments. The Company will also pay a royalty based on net revenues from
sales of WebAnimator, if any, subject to a maximum. Under the terms of the
acquisition agreement, the individual works as a consultant to the Company to
assist in developing WebAnimator.
In December 1995, the Company acquired core technology, including source
code and related documentation, required to develop QuickSite, from Global
Technologies Corporation, and an individual. The purchase price for the
technology was (i) $800,000 in cash, payable in installments, and (ii) the
issuance of 100,000 shares of the Company's Common Stock. The Company will also
pay a royalty during the first two years of commercial shipments of QuickSite
based on net revenues from sales of QuickSite, if any, subject to a maximum and
subject to the right of the Company to pay a portion of the royalty in Common
Stock. Pursuant to the agreement, the individual became an employee of the
Company to assist in developing QuickSite.
FACILITIES
The Company currently leases an approximately 12,000 square foot office
suite located at 22 Lower Ragsdale Drive, Monterey, California under a lease
that expires in September 1998 with a monthly rental of approximately $16,200.
The Company holds an option to renew such lease at the end of the initial term
for an additional three year term. The Company believes that these new
facilities will be adequate to meet its requirements for the near term and that
additional space will be available on commercially reasonable terms if needed.
LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company.
EMPLOYEES
As of June 30, 1996, DeltaPoint had 37 full-time employees located
throughout the United States. This number includes 19 persons in Research and
Development and Technical Support, 10 persons in Marketing, Sales and Sales
Support and 8 persons in Operations and Finance. None of the Company's employees
is represented by a labor union or is subject to a collective bargaining
agreement. DeltaPoint believes that its relations with its employees are good.
32
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current executive officers and directors of the Company, and their ages
as of October 10, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ---- ------------------------------------
<S> <C> <C>
John J. Ambrose..................... 35 Chief Executive Officer and Director
Donald B. Witmer.................... 43 Chief Operating Officer, Chief
Financial Officer and Director
William G. Pryor.................... 46 Vice President of Development and
Director
John Hummer......................... 48 Director
Patrick Grady....................... 29 Director
</TABLE>
MR. AMBROSE joined the Company in April 1996 as Chief Executive Officer.
From October 1994 until March 1996 he served as Vice President, Marketing and
Corporate Officer and Director at Phoenix Publishing Systems, Inc., a software
publishing company. From August 1986 until October 1994 Mr. Ambrose was employed
by Phoenix Technologies, Ltd., a software development company where his
positions included Manager Marketing Communications, Director, European Market
Development, Director, Worldwide Business Development and Director, Product
Management and Business Development. Mr. Ambrose holds a B.S. in Humanities and
Social Science from Drexel University and an M.S. from Columbia University in
1984.
MR. WITMER joined the Company as Vice President of Finance and
Administration and Chief Financial Officer in November 1995, became a director
of the Company in December 1995 and became Chief Operating Officer in February
1996. From 1990 to 1995 he served as controller and then Chief Financial Officer
of Catalyst Semiconductor, Inc. From 1987 to 1990, Mr. Witmer served as an
accountant for Price Waterhouse LLP, independent accountants. Prior to joining
Price Waterhouse LLP, Mr. Witmer was a senior controller at United Technologies
and a legislative analyst for the State of Montana. Mr. Witmer holds a B.A. in
History from Northern Montana College and an M.B.A. from the University of
Montana. Mr. Witmer is a Certified Public Accountant.
MR. PRYOR co-founded the Company in February 1989 and has served as Vice
President of Development and as a director since such time to the present. From
June 1988 to February 1989, Mr. Pryor served as a Director of Product
Development at Access Technology, Inc. From May 1986 to June 1988, he served as
Vice President of Research and Development at Working Software, a developer of
word processing software. Prior thereto, Mr. Pryor served as President of
Pryority Software, an entertainment software publisher. Mr. Pryor holds an A.A.
in Liberal Arts from the Monterey Peninsula College.
MR. HUMMER has been a director of the Company since October 1990. In 1989,
Mr. Hummer founded, and is currently a partner at, Hummer Winblad Venture
Partners. Mr. Hummer serves as a director of several privately held companies
including Books That Work, Centerview Software and Netgravity. From April 1991
to February 1995 he was a director of Powersoft Corporation prior to its
acquisition by Sybase Incorporated and from August 1990 to April 1995 he was a
director of Wind River Systems, Inc. Mr. Hummer received a B.A. in English from
Princeton University and an M.B.A. from the Stanford Graduate School of
Business.
MR. GRADY became a director of the Company in August 1996. Mr. Grady is
currently Managing Director Venture Capital of H.J. Meyers & Co. Inc. From June
1993 to March 1996 Mr. Grady served as Senior Vice President of Corporate
Finance at H.J. Meyers & Co., Inc. from March 1991 to May 1993 he was Vice
President of Corporate Finance at Josephthal, Lyon & Ross. Mr. Grady serves as
director of Borealis Technology Corp & SoloPoint, Inc.
33
<PAGE>
Directors receive reimbursement of expenses incurred in attending Board
meetings. Except as otherwise described in this Prospectus, the Company has not
paid cash or other compensation to its directors. See "-- 1995 Stock Option
Plan."
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and two other executive officers who earned (or would
have earned) salary and bonus for the 1995 fiscal year in excess of $100,000
(collectively, the "Named Officers") for services rendered in all capacities to
the Company and its subsidiaries for that fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
-------------
ANNUAL COMPENSATION NUMBER OF
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS COMPENSATION
- ------------------------------------------- --------- -------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Raymond R. Kingman, Jr. (1) 1995 $ 108,000 $ 4,708(2) 100,000 $ 66(3)
Chairman of the Board, 1994 105,576 0 4,283 $ 66(3)
President and Chief Executive Officer
William G. Pryor 1995 92,500 0 100,000 87(3)
Vice President of Development and 1994 90,721 0 1,894 87(3)
Director
Donald B. Witmer 1995 19,845(4) 5,000(5) 135,000 0
Vice President of Finance and 1994 0 0 0 0
Administration, Chief Operating Officer,
Chief Financial Officer and Director
</TABLE>
- ------------------------
(1) Mr. Kingman resigned as an officer and director of the Company, effective
April 5, 1996. Mr. John J. Ambrose joined the Company as Chief Executive
Officer on April 22, 1996. His annual salary is currently set at $120,000.
(2) Represents automobile allowance.
(3) Represents life insurance premiums made by the Company with respect to
insurance policies on the lives of Messrs. Kingman and Pryor.
(4) Mr. Witmer joined the Company in November 1995; his annual salary is
currently set at $120,000.
(5) Represents a $2,000 per month housing allowance and a $500 per month car
allowance.
EMPLOYMENT CONTRACTS
On November 10, 1995, the Company entered into employment agreements with
Raymond R. Kingman, Jr., who served as President and Chief Executive Officer of
the Company until his resignation as an officer and director on April 5, 1996,
and William G. Pryor, Vice President of Development. The agreements provide for
a grant to each individual of an option to purchase 100,000 shares of Common
Stock at an exercise price of $3.50 per share. The option is immediately
exercisable but subject to a right of repurchase by the Company at the original
exercise price paid per share upon the optionee's cessation of service prior to
vesting in such shares. The repurchase right lapses and the optionee vests in a
series of equal monthly installments over 36 months, beginning on the one-month
anniversary of the grant date, and lapses in full upon a specified Change in
Control of the Company. A Change in Control includes liquidation or dissolution
of the Company or a merger or consolidation in which at least fifty percent
(50%) of the Company's shares are transferred to an entity different than the
entity holding such shares prior to such Change in Control. Each option has a
maximum term of
34
<PAGE>
ten (10) years, subject to earlier termination in the event of the optionee's
cessation of service with the Company. The agreement also provides that each of
Messrs. Kingman and Pryor will receive a severance payment in the amount of six
to twelve months of his base salary and other benefits if his employment is
terminated in certain circumstances, such as an involuntary termination other
than for cause (six months base salary) or an involuntary termination within
twenty-four months of a Change in Control (twelve months base salary).
In November, 1995, the Company entered into an employment agreement with
Donald B. Witmer, pursuant to which Mr. Witmer became Vice President of Finance
and Administration and Chief Financial Officer of the Company. The agreement
provides for an annual salary of $120,000, a $2,000 per month housing allowance
and a $500 per month car allowance. The agreement also provides for a grant of
an option to purchase 135,000 shares of Common Stock at an exercise price of
$3.50 per share. The option is immediately exercisable but subject to a right of
repurchase by the Company at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in such shares. The repurchase
right lapses and the optionee vests in a series of equal monthly installments
over 36 months, beginning on the date Mr. Witmer commences employment, and
lapses in full upon a specified Change in Control of the Company, as defined
above. The option has a maximum term of ten (10) years, subject to earlier
termination in the event of the optionee's cessation of service with the
Company. The agreement also provides that Mr. Witmer will receive a severance
payment in the amount of six to twelve months of his base salary and other
benefits if his employment is terminated in certain circumstances, such as an
involuntary termination other than for cause (six months base salary plus bonus
and other benefits) or an involuntary termination within twenty-four months of a
Change in Control (twelve months base salary plus bonus and other benefits).
In March 1996 John J. Ambrose executed an offer letter with the Company,
pursuant to which Mr. Ambrose became Chief Executive Officer in April 1996. The
offer letter provides for an annual salary of $120,000, a signing bonus of
$25,000 and a grant of an option to purchase 145,000 shares of Common Stock.
On April 5, 1996, the Company entered into a Separation Agreement and
Release with Mr. Kingman in connection with his resignation which, among other
things, provided for certain payments and other financial compensation. Pursuant
to the Separation Agreement, the Company agreed to pay Mr. Kingman a severance
payment of $108,000 and to accelerate vesting of 62,500 of his 100,000-share
option grant. The Company also agreed to provide continued health care for a
period of up to 12 months.
EXECUTIVE BONUS PLAN
The Company plans to adopt a bonus plan for executive officers that would
provide for payment of cash bonuses based on individual and overall Company
performance in 1996. Aggregate bonuses payable under the plan would not exceed
10% of the Company's 1996 net income. Adoption of the plan is subject to
approval by the Company's Compensation Committee.
STOCK OPTION INFORMATION
The following table contains information concerning stock option grants made
to the Named Officers during the year ended December 31, 1995. No stock
appreciation rights were granted to these individuals during such year.
35
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
-----------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED PRICE
OPTIONS TO EMPLOYEES IN ($/SH) EXPIRATION
NAME GRANTED FISCAL YEAR (2) DATE
- ------------------------------------------------------------------ ----------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Raymond R. Kingman, Jr............................................ 100,000 20% $ 3.50 11/09/05
William G. Pryor.................................................. 100,000 20% 3.50 11/09/05
Donald B. Witmer.................................................. 135,000 27% 3.50 11/09/05
</TABLE>
- ------------------------
(1) Each of the options listed in the table is immediately exercisable. The
shares purchasable thereunder are subject to repurchase by the Company at
the original exercise price paid per share upon the optionee's cessation of
service prior to vesting in such shares. The repurchase right lapses and the
optionee vests in a series of equal monthly installments over thirty-six
months of service commencing on the date of grant of the option. These
options were granted at an exercise price equal to the fair market value of
the Company's Common Stock as determined by the Board of Directors of the
Company on the date of grant. Each option has a maximum term of ten (10)
years, subject to earlier termination in the event of the optionee's
cessation of employment with the Company.
(2) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise.
The following table sets forth information concerning option holdings for
the year ended December 31, 1995 with respect to each of the Named Officers. No
options were exercised by the Named Officers during such year. No stock
appreciation rights were exercised during such year or were outstanding at the
end of that year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (1)
-------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C>
Raymond R. Kingman, Jr.................................... 104,283 0 $ 455,868 0
William G. Pryor.......................................... 101,894 0 452,595 0
Donald B. Witmer.......................................... 135,000 0 607,500 0
</TABLE>
- ------------------------
(1) Based on the closing price per share of the Company's Common Stock as listed
on the Nasdaq Small Cap Market as of December 31, 1995 of $8.00, less the
per share exercise price.
1990 KEY EMPLOYEE INCENTIVE STOCK OPTION PLAN
The Company's 1990 Key Employee Incentive Stock Option Plan (the "1990
Plan") was originally adopted by the Board of Directors and approved by the
Company's shareholders effective July 1, 1990 and was restated by the Board on
June 17, 1992, which restatement was approved by the shareholders on August 27,
1992. The 1990 Plan authorizes for issuance 38,922 shares of Common Stock. As of
September 30, 1996, 2,143 shares had been issued under the 1990 Plan, options to
purchase an aggregate of 9,414 shares were outstanding and 29,508 shares
remained available for future grant. Shares of Common Stock subject to
outstanding options which expire or terminate prior to exercise will be
available for future issuance under the 1990 Plan.
36
<PAGE>
Under the 1990 Plan, key employees (including officers) may, at the
discretion of the plan administrator, be granted options to purchase shares of
Common Stock at an exercise price not less than the fair market value of such
shares on the grant date. Options granted under the 1990 Plan become exercisable
for 25% of the option shares on the first anniversary of the grant date and for
the balance of the shares in 36 equal monthly installments thereafter, unless
otherwise provided by the plan administrator. In the event the Company or its
shareholders enter into an agreement to dispose of all or substantially all of
the assets or stock of the Company by means of a sale, a reorganization, a
liquidation or otherwise, each outstanding option shall become immediately
exercisable in full for all of the option shares. Each such option shall
thereupon terminate. Each option shall have a maximum term of ten (10) years.
The 1990 Plan may be administered by the Board or the Compensation Committee
of the Board. The plan administrator has complete discretion to determine which
eligible individuals are to receive option grants, the number of shares subject
to each such grant, the status of any granted option as either an incentive
option or a non-statutory option under the Federal tax laws, the vesting
schedule to be in effect for each option grant and the maximum term for which
each granted option is to remain outstanding.
The exercise price for options granted under the 1990 Plan may be paid in
cash or in outstanding shares of Common Stock.
The Board may amend or modify the 1990 Plan at any time. Certain amendments
require shareholder approval. The 1990 Plan will terminate on June 30, 2000,
unless sooner terminated by the Board.
1992 NON-STATUTORY STOCK OPTION PLAN
The Company's 1992 Non-Statutory Stock Option Plan (the "1992 Plan") was
originally adopted by the Board of Directors and approved by the Company's
shareholders effective July 1, 1992 and was restated by the Board on June 17,
1992, which restatement was approved by the shareholders on August 27, 1992. The
1992 Plan authorizes for issuance 28,301 shares of Common Stock. As of September
30, 1996, no shares had been issued under the 1992 Plan, options to purchase an
aggregate of 8,063 shares were outstanding and 20,238 shares remained available
for future grant. Shares of Common Stock subject to outstanding options which
expire or terminate prior to exercise will be available for future issuance
under the 1992 Plan.
Under the 1992 Plan, key employees (including officers) and consultants of
the Company or of any subsidiary and certain entities may, at the discretion of
the plan administrator, be granted non-statutory options to purchase shares of
Common Stock at an exercise price not less than the fair market value of such
shares on the grant date. Options granted under the 1992 Plan are fully vested
and immediately exercisable on the grant date. In the event the Company or its
shareholders enter into an agreement to dispose of all or substantially all of
the assets or stock of the Company by means of a sale, a reorganization, a
liquidation or otherwise, each outstanding option shall thereupon terminate. In
no event, may an option have a term of more than five (5) years.
The 1992 Plan may be administered by the Board or the Compensation Committee
of the Board. The plan administrator has complete discretion to determine which
eligible individuals are to receive option grants, the number of shares subject
to each such grant and the terms and conditions of exercise with respect to each
option grant.
The exercise price for options granted under the 1992 Plan may be paid in
cash, in outstanding shares of Common Stock, or through the net exercise of the
option. Shares may be deducted from the shares to be issued upon exercise of an
option granted under the 1992 Plan to satisfy the optionee's income tax
withholding obligations. Options may also be exercised on a cashless basis
through the same-day sale of the purchased shares.
37
<PAGE>
The plan administrator has the authority to effect, from time to time, the
cancellation of outstanding options under the 1992 Plan, in exchange for the
grant of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Common Stock on
the new grant date.
The Board may amend or modify the 1992 Plan at any time. Certain amendments
require shareholder approval. The 1992 Plan will terminate on June 30, 2002,
unless sooner terminated by the Board.
1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "1995 Plan") was adopted by the
Board of Directors on November 8, 1995, and approved by shareholders of the
Company in December, 1995. The Company initially reserved 620,000 shares of
Common Stock for issuance under the 1995 Plan. On February 15, 1996 and April
22, 1996, the Board of Directors approved a total share increase of 200,000
shares to be reserved for issuance under the 1995 Plan to 820,000 shares, which
was subsequently approved by the Company's shareholders. As of September 30,
1996, 39,000 shares had been issued under the 1995 Plan, options for 654,066
shares were outstanding and 126,934 shares reserved for issuance under the 1995
Plan remained available for future grant. Shares of Common Stock subject to
outstanding options which expire or terminate prior to exercise will be
available for future issuance under the 1995 Plan.
Under the 1995 Plan, employees (including officers) and independent
consultants may, at the discretion of the plan administrator, be granted options
to purchase shares of Common Stock at an exercise price not less than 85% of the
fair market value of such shares on the grant date. Non-employee members of the
Board of Directors will be eligible solely for automatic option grants under the
1995 Plan.
The 1995 Plan may be administered by the Compensation Committee of the
Board. The Compensation Committee has complete discretion to determine which
eligible individuals are to receive option grants, the number of shares subject
to each such grant, the status of any granted option as either an incentive
option or a non-statutory option under the Federal tax laws, the vesting
schedule to be in effect for each option grant and the maximum term for which
each granted option is to remain outstanding. In no event, however, may any one
participant in the 1995 Plan acquire shares of Common Stock under the 1995 Plan
in excess of 360,000 shares of Common Stock, subject to shareholder approval at
the 1996 Annual Meeting, of the total share reserve.
The exercise price for options granted under the 1995 Plan may be paid in
cash or in outstanding shares of Common Stock. Options may also be exercised on
a cashless basis through the same-day sale of the purchased shares. The
Compensation Committee may also permit the optionee to pay the exercise price
through a promissory note payable in installments over a period of years. The
amount financed may include any Federal or state income and employment taxes
incurred by reason of the option exercise.
Each option granted to an officer of the Company subject to the short-swing
profit restrictions of the Federal securities laws includes a special stock
appreciation right that provides that, upon the acquisition of more than 50% of
the Company's outstanding voting stock pursuant to a hostile tender offer, such
option, if outstanding for at least six months, may be surrendered to the
Company in exchange for a cash distribution to the officer based upon the tender
offer price per share of Common Stock at the time subject to the surrendered
option.
The Compensation Committee has the authority to effect, from time to time,
the cancellation of outstanding options under the 1995 Plan in return for the
grant of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Common Stock on
the new grant date.
In the event the Company is acquired by merger, consolidation or asset sale,
except as provided otherwise in specific option grants, the shares of Common
Stock subject to each option outstanding at
38
<PAGE>
the time under the 1995 Plan will immediately vest in full, except to the extent
the Company's repurchase rights with respect to those shares are to be assigned
to the acquiring entity, and options will accelerate to the extent not assumed
by the acquiring entity. The Compensation Committee also has discretion to
provide for the acceleration of one or more outstanding options under the 1995
Plan and the vesting of shares subject to outstanding options upon the
occurrence of certain hostile tender offers. Such accelerated vesting may be
conditioned upon the subsequent termination of the affected optionee's service.
Under the automatic grant program, each individual who first joins the Board
as a non-employee director on or after the effective date of the 1995 Plan will
receive at that time, an automatic option grant for 20,000 shares of Common
Stock. In addition, at each annual shareholders meeting, beginning in 1997, each
non-employee director will automatically be granted at that meeting, whether or
not he or she is standing for re-election at that particular meeting, a stock
option to purchase 1,000 shares of Common Stock, provided such individual has
served on the Board for at least six months prior to such meeting. Each option
will have an exercise price equal to the fair market value of the Common Stock
on the automatic grant date and a maximum term of ten years, subject to earlier
termination following the optionee's cessation of Board service. Each option
will be immediately exercisable for all of the shares but the shares will be
subject to repurchase at original cost. The repurchase right shall lapse and the
optionee vest in a series of three equal annual installments over the optionee's
period of Board service, beginning one year from the grant date. However,
vesting of the shares will automatically accelerate upon (i) an acquisition of
the Company by merger, consolidation or asset sale, (ii) a hostile take-over of
the Company effected by tender offer for more than 50% of the outstanding voting
stock or proxy contest for Board membership or (iii) the death or disability of
the optionee while serving as a Board member.
In the event that more than 50% of the Company's outstanding voting stock
were to be acquired pursuant to a hostile tender offer, each automatic option
grant that has been outstanding for at least six months may be surrendered by
the optionee in return for a cash distribution from the Company based upon the
tender offer price per share of Common Stock at the time subject to the canceled
option.
The Board may amend or modify the 1995 Plan at any time. The 1995 Plan will
terminate on November 7, 2005, unless sooner terminated by the Board.
401(K) PLAN
During 1992, the Company established a deferred compensation plan (the
"401(k) Plan") pursuant to Section 401(k) of the Internal Revenue Code (the
"Code"), whereby substantially all employees are eligible to contribute up to
20% of their pre-tax earnings, not to exceed amounts allowed under the Code. The
Company may make contributions to the 401(k) Plan at the discretion of the Board
of Directors. No Company contributions have been made to the 401(k) Plan by the
Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Restated Articles of Incorporation
that eliminate to the fullest extent permissible under California law the
liability of its directors to the Company for monetary damages. Such limitation
of liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. The Company's Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
California law, including in circumstances in which indemnification is otherwise
discretionary under California law. The Company has entered into indemnification
agreements with its officers and directors containing provisions which may
require the Company, among other things, to indemnify the officers and directors
against certain liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
39
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer 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 Securities Act and will be governed by
the final adjudication of such issue.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
40
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH FOUNDERS
On May 31, 1994, the Company entered into a Software Acquisition Agreement
with Cary Wyman, a founder pursuant to which Mr. Wyman acquired all the rights,
title and interest in and to certain software products. In addition, the Company
received from Mr. Wyman all of Mr. Wyman's right, title and interest in and to
11,792 shares of DeltaPoint's Common Stock previously owned and held by and in
the name of Mr. Wyman.
PRIVATE PLACEMENT TRANSACTIONS
The Company has issued and sold the following securities to persons who are
principal shareholders or directors of the Company. Each share of Series A,
Series B, Series C and Series D Preferred Stock was affected by a one-for-5.3
reverse stock split before giving effect to the conversion of such outstanding
Preferred Stock upon the closing of the Company's initial public offering in
December 1995 (the "IPO"):
<TABLE>
<CAPTION>
SHARES OF COMMON
SHARES OF SHARES OF SHARES OF SHARES OF WARRANTS TO STOCK ISSUABLE
SERIES A SERIES B SERIES C SERIES D PURCHASE UPON PROMISSORY
PREFERRED PREFERRED PREFERRED PREFERRED COMMON NOTE
INVESTOR (1) STOCK (2) STOCK (3) STOCK (4) STOCK (5) STOCK (6) CONVERSION (7)
- -------------------------------------- ----------- ----------- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Entities Affiliated with Hummer
Winblad Venture Partners (8)......... 55,341 22,641 43,620 26,801 27,629 31,667
Entities Affiliated with Oak
Investment Partners V. Fund, L.P..... -- 60,377 34,269 48,242 45,209 31,667
</TABLE>
- ------------------------------
(1) Shares held by all affiliated persons and entities have been aggregated. See
"Principal and Selling Shareholders."
(2) The shares were issued in October 1990. The per share purchase for the
Series A Preferred Stock was $18.10 per share.
(3) The shares were issued in June 1992. The per share purchase price for the
Series B Preferred Stock was $33.13.
(4) The shares were issued in April 1994. The per share purchase price for the
Series C Preferred Stock was $5.78.
(5) The shares were issued in May 1995. The per share purchase price for the
Series D Preferred Stock was $9.33. The consideration paid for such stock
was a combination of cash and cancellation of indebtedness.
(6) The warrants were issued in March 1992, March 1993 and May 1995.
(7) Represents shares of Common Stock issuable upon the conversion of the
Convertible Notes at a conversion price of $3.25 per share. Of the $300,000
principal amount of the Convertible Notes, $150,000 was issued to each of
entities affiliated with Hummer Winblad Venture Partners ("Hummer Winblad
Ventures") and entities affiliated with Oak Investment Partners V., L.P.
("Oak Investment"). In November 1995, each of Hummer Winblad Ventures and
Oak Affiliates agreed to convert the principal amount of said Convertible
Note, plus accrued interest, into 63,334 shares of Common Stock. In
consideration for such agreement, in November 1995 the Company issued each
of Hummer Winblad Ventures and Oak Investment warrants to purchase 31,667
shares of Common Stock exercisable at a price of $7.20 per share for a
period of 30 months following December 26, 1995 together at a price of $8.40
per share thereafter through November 6, 2000. In addition, in November
1995, each of Hummer Winblad Ventures and Oak Investment agreed to exchange
outstanding warrants to purchase Common Stock for the same number of
warrants with the terms described in the preceding sentence. See
"Description of Capital Stock -- Convertible Notes and Warrants."
(8) Mr. Hummer, an affiliate of Hummer Winblad Technology Partners, is a
director of the Company.
In November 1995, the Company issued 125,000 units (the "Unit Offering"),
each unit consisting of two shares of Series E Preferred Stock and a warrant to
purchase one share of Common Stock, for $8.00 per unit. Each share of Series E
Preferred Stock converted into one share of Common Stock upon the closing of the
Company's initial public offering in December, 1995. Hummer Winblad Ventures
purchased 3,125 units. Oak Investment purchased 6,113 units and Oak Affiliates
purchased 137 units. High Growth Equities Retirement Fund Trust purchased 50,000
units. See "Description of Capital Stock -- Warrants," and "-- Convertible Notes
and Warrants."
The Company believes that the foregoing transactions were in its best
interests. All future transactions by the Company with officers, directors, 5%
shareholders and their affiliates will be entered into only if the Company
believes that such transactions are reasonably expected to benefit the Company
and the terms of such transactions are no less favorable to the Company than
could be obtained from unaffiliated parties.
41
<PAGE>
H.J. MEYERS & CO., INC.
Patrick W. Grady, a director of the Company, is a Managing Director Venture
Capital of H.J. Meyers & Co., Inc. ("H.J. Meyers"). The Company retained H.J.
Meyers to act as placement agent in connection with the Unit Offering. For
acting as placement agent, H.J. Meyers received a fee of 10% of the aggregate
proceeds from the Unit Offering and a non-accountable expense allowance of 3% of
such gross proceeds. The Company also agreed to indemnity H.J. Meyers for
certain liabilities, including those arising under the Securities Act, for
serving as placement agent. The Company also retained H.J. Meyers as managing
underwriter in the IPO. For acting as managing underwriter, H.J. Meyers received
a portion of the 6% underwriting commission, a non-accountable expense allowance
equal to 2.5% of the gross proceeds from the IPO and a warrant to purchase
110,000 shares of Common Stock exercisable for a four-year period commencing
December 20, 1996. The exercise price of the Representative's Warrant is $7.20
per share. The Company has granted the holder of the Representative's Warrant
certain registration rights with respect to the warrant and the shares of Common
Stock issuable upon its exercise. The Company also agreed to indemnify H.J.
Meyers for certain liabilities, including those arising under the Securities
Act, for serving as managing underwriter.
The Company has also retained H.J. Meyers to act as placement agent in
connection with the proposed Debt Financing. Under the terms of the placement
agent agreement, H.J. Meyers will receive a placement fee of 7% of the gross
proceeds from the Debt Financing, reimbursement of accountable expenses not to
exceed 1% of such gross proceeds and a warrant to purchase a number of shares of
Common Stock equal to 5% of such gross proceeds divided by 9.5 (the "Placement
Agent's Warrant"). The warrant would be exercisable for five years and have an
exercise price of $9.50 per share of Common Stock. The Company has agreed to
grant the holder of the warrant certain registration rights with respect to the
warrant and the shares of Common Stock issuable upon its exercise. The Company
has also agreed to indemnify H.J. Meyers for certain liabilities, including
those arising under the Securities Act, for serving as placement agent in
connection with the Debt Financing.
42
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 30, 1996, and as
adjusted to reflect the sale of shares offered hereby, by (i) each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) each director of the Company, (iii) each Named Officer, and (iv) all
directors and executive officers as a group and (v) by the Selling Shareholders.
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common Stock listed below, based on information furnished by such owners
have investment and voting power with respect to such shares, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER OFFERING
OFFERING SHARES TO
---------------------- BE SOLD IN ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERING (1) NUMBER PERCENT
- ---------------------------------------------------------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
Hummer Winblad Venture Partners (2)....................... 248,739 10.7% 68,671 180,068 7.2%
5900 Hollis St., Suite R
Emeryville, CA 94608
Entities affiliated with Oak Investment
Partners V, L.P. (3)..................................... 270,180 11.6% 95,626 174,554 7.0%
One Gorham Island
Westport, CT 06880
American High Growth Equities Retirement
Fund Trust(4)............................................ 100,000 4.3% 100,000 0 0.0%
Raymond R. Kingman, Jr. (5)............................... 47,899 2.1% -- 47,899 1.9%
William G. Pryor (6)...................................... 144,535 6.1% -- 144,535 5.5%
c/o DeltaPoint, Inc.
2 Harris Court, Suite B-1
Monterey, CA 93940
Donald B. Witmer (7)...................................... 163,750 6.8% 18,750 145,000 5.5%
c/o Delta Point, Inc.
2 Harris Court, Suite B-1
Monterey, CA 93940
John Ambrose (8).......................................... 145,000 6.0% 145,000 5.5%
c/o DeltaPoint, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
John Hummer............................................... (2)
Patrick W. Grady (9)...................................... 20,000 * -- 20,000 *%
George L. Black (10)...................................... 15,750 * 15,750 0 0.0%
Leon Feldan (11).......................................... 6,250 * 6,250 0 0.0%
Ronald Mickwee (11)....................................... 9,375 * 9,375 0 0.0%
Joan Plastiras-Myers (11)................................. 9,375 * 9,375 0 0.0%
Nicholas W. and Geraldine Perilli (11).................... 9,375 * 9,375 0 0.0%
James R. Ratliff (10)..................................... 18,750 * 18,750 0 0.0%
David Rosenberg (11)...................................... 3,125 * 3,125 0 0.0%
Alan J. Rubin (11)........................................ 18,750 * 18,750 0 0.0%
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER OFFERING
OFFERING SHARES TO
---------------------- BE SOLD IN ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERING (1) NUMBER PERCENT
- ---------------------------------------------------------- --------- ----------- ----------- --------- -----------
The Salzman Group, Ltd. (10).............................. 18,750 * 18,750 0 0.0%
<S> <C> <C> <C> <C> <C>
Donald L. & Lucy A. Stoner Trust (10)..................... 18,750 * 18,750 0 0.0%
Lawrence Weisman (10)..................................... 13,750 * 13,750 0 0.0%
Jack Balter (11).......................................... 7,375 * 7,375 0 0.0%
Dr. Mannie Magid (11)..................................... 7,375 * 7,375 0 0.0%
All directors and executive officers as a group (5
persons) (12)............................................. 722,024 26.7% 87,421 634,603 21.7%
</TABLE>
- ------------------------
* Less than 1%.
(1) Assumes that all shares of Common Stock owned or issuable upon exercise of
Warrants are sold in the Offering.
(2) Consists of 2,860 shares of Common Stock held by Hummer Winblad Ventures
and 151,791 shares of Common Stock held by Hummer Winblad Technology Fund
("Hummer Winblad Technology"). In addition, Hummer Winblad Ventures holds
immediately exercisable warrants to purchase 60,695 shares of Common Stock,
and Hummer Winblad Technology holds immediately exercisable warrants to
purchase 1,726 shares of Common Stock. Hummer Winblad Ventures and Hummer
Winblad Technology also hold notes that are convertible, with accrued
interest, into 30,084 and 1,583 shares of Common Stock, respectively. See
"Description of Capital Stock -- Convertible Notes and Warrants." Mr.
Hummer, a director of the Company, is a General Partner of Hummer Winblad
Equity Partners, which is the General Partner of Hummer Winblad Ventures and
Hummer Winblad Technology. Mr. Hummer disclaims beneficial ownership of the
securities held by these entities except to the extent of his pecuniary
interest therein arising from his general partnership interest in Hummer
Winblad Equity Partners.
(3) Consists of 151,972 shares of Common Stock, held by Oak Investment Partners
V, L.P. ("Oak Investment") and 3,415 shares of Common Stock held by Oak V
Affiliates Fund, L.P. ("Oak Affiliates"). In addition, Oak Investment holds
immediately exercisable warrants to purchase 81,299 shares of Common Stock
and Oak Affiliates holds immediately exercisable warrants to purchase 1,827
shares of Common Stock. Oak Investment and Oak Affiliates also hold notes
that are convertible, with accrued interest, into 30,970 and 697 shares of
Common Stock, respectively. Edward F. Glassmeyer is a general partner of Oak
Investment and Oak Affiliates. Mr. Glassmeyer disclaims beneficial ownership
of the securities held by these entities, except to the extent of his
pecuniary interest therein arising from his general partnership in Oak
Investment. See "Description of Capital Stock -- Convertible Notes and
Warrants." Oak Affiliates is an affiliate of Oak Investment.
(4) Consists of 50,000 shares of Common Stock. In addition, American High
Growth Equities Retirement Fund Trust holds a Warrant to purchase 50,000
shares of Common Stock.
(5) Includes 4,283 shares of Common Stock, subject to stock options currently
exercisable or exercisable before June 5, 1996, including an option to
purchase 43,611 shares of Common Stock granted on November 10, 1995 that is
exercisable within sixty (60) days of May 15, 1996. See "Management --
Employment Contracts."
(6) Includes 1,894 shares of Common Stock subject to stock options currently
exercisable or exercisable within sixty (60) days after May 15, 1996,
including an option to purchase 100,000 shares of Common Stock granted on
November 10, 1995 that is immediately exercisable but subject to a
44
<PAGE>
right of repurchase upon termination of employment that lapses in equal
monthly installments over 36 months and lapses in full upon a specified
change in control. See "Management -- Stock Option Information."
(7) Consists of 12,500 shares of Common Stock, an immediately exercisable
warrant to purchase 6,250 shares of Common Stock and an option to purchase
135,000 and 10,000 shares of Common Stock, respectively granted on November
10, 1995 and April 22, 1996, respectively that is immediately exercisable
but subject to a right of repurchase upon termination of employment that
lapses in equal monthly installments over 36 months and lapses in full upon
a specified change in control. See "Management -- Employment Contracts."
(8) Consists of an immediately exercisable option to purchase 145,000 shares of
Common Stock granted on April 22, 1996 that is immediately exercisable but
subject to a right of repurchase upon termination of employment that lapses
in equal monthly installments over 36 months and lapses in full on a
specified change in control. See "Management -- 1995 Stock Option Plan."
(9) Consists of an option to purchase 20,000 shares of Common Stock granted on
August 13, 1996 that is immediately exercisable but subject to a right of
repurchase upon termination of service as a director that lapses in equal
annual installments over three years and lapses in full on a specified
change in control. See "Management -- 1995 Stock Option Plan." Does not
include 110,000 shares of Common Stock that may be acquired by H.J. Meyers
upon exercise of the Representative's Warrant commencing on December 20,
1996 and shares of Common Stock that may be acquired by H.J. Meyers upon
exercise of the Placement Agent's Warrant expected to be granted at the
closing of the proposed Debt Financing.
(10) Includes a warrant to purchase 6,250 shares of Common Stock.
(11) Includes a warrant to purchase 3,125 shares of Common Stock.
(12) Consists of 209,792 shares of Common Stock, immediately exercisable
warrants to purchase 68,671 shares of Common Stock and 411,894 shares of
Common Stock subject to stock options currently exercisable or exercisable
within sixty (60) days of September 30, 1996.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of September 30, 1996 the Company is authorized to issue 25,000,000
shares of Common Stock, no par value, and 4,000,000 shares of Preferred Stock,
no par value.
COMMON STOCK
As of September 30, 1996, there were 2,254,243 shares of Common Stock
outstanding held of record by approximately 40 shareholders. The holders of
Common Stock are entitled to one vote per share on all matters to be voted on by
shareholders. In the election of directors, however, cumulative voting is
authorized for all shareholders if any shareholder gives notice at a meeting,
prior to voting for the election of directors, of his or her intention to
cumulate votes. Subject to the prior rights of holders of Preferred Stock, if
any, the holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors in its discretion
from funds legally available therefor. The Common Stock has no preemptive or
other subscription rights and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares. All of the outstanding
shares of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
At the closing of the Company's IPO in December 1995, all previously
outstanding shares of Preferred Stock were converted into Common Stock. As of
June 30, 1996, the Company is authorized to issue up to 4,000,000 shares of
undesignated Preferred Stock. The Board of Directors will have the authority to
issue the undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued shares of undesignated Preferred Stock, as well as to fix the
number of shares constituting any series and the designations of such series,
without any further vote or action by the shareholders. The Board of Directors,
without shareholder approval, may issue Preferred Stock with voting and
conversion rights which could materially adversely affect the voting power of
the holders of Common Stock. The issuance of Preferred Stock could also decrease
the amount of earnings and assets available for distribution to holders of
Common Stock. In addition, the issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company.
WARRANTS
The Company issued Warrants to purchase an aggregate of 125,000 shares of
Common Stock on November 6, 1995. The Warrants are exercisable for a five-year
period commencing on November 6, 1995. The exercise price of the Warrants is
$7.20 per share of Common Stock through June 26, 1998 and $8.40 per share of
Common Stock thereafter through November 6, 2000. The Warrants contain
anti-dilution provisions providing adjustment in the event of any
recapitalization, stock dividend, stock split or similar transaction. The
Warrants do not entitle the holder thereof to any rights as a shareholder of the
Company until such warrant is exercised and shares are purchased thereunder. The
Warrants and the shares of Common Stock thereunder may not be offered for sale
except in compliance with the applicable provisions of the Securities Act.
Holder of Warrants have registration rights as summarized below. See
"Registration Rights."
The Company issued to the Representative the Representative's Warrant to
purchase for investment a maximum of 110,000 shares of Common Stock. The
Representative's Warrant is exercisable for a four-year period commencing one
year from December 20, 1995. The exercise price of the Representative's Warrant
will be $7.20 per share. The Representative's Warrant will not be transferable
prior to its exercise date except to officers of the Representative and members
of the selling group and officers and partners thereof. The Representative's
Warrant contains anti-dilution provisions providing adjustment in the event of
any recapitalization, stock dividend, stock split or similar transaction. The
Representative's Warrant does not entitle the Representative to any rights as a
shareholder of the Company until such warrant is exercised and shares are
purchased thereunder. The Representative's Warrant and the shares of Common
Stock thereunder may not be offered for sale except in compliance with the
applicable provisions of the Securities Act. The Company has agreed that, if it
shall cause to be filed with the Securities and Exchange Commission either an
46
<PAGE>
amendment to the Registration Statement filed upon the initial public offering
of the Company in December, 1995 or a separate registration statement, the
Representative has the right during the five-year period which commenced on
December 19, 1995 to include in such amendment or Registration Statement
Representative's Warrant and the shares of Common Stock issuable upon its
exercise at no expense to the Representative Additionally, the Company has
agreed that, upon written request by a holder or holders of 50% or more of the
warrant which is made during the exercise period of the warrant, the Company
will, on two separate occasions, register the warrant and the shares of Common
Stock issuable upon exercise thereof. The initial such registration will be at
the Company's expense and the second such registration will be at the expense of
the holder(s) of such Warrant.
CONVERTIBLE NOTES AND WARRANTS
In March 1993, the Company issued Convertible Notes in the principal amount
of $150,000 to each of Hummer Winblad Ventures and Oak Affiliates. In November
1995, each of Hummer Winblad Ventures and Oak Investment agreed to convert the
principal amount of the Convertible Notes, plus accrued interest, into a total
of 63,334 shares of Common Stock on December 26, 1995. In consideration for such
agreement, in November 1995 the Company issued each of Hummer Winblad Ventures
and Oak Investment a warrant to purchase 31,667 shares of Common Stock
exercisable at a price of $7.20 per share for a period of 30 months following
December 26, 1995 and a price of $8.40 per share thereafter through that date
which is 60 months following December 26, 1995. In addition, in November 1995,
each of Hummer Winblad Ventures and Oak Investment agreed to exchange
outstanding warrants to purchase Common Stock for the same number of warrants
with the terms described in the preceding sentence.
In November 1995, the Company issued Series E Preferred Stock convertible
into 250,000 shares of Common Stock and warrants to purchase 125,000 shares of
Common Stock for $765,000, net of issuance costs. See "Warrants." The terms of
these warrants are identical to those aforementioned warrants issued to Hummer
Winblad Ventures and Oak Investment. See "Certain Transactions."
In addition, the Company has other outstanding warrants to purchase an
aggregate of 72,838 shares of Common Stock at an exercise price of $7.20 per
share.
REGISTRATION RIGHTS
After this Offering, the holders of approximately 528,316 shares of Common
Stock ("Registrable Securities"), representing shares issued upon conversion of
the Company's outstanding Preferred Stock and Convertible Notes and issuable
upon conversion of outstanding warrants, are entitled to certain rights with
respect to the registration of such shares under the Securities Act. If the
Company proposes to register any of its securities under the Securities Act for
its own account, holders of Registrable Securities are entitled to notice of
such registration and are entitled to include Registrable Securities therein,
provided, among other conditions, that the underwriters of any such offering
have the right to limit the number of shares included in such registration
(subject to certain limitations). The Company is not obligated to effect more
than two of these shareholder-initiated registrations. Further, holders of
Registrable Securities may require the Company to file additional registration
statements on Form S-3, subject to certain conditions and limitations.
The Company has agreed with (i) Hummer Winblad Ventures and Oak Affiliates
as to the warrants issued by the Company to them in November 1995 exercisable
for 63,334 shares of Common Stock and as to the Convertible Notes held by them,
convertible along with accrued interest, into 63,334 shares of Common Stock and
(ii) the other holders of warrants, excluding the 125,000 Warrants that are
being registered hereby, exercisable for an aggregate of 82,213 shares of Common
Stock, that it will file a registration statement to register the resale of the
Common Stock issuable upon the conversion and exercise of such notes and
warrants, respectively. Further, the Company has agreed that, thereafter to the
extent necessary to permit resale of such Common Stock, the Company shall use
its best efforts to maintain the effectiveness of such registration statement
and keep current the
47
<PAGE>
prospectus included therein until the Company is satisfied that Rule 144(k) is
available for the resale by the then-current holders of such Common Stock, but
in no event later than three years following effective date of this Offering.
The Company has also granted registration rights to the holder of the
Representatives' Warrant, which provide such holder with certain rights to
register such warrant and the shares of Common Stock underlying such warrant.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Sale of substantial amounts of the Company's Common Stock in the public
market or the prospect of such sales could materially adversely affect the
market price of the Common Stock. As of September, 1996 the Company had
outstanding 2,254,243 shares of Common Stock. Of these total outstanding shares
of Common Stock 1,798,354 shares are, freely tradeable without restriction under
the Securities Act of 1933, as amended (the "Securities Act"), unless purchased
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act, including 1,265,000 shares sold to the public in the Company's
IPO and (ii) the remaining 455,889 shares are restricted shares ("Restricted
Shares") under the Securities Act. Holders of approximately 654,050 Restricted
Shares have entered into contractual "lockup" agreements providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of the shares of stock owned by them or that could be
purchased by them through the exercise of options to purchase stock of the
Company, until January 20, 1997 without the prior written consent of H.J. Meyers
& Co. In addition 62,500 Shares of Common Stock ("Special Restricted Shares")
and 125,000 of the Warrant Shares offered hereby have entered into contractual
lockup agreements providing that they will not offer, sell, contract to sell or
grant any option to purchase or otherwise dispose of the shares of stock owned
by them or that could be purchased by them through the exercise of options to
purchase stock of the Company, until December 26, 1996 and January 20, 1997,
respectively. The remaining Restricted Shares are not subject to contractual
"lock-up" agreements. If the holders of Special Restricted Shares exercise
registration rights relating to such shares, additional shares of Common Stock
could be available for sale during the periods indicated in this paragraph.
Sales in the public market of substantial amounts of Common Stock (including
sales in connection with an exercise of certain registration rights relating to
approximately shares of Common Stock) or the perception that such sales could
occur could depress prevailing market prices for the Common Stock. In addition,
the Company has agreed to use its best efforts to register for resale under the
Securities Act the shares of Common Stock underlying the Notes before the date
60 days after the Debt Financing Closing and to maintain the effectiveness of
such registration for a minimum of two years. See "Description of Capital Stock
- -- Registration Rights."
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Shareholders that they may sell
all or a portion of the Shares and the Warrants from time to time on the Nasdaq
Small Cap Market System at prices and at terms prevailing at the time of sale.
The Shares and the Warrants may be sold by one or more of the following methods:
(a) a block trade in which the broker or dealer so engaged will attempt to sell
the Shares and the Warrants as an agent, but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its own
account pursuant to this Prospectus; (c) an over-the-counter distribution in
accordance with the rules of the Nasdaq Small Cap Market System and (d) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
There is no assurance that any of the Selling Shareholders will sell any or all
of the Shares or Warrants offered by them.
48
<PAGE>
In effecting sales, brokers or dealers engaged by the Selling Shareholders
may arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from the Selling Shareholders in amounts to be
negotiated prior to the sale. Participating brokers or dealers may be deemed to
be "underwriters" within the meaning of the Securities Act, in connection with
such sales. The Company will not receive any proceeds from the sale of the
Shares or Warrants by the Selling Shareholders.
The Company may at its discretion withdraw the Registration Statement of
which this Prospectus constitutes a part at any time.
The Warrant Shares may be issued from time to time upon exercise of the
Warrants.
LEGAL MATTERS
The validity of the Shares, the Warrants and the Warrant Shares offered
hereby have been passed upon for the Company by Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, Palo Alto, California.
EXPERTS
The financial statements as of December 31, 1994 and 1995 and for each of
the two years in the period ended December 31, 1995 included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
49
<PAGE>
DELTAPOINT, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996 (unaudited)........................................... F-3
Statements of Operations for the Years Ended December 31,
1994 and 1995 and for the six months ended June 30, 1995
and 1996 (unaudited)....................................... F-4
Statements of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1994 and 1995 and for the six months
ended June 30, 1996 (unaudited)............................ F-5
Statements of Cash Flows for the Years Ended December 31,
1994 and 1995 and for the six months ended June 30, 1995
and 1996 (unaudited)....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of DeltaPoint, Inc.
In our opinion, the accompanying balance sheet and the related statement of
operations, of shareholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of DeltaPoint, Inc. at December
31, 1994 and 1995, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
February 22, 1996
F-2
<PAGE>
DELTAPOINT, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30,
------------------ --------
1994 1995 1996
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 30 $ 4,629 $ 2,802
Accounts receivable, net of allowance for doubtful
accounts of $184, $259 and $125.......................... 583 1,225 889
Inventories............................................... 226 182 117
Prepaid expenses and other current assets................. 81 194 195
-------- -------- --------
Total current assets.................................... 920 6,230 4,003
Property and equipment, net................................. 171 49 259
Purchased software, net..................................... -- 438 398
Deposits and other assets................................... 56 47 29
-------- -------- --------
$ 1,147 $ 6,764 $ 4,689
-------- -------- --------
-------- -------- --------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C> <C>
Current liabilities:
Accounts payable.......................................... $ 1,416 $ 665 $ 1,075
Accrued liabilities....................................... 707 2,202 1,919
Reserve for returns and exchanges......................... 72 398 240
Notes payable to preferred shareholders................... 300 -- --
Notes payable............................................. 289 -- --
Current portion of capital lease obligations.............. 186 50 5
-------- -------- --------
Total current liabilities............................... 2,970 3,315 3,239
Long term capital lease obligations......................... 41 -- --
-------- -------- --------
Mandatorily redeemable convertible preferred stock.......... 4,177 -- --
-------- -------- --------
Commitments and contingencies (Note 6)
Shareholders' equity (deficit):
Preferred stock, no par value, 4,000,000 shares
authorized, none issued or outstanding................... -- -- --
Common stock, no par value, 25,000,000 shares authorized
182,717, 2,025,243, and 2,222,243 shares were issued and
outstanding.............................................. 145 12,267 13,057
Accumulated deficit....................................... (6,186) (8,818) (11,607 )
-------- -------- --------
Total shareholders' equity (deficit).................... (6,041) 3,449 1,450
-------- -------- --------
$ 1,147 $ 6,764 $ 4,689
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DELTAPOINT, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31 JUNE 30,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues.......................................................... $ 4,885 $ 4,043 $ 2,261 $ 1,893
Cost of revenues...................................................... 962 1,337 714 621
--------- --------- --------- ---------
Gross profit........................................................ 3,923 2,706 1,547 1,272
--------- --------- --------- ---------
Operating expenses:
Sales and marketing................................................. 1,636 1,922 759 2,051
Research and development............................................ 930 2,036 389 1,088
General and administrative.......................................... 839 1,234 588 961
--------- --------- --------- ---------
3,405 5,192 1,736 4,100
--------- --------- --------- ---------
Income (loss) from operations......................................... 518 (2,486) (189) (2,828)
Interest income (expenses)............................................ (168) (146) (61) 39
--------- --------- --------- ---------
Net income (loss)..................................................... $ 350 $ (2,632) $ (250) $ (2,789)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per share........................................... $ 0.38 $ (2.42) $ (0.25) $ (1.27)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares and share equivalents used in per share calculations........... 997 1,086 1,001 2,193
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DELTAPOINT, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
----------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1993................................... 194,509 $ 145 $ (6,536) $ (6,391)
Retirement of common stock................................... (11,792) -- -- --
Net income................................................... -- -- 350 350
----------- --------- ------------ ---------
Balance at December 31, 1994................................. 182,717 145 (6,186) (6,041)
Exercise of stock options.................................... 382 1 -- 1
Issuance of warrants......................................... -- 6 -- 6
Issuance of common stock..................................... 1,100,000 5,143 -- 5,143
Issuance of common stock for acquisition of purchased
software.................................................... 100,000 600 -- 600
Conversion of mandatorily redeemable convertible preferred
stock....................................................... 578,810 5,992 -- 5,992
Conversion of notes payable and accrued interest............. 63,334 380 -- 380
Net loss..................................................... -- -- (2,632) (2,632)
----------- --------- ------------ ---------
Balance at December 31, 1995................................... 2,025,243 12,267 (8,818) 3,449
Issuance of common stock (unaudited)......................... 190,000 755 -- 755
Exercise of stock options (unaudited)........................ 7,000 35 -- 35
Net loss (unaudited)......................................... -- -- (2,789) (2,789)
----------- --------- ------------ ---------
Balance at June 30, 1996 (unaudited)........................... 2,222,243 $ 13,057 $ (11,607) $ 1,450
----------- --------- ------------ ---------
----------- --------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DELTAPOINT, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................... $ 350 $ (2,632) $ (250) $ (2,789)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization........................................ 241 163 77 102
In process research and development.................................. -- 1,240 -- --
Other................................................................ -- 40 -- --
Change in assets and liabilities:
Accounts receivable................................................ 27 (642) (440) 336
Inventories........................................................ (46) 44 35 65
Prepaid expenses and other current assets.......................... 101 (113) (89) (1)
Accounts payable................................................... (460) (751) (627) 410
Accrued liabilities................................................ (490) 670 228 (283)
Reserve for returns and exchanges.................................. (31) 326 151 (158)
Deposits and other assets.......................................... -- 9 6 18
--------- --------- --------- ---------
Net cash used in operating activities............................ (308) (1,646) (909) (2,300)
--------- --------- --------- ---------
Cash flows used in investing activities:
Acquisition of property and equipment.................................. (32) (29) (16) (272)
Acquisition of purchased software...................................... -- (225) -- --
--------- --------- --------- ---------
Net cash used in investing activities............................ (32) (254) (16) (272)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of preferred stock , net........................ 451 1,815 1,050 --
Proceeds from issuance of common stock and warrants, net............... -- 5,150 6 790
Proceeds from line of credit........................................... -- -- 269 --
Repayment of note payable.............................................. -- (289) (299) --
Repayment of capitalized lease obligations............................. (92) (177) (99) (45)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities.............. 359 6,499 927 745
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents......................... 19 4,599 2 (1,827)
--------- --------- --------- ---------
Cash and cash equivalents at beginning of period......................... 11 30 30 4,629
--------- --------- --------- ---------
Cash and cash equivalents at end of period............................... $ 30 $ 4,629 $ 32 $ 2,802
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
DeltaPoint, Inc. (the Company) was incorporated in California in February
1989. The Company designs, develops and markets visualization software products
that are designed to facilitate the collection, interpretation and management of
business and technical information across multiple computing environments such
as desktop and client/server applications and the Internet's World Wide Web. The
principal markets for the Company's products are North America and Japan.
The following is a summary of the Company's significant 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 period. Actual results could differ from these estimates.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position 91-1 (SOP 91-1) on Software
Revenue Recognition.
Software product sales are recognized upon shipment of the product, net of
appropriate allowances for estimated returns. Revenues from software royalty and
packaging agreements are recognized upon shipment of a master copy of the
software product and packaging if no significant vendor obligations remain under
the terms of the agreements, any amounts paid are nonrefundable and collection
is probable. Payments received in advance of revenue recognition are recorded as
deferred revenue. The Company grants distributors and resellers certain rights
of return, price protection and stock rotation rights on unsold merchandise.
Accordingly, reserves for estimated future returns, credits for price protection
and stock rotation rights are accrued upon shipment based upon historical
experience.
The Company provides a limited amount of free telephone technical support to
customers. These activities are generally considered insignificant post contract
customer support obligations. Estimated costs of these activities are accrued at
the time of product shipment.
Revenue from international customers, primarily in Japan accounted for 42%,
40%, 43% and 15% of net revenues in 1994, 1995 and the six months ended June 30,
1995 and 1996, respectively. Sales to customers in excess of 10% of net revenues
is presented below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER
31, JUNE 30,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A......................................................................... 38% 35% 37% --%
Customer B......................................................................... 17% 13% 10% 18%
</TABLE>
F-7
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Included in the cash
equivalent balance at December 31, 1995, were $2,000,000 in certificates of
deposit. Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115). FAS 115 requires investment securities to be
classified as either held to maturity, trading or available for sale. The
Company did not have any short-term investments outstanding at December 31, 1994
and 1995.
STOCK BASED COMPENSATION
The Company accounts for its employee stock option plan in accordance with
provisions of the Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25). In October 1995, the Financial Accounting
Standards Board released Statement of Financial Accounting Standards No 123,
"Accounting for Stock Based Compensation" (FAS 123). FAS 123 provides an
alternative to APB 25 and is effective for fiscal years beginning after December
15, 1995. The Company expects to continue to account for it's employee stock
option plan in accordance with the provisions of APB 25. Accordingly FAS 123 is
not expected to have a material impact on the Company's financial position or
results of operations.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method based upon the estimated useful life of the assets
ranging from three to five years. Leasehold improvements are amortized over the
shorter of the remaining term of the lease or the estimated useful life of the
asset.
PURCHASED SOFTWARE
Purchased software is recorded at cost and amortized using the straight line
method over the three-year estimated useful life of the asset.
SOFTWARE DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Statement of
Financial Accounting Standards No. 86 (FAS 86) requires the capitalization of
certain software development costs once technological feasibility is
established. The capitalized costs are then amortized on a straight-line basis
over the estimated product life, or on the ratio of current revenues to total
projected product revenues, whichever is greater. Based upon the Company's
product development process, technological feasibility is established upon
completion of a working model. Costs incurred by the Company between completion
of the working model and the point at which the product is ready for general
release have been insignificant and accordingly have not been capitalized as
software development costs.
CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially subject the Company to significant
concentrations of credit risks consist principally of cash and accounts
receivable. The Company places its cash in interest bearing accounts and
certificates of deposit in high quality financial institutions. The Company
sells its products primarily to end-users, distributors and resellers in a
variety of industries located primarily in the United States and Japan. The
Company performs ongoing credit evaluations
F-8
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
of its customers' financial condition and generally requires no collateral from
its customers. The Company maintains an allowance for uncollectible accounts
receivable based upon the expected collectibility of all accounts receivable. To
date, the Company has not experienced any material losses.
At December 31, 1994 three customers accounted for 49% of accounts
receivable. At December 31, 1995 five customers accounted for 86% of accounts
receivable. At June 30, 1996 three customers accounted for 66% of accounts
receivable.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based upon the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares consist of warrants and stock options (using the treasury
stock method). Common equivalent shares are excluded from the computation if
their effect is anti-dilutive except that, pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common and common equivalent
shares issued during the period from November 1994 to November 1995 have been
included in the calculation as if they were outstanding for all periods through
November 1995 (using the treasury stock method for the options and warrants at
the initial public offering price). As a result of the loss incurred in 1995 and
for the six months ended June 30, 1996, the common equivalent shares were
anti-dilutive and, accordingly, were excluded from the computation of loss per
share for that year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, including
accounts receivable and notes payable, approximates fair values.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" (FAS 109). Under FAS 109, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of the Company's assets and
liabilities.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet as of June 30, 1996, the statements of
operations and of cash flows for the six months ended June 30, 1995 and 1996,
and the statements of shareholders' equity (deficit) for the six months ended
June 30, 1996 are unaudited. In the opinion of management, the statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, necessary for
the fair statement of the results of interim periods. The data disclosed in
these notes to financial statements for these periods are also unaudited.
F-9
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- BALANCE SHEET DETAILS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1994 1995
--------- --------- JUNE 30,
-----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Inventories:
Raw materials...................................................... $ 170 $ 119 $ 105
Finished goods..................................................... 56 63 12
--------- --------- -----------
$ 226 $ 182 $ 117
--------- --------- -----------
--------- --------- -----------
Purchased software:
Purchased software................................................. $ -- $ 450 $ 450
Less: accumulated amortization..................................... -- (12) (52)
--------- --------- -----------
$ -- $ 438 $ 398
--------- --------- -----------
--------- --------- -----------
Property and equipment:
Computer equipment and software.................................... $ 927 $ 936 $ 1,084
Furniture and fixtures............................................. 139 139 139
Leasehold improvements............................................. 36 -- 30
--------- --------- -----------
1,102 1,075 1,253
Less: accumulated depreciation..................................... (931) (1,026) (994)
--------- --------- -----------
$ 171 $ 49 $ 259
--------- --------- -----------
--------- --------- -----------
Accrued liabilities:
Accrued royalties.................................................. $ 225 $ 351 $ 365
Accrued compensation............................................... 300 303 684
Amounts due for purchased software................................. -- 865 275
Other.............................................................. 182 683 595
--------- --------- -----------
$ 707 $ 2,202 $ 1,919
--------- --------- -----------
--------- --------- -----------
</TABLE>
Included in the December 31, 1994 and 1995 and June 30, 1996 balances of
computer equipment and software are $531,000, $531,000 and $547,000,
respectively, of assets acquired under capital leases. Accumulated depreciation
associated with these leases approximates $438,000, $481,000 and $542,000 at
December 31, 1994, December 31, 1995 and June 30, 1996, respectively.
In November and December 1995, the Company acquired certain Internet
technologies, including the source code and related documentation. The aggregate
purchase price of these technologies was $1,690,000, which was comprised of (i)
$1,090,000 in cash, payable in installments through August 1996 and (ii) the
issuance of 100,000 shares of the Company's common stock. The Company will also
be required to pay royalties on sales of the products developed from these
technologies. No amounts were due under the royalty agreement during 1995.
Approximately $1,240,000 of the purchase price was allocated to in-process
technology. In connection with these acquisitions, the Company determined that
the majority of the purchase price represented in-process technology and because
such technology had not reached the stage of technological feasibility and had
no alternative future use, the amount was immediately charged to operations.
F-10
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION
In May 1994, the Company exchanged intellectual property with a book value
of $0 for 11,792 shares of common stock from an existing common shareholder.
In December 1995, upon the closing of the Company's initial public offering,
all outstanding shares of Series A, B, C, D and E Mandatorily Redeemable
Convertible Preferred Stock converted into common stock. In addition, the
Company converted related party notes payable totaling $300,000 (Note 4) and
accrued interest on the notes totaling $80,000 into 63,334 shares of common
stock. The Company also issued the preferred shareholders 63,334 warrants to
purchase shares of common stock exercisable at a price of $7.20 per share for
the first 30 months of the warrant term and $8.40 per share for the remaining 30
months of the warrant terms.
In November and December 1995, the Company acquired intellectual property
for a total purchase price of $1,690,000 which was comprised of the (i) issuance
of 100,000 shares of common stock at $6.00 per share, (ii) a cash payment of
$225,000 and (iii) $865,000 to be paid in installments through August 1996.
Cash paid for interest totaled $123,000, $146,000, $61,000 and $26,000 for
the years ended December 31, 1994 and 1995, and the six months ended June 30,
1995 and 1996, respectively.
NOTE 4 -- NOTES PAYABLE TO PREFERRED SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS:
At December 31, 1994, the Company had $300,000 of 10% interest bearing notes
due to certain preferred shareholders. In connection with the issuance of the
notes, the Company granted the note holders warrants to purchase 1,358 shares of
common stock at an exercise price of $6.63. The Company reserved 1,358 shares of
common stock for issuance under the exercise of these warrants. The warrants are
exercisable through March 1998. The value of the warrants was considered nominal
at the date of grant. Under the terms of the note agreement, each note holder
had the option to convert the unpaid principal and accrued interest into shares
of mandatorily redeemable convertible preferred stock any time after the
original due date of the notes.
In November 1995, preferred shareholders agreed to exchange the $300,000 of
interest-bearing notes, plus accrued interest of $80,000 for notes convertible
into an aggregate of 63,334 shares of common stock and warrants to purchase
63,334 shares of common stock exercisable at a price of $7.20 per share for the
first 30 months of the warrant term and $8.40 per share for the remaining 30
months of the warrant term. The warrants are exercisable through November 2000.
Such notes and accrued interest thereon were converted into common stock in
connection with the Company's initial public offering in December 1995.
The Company purchases goods and services from a supplier who is a
shareholder of the Company. Purchases from this supplier totaled $470,000,
$354,000, $187,000 and $101,000 for the years ended December 31, 1994 and 1995
and the six months ended June 30, 1995 and 1996, respectively. Amounts due to
this supplier are included in accounts payable at December 31, 1994, 1995 and
June 30, 1996 and totaled $525,000, $55,000 and $33,000, respectively.
F-11
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- NOTES PAYABLE:
In August 1994, the Company's outstanding line of credit of $289,000 was
converted into a term note. The term note was secured by accounts receivable and
required monthly principal and interest payments through September 1996. The
term note was paid in full as of December 31, 1995.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
The Company leases its facilities and certain equipment under noncancellable
operating leases. In October 1995 the Company entered into a three-year lease
for a new facility. Rent expense was $203,000 and $262,000 for the years ended
December 31, 1994 and 1995, respectively. Rent expense for the six months ended
June 30, 1995 and 1996 was $100,000 and $95,000.
The Company leases certain other equipment under a long term lease agreement
which has been classified as a capital lease. This lease is secured by the
equipment acquired under the lease and expires in 1996.
Future minimum lease payments are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- ----------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1996............................................................................... $ 51 $ 212
1997............................................................................... -- 194
1998............................................................................... -- 146
----- -----
Total minimum lease payments....................................................... 51 $ 552
-----
-----
Less: amount representing interest................................................. 1
-----
Present value of capitalized lease obligations..................................... 50
Less: current portion of capital lease obligation.................................. 50
-----
Long-term portion of capital lease obligation...................................... $ --
-----
-----
</TABLE>
CONTINGENCIES
On March 21, 1995, Ameriquest/Kenfil Inc. ("Kenfil") filed a complaint in
the Superior Court of the State of California before the county of Monterey
naming the Company as defendant and alleging (i) breach of a distribution
agreement between Kenfil and the Company (ii) and indebtedness to Kenfil for the
sum of $233,000 together with interest thereon at the rate of 10% per annum.
Kenfil was seeking damages, cost of suit and other relief. In April 1996 the
Company entered into a settlement agreement with Kenfil for the sum of $50,000.
Kenfil has filed a dismissal of the complaint with prejudice on April 26, 1996
with the Superior Court of California.
In the normal course of business, the Company from time to time receives
inquiries with regards to possible patent infringement. Management believes that
it is unlikely that the outcome of these inquiries will have a material adverse
effect on the Company's financial position or results of operations or
liquidity.
NOTE 7 -- INCOME TAXES:
No provision for income taxes has been recorded for any periods presented
due to net operating losses and the availability of net operating loss
carryforwards. At December 31, 1995, the Company had approximately $2,345,000 of
federal net operating loss carryforwards which expire in varying amounts through
2010. Due to certain changes in the ownership of the Company, the majority of
these losses are subject to an annual limit of approximately $142,000.
F-12
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES: (CONTINUED)
A reconciliation of the Company's effective tax rate to the U.S. federal
statutory rate follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
U.S. federal statutory rate................................. 34.0% (34.0)%
State and local taxes, net of U.S. federal benefit.......... 9.3 (9.1 )
Utilization of operating loss carryforwards................. (43.3 ) --
Reserved net deferred tax assets and other.................. -- 43.1
----- -----
--% --%
----- -----
----- -----
</TABLE>
The components of the net deferred tax assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating losses...................................... $ 780 $ 940
Reserves, accruals and depreciation....................... 288 885
Tax credit carryforwards.................................. 18 10
--------- ---------
1,086 1,835
Deferred tax valuation allowance........................ (1,086) (1,835)
--------- ---------
Net deferred tax asset...................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company has determined that, under FAS 109, it is more likely than not
that the deferred tax assets at December 31, 1995 would not be realized and,
accordingly, a full valuation reserve has been established. Management's
assessment is based on the Company's history of net operating losses.
NOTE 8 -- COMMON STOCK AND MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK:
COMMON STOCK:
In December 1995, the Company completed its initial public offering of
1,100,000 shares of its common stock at a per share price of $6.00 and realized
net proceeds of $5,143,000.
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
The Company had authorized 731,022 shares of Preferred Stock, of which
57,553, 83,018, 77,889, 112,562 and 400,000 shares, respectively, were
designated Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock (Series A, B, C, D and E, respectively).
Series A, B, C, D and E had certain rights with respect to dividends,
liquidation, redemption, conversion and voting. In December 1995, upon the
closing of the Company's initial public offering, all outstanding Series A, B,
C, D, and E Mandatorily Redeemable Convertible Preferred Stock were converted
into common stock.
WARRANTS:
In connection with the issuance of Series A, the Company issued 2,212
warrants to purchase Series A preferred stock. Each warrant has an exercise
price of $18.07 and are exercisable through March 1997. The value of the
warrants was considered nominal at the date of grant. In connection with the
issuance of notes payable to the preferred shareholders (Note 4), the Company
issued 1,358 warrants to purchase its common stock at an exercise price of $6.63
per share. These warrants are exercisable through March 1998.
F-13
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- COMMON STOCK AND MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK: (CONTINUED)
In connection with the issuance of Series E, the Company issued 125,000
warrants to purchase common stock at an exercise price of $7.20 per share for
the first thirty (30) months of the warrant term and $8.40 per share for the
remaining warrant term. The warrants are exercisable through November 2000.
In connection with its initial public offering, the Company issued to the
underwriters a warrant to purchase 110,000 shares of common stock at an exercise
price of $7.20 per share. The warrant is exercisable through December 2000.
The Company has reserved 371,172 shares of common stock for issuance upon
the exercise of the outstanding warrants.
NOTE 9 -- STOCK OPTION PLAN:
The Company has three Stock Option Plans (the Plans) which provide for
issuance of stock options to employees of the Company. The Company has reserved
an aggregate of 885,462 shares of Common Stock, including a 200,000 increase to
the 1995 Plan approved by the Company's shareholders at the annual meeting in
June 1996 under these plans. Options to purchase 33,381 and 41,588 shares were
vested and exercisable at December 31, 1994 and 1995 respectively. Options
granted under the Plans are for periods not to exceed 10 years. Non-employee
members of the Board of Directors are eligible for automatic option grants under
the 1995 Stock Option Plan (the 1995 Plan). All options granted under the Plans
must be at prices not less than fair value at the date of grant as determined by
the Board of Directors, except for the 1995 Plan for which options can be
granted at prices not less than 85% of the fair value at the date of grant. The
Board of Directors may amend, modify or terminate the Plans at their discretion.
The following table summarizes activity under the Company's Stock Option
Plans:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES --------------------------
AVAILABLE PRICE PER
FOR GRANT SHARES SHARE
---------- ---------- --------------
<S> <C> <C> <C>
Balance at December 31, 1993................................... 19,612 45,745 $ 6.63
Options granted................................................ (10,677) 10,677 $ 6.63
Options canceled............................................... 18,295 (18,295) $ 6.63
---------- ----------
Balance at December 31, 1994................................... 27,230 38,127 $ 6.63
---------- ----------
Additional shares reserved..................................... 620,000 -- --
Options granted................................................ (525,000) 525,000 $ 3.50-$6.63
Options exercised.............................................. -- (382) $ 6.63
Options canceled............................................... 3,321 (3,321) $ 6.63
---------- ----------
Balance at December 31, 1995................................... 125,551 559,424 $ 3.50-$6.63
---------- ----------
Additional shares authorized (unaudited)....................... 200,000 --
Options granted (unaudited).................................... (258,594) 258,594 $ 7.83-1.25
Options exercised (unaudited).................................. -- (7,000) $ 4.20
Options canceled (unaudited)................................... 157,885 (157,885) $ 3.50-$7.83
---------- ----------
Balance at June 30, 1996 (unaudited)........................... 224,842 653,133 $ 3.50-6.63
---------- ----------
---------- ----------
</TABLE>
In connection with certain options granted in December 1995 under the 1995
Plan, the Company will recognize compensation expense of $42,000 for the
difference between the grant price and the fair value of the Common Stock over
the thirty-six month vesting period of the options.
F-14
<PAGE>
DELTAPOINT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- 401(K) PLAN:
During 1992, the Company established a deferred compensation plan (the
401(k) Plan) pursuant to Section 401(k) of the Internal Revenue Code (the
"Code"), whereby substantially all employees are eligible to contribute up to
20% of their pre-tax earnings, not to exceed amounts allowed under the Code. The
Company may make contributions to the 401(k) Plan at the discretion of the Board
of Directors. No employer contributions have been made to the 401(k) Plan by the
Company.
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OTHER PERSON. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Available Information............................. 2
Summary........................................... 3
Risk Factors...................................... 6
Price Range of Common Stock....................... 13
Dividend Policy................................... 14
Capitalization.................................... 15
Selected Financial Data........................... 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 17
Business.......................................... 23
Management........................................ 33
Certain Transactions.............................. 41
Principal and Selling Shareholders................ 43
Description of Capital Stock...................... 46
Shares Eligible for Future Sale................... 48
Plan of Distribution.............................. 48
Legal Matters..................................... 49
Experts........................................... 49
Financial Statements.............................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Articles of Incorporation eliminate a director's personal
liability for monetary damages to the Registrants and its shareholders arising
from a breach or alleged breach of the director's fiduciary duty, except for
liability arising under Sections 310 and 316 of the California General
Corporation Law or liability for (i) acts or omissions that involve intentional
misconduct or knowing and culpable violation of law, (ii) acts or omissions that
a director believes to be contrary to the best interests of the Registrant or
its shareholders or that involve the absence of good faith on the part of the
director, (iii) any transaction from which a director derived an improper
personal benefit, (iv) acts or omissions that show a reckless disregard for the
director's duty to the Registrant or its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the Registrant or
its shareholders and (v) acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
Registrants or its shareholders. This provision does not eliminate the
directors' duty of care, and in appropriate circumstances equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under California law.
Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expense) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Articles of Incorporation and Bylaws contain provisions covering indemnification
of corporate directors, officers and other agents against certain liabilities
and expenses incurred as a result of proceedings involving such persons in their
capacities as directors, officers, employees or agents, including proceedings
under the Securities Act or the Securities Exchange Act of 1934, as amended. The
Company has entered into Indemnification Agreements with its directors and
executive officers.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock, Warrants and the Common Stock issuable upon
exercise of the Warrants being registered. All amounts are estimates except the
SEC registration fee.
<TABLE>
<S> <C>
SEC Registration fee..................................................... $ 1,479
Nasdaq Small Cap Market listing fee...................................... 2,612
Printing and engraving expenses.......................................... 10,000
Legal fees and expenses.................................................. 45,000
Accounting fees and expenses............................................. 22,500
Blue sky fees and expenses............................................... 15,000
Transfer agent fees...................................................... 2,500
Miscellaneous fees and expenses.......................................... 909
---------
Total................................................................ $ 100,000
---------
---------
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since September 30, 1992, the Registrant has issued and sold the following
securities (after giving effect to the one-for-5.3 reverse split of the Common
Stock effected on the closing of the Company's Initial Public Offering in
December 1995):
1. The Registrant has granted options to purchase 7,165 shares of Common
Stock and issued and sold 2,143 shares of its Common Stock upon exercise
of such options to a number of employees pursuant to direct issuances and
to exercises of options under its 1990 Stock Option Plan.
2. The Registrant has granted options to purchase 8,063 shares of Common
Stock and issued and sold no shares of its Common Stock upon exercise of
such options to employees and a third party pursuant to direct issuances
and to exercises of options under its 1992 Stock Option Plan, including
options granted to Raymond R. Kingman, Jr., William G. Pryor to purchase
4,283 and 1,894 shares of Common Stock, respectively.
3. The Registrant has granted options to purchase 499,844 shares of Common
Stock and issued and sold no shares of its Common Stock upon exercise of
such options to a number of employees and directors pursuant to direct
issuances and to exercises of options under its 1995 Stock Option Plan.
4. In March 1993 Registrant issued to a group of investors warrants to
purchase 1,358 shares of Common Stock at an exercise price of $6.62 per
share or in the event Registrant consummates the sale of Common Stock
pursuant to a registration statement filed on Form S-1 filed under the
Securities Act for an aggregate offering price of $5 million.
5. On March 29, 1993, Registrant issued promissory notes in the aggregate
principal amount of $300,000 to the following entities; Hummer Winblad
Venture Partners, Hummer Winblad Technology Fund, Oak Investment Partners
V, Limited Partnership and Oak V Affiliates Fund, Limited Partners.
6. On April 6, 1994, Registrant sold and issued an aggregate of 77,894
shares of its Series C Preferred Stock for cash in the aggregate amount
of $450,000 to entities affiliated with Hummer Winblad Venture Partners
and entities affiliated with Oak V Affiliates Fund, L.P. pursuant to a
Series C Preferred Stock Purchase Agreement. See "Certain Transactions."
7. On May 24, 1995 Registrant sold and issued an aggregate of 112,564
shares of its Series D Preferred Stock for cash in the aggregate amount
of $1,050,000 to entities affiliated with Hummer Winblad Venture
Partners, entities affiliated with Oak V Affiliates Fund, L.P. and
Pinnacle Manufacturing Professionals pursuant to a Series D Preferred
Stock Purchase Agreement. See "Certain Transactions" and "Capital Stock
-- Convertible Notes and Warrants."
8. On May 24, 1995, Registrant issued to Hummer Winblad Venture Partners
and entities affiliated with Oak V. Affiliates Fund, L.P., Warrants to
purchase 69,272 shares of Common Stock at an exercise price of $9.33 per
share, or in the event Registrant consummates the sale of its Common
Stock pursuant to a registration statement filed on Form S-1 filed under
the Securities Act for an aggregate offering price of $5 million. See
"Certain Transactions."
9. On November 6, 1995, Registrant sold and issued 125,000 units, each unit
consisting of two shares of Series E Preferred Stock, and one Warrant at
a purchase price of $8.00 per unit, for cash of $765,000, net of issuance
costs, to the following investors in the following amount of units:
Hummer Winblad Ventures (3,125 units), Oak V Affiliates Fund, L.P. (6,250
units), American High Growth Equities Retirement Trust (50,000 units),
Jack Balter (3,125 units), Dr. Mannie Magid (3,125 units), George L.
Black Trust (6,250 units), Leon Feldan (3,125 units), Ronald Mickwee
(3,125 units), Joan Plastiras Myers (3,125 units), Nicholas W. and
Geraldine Perilli (3,125 units), James R. Ratliff (6,250 units), David
Rosenberg (3,125 units),
II-2
<PAGE>
Alan J. Rubin (6,250 units), The Salzman Group, Ltd. (6,250 units),
Donald L. & Lucy A. Stoner Trust (6,250 units), Lawrence S. Weisman
(6,250 units), Donald B. Witmer (6,250 units). See "Certain
Transactions."
10. On November 10, 1995, Registrant granted options to purchase an
aggregate of 335,000 shares of Common Stock under its 1995 Stock Option
Plan, at an exercise price of $3.50 per share to Raymond R. Kingman, Jr.,
William G. Pryor and Donald B. Witmer to purchase 100,000, 100,000 and
135,000 shares of Common Stock, respectively.
11. On November 8, 1995 issued to each of Hummer Winblad Ventures and Oak
Affiliates a warrant to purchase 31,667 of Common Stock exercisable at a
price of $7.20 per share for a period of 30 months following December 26,
1995 and a price of $8.40 per share from such time until November 6,
2000.
12. On April 22, 1996, Registrant granted options to purchase an aggregate
of 155,000 shares of Common Stock under its 1995 Stock Option Plan, at an
exercise price of $9.50 per share to John J. Ambrose and Donald B. Witmer
to purchase 145,000 and 10,000 shares of Common Stock, respectively.
13. On August 13, 1996, Registrant granted options to purchase 20,000 shares
of Common Stock under its 1995 Stock Option Plan, at an exercise price of
$7.50 per share to Patrick Grady.
The issuance described in Items 1 through 8 were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) under the
Securities Act as transactions by an issuer not involving a public offering or
on Rule 701 promulgated under the Securities Act. In addition, the recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
3.1(1) Registrant's Amended and Restated Articles of Incorporation
3.2(1) Registrant's Bylaws
4.1(1) Specimen Certificate of Registrant's Common Stock
4.2(1) Form of Warrant
4.3(1) Form of H.J. Meyers & Co.'s' Warrant
4.4(1) Loan and Warrant Agreement between Registrant and certain investors dated as of March 29, 1993
4.5(1) Amended and Restated Investor Rights Agreement between Registrant and the investors specified
therein dated as of November 6, 1995
5.1** Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
10.1(1) Real Property Lease between Registrant and Owens Mortgage Investment Fund dated as of August 18,
1995
10.2(1) 1990 Stock Option Plan
10.3(1) 1992 Stock Option Plan
10.4(1)(3) 1995 Stock Option Plan
10.5(1) Form of Indemnification Agreement
10.6(1)(2) License Agreement between Registrant and Smart Draw Software, Inc. dated as of April 19, 1995
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
10.7(1) License Agreement between Registrant and Halcyon Software, Inc. dated as of June 30, 1992
10.8.1(1)(2) Distribution Agreement between Registrant and Nippon Polaroid Kabushiki Kaishi dated as of
November 12, 1991
10.8.2(1)(2) Distributor Software License Agreement between Registrant and Nippon Polaroid K.K. Supplements
dated as of December 24, 1993, June 6, 1994 and two supplements dated as of June 28, 1995
10.9(1) Series C Preferred Stock Purchase Agreement dated April 6, 1994 among the Registrant and the
investors named therein
10.10(1) Series D Preferred Stock and Warrant Purchase Agreement dated May 24, 1995 among Registrant and
the investors named therein
10.11(1) Series E Preferred Stock and Warrant Purchase Agreement dated November 6, 1995 among Registrant
and the investors named therein
10.12(1) Employment Agreement dated as of November 1, 1995 between Registrant and Donald B. Witmer
10.13.1(1) Business Loan Agreement between Registrant and Silicon Valley Bank dated as of August 24, 1994
10.13.2(1) Promissory Note between Registrant and Silicon Valley Bank dated as of August 24, 1994
10.14(1) Conversion of Promissory Notes and Exchange of Warrants Agreement dated as of November 8, 1995
among Registrant, Hummer Winblad Venture Partners, Hummer Winblad Technology Fund, Oak
Investment Partners V, Limited Partnership and Oak V Affiliates Fund, Limited Partnership.
10.15(1) License Agreement between Registrant and Altura Software, Inc. dated June 7, 1994
10.16(1) Employment Agreement dated November 8, 1995 between Registrant and Raymond R. Kingman, Jr.
10.17(1) Employment Agreement dated November 8, 1995 between Registrant and William G. Pryor
10.18(1) Offer letter dated December 5, 1995 between the Registrant and Spencer A. Leyton
10.19(1)(2) Letter of Intent dated November 21, 1995 between DeltaPoint and Richard Blum
10.20(1)(2) Agreement dated December 15, 1995 among Registrant, Global Technologies Corporation and William
French
10.21(1) Termination Agreement dated as of November 8, 1995 among the Company and certain shareholders of
the Company named therein
10.22(1) Amendment Agreement dated as of December , 1995 among the Company and certain shareholders of
the Company named therein
10.23(3) Employment Agreement dated December 26, 1995 between Registrant and William A. French
10.24** Separation Agreement and Release between Registrant and Raymond R. Kingman, Jr. dated April 5,
1996
10.25** Offer letter dated March 29, 1996 between Registrant and John J. Ambrose
23.1 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP (included in Exhibit
5.1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
23.2* Consent of Price Waterhouse LLP
24.1** Power of Attorney
</TABLE>
- ------------------------
(1) Incorporated by reference to Registrant's Registration Statement on Form
SB-2, filed December 19, 1995 (File No. 33-99300).
(2) Confidential treatment requested as to certain portions of this exhibit.
(3) Incorporated by reference to Registrant's Registration Statement on Form S-8
filed March 6, 1996 (File No. 333-2192).
* Filed herewith.
** Previously filed.
ITEM 28. UNDERTAKINGS
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant 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 hereunder, the 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 question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
That for purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) 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;
(iii) 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.
For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of Prospectus 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.
The Registrant further undertakes 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Monterey, State of California, on October , 1996.
DELTAPOINT, INC.
By: /s/ JOHN J. AMBROSE
-----------------------------------
John J. Ambrose
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON THE DAY OF OCTOBER, 1996 BY
THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ --------------------------------------
<C> <S> <C>
/s/ JOHN J. AMBROSE
------------------------------------------- Chief Executive Officer and Director
John J. Ambrose (Principal Executive Officer)
Chief Financial Officer, Chief
/s/ DONALD B. WITMER Operating Officer and Director
------------------------------------------- (Principal Financial and Accounting
Donald B. Witmer Officer)
/s/ WILLIAM G. PRYOR
------------------------------------------- Director
William G. Pryor*
/s/ JOHN HUMMER
------------------------------------------- Director
John Hummer*
*By: /s/ DONALD B. WITMER
--------------------------------------
Donald B. Witmer Director
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated February 22, 1996,
relating to the financial statements of DeltaPoint, Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Jose, California
October 11, 1996
