DELTAPOINT INC, SB-2/A, 1997-08-19

DELTAPOINT INC
SB-2/A, 1997-08-19
PREPACKAGED SOFTWARE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1997.

REGISTRATION NO. 333-29177
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DELTAPOINT, INC.

(Exact name of Registrant as specified in its charter)

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<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>

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JEFFREY F. AIT
CHIEF EXECUTIVE OFFICER
DELTAPOINT, INC.
22 LOWER RAGSDALE DRIVE
MONTEREY, CALIFORNIA 93940
(408) 648-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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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. / /
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CALCULATION OF REGISTRATION FEE

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<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)....... 1,361,160 $2.00(2) $2,722,320 $825.00
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(1) Such securities have been registered for issuance by the Registrant 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.
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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.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 19, 1997

PROSPECTUS

764,316 SHARES OF COMMON STOCK

THE 764,316 SHARES (THE "SHARES") OF COMMON STOCK (THE "COMMON STOCK") OF
DELTAPOINT, INC., A CALIFORNIA CORPORATION (THE "COMPANY") COVERED BY THIS
PROSPECTUS ARE SHARES OF COMMON STOCK OF THE COMPANY THAT ARE OR MAY BE ISSUABLE
UPON CONVERSION OF ALL OF THE SHARES OF THE COMPANY'S SERIES A PREFERRED STOCK
(THE "SERIES A PREFERRED"). SEE "DESCRIPTION OF CAPITAL STOCK -- PREFERRED
STOCK" FOR A DESCRIPTION OF THE SERIES A PREFERRED. THE COMPANY WILL NOT RECEIVE
ANY OF THE PROCEEDS FROM THE ISSUANCE OF THE SHARES UPON CONVERSION OF THE
SERIES A PREFERRED.

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, which are estimated at $23,000.

On August 14, 1997, the last sale price of the Company's Common Stock, as
reported on the OTC Bulletin Board under the symbol DTPT, was $1.31.

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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

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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 , 1997
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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 quoted on the OTC Bulletin Board under the
symbol "DTPT."

The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Common Stock offered hereby. 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 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.

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DeltaPoint and Site/technologies are registered trademarks of the Company
and QuickSite, SiteTech, WebAnimator and Web Tools are or may be trademarks of
the Company. All other product, brand or trade names are trademarks or
registered trademarks of their respective owners.

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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. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.

THE COMPANY

DeltaPoint, Inc. ("DeltaPoint" or the "Company") currently develops and
markets Internet software products designed to enable individuals and Small
Office/Home Office ("SOHO") professionals to effectively and easily create,
manage and enhance Web sites on the Internet's World Wide Web (the "Web" or
"WWW"). The use of Web sites by small to medium businesses ("SMBs") and
enterprise departments has recently emerged into a critical business application
that provides greater sales and marketing reach and allows these businesses to
grow faster and more cost effectively. To capitalize on the emerging
opportunities in the SMB and enterprise department user markets for scalable Web
site development and management software solutions, the Company intends to
broaden its product offerings to include a family of products designed to enable
these users, in addition to individuals and SOHO professionals, to develop,
manage, integrate, deploy and maintain next-generation Web sites. The Company's
objective is to become a leading provider of scalable Web site development and
management software solutions for Web based business environments.

The Company introduced QuickSite 1.0 in February 1996 to enable individuals
and SOHO professionals to rapidly create, manage and enhance robust Internet Web
sites. Since its introduction, the Company has received a number of industry
analyst awards for QuickSite 1.0's management capabilities and database
architecture (including the PC Week Analyst's Choice Award, PC Week Labs IT
Excellence Award and PC Computing 5 Star Rating) and has successfully sold this
product through its distribution channels (including certain original equipment
manufacturers ("OEMs") with whom the Company has a strategic relationship, such
as Sony and Compaq Computer). In September 1996, the Company introduced
QuickSite 2.0 targeted at Web site developers. QuickSite 2.0 received the PC
Computing 5 Star Rating.

In February 1997, the Company introduced QuickSite 2.5, its second
generation Web site development and management solution targeted at individuals,
SOHO professionals and SMBs seeking to conduct electronic commerce over the
Internet. In addition to the features incorporated in QuickSite 1.0, QuickSite
2.5, which began shipping in May 1997, includes advanced features such as a
WYSIWYG++ (What You See Is What You Get) layout editor, an electronic commerce
enabled catalogue builder and an enhanced HTML (hypertext markup language)
editor. The Company has distributed QuickSite 2.5 through its distribution
channels (including OEMs such as MacMillan Press and Anawave, Inc.). QuickSite
2.5 has received numerous industry awards including the ZD Online Internet
Editor's Choice Award, InfoWorld High-Point Award, and Entrepreneur Magazine 4
out of 4 rating.

In April 1997, the Company announced its intent to acquire certain
proprietary core technology from Inlet, Inc. ("Inlet", with such transactions
being referred to herein as the "Inlet Technology Acquisition"). This technology
is intended to serve as the basis for the Company's planned client/ server,
multi-authoring, dynamic site development and management products, the first of
which is planned for release in the fourth quarter of 1997, at the earliest. In
July 1997, the Company acquired Site/technologies/inc. ("Site", with such
transaction being referred to herein as the "Site Tech Acquisition") pursuant to
which the Company acquired, among other things, SiteSweeper 1.0, a Web site
quality control and maintenance product. The Company is currently developing
SiteSweeper 2.0, which is being designed to enable Web development and
management professionals to maintain the quality and integrity of mission
critical Web based business environments. The Company is planning

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to introduce SiteSweeper 2.0 in the third quarter of 1997, at the earliest. The
Company intends to enhance and incorporate the core technologies acquired in the
above acquisitions into its planned family of scalable Web site development and
management software solutions.

As part of the Company's continuing strategy to focus its development, sales
and marketing efforts on Internet software products, on June 27, 1997, the
Company consummated the sale of its DeltaGraph charting and graphics product
line (the "DeltaGraph Disposition") to SPSS, Inc. ("SPSS"). Additionally, the
Company intends to change the name under which the company does business to
SiteTech Inc. or a similar name to more accurately represent the Company's
business focus.

The Company has announced that it intends to file a registration statement
relating to a proposed public offering of Common Stock with the Securities and
Exchange Commission. Depending on market conditions, the Company expects to
issue shares of Common Stock with an aggregate value of approximately $6.1
million (before related fees and expenses). The net proceeds to the Company from
the proposed offering are expected to be used to fund the Inlet Technology
Acquisition and for working capital and general corporate purposes. There can be
no assurance that the Company will consummate the proposed offering, that a
specific amount will be raised in such offering or that the Company will
consummate the Inlet Technology Acquisition. The Inlet Technology Acquisition is
subject to a number of conditions, including negotiation of definitive
documentation and consummation by the Company of a public equity offering.

The Company was incorporated in California in 1989, its headquarters are
currently located at 22 Lower Ragsdale Drive, Monterey, California, and its
telephone number is (408) 648-4000. The Company currently plans to move its
headquarters to 380 El Pueblo, Scotts Valley, California on or about October 1,
1997.

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RISK FACTORS

The shares of Common Stock 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 10.

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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
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1995 1996 1996 1996 1997 1997
------- ------- ------------ ------- ------- ------------
ACTUAL PRO FORMA(2) ACTUAL PRO FORMA(2)
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(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(3):
Net revenues.......................... $ 4,043 $ 4,950 $ 1,883 $ 1,893 $ 1,495 $ 836
Gross profit.......................... 2,706 3,769 1,362 1,272 1,025 556
Loss from operations.................. (2,486) (4,922) (6,189) (2,828) (3,042) (3,171)
Net loss.............................. $(2,632) $(4,848) $(6,115) $(2,789) $(3,088) $(3,988)
Net loss per share(1)................. $ (2.42) $ (2.17) $ (2.74) $ (1.27) $ (1.20) $ (1.55)
Shares used to compute net loss per
share(1)............................ 1,086 2,231 2,231 2,193 2,571 2,571
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
1996 JUNE 30, 1997
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AS
ACTUAL ADJUSTED(3)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 3,142 $ 1,211 $ 861
Working capital (deficit)............................. 431 134 (304)
Total assets.......................................... 6,346 3,114 2,639
Long Term Debt........................................ -- -- 350
Accumulated deficit................................... (13,666) (16,754) (18,745)
Total shareholders' equity (deficit).................. $ 1,041 $ 623 $ (164)
</TABLE>

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(1) For an explanation of the number of shares used to compute net loss per
share, see Note 1 of Notes to Financial Statements.

(2) On June 27, 1997, the Company consummated the DeltaGraph Disposition with an
effective date of May 1, 1997. The Pro Forma Condensed Statement of
Operations Data for the year ended December 31, 1996 and the six months
ended June 30, 1997 give effect to the DeltaGraph Disposition as if such
transaction had occurred on January 1, 1996. See "Corporate Developments"
and "Unaudited Pro Forma Financial Information".

(3) The "As Adjusted" Balance Sheet Data gives effect to (i) the issuance of
550,000 shares of Common Stock with a fair value of $825,000 issued in
conjunction with the Site Tech Acquisition and a resulting maximum
in-process research and development charge to operations of $825,000; (ii)
the proposed Inlet Technology Acquisition which provides for the issuance of
260,000 shares of Common Stock with an aggregate fair value of $340,600 (at
an assumed price per share of $1.31), the payment of $475,000 at the closing
($350,000 payable in cash and prepayments of $125,000 included in working
capital) and the payment of an additional $350,000 to be paid over three
years and a resulting aggregate maximum in-process research and development
charge to operations of $1,165,600; and (iii) the issuance of 1,844,118
shares of Common Stock issued in the conversion and assumed conversion of
the Company's Series A Preferred Stock and 6% Convertible Subordinated
Debentures outstanding at June 30, 1997 at an assumed conversion price of
$0.85 per share of Common Stock. See "Corporate Developments" and
"Description of Capital Stock -- Preferred Stock and Convertible Notes."

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RISK FACTORS

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EXCEPT AS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS DOES NOT
REFLECT THE EXERCISE OF OPTIONS OR WARRANTS AFTER JUNE 30, 1997. 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."

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CORPORATE DEVELOPMENTS

DELTAGRAPH DISPOSITION

On June 27, 1997, DeltaPoint consummated the DeltaGraph Disposition pursuant
to which the Company sold those assets related to its DeltaGraph software
product line to SPSS for $910,000 in cash. The DeltaGraph product line consisted
of an advanced multi-platform charting and graphics software product for desktop
applications. The effective date for the disposition was May 1, 1997 and as part
of the DeltaGraph Disposition, DeltaPoint also agreed to assist in the
transition of DeltaGraph to SPSS through July 31, 1997. In return, SPSS agreed
to make an additional $400,000 cash payment to DeltaPoint on or before August
10, 1997.

The DeltaGraph Disposition was part of the Company's continuing strategy to
realize a significant and growing percentage of its revenues from the sale of
Internet software products. This strategy commenced with the Company's
acquisition of the technology required to develop WebAnimator in November 1995.
Prior to 1996, the Company derived substantially all of its product revenues
from licenses of DeltaGraph. For the period from January 1, 1996 to June 30,
1997, DeltaGraph products accounted for approximately 58% of the Company's net
revenues. Without the related contribution of the DeltaGraph business, the
Company's operating losses for these periods would have been significantly
greater. The DeltaGraph Disposition also provided the Company with much needed
liquidity. See "Unaudited Pro Forma Financial Information," "Management's
Discussion and Analysis of Financial Position and Results of Operations" and
"Notes to Financial Statements."

As a result of its cash constraints, and in connection with its reduced
level of operations and its focus on Internet software products, the Company has
over time significantly rationalized its workforce, including administrative and
engineering resources. This rationalization could have a material adverse effect
on, among other things, the Company's ability to identify and develop, license
or acquire technologies or products to extend product functionality and market
position in the areas of Web site development and management. See "Risk Factors
- -- Dependence on Limited Number of Key Personnel; Key Management Openings;
Personnel Limitations; Ability to Manage Growth."

CERTAIN ACQUISITIONS

INLET TECHNOLOGY ACQUISITION. On April 16, 1997, DeltaPoint entered into
the Letter of Intent for the "Inlet Technology Acquisition" with, among others,
Inlet pursuant to which the Company agreed to acquire from Inlet certain
Internet technologies. As consideration for the Inlet Technology Acquisition,
the Company has agreed to pay to Inlet an aggregate of $825,000 in cash payable
as provided below and 260,000 shares of the Company's Common Stock payable at
closing. The aggregate cash consideration of $825,000 is payable as follows:
$350,000 is payable at the closing of the acquisition; $350,000 is payable in
three equal installments of approximately $116,666 on the first, second and
third anniversary of the closing of the acquisition; and the aggregate payments
of $125,000 made pursuant to the Letter of Intent and OEM Agreement (described
below) will be credited against the cash consideration payable by the Company.
The Letter of Intent also provides for future royalty payments by the Company to
Inlet in an amount equal to 5% of the net revenues from all sales of the
products developed from these technologies. Half of the royalties payable by the
Company to Inlet are payable, at the Company's option, in cash or shares of
Common Stock. With respect to the stock portion of the purchase price, the
Company intends to grant certain registration rights with respect thereto. See
"Description of Capital Stock -- Registration Rights."

In connection with the Inlet Technology Acquisition, on June 13, 1997, the
Company and Inlet Divestiture Corp. ("IDC"), a wholly-owned subsidiary of Inlet,
entered into a software license agreement (the "OEM Agreement") pursuant to
which IDC granted to the Company the exclusive right to market, demonstrate and
distribute products based on the Inlet technologies in exchange for specified
royalty amounts. See "Proprietary Rights and Licenses." The Company has made
three equal cash payments to Inlet totaling $75,000 for non-recurring
engineering expenses incurred in connection with the OEM Agreement. In addition,
upon the signing of the OEM Agreement, the Company made a

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$50,000 payment to Inlet as a prepayment on the royalty amounts due Inlet under
the OEM Agreement. The parties have agreed to credit these payments, totaling
$125,000, against the aggregate cash consideration payable to Inlet pursuant to
the Inlet Technology Acquisition, subject to the consummation thereof. The OEM
Agreement also provides that if the Inlet Technology Acquisition is not
consummated the two parties will use their best efforts to enter into an
additional agreement by December 31, 1997 for the continued exclusive rights to
market, demonstrate and distribute the Inlet technologies. Although the license
will remain in full force and effect in any event, the license will become
non-exclusive if the additional agreement is not entered into by December 31,
1997. On June 13, 1997, the Company and Inlet also entered into a consulting
agreement (the "Consulting Agreement") pursuant to which Inlet granted to the
Company the right to begin customizing the source code for development use only
in exchange for monthly cash payments of $20,000 to Inlet, payable in $10,000
installments on the first and fifteenth of each month, which shall be treated as
non-recurring engineering expense by the Company. The OEM Agreement and
Consulting Agreement will terminate upon the consummation of the Inlet
Technology Acquisition. See "Business -- Proprietary Rights and Licenses."

The parties to the Letter of Intent are currently negotiating definitive
documentation relating to the Inlet Technology Acquisition. The Company expects
that the definitive documentation will contain standard conditions to closing
and, in any event, the obligations of Inlet will be subject to the consummation
of a public equity offering by the Company. Although there can be no assurance
that the Inlet Technology Acquisition will be consummated, the Company expects
that such acquisition will be consummated simultaneously with the closing of its
currently proposed equity offering.

SITE TECH ACQUISITION. On July 11, 1997, the Company consummated the Site
Tech Acquisition pursuant to which the Company acquired, among other things,
SiteSweeper 1.0, a Web site quality control and maintenance product. The Company
is currently developing SiteSweeper 2.0, which is being designed to enable Web
development and management professionals to maintain the quality and integrity
of mission critical Web based business environments. The Company is planning to
introduce SiteSweeper 2.0 in the third quarter of 1997, at the earliest. The
Company does not intend to actively market or distribute SiteSweeper 1.0. See
"Business -- Products Under Development." In connection with the Site Tech
Acquisition, the Company issued a total of 550,000 shares of Common Stock with
an aggregate fair value of $825,000 on the acquisition date to the former
stockholders of Site in exchange for all outstanding shares of Site. In
addition, the Company also agreed to pay the specified royalties on sales of
certain products developed from the technologies acquired from Site. See
"Business -- Proprietary Rights and Licenses."

As part of the Site Tech Acquisition, Stephen Mendel, a member of the board
of directors of Site, was appointed as a member of the Company's Board of
Directors. In addition, the Company has granted certain registration rights with
respect to the 550,000 shares of Common Stock paid to the former Site
stockholders. See "Description of Capital Stock -- Registration Rights."

The Company expects to record a charge to operations in connection with the
consummation of the Site Tech Acquisition and the Inlet Technology Acquisition
to the extent that a portion of each respective purchase price is determined to
be in-process research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." In addition, failure
to successfully consummate the Inlet Technology Acquisition, to successfully
develop and integrate the acquired Inlet and Site technologies into the
Company's Web site development and management technology or to successfully
market products based upon the acquired technologies would adversely impact the
Company's strategy of marketing to the SMB and enterprise department user
markets (in addition to individuals and SOHO professionals) and would have a
material adverse effect on the Company's business, operating results and
financial condition. See "Risk Factors -- Risks Associated with Inlet Technology
Acquisition and Site Tech Acquisition; General Acquisition Risks."

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POTENTIAL COMPANY NAME CHANGE TO SITETECH INC.

In connection with the Site Tech Acquisition, the Company obtained the
rights to the name SITE/ TECHNOLOGIES/INC. The Company is currently
contemplating changing its legal name to SiteTech Inc. or a similar name. Any
such name change would require an amendment to the Company's Articles of
Incorporation and, as a result, would require shareholder approval. In
anticipation of any such name change, the Company may commence branding and
marketing its products using the name SiteTech or a similar name.

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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 OFFERED
HEREBY. NO INVESTOR SHOULD ACQUIRE COMPANY SECURITIES 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; GOING CONCERN ASSUMPTIONS;
FUTURE CAPITAL NEEDS; NO ASSURANCE OF FUTURE FINANCING

The Company incurred net losses of $4,848,000 for the year ended December
31, 1996 and $3,088,000 for the six months ended June 30, 1997, and had an
accumulated deficit of $16,754,000 as of June 30, 1997. The Company expects to
incur losses for at least the next 12 months, and possibly longer. There can be
no assurance that the Company will not incur significant additional losses, will
generate positive cash flow from its operations, or that the Company will attain
or thereafter sustain profitability in any future period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The Company's independent accountants' report on its financial statements as
of and for the years ended December 31, 1995 and 1996 contains an explanatory
paragraph indicating that the Company's accumulated deficit and historical
operating losses raise substantial doubts about its ability to continue as a
going concern. The Company may require substantial additional funds in the
future, and there can be no assurance that any independent accountants' report
on the Company's future financial statements will not include a similar
explanatory paragraph if the Company is unable to raise sufficient funds or
generate sufficient cash from operations to cover the cost of its operations.
The existence of the explanatory paragraph may have a material adverse effect
on, among other things, the Company's relationships with prospective customers
and suppliers, and therefore could have a material adverse effect on the
Company's business, financial condition and results of operations. See Note 1 of
Notes to Financial Statements.

As of July 31, 1997, the Company's cash and cash equivalents totaled
approximately $350,000. The Company anticipates that its existing capital
resources and cash generated from operations, if any, will be sufficient to meet
the Company's cash requirements at its anticipated level of operations only
through October 1997. The Company has announced that, depending on market
conditions, its expects to issue shares of Common Stock with an aggregate value
of approximately $6.1 million (before related fees and expenses). There can be
no assurance that this or any other equity offering will be consummated or that
any other required financing will be available to the Company on acceptable
terms, or at all. In addition, the Company's future capital requirements will
depend upon numerous factors, including the amount of revenues generated from
operations and the progress of the Company's software acquisition, development
and introduction efforts, none of which can be predicted with certainty. If
financing is not available, the Company could be required to reduce or suspend
its operations, seek an acquisition partner or sell securities on terms that may
be highly dilutive or otherwise disadvantageous to investors purchasing the
shares of Common Stock offered hereby. The Company has experienced in the past,
and may continue to experience, operational difficulties and delays in its
product development and marketing activities due to working capital constraints.
Any such difficulties or delays could have a materially 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" and Note 1 of Notes to Financial Statements.

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QUARTERLY FLUCTUATIONS IN PERFORMANCE

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, if the Company
obtains additional financing, the Company intends to continue 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, to
the extent that the Company succeeds in its strategy to target the SMB and
corporate department user markets, among other things, the Company's results of
operations and financial condition may be subject to greater or different
fluctuations as a result of potentially larger individual product sales,
seasonality, a longer sales cycle and longer payment terms. 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.

DEPENDENCE ON INTERNET SOFTWARE PRODUCTS AND RELATED STRATEGY; DEPENDENCE ON
CONTINUED EMERGENCE OF INTERNET SOFTWARE MARKET

Prior to 1996, the Company derived substantially all of its product revenues
from licenses of its DeltaGraph charting and graphics software products. With
the DeltaGraph Disposition, the Company's future operating results will depend
on the successful development, introduction and commercial acceptance of the
Company's Internet software products. The Company's current Internet software
products consist of: QuickSite 1.0, 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; QuickSite Developer's Edition, its enhanced
version of QuickSite for Web site developers and corporate Intranet developers
introduced in September 1996; and QuickSite 2.5, its updated version of
QuickSite 1.0, introduced in May 1997. In addition, the Company currently plans
to develop and market a family of products targeted at the SMB and enterprise
department user markets for scalable Web site development and management
software solutions, including SiteSweeper 2.0 an updated version of SiteSweeper
1.0 acquired in the Site Tech Acquisition (planned for release in the third
quarter of 1997, at earliest), and a client/server, multi-authoring, dynamic
site development and management product based on the technology to be acquired
in the Inlet Technology Acquisition (planned for release in the fourth quarter
of 1997, at the earliest). The Company's future operating results are dependent
on the commercial acceptance of the products targeted at the SMB and enterprise
department user markets

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and the size of these targeted markets. There can be no assurance that the
Company's strategy of targeting the SMB and enterprise department user markets
will be successful, that the Inlet Technology Acquisition will be consummated,
that the Company can successfully manage the introduction and distribution of
new versions of its existing Internet software products or any other potential
Internet software products, 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 (particularly those targeted at the SMB and
enterprise department user markets) to achieve significant market acceptance
would have a material adverse effect on the Company's business, financial
condition and results of operation. See "-- Risks Associated with Inlet
Technology Acquisition and Site Tech Acquisition; General Acquisition Risks,"
"-- Distribution Risks; Substantial Reseller Customer Concentration," and
"Business -- Strategy, -- Products and -- Marketing and Sales."

The Company's future operating results will also depend on the continued
emergence of the Internet software product market, which continues to evolve.
There can be no assurance that the Internet software market will continue to
develop at historic growth rates or that further market development will be
rapid enough or in areas that will benefit the Company. In addition, there are a
number of potential approaches to Internet software products, including Internet
software products incorporated into network operating systems or other software.
Therefore, even if Internet software products gain broader market acceptance,
there can be no assurance that the Company's products will be chosen by
organizations which acquire Internet software products. See "Risk Factors --
Risk of Inclusion of Internet Software Tool Functionality in Other Software."

RISKS ASSOCIATED WITH INLET TECHNOLOGY ACQUISITION AND SITE TECH ACQUISITION;
GENERAL ACQUISITION RISKS

In an effort to capitalize on the emerging opportunities in the SMB and
enterprise department user markets for scalable Web site development and
management software solutions, the Company consummated the Site Tech Acquisition
in July 1997 and has entered into the pending Inlet Technology Acquisition. The
Company currently plans to introduce SiteSweeper 2.0, an updated version of the
SiteSweeper 1.0 product acquired in the Site Tech Acquisition (planned for
release in the third quarter of 1997, at the earliest), and a client/server,
multi-authoring site, dynamic development and management product based on the
technology to be acquired in the Inlet Technology Acquisition planned for
release in the fourth quarter of 1997, at the earliest). There can be no
assurance that the Inlet Technology Acquisition, which is contingent on certain
closing conditions, including the closing of an equity offering by the Company
and the negotiation of a definitive purchase agreement and other agreements,
will be consummated. Although the Company will continue to have a license to the
technology to be acquired in the Inlet Technology Acquisition if the transaction
is not consummated, the Company may be required to pay greater royalties and the
license may be non-exclusive. Furthermore, there can be no assurance that any
technology acquired in the Site Tech Acquisition or the Inlet Technology
Acquisition can be successfully developed or integrated into the Company's
current technology on a timely basis or at all, or that any products based on
this technology will receive market acceptance. In order to market products to
the SMB and enterprise department user markets, the Company must significantly
increase its non-retail distribution channels. See "-- Distribution Risks;
Substantial Reseller Customer Concentration" and "Business -- Strategy and --
Marketing and Sales." The failure to successfully develop and integrate the
acquired technology into the Company's Web site development and management
technology or to successfully market products based upon the acquired technology
would adversely impact the Company's strategy of marketing to the SMB and
enterprise department user markets (in addition to individuals and SOHO
professionals) and would have a material adverse effect on the Company's
business, operating results and financial condition.

The Company frequently evaluates potential acquisitions of complementary
businesses, products and technologies. As part of the Company's expansion plans,
the Company may acquire companies that have an installed base of products not
yet offered by the Company, have strategic distribution channels or customer
relationships, or otherwise present opportunities which management believes

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may enhance the Company's competitive position. The success of any acquisition
could depend not only upon the ability of the Company to acquire such
businesses, products and technologies on a cost-effective basis, but also upon
the ability of the Company to integrate the acquired operations or technologies
effectively into its organization, to retain and motivate key personnel of the
acquired businesses, and to retain the significant customers of the acquired
businesses. Any acquisition, depending upon its size, could result in the use of
a significant portion of the Company's cash, or if such acquisition is made
utilizing the Company's securities, could result in significant dilution to the
Company's shareholders. Moreover, such transactions involve the diversion of
substantial management resources and evaluation of such opportunities requires
substantial diversion of administrative, marketing and sales and engineering and
technological resources. In addition, such transactions could result in large
one-time write-offs or the creation of goodwill or other intangible assets that
would result in amortization expense. For example, in the quarter ended
September 30, 1997, the Company expects that a significant portion of the Site
Tech purchase price will be expensed as in-process technology. A similar charge
is expected in connection with the pending Inlet Technology Acquisition. The
failure to successfully evaluate, negotiate, effect and integrate acquisition
transactions could have a material adverse effect on the Company's business,
operating results and financial condition.

DEPENDENCE ON LIMITED NUMBER OF KEY PERSONNEL; KEY MANAGEMENT OPENINGS;
PERSONNEL LIMITATIONS; ABILITY TO MANAGE GROWTH

The Company's success depends substantially upon the contributions of
several key personnel, some of whom, such as the Company's Chief Executive
Officer, Jeffrey Ait, were only recently hired by the Company. The Company is
currently seeking to hire a Chief Financial Officer and a Vice President of
Sales. The failure to attract and retain key personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management -- Executive Officers and Directors and --
Employment Contracts."

As a result of its cash constraints, and in connection with its reduced
level of operations and its focus on Internet software products, the Company has
significantly rationalized it workforce, including administrative and
engineering resources. While the Company endeavors to identify and develop,
license or acquire technologies or products to extend product functionality and
market position in the areas of Web site development and management, its ability
to successfully undertake these activities could be limited by, among other
things, existing administrative, engineering and other resource limitations. The
failure to attract and retain adequate levels of engineering, sales and
marketing and other resources needed to timely respond to customer needs or
market conditions or to develop products to address targeted markets would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "-- Distribution Risks; Substantial Reseller Customer
Concentration" and "-- Rapid Technological Change; Risk of Product Delays; Risk
of Product Defects."

The Company's rationalization of its workforce has challenged, and is
expected to continue to challenge, the Company's management and operations,
including its marketing and sales, 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. The Company anticipates that it will need to add additional
personnel beyond its present needs 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."

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<PAGE>
DISTRIBUTION RISKS; SUBSTANTIAL RESELLER CUSTOMER CONCENTRATION

The Company currently sells its software products targeted at the individual
and SOHO professional market to distributors for resale to certain retailers,
including computer superstores and mass merchandisers. The Company plans to
expand distribution of its Internet software products in this retail
distribution channel by increasing distribution relationships both domestically
and internationally. The Company also intends to increase the number of products
available for sale through the retail channel, which the Company believes is
essential in securing adequate retail shelf space and retailer promotional
support. The retail distribution channel is highly competitive and there can be
no assurance as to the Company's ability to expand its distribution in this
channel. In addition, there can be no assurance that the Company will be able to
successfully develop additional products for distribution through this channel.
See "-- Competition," "Business -- Marketing and Sales."

The Company intends to introduce products targeted at the SMB and enterprise
department user markets. See "Business -- Strategy." Successful development of
products targeted at the SMB and enterprise department user markets will depend
in part on the Company's ability to successfully integrate the technology
acquired in the Site Tech Acquisition and the Inlet Technology Acquisition. See
"-- Risks Associated with Inlet Technology Acquisition and Site Tech
Acquisition; General Acquisition Risks." In addition, the Company has not
historically sold products targeted at these markets and, in order to do so,
must develop a sales and marketing department with specialized expertise in the
development of value added reseller ("VAR's"), original equipment manufacturer
("OEM") and Internet Service Provider ("ISP") relationships to provide SMB and
enterprise department users Internet software solutions. There can be no
assurance that the Company will be able to develop such a sales and marketing
team on a timely basis or at all. In addition, this market is competitive and
there can be no assurance that the Company will be successful in establishing
significant relationships with VARs, OEMs or ISPs or, if developed, there can be
no assurance as to amount of support that the Company's products will receive
from these VARs, OEMs or ISPs who may offer products that compete with the
Company's products. See "-- Competition" and "Business -- Marketing and Sales."
To the extent that the Company succeeds in its strategy to target the SMB and
enterprise department user markets, among other things, the Company's results of
operations may be subject to greater or different fluctuations as a result of
potentially larger individual product sales, a longer sales cycle and longer
payment terms. See "-- Quarterly Fluctuations in Performance.

Sales to a limited number of distributors and retailers in the retail
distribution channel have constituted, and are anticipated to continue to
constitute in the near term, a significant portion of the Company's retail
software sales. In particular, revenues from licenses sold to Nippon Polaroid
Kabushiki Kaisha, the Company's Japanese distributor, constituted approximately
11% of the Company's revenues from the sale of Internet products for the year
ended December 31, 1996 and for the six months ended June 30, 1997. See "--
Risks Associated with International Operations." Sales to Ingram Micro Inc.
constituted approximately 45% and 30% of the Company's revenues from the sale of
Internet products for the year ended December 31, 1996 and for the six months
ended June 30, 1997, respectively. Any termination or significant disruption of
the Company's relationship with any major distributor or retailer, or any
significant reduction in sales volume attributable to any of such entities,
would, 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 the
Company's existing distributors and retailers will continue to provide the
Company's products with adequate levels of shelf space or promotional support.
See "Business -- Marketing and Sales."

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RISK OF INCLUSION OF INTERNET SOFTWARE TOOLS FUNCTIONALITY IN OTHER SOFTWARE

In the future, vendors of operating system software or other software (such
as office or back office software suites) may continue to enhance their products
(including separate products that are bundled together) to include functionality
that is currently provided most often by Internet software tools such as the
Company's current and planned products. This enhancement could be achieved
through the addition of functionality to operating system software or other
software or the bundling of Internet software tools with operating system
software or other products. For example, Microsoft incorporates into its
BackOffice product its Web page creation software, FrontPage. The widespread
inclusion of the functionality of the Company's products, and of the
functionality of the Internet software products, as standard features of
operating system software or other software could render the Company's products
obsolete and unmarketable, particularly if the quality of such functionality
were comparable, or perceived to be comparable, to that of the Company's
products. Furthermore, even if the Internet software tool functionality provided
as standard features by operating systems or other software is more limited than
that of the Company's products, there can be no assurance that a significant
number of customers would not elect to accept such functionality in lieu of
purchasing additional software. If the Company was unable to develop new
Internet software products to further enhance operating systems or other
software and to replace successfully any obsolete products, the Company's
business, financial condition and results of operations would be materially
adversely affected.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

The Company's revenues from international operations accounted for
approximately 11% of the Company's revenues from the sale of Internet products
in 1996 and the six months ended June 30, 1997, all of which were derived from
sales in Japan to Nippon Polaroid Kabushiki Kaisha, the Company's Japanese
distributor. In light of the recent DeltaGraph Disposition, the Company expects
that international Internet revenues may decline until the relationship with its
Japanese distributor (principally sold DeltaGraph products) is clarified or
other international distribution channels can be established. In the longer
term, the Company intends to take measures, including the hiring of additional
sales and marketing persons, to increase its level of international sales. In
light of, among other things, the Company's current cash constraints and need to
develop additional international sales capabilities and to timely introduce and
gain broader market acceptance for its existing and planned Internet software
products, there can be no assurance that the Company will be successful in such
efforts. 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 Sales."

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

15
<PAGE>
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. 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 "Risk Factors --
Risks Associated with Inlet Technologies Acquisition and Site Tech Acquisition;
General Acquisition Risks," "Business -- Marketing and Sales and -- Research and
Development."

COMPETITION

The Company competes on the basis of certain factors, including product
quality, first-to-market 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 or plans to compete 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 market for Internet software tools targeted at individual and SOHO
professional users, the Company has encountered competition primarily from
Microsoft, Adobe Systems Incorporated, Soft Quad, Inc. and NetObjects,
Incorporated (majority owned by IBM). In the market for Internet software
solutions targeted at the SMB and corporate department user markets, in addition
to these competitors, the Company expects competition from HAHT Software
Incorporated, Wallop Software Incorporated, Aziza, a division of Objectivity
Incorporated, Eventus Software Incorporated, Interwoven Corporation and Vignette
Corporation. In addition, some existing vendors in the enterprise wide Internet
software solution market (such as IBM/Lotus, Oracle Corporation, Informix
Software Inc. and Sybase Incorporated, Inc.) may enter into the Company's
existing and planned markets. 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 that it will face increasing pricing pressures. There can be no
assurance the Company will be able to maintain its historic pricing structure
for its existing products or will be able to obtain its desired pricing
structure for planned products. If the Company is unable to do so or 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.

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DILUTION UPON CONVERSION OF SERIES A PREFERRED STOCK HELD BY HRO

As of August 14, 1997, High Risk Opportunities Hub Fund Ltd. ("HRO") held
approximately $810,000 aggregate principal amount of the Company's Series A
Preferred Stock. Each $1,000 principal amount of Series A Preferred Stock is
convertible, subject to certain limitations, into the number of shares of Common
Stock determined by dividing $1,000 by the lower of $3.50 or 80% of the average
trading price of the Common Stock for the five trading days immediately prior to
conversion. In recognition of the discounted conversion feature, the Company
recorded $537,000 as additional interest expense during the six month ended June
30, 1997. See "Certain Transactions" and "Description of Capital Stock --
Preferred Stock and Convertible Notes."

If all the Series A Preferred Stock were to have been converted into Common
Stock on August 14, 1997, they would have been converted into approximately
764,000 shares of Common Stock based upon a conversion price of $1.06 per Share
at August 14, 1997, representing (after giving effect to such conversion)
approximately 15% of the issued and outstanding capital stock on August 14,
1997. To the extent that the trailing five day average trading price of the
Common Stock is lower on the date of conversion of Series A Preferred Stock into
shares of Common Stock than on August 14, 1997, a greater number of shares of
Common Stock and a greater percentage of the then issued and outstanding shares
of Common Stock would be issuable on such conversion. As a result of the
foregoing, the holders of Common Stock will suffer immediate and significant
dilution to their percentage ownership of the Common Stock upon the conversion
of the Series A Preferred Stock.

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, the Company'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 in the retail distribution channel. 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."

LIMITED INTELLECTUAL PROPERTY PROTECTION

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

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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."

Although the Company is not currently engaged in any intellectual property
litigation or proceedings, 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."

VOLATILITY OF STOCK PRICE

The Company's stock price has exhibited substantial volatility since
December 1995 in response to variations in quarterly operating results, failure
by the Company to meet its internal projected operating results, changes in
analysts' estimates, announcements by the Company or its competitors, general
conditions in the Internet software industry 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.

RECENT DE-LISTING FROM NASDAQ SMALLCAP MARKET; POTENTIAL DELISTING FROM PACIFIC
EXCHANGE; POSSIBLE INABILITY OF PRINCIPAL MARKET MAKER TO MAKE A MARKET IN THE
COMPANY'S COMMON STOCK

The Company's Common Stock was quoted on the Nasdaq SmallCap Market from
December 1995 until March 18, 1997 and is traded on the Pacific Exchange
(formerly the Pacific Stock Exchange) and quoted on the OTC Bulletin Board and
the "pink sheets." The Common Stock was delisted from the Nasdaq SmallCap Market
effective March 19, 1997 because of Nasdaq's determination that the Company
failed to maintain certain requirements for continued listing. The shares of
Common Stock are currently quoted on the Pacific Exchange. The Company has been
notified by the Pacific Exchange that it may take action to delist the shares of
Common Stock as a result of, among other things, the Company's failure to
maintain certain requirements for continued listing. As a result of the
foregoing, it is more difficult to dispose of, or to obtain accurate quotations
as to the price of, the Company's Common Stock. In addition, because the
Company's Common Stock was removed from the Nasdaq SmallCap Market and its
market price is less than $5.00 per share, it is 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 SmallCap Market and the applicability of
such "penny stock" rules could adversely affect the ability or willingness of
broker-dealers to sell and/or make a market in the Company's Common Stock and
the ability of purchasers of the Company's Common Stock to sell their securities
in the secondary market. While the Company intends to apply for relisting on the
Nasdaq SmallCap Market upon the consummation of any equity offering and intends
to take actions to prevent delisting from the Pacific Exchange, there can be no
assurance that relisting will occur or that delisting will not occur in the
future. Even if the Company achieves relisting for the Common Stock on the
Nasdaq SmallCap Market, the liquidity of the Common Stock will remain limited as
the Nasdaq SmallCap Market and the Pacific Exchange are a significantly less
liquid markets then the Nasdaq National Market. If the Company should continue
to experience losses from operations, it may be unable to maintain the standards
for continued quotation on the Nasdaq SmallCap Market (if relisted) and the
Pacific

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<PAGE>
Exchange, and the shares of Common Stock could be subject to removal from the
Nasdaq SmallCap Market and the Pacific Exchange.

Any limitation on the ability of H.J. Meyers & Co., Inc. ("H.J. Meyer"), the
principal market maker in the Company's Common Stock, to make a market in the
Company's Common Stock could adversely impact the liquidity or trading price of
the Company's Common Stock, which could have a material adverse impact on the
market price of the Company's Common Stock. The Chicago office of the Securities
and Exchange Commission is conducting a private, nonpublic investigation of H.J.
Meyers pursuant to a Formal Order of Investigation issued by the Commission. The
investigation is focused on whether H.J. Meyers may have violated applicable
securities laws and the rules and regulations thereunder, with respect to sales
of certain securities. The Company is currently unable to assess the potential
impact of the outcome of the Staff's investigation on the H.J. Meyer's ability
to make a market in the Company's Common Stock or trading in the Company's
securities.

SHARES ELIGIBLE FOR FUTURE SALE

Sales in the public market of substantial amounts of Common Stock (including
sales in connection with the exercise of certain registration rights relating to
shares of Common Stock) or the perception that such sales could occur could
depress prevailing market prices for the Common Stock from time to time.
Following the consummation of this offering, approximately 4,391,971 shares of
Common Stock will be outstanding, of which 3,534,024 will be freely tradeable
without restriction under the Securities Act and 857,947 will be freely
tradeable, subject to Rule 144 volume limitations. In addition, the Company
intends to file a registration statement relating to a proposed offering of
Common Stock. Depending on market conditions, the Company expects to issue
shares of Common Stock with an aggregate value of $6.1 million (before related
fees and expenses) which shares will be freely tradeable. Also, the Company
intends to file a registration statement on Form S-8 under the Securities Act to
cover 400,000 (for an aggregate of 1,220,000) shares of Common Stock reserved
for issuance under its 1995 Option Plan. Accordingly, shares registered under
such S-8 registration statement will, subject to vesting restrictions and Rule
144 volume limitations applicable to affiliates, be available for sale in the
open market. Holders of warrants to purchase a total of 198,413 shares of Common
Stock, the former stockholders of Site (who hold a total of 550,000 shares of
Common Stock), Inlet (who are expected to receive 260,000 shares of Common Stock
pursuant to the Inlet Technology Acquisition) and the holders of the
Underwriter's Warrant are each entitled to or are expected to become entitled to
certain rights with respect to registration of such shares of Common Stock for
offer or sale to the public. If such holders, by exercising their rights, cause
a large number of shares to be registered and sold in the public market, such
sales could have a material adverse effect on the market price for the Company's
Common Stock. See "Certain Transactions," "Description of Capital Stock --
Registration Rights," and "Shares Eligible for Future Sale."

SUBSTANTIAL SHARES OF COMMON STOCK RESERVED

As of August 14, 1997, the Company has reserved 318,413 shares of Common
Stock for issuance upon exercise of outstanding warrants and options, 939,519
shares of Common Stock for issuance to employees, officers, directors and
consultants pursuant to option exercises or sales of Common Stock under the
Stock Plans and 764,316 shares for issuance upon the conversion of the Company's
outstanding Series A Preferred Stock based upon a conversion price of $1.06 at
August 14, 1997. The existence of the aforementioned warrants, options,
convertible stock and any other options, warrants or convertible stock may prove
to be a hindrance on the Company's ability to obtain future equity financing.
See "Description of Capital Stock."

ANTI-TAKEOVER PROVISIONS

The Company's Board of Directors has the authority to issue up to 4,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
shareholders. The Company has already authorized and

19
<PAGE>
issued shares of Series A Preferred Stock pursuant to an Amended and Restated
Certificate of Determination of Series A Preferred Stock ("Certificate of
Determination"). The Certificate of Determination contains certain preferences
and privileges on behalf of the Series A Preferred Stock, including a
liquidation preference, which may have the effect of delaying, deferring or
preventing a change in control of the Company or limiting the price that
investors might be willing to pay for shares of the Company's Common Stock. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of the Series A Preferred Stock and any
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue additional shares of Preferred Stock, such issuance,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company. See "Description of Capital Stock -- Preferred Stock and Convertible
Notes."

NO ANTICIPATED DIVIDENDS

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 of its business and therefore does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future.

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."

20
<PAGE>
PRICE RANGE OF COMMON STOCK

The Company's Common Stock was quoted on the Nasdaq SmallCap Market under
the symbol "DTPT" from December 20, 1995 through March 18, 1997, when it was
delisted, and has been traded on the Pacific Exchange (formerly the Pacific
Stock Exchange) since December 1995 through the present, under the symbol
"DTP.P." The Common Stock is traded over-the-counter and is quoted on the OTC
Bulletin Board under the symbol "DTPT" and on the "pink sheets".

The table below sets forth the high and low closing sale price of the Common
Stock for the periods indicated, as reported by the Nasdaq SmallCap Market
through March 18, 1997 and the OTC Bulletin Board thereafter. Prior to the
offering in December 1995, no established public trading market for the
Company's Common Stock existed.

<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 $ 5.88
Fourth quarter..................................................................... $ 11.75 $ 6.00
YEAR ENDING DECEMBER 31, 1997
First quarter...................................................................... $ 8.25 $ 2.25
Second quarter..................................................................... $ 3.00 $ 1.38
Third quarter (through August 14, 1997)............................................ $ 1.44 $ 1.13
</TABLE>

On August 14, 1997, the closing sale price for a share of the Company's
Common Stock, as reported on the OTC Bulletin Board, was $1.31.

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. The Company's
Series A Preferred Stock entitles holders to cumulative dividends at an annual
rate of $90.00 per share, payable quarterly. Dividends are payable in cash, or
at the Company's election in shares of Common Stock, valued at 80% of the
average fair market thereof for the five business days prior to the days on
which dividends are payable. At August 14, 1997, there were 810 shares of Series
A Preferred Stock issued and outstanding.

21
<PAGE>
CAPITALIZATION

The following table sets forth the actual and as adjusted capitalization of
the Company as of June 30, 1997. As adjusted capitalization gives effect to (i)
the issuance of 550,000 shares of Common Stock with a fair value of $825,000
issued in conjunction with the Site Tech Acquisition and a resulting maximum
in-process research and development charge to operations of $825,000; (ii) the
proposed Inlet Technology Acquisition which provides for the issuance of 260,000
shares of Common Stock with an aggregate fair value of $340,600 (at an assumed
price per share of $1.31), the payment of $350,000 ($475,000 less prepayments of
$125,000) at the closing and the payment of an additional $350,000 to be paid
over three years and a resulting aggregate maximum in-process research and
development charge to operations of $1,165,600; and (iii) the issuance of
1,844,118 shares of Common Stock issued in the conversion and assumed conversion
of the Series A Preferred Stock and Convertible Notes outstanding at June 30,
1997 at an assumed conversion price of $0.85 per share of Common Stock. See
"Corporate Developments," and "Description of Capital Stock -- Preferred Stock
and Convertible Notes."

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
AS
ACTUAL ADJUSTED(1)
---------- -----------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
Long-term debt........................................................................... $ -- $ 350
Shareholders' equity (deficit):
Preferred Stock, no par value, 4,000,000 shares authorized, 1,530 shares issued and
outstanding actual, no shares issued and outstanding as adjusted....................... 1,530 --
Common stock, no par value, 25,000,000 shares authorized, 2,871,873 shares issued and
outstanding actual, 5,525,991 shares issued and outstanding as adjusted; (2)........... 15,847 18,581
Accumulated deficit...................................................................... (16,754) (18,745)
---------- -----------
Total shareholders' equity (deficit)..................................................... 623 (164)
---------- -----------
Total capitalization..................................................................... $ 623 $ 186
---------- -----------
---------- -----------
</TABLE>

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

(1) Assumes no exercise of outstanding options or warrants.

(2) Excludes (i) 911,837 shares of Common Stock issuable pursuant to options
outstanding at June 30, 1997. See "Description of Capital Stock --
Warrants," "Management -- Company Stock Option Plans," and Notes 8 and 9 of
Notes to Financial Statements.

22
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION

On June 27, 1997, the Company consummated the DeltaGraph Disposition with an
effective date of May 1, 1997. The accompanying Unaudited Pro Forma statement of
operations for the year ended December 31, 1996 and the six months ended June
30, 1997 give effect to the DeltaGraph Disposition as if such transaction had
occurred on January 1, 1996. Such information is provided to give the reader an
understanding of the historical significance of the DeltaGraph product line. The
unaudited pro forma financial information give effect to the adjustments
described in the accompanying "Notes to Unaudited Financial Information."

The unaudited pro forma financial information does not purport to represent
what the Company's financial position or results of operations would have been
had the DeltaGraph Disposition occurred on the date indicated or for any prior
period or date. The pro forma adjustments give effect to available information
and assumptions that the Company believes are reasonable. The unaudited pro
forma financial information should be read in conjunction with the Company's
historical financial statements and the notes thereto included elsewhere herein.

23
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
--------------------------------- ---------------------------------
PRO PRO PRO PRO
AS FORMA FORMA AS FORMA FORMA
REPORTED ADJUSTMENTS AMOUNTS REPORTED ADJUSTMENTS AMOUNTS
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues (Note 3).................... $ 4,950 $ (3,067) $ 1,883 $ 1,495 $ (659) $ 836
Cost of Revenues (Note 3)................ 1,181 (660) 521 470 (190) 280
--------- ----------- --------- --------- ----------- ---------
Gross Profit........................... 3,769 (2,407) 1,362 1,025 (469) 556
--------- ----------- --------- --------- ----------- ---------
Operating Expenses:
Sales and marketing (Note 3)........... 4,685 (612) 4,073 2,241 (232) 2,009
Research and development (Note 3)...... 2,618 (502) 2,116 1,347 (93) 1,254
General and administrative (Note 3).... 1,388 (26) 1,362 479 (15) 464
--------- ----------- --------- --------- ----------- ---------
8,691 (1,140) 7,551 4067 (340) 3,727
--------- ----------- --------- --------- ----------- ---------
Loss from operations..................... (4,922) (1,267) (6,189) (3,042) (129) (3,171)
Interest income (expense), net........... 74 -- 74 (817) -- (817)
Other income (Note 5).................... -- -- -- 771 (771) --
--------- ----------- --------- --------- ----------- ---------
Net loss................................. $ (4,848) $ (1,267) $ (6,115) $ (3,088) $ (900) $ (3,988)
--------- ----------- --------- --------- ----------- ---------
--------- ----------- --------- --------- ----------- ---------
Net loss per share....................... $ (2.17) $ (2.74) $ (1.20) $ (1.55)
--------- --------- --------- ---------
--------- --------- --------- ---------
Share and share equivalents used in per
share calculations..................... 2,231 2,231 2,571 2,571
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

See accompanying notes to Unaudited Pro Forma financial statements.

24
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

(1) On June 27, 1997, the Company consummated the sale of its DeltaGraph product
line to SPSS, Inc. ("SPSS") with an effective date of May 1, 1997 for
aggregate proceeds of $1,310,000 in cash, of which $910,000 is attributable
to the sale of the DeltaGraph product line and $400,000 is attributable to
services to be rendered by the Company pursuant to an interim management
agreement (the "Management Agreement") between the Company and SPSS. The
Company received $910,000 on June 30, 1997 pursuant to the sale. The Company
has deferred recognition of the $400,000 until completion of all obligations
to SPSS.

(2) The sale of DeltaGraph was consummated on June 27, 1997. Accordingly, the
balance sheet at June 30, 1997 (included elsewhere herein) includes the
effect of the DeltaGraph Disposition.

(3) After the May 1, 1997 effective date of the sale of DeltaGraph, the Company
will no longer have revenues relating to DeltaGraph. The unaudited pro forma
statement of operations has been adjusted to eliminate the net revenues,
cost of revenues and operating expenses which the Company believes (i) are
directly attributable to DeltaGraph and (ii) will not continue after the
completion of the sale of DeltaGraph.

(4) Since the pro forma adjustments described above increase the Company's
pre-tax loss, there is no effect on U.S. income tax expense.

(5) The unaudited pro forma statement of operations has been prepared for
continuing operations and, therefore, does not give effect to the one time
gain of $771,000 from the sale of DeltaGraph included in the as reported
results for the six months ended June 30, 1997 or the deferred fees related
to the Management Agreement.

25
<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, 1995 and 1996 and the balance sheet data at December 31, 1995 and
1996 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, 1996 and 1997 and the balance sheet data at June 30,
1997 are derived from unaudited financial statements of the Company. The
unaudited financial statements, in the opinion of management, include all
adjustments, consisting of only 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, 1997 are not necessarily indicative
of results that may be expected for the full year or in any future period. The
following data has been derived from financial statements audited by Price
Waterhouse LLP, independent accountants: the balance sheets at December 31, 1995
and 1996 and the related statements of income and of cash flows for the years
then ended December 31, 1996 and notes thereto appear elsewhere herein. The
report of Price Waterhouse LLP which also appears herein contains an explanatory
paragraph relating to the Company's ability to continue as a going concern
described in Note 1 to such financial statements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED JUNE
31, 30,
---------------------- ----------------------
STATEMENT OF OPERATIONS DATA: 1995 1996 1996 1997
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues.......................................................... $ 4,043 $ 4,950 $ 1,893 $ 1,495
Cost of revenues...................................................... 1,337 1,181 621 470
---------- ---------- ---------- ----------
Gross profit........................................................ 2,706 3,769 1,272 1,025
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing................................................. 1,922 4,685 2,051 2,241
Research and development............................................ 2,036 2,618 1,088 1,347
General and administrative.......................................... 1,234 1,388 961 479
---------- ---------- ---------- ----------
5,192 8,691 4,100 4,067
---------- ---------- ---------- ----------
Loss from operations.................................................. (2,486) (4,922) (2,828) (3,042)
Interest (expense) income, net........................................ (146) 74 39 (817)
Other income.......................................................... -- -- -- 771
---------- ---------- ---------- ----------
Net loss.............................................................. $ (2,632) $ (4,848) $ (2,789) $ (3,088)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per share (2)................................................ $ (2.42) $ (2.17) $ (1.27) $ (1.20)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Shares used in per share calculations (2)............................. 1,086 2,231 2,193 2,571
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital.................................................................. $ 2,915 $ 431 $ 134

Total assets..................................................................... $ 6,764 $ 6,346 $ 3,114

Current liabilities.............................................................. $ 3,315 $ 5,305 $ 2,491

Total shareholders' equity....................................................... $ 3,449 $ 1,041 $ 623
</TABLE>

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

(1) On June 27, 1997, the Company consummated the DeltaGraph Disposition with an
effective date of May 1, 1997. As a result, the effect of DeltaGraph
Disposition is reflected in Balance Sheet Data at June 30, 1997. The
Unaudited Pro Forma Statement of Operations Data for the year ended

26
<PAGE>
December 31, 1996 and the six months ended June 30, 1997 give effect to the
DeltaGraph Disposition as if such transaction had occurred on January 1,
1996. See "Unaudited Pro Forma Information."

(2) For an explanation of the number of shares used to compute net loss per
share. See Note 1 of Notes to Financial Statements.

27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, WHICH CAN
BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY," "WILL,"
"EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR
OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE MATTERS SET FORTH UNDER
THE CAPTION "RISK FACTORS" IN THIS PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS
IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS,
INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.

OVERVIEW

CORPORATE EVENTS. The Company was incorporated on February 1, 1989 to
design, develop and market visualization software products for personal
computers. The Company commenced shipments of its initial product, DeltaGraph,
at the end of 1989. The Company conducted its initial public offering in
December 1995. Commencing with its acquisition of the technology required to
develop WebAnimator (a multimedia authoring tool for the Web) in November 1995,
the Company's strategy has been to realize a significant and growing percentage
of its revenues from the sale of Internet software products. Towards that end,
the Company acquired technology to develop QuickSite (a Web site creation and
management tool) in December 1995 (released version 1.0 in February 1996) and
introduced WebTools in March 1996, WebAnimator in July 1996, QuickSite
Developer's Edition in September 1996 and QuickSite 2.5 in May 1997.

As part of its continued focus on Internet software products, DeltaPoint
consummated the DeltaGraph Disposition in June 1997 and the Site Tech
Acquisition in July 1997, and has entered into a letter of intent with respect
to the Inlet Technology Acquisition. Moreover, the Company plans to incur
additional expenditures to develop or acquire Internet software products or
develop new versions of existing products over the next several quarters. See
"Corporate Developments" and "Business -- Products Currently Under Development
and -- Research and Development." In addition to further focusing the Company on
Internet products, the DeltaGraph Disposition provided the Company with much
needed liquidity.

REVENUES. 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 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. In addition, the Company currently
plans to introduce products targeted at the SMB and corporate department user
markets for scalable Web site development and management software solutions. In
connection with the planned introduction of these products, the Company plans to
significantly increase its use of non-retail distribution channels including
VARs, OEMs and Internet Service Providers ("ISPs"). See "Business -- Strategy
and -- Sales and Marketing."

Software product sales are recognized upon shipment of the product, net of
appropriate allowances for estimated returns. Revenues from software royalty
agreements are recognized upon shipment of a master copy of the software product
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.

IMPACT OF DELTAGRAPH DISPOSITION. As a result of the DeltaGraph
Disposition, the Company's future operating results will not be comparable to
its historical operating results and should not be

28
<PAGE>
relied upon as an indication of future operating results. Moreover, the
Company's future profitability will be entirely dependent on the success of its
Internet software products. Set forth below on an actual and pro forma basis
giving effect to the DeltaGraph Disposition are the Company's net revenues,
operating losses and gross profit for the year ended December 31, 1996 and the
six months ended June 30, 1997. For the year ended December 31, 1995,
substantially all the Company's revenues were attributable to the Company's
DeltaGraph visualization software products. The sale of DeltaGraph is not
expected to result in a significant reduction in operating expenses as the
Company plans to continue its investment in developing new and updated versions
of its Internet software products. See "Unaudited Pro Forma Financial
Information."

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------- ----------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net Revenues....................................................... $ 4,950 $ 1,883 $ 1,495 $ 836
Loss from operations............................................... $ (4,922) $ (6,189) $ (3,042) $ (3,171)
Gross Profit Percentage............................................ 76.1% 72.3% 68.6% 66.5%
</TABLE>

HISTORIC AND ANTICIPATED LOSSES. The Company incurred net losses of
$4,848,000 for the year ended December 31, 1996 and $3,088,000 for the six
months ended June 30, 1997, and had an accumulated deficit of $16,754,000 as of
June 30, 1997. The Company expects to incur losses for at least the next 12
months, and possibly longer. The Company's future operating results will depend
on many factors, including the successful development, introduction and
commercial acceptance of the Company's Internet software products (including
Internet software products targeted by the Company at the SMB and corporate
department user markets); continued emergence of the evolving Internet software
product market; the Company's success in expanding its use of non-retail
distribution channels for SMB and corporate department user Internet software
solutions including VARs, OEMs and ISPs; the mix of revenues derived from
product sales and royalty fees and the level of product and price competition.
In particular, there can be no assurance that the Company will be successful in
its efforts to introduce additional products targeted at the SMB or the
corporate department user market or to expand its distribution channels. See
"Risk Factors "-- Dependence on Internet Software Products and Related Strategy;
Dependence on Continued Emergence of Internet Software Market" and "--
Distribution Risks; Substantial Reseller Customer Concentration."

FLUCTUATIONS. 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 such 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. 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 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, to the extent
that the Company succeeds in its strategy to target the

29
<PAGE>
SMB and corporate department user markets, among other things, the Company's
results of operations and financial condition may be subject to greater or
different fluctuations as a result of potentially larger individual product
sales, seasonality, a longer sales cycle and longer payment terms. There can be
no assurance the Company will be profitable on a quarter to quarter or any other
basis in the future.

SERIES A PREFERRED STOCK; CONVERTIBLE NOTES. In December 1996, the Company
issued $2,150,000 in principal amount of Convertible Notes. In April through
June 1997, $582,000 in principal amount of Convertible Notes was converted into
shares of Common Stock, and on June 30, 1997 all but $37,500 of the remaining
principal value of the Convertible Notes was converted into Series A Preferred
Stock. The Series A Preferred Stock and Convertible Notes are convertible into
shares of Common Stock generally at a price equal to 80% of the five day average
closing price on the OTC Bulletin Board for the five business days prior to
conversion. During the quarter ended March 31, 1997, the Company recognized the
value of the discounted conversion feature and deferred debt issuance costs of
aggregating $799,000 as additional interest expense. The Company does not expect
to record any similar charges related to these securities in future quarters.
See "Description of Capital Stock -- Preferred Stock and Convertible Notes."

CRITICAL NEED FOR CAPITAL; GOING CONCERN ASSUMPTION. As of July 31, 1997,
the Company's cash and cash equivalents totaled approximately $350,000. The
Company anticipates that its existing capital resources and cash generated from
operations, if any, will be sufficient to meet the Company's cash requirements
at its anticipated level of operations only through October 1997. The Company
has announced that, depending on market conditions, it expects to issue shares
of Common Stock in a secondary public offering with an aggregate value of
approximately $6.1 million (before related fees and expenses). There can be no
assurance that this or any other equity offering will be consummated or that any
other required financing will be available to the Company on acceptable terms,
or at all. In addition, due to the Company's accumulated losses, the report of
the Company's independent accountants with respect to the Company's financial
statements for 1995 and 1996 contains an explanatory paragraph concerning the
Company's ability to continue as a going concern. Additional equity or debt
financing or the sale of additional assets will be required to enable the
Company to continue its operations.

30
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, certain historical
and pro forma for the DeltaGraph Disposition statement of operations data as a
percentage of net revenues. As a result of the DeltaGraph Disposition, the
Company's historical operating results should not be relied upon as an
indication of future operating results.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- ---------------------------------------
1995 1996 1996 1996 1997 1997
ACTUAL ACTUAL PRO FORMA(1) ACTUAL ACTUAL PRO FORMA(1)
----------- ----------- ------------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................ 33.1 23.9 27.7 32.8 31.4 33.5
----------- ----------- ------ ----------- ----------- ------
Gross profit.............................. 66.9 76.1 72.3 67.2 68.6 66.5
----------- ----------- ------ ----------- ----------- ------
Operating expenses:
Sales and marketing....................... 47.5 94.6 216.3 108.3 149.9 240.3
Research and development.................. 50.4 52.9 112.4 57.5 90.1 150.0
General and administrative................ 30.5 28.0 72.3 50.8 32.0 55.5
----------- ----------- ------ ----------- ----------- ------
Total operating expenses................ 128.4 175.5 401.0 216.6 272.0 445.8
----------- ----------- ------ ----------- ----------- ------
Loss from operations........................ (61.5) (99.4) (328.7) (149.4) (203.4) (379.3)
----------- ----------- ------ ----------- ----------- ------
Interest (expense) income, net.............. (3.6) 1.5 3.9 2.1 (54.6) (97.7)
Other income................................ -- -- -- -- 51.6 --
----------- ----------- ------ ----------- ----------- ------
Net loss (65.1)% (97.9)% (324.8)% (147.3)% (206.4)% (477.0)%
----------- ----------- ------ ----------- ----------- ------
----------- ----------- ------ ----------- ----------- ------
</TABLE>

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

(1) Pro forma to give effect to the DeltaGraph Disposition as if it had occurred
at January 1, 1996. See "Unaudited Pro Forma Financial Information."

SIX MONTHS ENDED JUNE 30, 1996 AND 1997

NET REVENUES. Net revenues for the six month period ended June 30, 1997
decreased by 21.0% to $1,495,000 from $1,893,000 for the corresponding period in
the prior year. The decrease in revenue was primarily attributable to the sale
of the DeltaGraph product line which accounted for $1,140,000 of net revenue in
the six month period ended June 30, 1996 as compared to $659,000 in the six
month period ended June 30,1997. Net revenues attributable to Internet products
for the six month period ended June 30, 1996 and 1997 were $637,000 and
$760,000, respectively. Included in the increase of Internet revenues is a
one-time license fee of $150,000 received from an OEM.

For the six month period ended June 30, 1997, international revenue
increased to 26.8% of net revenues from 18.8% of net revenue in the
corresponding period in the prior year. The Company's international sales are
principally denominated in U.S. dollars. Movements in currency exchange rates
did not have a material impact on net revenues 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. The increase in international revenues was primarily
due to the introduction of Internet products in the Japanese market. In light of
the DeltaGraph Disposition, the Company expects that in the near-term
international revenues attributable to Internet products may decline until the
relationship with its Japanese distributor (who principally sold DeltaGraph
products) is clarified or other international distribution channels can be
established.

GROSS PROFIT. Cost of revenues consists of direct materials, labor,
overhead, post customer support, royalties and contract manufacturing costs
associated with the manufacturing of the Company's products. Gross profit for
the six month period ended June 30, 1997 increased as a percentage of net
revenues to 68.6% from 67.2% for the corresponding period in the prior year. The
Company's

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<PAGE>
gross profit on an actual basis and as a percentage of net revenue has varied
quarter to quarter as a result of a number of factors including changes in
customer and product mix, inventory write-offs due to new product releases and
third party royalty obligations for the Company's Internet products.
Historically, the Company's gross profit on the sale of DeltaGraph products was
consistent with the Company's overall gross profit. However, the Company
anticipates gross profit as a percentage of revenue will decline in future
periods as Internet product sales increase due to the third-party royalty
obligations associated with such sales.

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, 1997 increased to $2,241,000 (or 149.9% of net revenues) from
$2,051,000 (or 108.3% of net revenues) for the corresponding period in the prior
year. The increase in sales and marketing expenses was primarily due to an
increase in the use of direct mail, telemarketing, consultants, and channel
promotions used in the continued promotion of the Company's Internet software
products and the activities associated with the launch of the Company's
QuickSite 2.5 web authoring tool which was released in May 1997. The Company
expects that sales and marketing costs will continue to increase in future
periods as the Company expands its use of non-retail distribution channels
including VARs, OEMs and ISPs and adds sales and marketing personnel to support
such expansion and the anticipated introduction of new products. See "Business
- -- Sales and Marketing."

RESEARCH AND DEVELOPMENT. Research and development expenses include
personnel, consultants and amortization of purchased software. Research and
development expenses for the six month period ended June 30, 1997 increased to
$1,347,000 (or 90.1% of net revenues) compared to $1,088,000 (or 57.5% 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
(including the retention of several consultants) for the development of
QuickSite. The Company expects that research and development costs will increase
in future periods due to continued development of the Company's new Internet
products and updated versions of the Company's existing products. In the third
quarter of 1997, the Company expects to incur a charge to operations in
connection with the consummation of the Site Tech Acquisition and, if
consummated, the Inlet Technology Acquisition to the extent that a portion of
the applicable purchase price is determined to be in-process research and
development. See "Corporate Developments."

GENERAL AND ADMINISTRATIVE. General and administrative expenses for the six
month period ended June 30, 1997 decreased to $479,000 (or 32.0% of net
revenues) compared to $961,000 (or 50.8% of net revenues) for the corresponding
period in the prior year. The decrease in general and administrative expenses
was primarily attributable to a severance charge in the first quarter of 1996 of
$505,000 relating to the departure of the Company's Chief Executive Officer.

INTEREST (EXPENSE) INCOME, NET. Interest (expense) income, net includes
interest payable on the Company's Convertible Notes during the six months ended
June 30, 1997, the recognition of the discounted conversion feature on the
Convertible Notes and amortization of the related deferred debt issuance costs,
offset by interest income earned on cash and cash equivalents. Interest expense
during the first six months of 1997 increased to $852,000 from $26,000 during
the first six months of 1996. This increase was primarily attributable to the
recognition of the discounted conversion feature of the Convertible Notes and
the related deferred debt issuance costs which totaled $799,000.

OTHER INCOME. Other income for the six months ended June 30, 1997 consists
entirely of the one-time gain resulting from the DeltaGraph Disposition.

PROVISION FOR INCOME TAXES. There was no provision for taxes during the six
month periods ended June 30, 1996 and 1997 due to the Company's net operating
losses. At December 31, 1996, the Company had approximately $7,000,000 of
federal net operating loss carryforwards which expire in varying amounts through
2011. Due to certain changes in the ownership of the Company, approximately
$1,700,000 and $1,200,000 of these losses are subject to annual limitations of
approximately

32
<PAGE>
$142,000 and $301,000, respectively. 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.

YEARS ENDED DECEMBER 31, 1995 AND 1996

NET REVENUES. Net revenues increased by 22.4% to $4,950,000 in 1996 from
$4,043,000 in 1995. The increase in revenue was primarily attributable to the
introduction of Internet products, especially QuickSite, DeltaPoint's Web site
creation and management tool. International sales accounted for 39.8% of net
revenues during 1995 and 26.3% for 1996. The decrease in international revenues
was due to fewer Japanese license agreements offset partially by the release of
QuickSite for the Japanese market.

Net revenues attributable to DeltaGraph products for 1995 and 1996 were
$3,570,000 and $3,067,000, respectively.

Net revenues attributable to Internet products for 1995 and 1996 were $0 and
$1,729,000 respectively.

GROSS PROFIT. Gross profit increased to 76.1% of net revenues in 1996 from
66.9% of net revenues in 1995, primarily as a result of lower inventory
write-offs and an absence of packaging fees in 1996.

SALES AND MARKETING. Sales and marketing expenses increased to $4,685,000
(or 94.6% of net revenues) for 1996 from $1,922,000 (or 47.5% of net revenues)
in 1995. The increase in sales and marketing expenses was primarily due to an
increase in headcount and an increase in the use of direct mail, telemarketing,
consultants, print advertising, tradeshows and channel promotions used to
promote the Company's Internet software product expenses which were released in
1996.

RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$2,618,000 (or 52.9% of net revenues) for 1996 compared to $2,036,000 (or 50.4%
of net revenues) in 1995. The increase in research and development expenses was
primarily due to a staffing increase for the development of the Company's
Internet software products. In addition, the Company retained several
consultants to aid in the development process. In 1995, research and development
expenses included a charge for in-process research and development of $1,240,000
resulting from the acquisition of certain Internet technologies.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $1,388,000 (or 28.0% of net revenues) for 1996 compared to $1,234,000 (or
30.5% of net revenues) in 1995. The increase in general and administrative
expenses was primarily attributable to above mentioned severance charge of
$505,000 offset by a decrease in bad debt expenses of $176,000.

PROVISION FOR INCOME TAXES. There was no provision for taxes in 1995 or
1996 due to net operating losses.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 1997, the Company had a working capital balance of $134,000
and shareholders' equity of $623,000. As of July 31, 1997, the Company had cash
balances of approximately $350,000.

The Company has financed its operations primarily through private and public
sales of equity securities, borrowings under a term loan (no longer in place),
the private sale of debt securities and, recently, the sale of the DeltaGraph
product line. Since inception, the Company has received approximately $15
million in proceeds from private sales of preferred stock, convertible debt and
from the Company's initial public offering of Common Stock.

The Company used net cash in operations of $2,699,000 in the six month
period ended June 30, 1997 and $2,300,000 for the corresponding period of the
prior year. Net cash used in the first six months of 1997 consisted primarily of
a net loss of $3,088,000 offset by other working capital changes.

33
<PAGE>
Net cash used in operations during the six months ended June 30, 1996 consisted
primarily of a net loss of $2,789,000.

The Company used net cash in operations of $4,618,000 in 1996 and $1,646,000
in 1995. Net cash used in 1996 consisted primarily of a net loss of $4,848,000.
Net cash used in 1995 consisted primarily of a net loss, excluding non-cash
items, of $1,189,000 and certain working capital requirements.

Net cash provided by financing activities totaled $21,000 in the six month
period ended June 30, 1997 and $745,000 for the corresponding period of the
prior year. Net cash from financing activities in the first six months of 1997
consisted of the exercise of stock options. Net cash from financing activities
in 1996 consisted primarily of $831,000 in net proceeds from the exercise of the
overallotment option from the Company's initial public offering offset by
approximately $77,000 for related registration expenses. The Company also repaid
capital lease obligations of $45,000.

The Company obtained net cash from financing activities of $3,474,000 in
1996 and $6,499,000 in 1995. Net cash from financing activities in 1996
consisted primarily of $831,000 in net proceeds from the exercise of the
overallotment option from the Company's initial public offering, proceeds
resulting from the exercise of stock options and warrants of $1,609,000 and
proceeds from the issuance of Convertible Notes of $1,949,000 offset by the
repayment of $865,000 of outstanding notes payable. Net cash from financing
transactions in 1995 consisted primarily of $5,143,000 in net proceeds from the
Company's initial public offering of Common Stock and other equity financing.

Net cash provided by investing activities during the six months ended June
30, 1997 totaled $747,000 and primarily resulted from the DeltaGraph
Disposition. For the six month period ended June 30, 1997 and the year ended
December 31, 1996, the Company's capital expenditures totaled approximately
$24,000 and $343,000, respectively, and were attributable to acquisitions of
personal computer and computer workstation equipment used to support the
Company's development efforts.

34
<PAGE>
BUSINESS

INTRODUCTION

The Company currently develops and markets Internet software products
designed to enable individuals and SOHO professionals to effectively and easily
create, manage and enhance Web sites on the Web. The use of Web sites by SMB and
enterprise departments has recently emerged into a critical business application
that provides greater sales and marketing reach and allows these businesses to
grow faster and more cost effectively. To capitalize on the emerging
opportunities in the SMB and enterprise department user markets for scalable Web
site development and management software solutions, the Company intends to
broaden its product offerings to include a family of products designed to enable
these users, in addition to individuals and SOHO professionals, to develop,
manage, integrate, deploy and maintain next-generation Web sites. The Company's
objective is to become a leading provider of scalable Web site development and
management software solutions for Web based business environments.

INDUSTRY BACKGROUND

The worldwide, cost-effective communication benefits of the Web are leading
many individuals and business organizations to actively "publish" information on
the Web by creating a Web "site," a collection of individual Web pages, each
handcrafted using a relatively new and quickly evolving tagging language called
hypertext markup language ("HTML").

For many individuals and small business organizations, establishing a robust
Web site remains a time-consuming and expensive proposition. The free-form
nature of HTML has inhibited the emer-
gence 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 generational evolution in Web sites, based on
additional functions and benefits, is also underway.

First generation Web sites are generally characterized by small volumes of
information or "content," static pages that are infrequently updated with
limited links to other Web pages. Generally, these sites are created and managed
by a single author (the Webmaster) and published to a single Web server. To
assist in the creation of first generation Web sites, a large number of first
generation Web authoring or "page creation" tools have emerged. These
limited-function tools focus on the creation of a single page at a time and
require that content within pages and between pages be manually linked and
manually maintained. Further, the content of such sites has no inherent
structural intelligence, making global changes, consistency of design,
reorganization of sections and managing the integrity of the Web site difficult
and time-consuming.

Next generation Web sites are richer in multi-media content, consist of both
static and dynamically created pages, are continuously updated and must
integrate with existing business data. The use of these Web sites is emerging as
businesses of all sizes adopt the use of Intranets for internal communications
and begin conducting business over the Internet. Within these sites multiple
authors of varying skill levels create a variety of Web pages that are combined
into sophisticated Web based applications, which are published to multiple Web
servers and managed by multiple Webmasters. Although some second generation Web
page creation tools have been introduced, the Company believes that these
products are based on architectures that primarily emphasize the layout and
design aspects of individual pages and, as a result, are not suited to handle
these dynamic Web site environments.

The evolving market for Web site development and management software
products is segmented as follows:

INDIVIDUALS AND SOHO PROFESSIONALS (1 TO 20 EMPLOYEES). According to IDC
Link, a leading market research firm, in 1996 there were approximately 11
million individual and SOHO business users in the United States. The Internet
provides these business users with a cost-effective way of increasing

35
<PAGE>
their exposure and market reach by creating and publishing a Web site.
Increasingly, Internet shopping malls are attracting these small businesses to
build catalogs and publish product and service offerings on the Internet.

The Web site has recently evolved into a critical business application
environment that provides greater sales and marketing reach and is allowing
these businesses to grow faster and more cost effectively than ever before. The
need for easy to use robust Web site development and management software
solutions that support a wide range of Web application environments is expanding
rapidly.

SMALL TO MEDIUM BUSINESS (SMB) (1 TO 499 EMPLOYEES). Small to medium
businesses (SMBs), primarily through value added resellers ("VARs"), are
developing robust Web sites to reach broader target audiences in a more
cost-effective manner. These Web sites are extending both internally to
Intranets that enable internal company communications, and externally to
Extranets that enable business-to-business and business-to-consumer transactions
such as "electronic commerce."

Today, the SMBs and the Web professionals that support them have had very
few tools to support the multi-authoring environment that is required to easily
develop an interdepartment Web site. The wide variety of content (including
text, graphics, multi-media, video and audio) and applications (including Java
and ActiveX) that can be incorporated into a robust Web site requires varying
levels of users or "content creators" (including content contributors, graphic
artist, developers, web administrators, application managers and Webmasters).

As SMBs leverage Web technology to implement Intranet applications and
Internet Web sites, they are facing a new set of management challenges such as
integrating the efforts of many diverse contributors, managing a large number of
varied application components and keeping applications up to date with
ever-changing content. These markets need an integrated Web site development and
management solution that supports a broad set of Web based business
requirements.

WEB PROFESSIONALS. In response to customer demands, many value-added
resellers ("VARs") who have historically serviced the SMB market are moving
their business focus to Web consulting and Web application development. In
addition, Internet Service Providers ("ISPs") are offering Web site hosting and
consulting services to help small and medium businesses quickly gain a presence
on the Web and reduce the up front cost of setting up a Web server. These Web
professionals require powerful software tools and solutions to aid them in their
Web site development and management businesses.

ENTERPRISE DEPARTMENT USERS. Many large corporations or enterprises, having
already established sophisticated Web sites for external communications, are now
encouraging smaller internal groups and departments to build private "Intranet"
Web sites. These departmental environments in many respects operate as small
businesses and face many of same problems identified above (including the need
for multi-authoring capabilities and managing a large number of varied
application components). There is considerable demand for Web site development
and management software solutions that support the existing enterprise
standards, as well as the interoperability with legacy data environments.

COMPANY APPROACH

The Company believes that effective Web site development and management
software solutions must not only simplify initial content creation, but enable
content contributors, developers and Webmasters to easily update diverse
content, maintain site integrity, deploy pages in a controlled methodology and
manage the variety of Web site components on an ongoing basis. Further, the
Company believes that an open architecture that supports existing components is
important to maintaining maximum flexibility as Internet standards emerge and
evolve rapidly and as Web based applications become more tightly integrated into
legacy business environments.

The Company is developing a family of products designed to enable Web site
developers to easily and cost-effectively develop, manage, integrate, deploy and
maintain robust Web-based applications

36
<PAGE>
using a structured approach. The Company's scalable Web site development and
management products are being designed to utilize an advanced product design
featuring a database architecture and incorporate a series of "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 is intended to enable the automatic generation
and maintenance of links between Web pages, eliminating or reducing the need for
programmer or technical intervention. Additionally, this approach is intended to
enable 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 development and management
provides fundamental advantages over existing page creation methodologies as the
volume and complexity of content contained in the Web sites increases and the
propagation of pages are expanded through multiple tiers of servers in larger
organizations.

The Company's scalable Web site development and management tools are
designed to work either with full client-side functionality, to free the site
designer from costly server connection time during the site creation and testing
process, or as a client/server environment supporting multi-authoring
capabilities in a group development environment. Further, these products are
designed to utilize an open architecture that provides Web browser and Web
server independence.

STRATEGY

The Company's objective is to be a leading provider of scalable Web site
development and management software solutions for Web based business
environments. The Company's strategy for achieving this objective includes the
following elements:

BROADEN PRODUCT OFFERINGS. The Company intends to identify and develop,
license or acquire technologies or products to extend product functionality and
market position in two areas: Web site creation and deployment and Web site
management and interoperability. In the area of Web site creation and
deployment, the Company intends to continue expanding the range of the
pre-designed templates, graphics, forms, WYSIWYG (What You See Is What You Get)
layout editor, HTML editor and wizards contained within the QuickSite product.

In the area of Web site management and interoperability, the Company expects
to continue to update and enhance the development, interoperability and
management features of its products to support a broader level of functionality.
Towards that end, and to capitalize on the emerging opportunities in the SMB and
enterprise department user markets for scalable Web site development and
management software solutions, the Company has agreed to acquire from Inlet
certain proprietary core technology which is intended to serve as the basis for
the Company's planned client/server, multi-authoring site, dynamic development
and management products, the first of which is planned for shipment in the
fourth quarter of 1997, at the earliest. In July 1997, pursuant to the Site Tech
Acquisition, the Company acquired, among other things, SiteSweeper 1.0, a Web
site quality control and maintenance product. The Company is currently
developing SiteSweeper 2.0, which is being designed to enable Web development
and management professionals to maintain the quality and integrity of mission
critical Web based business environments. The Company is planning to introduce
SiteSweeper 2.0 in the third quarter of 1997, at the earliest. See "Corporate
Developments" and "-- Products Under Development."

EXPAND TARGET MARKETS. To date, the Company's Internet software products
have been targeted at individuals and SOHO professionals. However, the scalable
design of the Company's planned family of Web site development and management
products should enable such products to be used by the individual or SOHO
professional in a desktop environment that publishes the finished Web site on a
remote Web server or outside hosting site, and by the SMB or enterprise
department user that develops Intranet applications in a client/server,
multi-authoring environment.

37
<PAGE>
EXPAND CHANNELS OF DISTRIBUTION. The Company has historically marketed its
Internet software products primarily through the retail distribution channel.
The Company plans to expand distribution of its Web site software products by
increasing its retail distribution relationships both domestically and
internationally. The Company also intends to increase the number of products
available for sale through this distribution channel, which the Company believes
is essential to secure adequate retail shelf space and retailer promotional
support. To effectively market its planned family of scalable Web site
development and management products to the SMB and enterprise department users,
the Company intends to implement a sales and marketing program focused on the
development of VARs, Web professionals, OEMs (such as key PC manufacturers) and
ISPs.

DEVELOP PRODUCTS THAT SUPPORT OPEN ARCHITECTURE. The Company plans to
introduce Web site development and management software products based on an open
architecture. This open architecture is designed to support industry standard
architectures, which support widely used Web browsers (including Netscape
Navigator and Microsoft Internet Explorer), major Web server software
environments (including Windows NT, Netscape and Unix) and industry standard
database environments (including Oracle, Informix and Microsoft SQL).
Additionally, the Company plans to design additional products that will
incorporate evolving technologies such as: Java, ActiveX and OLE components that
will support a wide variety of Web based client/server environments.

INCREASE DEMAND AND AWARENESS. The Company intends to increase its brand
and product awareness by emphasizing the product's ability to develop, manage,
integrate, deploy and maintain next-generation Web sites and database
architecture, and by demonstrating its broad acceptance through strategic
relationships with industry leaders. Since March 1996, the Company has entered
into agreements with companies such as Sony, Earthlink, Anawave, Inc., Compaq,
MacMillian Press, McAfee Mall and Internet Mall. To build brand identity, the
Company may also increase and expand its print and online advertising efforts
and increase its participation in major industry conferences and trade shows.

CURRENT COMPANY PRODUCTS

The Company currently offers the following Internet site creation and
management products targeted at the individual and SOHO professional market and
distributed primarily through the retail distribution channel:

QUICKSITE. QuickSite, the Company's first Web site creation and management
software tool, which began shipping to retail distributors in March 1996, is
designed to enable non-technical individuals and organizational users to rapidly
create and efficiently manage a Web site. QuickSite incorporates the following
key attributes, most of which are also incorporated into the Company's other
current products as part of the Company's design approach:

EASE OF SITE CREATION. The Company has designed a collection of site
creation wizards aimed at eliminating the initial stumbling blocks encountered
by novice and other 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. In the QuickSite 2.5 version, the
Company has designed a module to speed the process of establishing an electric
commerce presence on the Web and also added a WYSIWYG (What You See Is What You
Get) Layout Editor. 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 so that as the author populates the site, content
components are captured as data objects that are

38
<PAGE>
automatically indexed and stored within the products database engine. As a
result, content can be 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
account for a substantial majority 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
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 2.0 DEVELOPER'S EDITION. QuickSite 2.0 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 additional features included in QuickSite 2.0 Developer's
Edition are: (i) support for the emerging Web Style Sheet standard, sponsored by
the WWW Consortium; (ii) 3D Web Site Builder, a visual VRML (virtual reality
mark-up language) creation tool from Virtus Corporation included with the
product; (iii) advanced Web site automation, including a proprietary scripting
language and powerful page macros that automate repetitive tasks that
complicates large-scale projects; (iv) embedded "graphics factory" technology,
based on a variety of DigitalStyle Corporation templates, that allows developers
to create dynamic custom graphics and style elements, and also helps to enforce
stylistic consistency throughout a site; and (v) sophisticated project reporting
capabilities that help the developer track and document the status of their
work.

WEBTOOLS. WebTools allows database developers to add Web-enabling features
to existing database applications. The Company licenses 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. WebAnimator is a multi-media authoring tool that enables a
broad range of Web users to easily add multi-media and interactive animation to
a Web site. WebAnimator offers the following key attributes: (i) extensive use
of predefined templates that enable users to combine text, graphics and sound to
produce multi-media rich content components; (ii) content components created in
WebAnimator's native format are vector based and can 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 enable users to easily and accurately add sound and
motion to an animated content component. The market for Web-enabled multi-media
authoring tools has emerged more slowly than originally expected and, as a
result, until such market more meaningfully develops the Company does not expect
to expend significant resources on this market.

PRODUCTS UNDER DEVELOPMENT

The Company's two principal products currently under development are based
on the technologies acquired in connection with the Site Tech Acquisition and
the pending Inlet Technology Acquisition. These products initially will be
targeted at the SMB and enterprise department user markets.

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SITESWEEPER. In July 1997, the Company acquired SiteSweeper 1.0, its
underlying technologies and additional Internet-related technologies through the
Site Tech Acquisition. See "Corporate Developments." SiteSweeper 1.0, originally
released in October 1996, is a quality control tool. The Company does not intend
to actively market or distribute SiteSweeper 1.0. The Company is developing and
plans to introduce SiteSweeper 2.0, an updated version of SiteSweeper 1.0, in
the third quarter of 1997, at the earliest. SiteSweeper 2.0 will be a quality
control tool available for Web professionals (including those who support the
SMB and enterprise department user markets) that automates time-consuming
quality assurance tasks, allowing the Webmaster to identify potential problems
quickly and easily. SiteSweeper 2.0 is being designed to (i) "sweep" Web sites
using standard Internet protocols, allowing a sweep of both static and dynamic
pages; (ii) secure Web pages that require a user name and password; and (iii)
permit the Webmaster to include or exclude specific pages, or entire folders, on
any number of Web servers.

SiteSweeper 2.0 is being designed to incorporate the following functions:

QUALITY REQUIREMENT EXAMINATION. SiteSweeper 2.0 is being designed to
examine a Web site searching for problems that impact the quality and integrity
of the Site. SiteSweeper 2.0 is designed to check for broken links, slow pages,
missing "Alt" attributes, missing "Width" or "Height" attributes, distorted
images, missing or duplicate titles, and missing meta-tags. These functions are
being designed to allow the Webmaster to identify specific quality requirements
for each problem area. For example, it is expected that the Webmaster may
designate the desired connection speed of typical users (for example, 28.8K bps
or ISDN) and the longest acceptable page download time at that speed, with
SiteSweeper 2.0 then reporting to the Webmaster how well that site meets the
specified quality requirements.

COMPREHENSIVE REPORTS. SiteSweeper 2.0 is being designed to generate
reports that identify potential quality problems. Additionally, it is expected
that a summary showing how well the site meets each quality requirement, will be
displayed graphically, using a series of easy to understand charts. A detailed
listing of specific problems will also be provided for every page in the site.
In addition, SiteSweeper 2.0 is expected to provide the Webmaster with
information necessary for site management and maintenance. This is expected to
include a detailed listing of all of the components that make up a given page,
as well as a complete list of links to and from each page, usage of various
resource types, link status codes, external links, and images. SiteSweeper's
reports are designed to be HTML-based and compatible with widely used Web
browsers. The reports are designed to use Java-based charting and visual
navigation technology, based on Javascript.

EXTENSIBLE ARCHITECTURE. SiteSweeper 2.0 is being developed upon a robust
modular software architecture, using components that are both re-usable and
extensible. SiteSweeper 2.0 is being designed to use a true multi threaded web
crawler capable of visiting many pages simultaneously. Swept data will be stored
in an industry-standard database format, and will be manipulated using the Open
Database Connectivity ("ODBC") programming interfaces. This architecture will
facilitate expansion of the SiteSweeper feature set, and is expected to result
in the development of new products based on the same underlying core
technologies.

INLET TECHNOLOGY. In April 1997, the Company announced its intent to
acquire from Inlet certain proprietary core technology (referred to herein
generally as "Inlet technology or "CI" technology). See "Corporate
Developments." The CI technology is intended to serve as the basis for the
Company's planned client/server, multi-authoring, dynamic site development and
management products. The Company intends to extend the capabilities already
present in the CI technology.

Products under development using the CI technology are being designed to
include, design client tools and server side/backend processing, along with
powerful site management and business applications. The product is being
designed to allow non-programmers as well as developers to rapidly create
dynamic Web sites. The development environment is being designed to include many
pre-built components, which are designed to extend traditional client/server
systems to the Web site.

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The CI technology is being designed to incorporate a powerful document
management system that stores the definition of a page in a database and
generates the actual HTML pages from that definition. Through this powerful
feature, users of the CI technology will be able to track every link between
pages on the site. If the user changes the location of a page, the CI technology
is expected to identify which pages need to be updated and regenerate them at
the touch of a button. Instead of creating a link by inserting an HTML link to
the other page's filename, a CI link command to the other page's definition is
inserted. When the page is generated, the CI link is expected to be converted
into the proper HTML command.

In addition, products based on the CI technology are expected to provide or
incorporate the following functions:

USE OF MACROS FOR DYNAMIC CREATION. A macro is a portion or fragment of a
page that needs to be used in multiple places. The CI technology is being
designed to track which pages use a particular macro so that it knows the pages
that need to be regenerated when that macro is changed. Additionally, Web site
developers or Webmasters may pass parameters to macros, allowing a header or
footer to be tailored for each page. Using macros within the CI technology is
expected to assure the developer of consistency throughout the site while
allowing changes to a single page, or across the entire site, to be completed
quickly.

SEPARATION OF DATA FROM THE DESIGN. Products based on the CI technology are
being designed to have the ability to query any ODBC database and insert
information from the database into a page. This feature is expected to allow Web
site developers and Webmasters to create, maintain and modify the data
associated with a Web site without additional revision of the Web pages. This
separation of the site's content (which is stored in the database) from the
site's design (which is stored in scripts and macros) is expected to enable
individuals of different skill levels to work on common projects. This
separation is also expected to permit the Web designer to focus more closely on
the layout and organization of the site and allow individuals skilled in the
creation of content to better manage such content by putting content portions
into a database and using macros to pull content into an HTML page. By combining
the macro feature with database content extraction, a designer is expected to be
able to create a standard macro for retrieving and laying out a page. When the
page layout needs to be changed, the macro is being designed to be modified and
each page regenerated with the new page format.

DYNAMIC CUSTOM PAGES AND ACTIONS. Products based on the CI technology are
being designed to create Web pages and e-mail responses based upon user input.
Instead of requiring programmers to develop proprietary Web applications in C or
Perl, the CI technology is being designed to include a powerful set of standard
actions that may be automatically performed when a Web based form is processed
by the server. In the case of a feedback form, this set of standard actions
could enable data to be saved to a database, a formatted e-mail messages with
the data sent to the customer service representative, and a "Thank You" page
displayed to the visitor.

CUSTOM COMPONENTS. Products based on the CI technology are being designed
to include a library of custom components. These pre-built interactive
components are being designed to quickly integrate into a Web site. The library
is expected to include components for:

- Threaded Discussion: This component is designed to allow site developers
to input ideas and questions and receive feedback from other users.

- Feedback Form: This component is designed to help site developers to
immediately receive, catalog, and reply to feedback from site visitors.

- Press Releases: This component is designed to assist the Web site
developer in establishing and managing a library of press releases on a
Web site. The integrated search mechanism allows a site visitor to search
for releases by date. The online management feature is designed to allow
for posting, editing and publishing of press releases at the editor's
discretion.

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- Company Directory: This component is designed to allow a site developer to
organize and display a company's personnel information. The data can be
organized and searched by department, division or location.

- Site Traffic Analyzer: This component is being designed to include a log
processor to analyze traffic on the site, a system for tracking advertiser
impressions and "click-through" links and a system for tracking
subscribers and their profiles. Such tools are designed to be scalable
from single to multi-sites. Instead of reporting hits, CI tracks pages
viewed so management and sponsors get accurate reports about the number of
people who visit the site.

REMOTE FUNCTIONS: The CI technology is being designed to provide remote
publishing functions for both dynamic and static pages. Developers are expected
to be able to maintain local control of the dynamic and interactive functions of
a site, while maintaining the content database at a remote location. This
feature is expected to provide remotely hosted Web sites with the same dynamic
and interactive functionality as locally hosted Web sites.

ADDITIONAL FEATURES: The CI technology is being designed to include the
following additional features: (i) Site creation wizards to guide users through
Web site creation and other difficult tasks; (ii) the ability to import existing
Web sites or pages into CI technology; (iii) custom E-mail list processing
(based on user profiles); (iv) set and get "cookies" for maintaining information
Management of ActiveX and Java applets; and (v) remote, publishing via local
area networking or File Transfer Protocol ("FTP") Interfaces to Netscape,
Microsoft and other popular Web servers.

The Company's success is dependent on its strategy of marketing products
targeted at the SMB and enterprise department user markets. Failure to
successfully consummate the Inlet Technology Acquisition, develop the technology
proposed to be acquired in the Inlet Technology Acquisition and Site Tech
Acquisition, integrate the acquired technologies, or market products based upon
the acquired technologies, would each have a material adverse effect on the
Company's business, operating results and financial condition. Although the
Company will continue to have a license to the technology to be acquired in the
Inlet Technology Acquisition if the transaction is not consummated, the Company
may be required to pay substantially higher royalties and the license may be
non-exclusive. See "Corporate Developments" and "Risk Factors -- Dependence on
Internet Software Products and Related Strategy; Dependence on Continued
Emergence of Internet Software Market" and "-- Risks Associated with Inlet
Technology and Site Tech Acquisitions; General Acquisition Risks."

COMPETITION

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and Sybase Incorporated, Inc.) may enter into the Company's existing and planned
markets. 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 for its existing products or will be
able to obtain its desired pricing structure for planned products. Any inability
to do so or 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.

In the future, vendors of operating system software or other software (such
as office or back office software suites) may continue to enhance their products
(including separate products that are bundled together) to include functionality
that is provided by the Company's current and planned products. This enhancement
could be achieved through the addition of functionality to operating system
software or other software or the bundling of Internet software tools with
operating system software or other products. For example, Microsoft incorporates
into its BackOffice product its Web page creation software product, FrontPage.
The inclusion of the functionality of Internet software tool products, as
standard features of operating system software or other software could render
the Company's products obsolete and unmarketable, particularly if the quality of
such functionality were comparable, or perceived to be comparable, to that of
the Company's products. Furthermore, even if the Internet software tool
functionality provided as standard features by operating systems or other
software is more limited than that of the Company's products, there can be no
assurance that a significant number of customers would not elect to accept such
functionality in lieu of purchasing additional software. If the Company were
unable to develop new Internet software tool products to further enhance
operating systems or other software and to replace successfully any obsolete
products, the Company's business, financial condition and results of operations
would be materially adversely affected. See "Risk Factors -- Competition and --
Risk of Inclusion of Internet Software Tools Functionality in Other Software."

SALES AND MARKETING

The Company's current sales and marketing activities are primarily targeted
at the individual and SOHO professional users through the Company's direct sales
and marketing efforts and its retail distribution channels. Additionally, the
Company is actively engaged in developing new channels to sell its planned
family of scalable Web site development and management products to the SMB and
enterprise department user markets. The Company believes that a highly leveraged
sales and marketing model is the most effective way to get its product to market
in a timely manner. In order to reduce the upfront costs and to leverage its
sales and marketing expenditures, the Company has entered into several outsource
sales and leveraged marketing relationships.

PRODUCTS TARGETED AT THE INDIVIDUAL AND SOHO PROFESSIONAL USER. The Company
markets and sells its products targeted at the individual and SOHO professional
user 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 and other
distributors to retail chains such as Best Buy, Computer City, Comp USA, Egghead
and Fry's. To support the retail channel, the Company has engaged MindShare,
Inc. to train the in-store sales representatives and perform store by store
product positioning and merchandising. The Company intends to expand the

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number of U.S. retail locations in 1997 and will seek to selectively add major
new distributors. To augment the distribution and retail sales effort, the
Company has engaged MicroTech, Inc. to represent the Company directly to the
headquarters of the distributors and retail chains. The Company also intends to
increase the number of products available for sale through this distribution
channel, which the Company believes is essential in securing adequate retail
shelf space and retailer promotional support. See "-- Products Under
Development," "-- Research and Development," and "Risk Factors -- Distribution
Risks; Substantial Reseller Customer Concentration."

The Company's direct sales efforts are accomplished through a variety of
telesales, telemarketing, catalog sales and Internet activities. In July 1997,
the Company engaged Sunset Direct, Incorporated ("Sunset Direct") to perform a
dedicated, direct telemarketing effort to its extensive corporate account and
VAR database. The Company promotes catalog sales through Programmer's Paradise
Incorporated, TigerDirect Incorporated, Programmer's Super Shop and Dartek
Computer Supply Corp. 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 plans to
expand the availability of its downloadable products. To that end, in June 1997,
the Company entered into an agreement with C/Net to electronically promote and
distribute the Company's products to the general public via C/Net's secure
credit card ordering system. Additionally, the Company has entered into an
agreement with Unidirect to perform a similar function targeted at the VAR
community, which the Company believes will expand its product and market
presence.

Internationally, the Company's strategy is to work with established
distributors who can invest in an array of local services including marketing
and localization support as well as provide access to distribution. The Company
will continue to localize its products for the Japanese market and intends to
pursue the expansion of its international presence by establishing new
partnerships in key European markets such as the U.K. and Germany. In addition,
in the long term the Company intends to take measures, including the hiring of
additional sales and marketing persons, to increase its level of international
sales. However, in light of the recent DeltaGraph Disposition, in the near-term
the Company expects that international Internet revenues may decline until the
relationship with its Japanese distributor (who principally sold DeltaGraph
products) is clarified or other international distribution channels can be
established. See "Risk Factors -- Risks Associated with International
Operations."

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 Earthlink,
Anawave, Inc., Internet Mall, McAfee Mall and more than half a dozen regional
ISPs. In addition, the Company announced relationships with McGraw Hill, which
will offer site licenses for QuickSite to school districts and State Boards of
Education and MacMillian Press, which has included a QuickSite 2.5 express
version into a Web publishing bundle which will be sold through book stores. The
Company also has announced relationships with technology partners such as
DigitalStyle Corporation, a leading publisher of graphics generation tools, and
Virtus Corporation, a leading developer of VRML technology for creating 3D Web
sites. Many of these relationships are in the early stages of development and
have not yet resulted in material revenues to the Company. See "Strategic
Alliances."

PRODUCTS TARGETED AT SMB AND CORPORATE DEPARTMENT USERS. To effectively
market its planned family of scalable Web site development and management
products to the SMB and enterprise department users, the Company intends to
implement a sales and marketing program focused at the development of VARs, Web
professionals, OEMs (such as PC manufacturers) and ISPs.

The Company believes that many of its current relationships can be expanded
to incorporate this new market focus. Both Ingram Micro Incorporated and Tech
Data Corporation have extensive VAR

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programs and excel in the marketing of software products to the VAR community.
Sunset Direct, with its extensive VAR database, provides a cost-effective means
to distribute targeted product information and VAR program sales materials.
Additionally, Sunset Direct's extensive corporate account database provides the
Company access to a significant lead generation source, which the Company may
use as a basis for engaging VARs quickly.

The Company also intends to seek strategic partnerships with Web
professionals and OEMs that focus on enterprise department users through
complete sales, support and service offerings.

In support of its sales organization, the Company conducts a number of
marketing campaigns, programs, and activities. The Company has three objectives:
(i) increase demand for its current products through its current channels; (ii)
recruit new channel members (such as distributors, VARs, Web Professionals, OEMs
and ISPs) to carry its new products into new markets; and (iii) expand awareness
and positioning of the corporate and product brand to support the first two
objectives. These efforts include product advertising, public relations and
press tours, trade show participation, direct mail and telemarketing campaigns,
product launches, preparation of marketing collateral and participation in
industry programs, special product promotions and involvement in user groups and
forums. Many of these activities are conducted jointly with distribution and
other strategic partners. This allows the Company to leverage larger firms and
extend the reach and frequency of its messages to its target customers. The
Company also maintains an extensive Web Site that provide users and channel
members with complete information on the Company, its products, distribution
channels, awards, personnel and other information.

There can be no assurance that the Company will be able to develop the sales
and marketing team needed to develop satisfactory VAR, OEM and ISP relationships
on a timely basis or at all. This market is competitive and there can be no
assurance that the Company will be successful in establishing significant
relationships with VARs, OEMs or ISPs. Furthermore, if developed, there can be
no assurance as to amount of support that the Company's products will receive
from these VARs, OEMs or ISPs, who may offer products that compete with the
Company's products. See "Risk Factors -- Distribution Risks; Substantial
Reseller Customer Concentration."

As of June 30, 1997, the Company had 10 employees in marketing and sales.
For the six month period ended June 30, 1997, the Company spent $2.2 million or
149.9% of revenue for sales and marketing expenses compared to $2.1 million and
108.3% of revenue in the six month period ended 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 leveraged 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 the
following companies:

MCGRAW-HILL. In June 1996, the Company entered into an agreement under
which the School Systems division of McGraw-Hill will market and distribute
QuickSite 1.0 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. The Company
receives a referral fee for customers that sign up with Earthlink's service. The
companies intend to co-market each others products and services.

COMPAQ. In July 1996, the Company entered into an agreement with Compaq
under which Compaq will offer QuickSite 1.0, as part of an optional software
bundle on one of its Pressario personal

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computer systems and has rights to bundle on other platforms for a per unit
license fee. The Company is currently working with Compaq to upgrade the offer
to QuickSite 2.5.

SONY. In December 1996, an addendum to a previous agreement was completed
that allows Sony to pre-install and ship an unencrypted version of QuickSite 1.0
on the Sony, Vaio personal computers. The Company receives a royalty for each
unit sold. The companies are currently working together to upgrade the contract
to include QuickSite 2.5.

MACMILLAN PRESS, INC. In May 1997, the Company entered into an agreement
with the Sam's Publishing division of MacMillan Press, Inc, to create a limited
function version of QuickSite 2.5 for inclusion in a Web developers bundled
product. MacMillan Press will distribute this bundle under its own brand and
packaging to its targeted book stores. The Company receives a royalty for each
distributed license and is working together with MacMillan Press to promote an
upgrade offer to a full function version of the product.

ANAWAVE, INC. The Company entered into an agreement with Anawave, Inc. in
June 1997 under which Anawave will offer an encrypted, 30 day, trial version of
QuickSite 2.5 to its customers. The Company will receive a royalty for each
license distributed and an additional royalty for upgrades to fully functional
versions of QuickSite 2.0. The Company in turn includes promotional literature
inside the QuickSite 2.5 retail packaging offering its retail customers a
discounted rate on Anawave's Web site hosting service. The Company receives a
referral fee for each customer who takes advantage of this special offer. The
companies intend to develop additional future co-marketing programs.

INTERNET MALL, INC. In July 1997, the Company entered into an agreement
with Internet Mall, Inc., a leading electronic shopping mall service provider.
Under the agreement, the Company added a direct link to Internet Mall's "Order
Easy", secure electronic credit card shopping mall service, through the addition
of a "Buy Now" button in the QuickSite 2.5 distributed by Internet Mall service.
The companies are jointly marketing the program, including marketing material in
the QuickSite 2.5 retail packaging.

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

The Company's research and development efforts are focused on the
development of a family of site development and management software solutions
for Web based business environments. To date, the Company has made substantial
investments in research and development through both internal development and
technology acquisitions. The Company believes its future performance will depend
substantially on its ability to maintain and enhance its current product line
(including through technology acquisitions and licenses), to develop new
products, maintain technological competitiveness and to meet an expanding range
of customer requirements. There can be no assurance that the Company will be
successful in these efforts, and there are a significant number of other related
risks, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk Factors --
Rapid Technological Change; Risk of Product Delays; Risk of Product Defects."

As part of the Site Tech Acquisition and the Inlet Technology Acquisition,
the Company is acquiring certain core Internet technologies. The failure to
successfully develop and integrate the acquired technologies into the Company's
Web site development and management technology or to successfully market
products based upon the acquired technologies would adversely impact the
Company's strategy of marketing to the SMB and enterprise department user
markets (in addition to individuals and SOHO professionals) and would have a
material adverse effect on the Company's

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business, operating results and financial condition. In addition, these
technology acquisitions and any other similar acquisitions are subject to a
number of other risks. See "Corporate Developments," and "Risk Factors -- Risks
Associated with Inlet Technology Acquisition and Site Tech Acquisition; General
Acquisition Risks."

As a result of its cash constraints, and in connection with its reduced
level of operations and its focus on Internet software products, the Company has
significantly rationalized it workforce, including engineering resources. The
Company's research and development capabilities could be limited by, among other
things, existing engineering resource limitations. The failure to attract and
retain adequate levels of engineering resources needed to timely respond to
customer needs or market conditions or to develop products to address targeted
markets would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Dependence
on Limited Number of Key Personnel; Key Management Openings; Personnel
Limitations; Ability to Manage Growth."

As of June 30, 1997 the Company had 19 employees in its research and
development organization. The Company's research and development expenses for
the six-month periods ended June 30, 1997 and 1996 were $1.3 million 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."

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

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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.

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. Although the Company is not currently engaged in any
intellectual property litigation or proceedings, 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 June 1997, the Company consummated the Site Tech Acquisition. As part of
that acquisition, the Company agreed to pay royalties of approximately 5% on
sales of certain products developed from the technologies acquired from Site for
a 12 month period commencing on the date of the first commercial shipment of
such products. See "Corporate Developments."

In connection with the pending Inlet Technology Acquisition, the Company has
agreed that if the acquisition is consummated it will pay to Inlet royalties in
an amount equal to 5% of the Company's net revenues from all sales of the
products developed from these technologies. Half of the royalties payable by the
Company to Inlet will be payable, at the Company's option, in cash or shares of
Common Stock. See "Corporate Developments." If the pending Inlet Technology
Acquisition is not consummated, pursuant the OEM Agreement under which Inlet
granted to the Company the exclusive right to market, demonstrate and distribute
products based on the Inlet Technology software DeltaPoint has agreed to pay
Inlet royalties in an amount equal to 18% of the Company's net revenues from all
sales of the products developed from the Inlet Technology software.

In March 1997, the Company entered into an agreement with Unisys Corporation
("Unisys") pursuant to which the Company has licensed a patent which would
require the Company to pay Unisys a license fee of 0.45% of the Company's
revenues from the sale of each product covered by such license agreement,
subject to a minimum license fee of ten cents ($0.10) for each such product. The
products subject to this agreement are QuickSite version 2.5, WebAnimator and
Graphics Tools.

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 has
royalty obligations during the first two years of commercial shipments of
QuickSite based on net revenues from sales of QuickSite.

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 also pays a royalty based on net revenues from sales
of WebAnimator.

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. On or about October 1, 1997, the Company
intends to move its offices to a new office suite of approximately 18,000 square
feet located at 380 El Pueblo, Scotts Valley, California under a lease that
expires in March 2001 with a monthly rental of approximately $12,000 during the
first six months and increasing to $18,000 thereafter. The Company has retained
a broker to search for another tenant to assume the lease on its current
offices. The Company believes that its 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.

48
<PAGE>
EMPLOYEES

As of June 30, 1997, the Company had 36 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 7 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.

LEGAL PROCEEDINGS

There are no material pending legal proceedings against the Company.

49
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL

The current executive officers, directors and other key personnel of the
Company, and their ages as of August 14, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Jeffrey Ait ......................................... 41 Chief Executive Officer, Chief Financial Officer and
Director
John Hummer (1)(2)................................... 49 Director
Patrick Grady (1)(2)................................. 29 Director
Joseph Marengi(1)(2)................................. 44 Director
Stephen Mendel(1)(2)................................. 49 Director
Scott Allen(3)....................................... 37 Vice President of Channel Marketing
Song Huang(3)........................................ 34 Vice President of Product Management
Charles Batterman(3)................................. 44 Vice President of Development
</TABLE>

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

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

(3) Not an executive officer.

MR. AIT joined the Company in March 1997 as Chief Executive Officer. From
January 1996 to March 1997 he served as Vice President of Internet at the Santa
Cruz Organization, Inc. ("SCO"), a software developer and publisher. From
October 1995 to January 1996 he served as Vice President of Acquisitions at SCO.
From October 1993 to October 1995 he served as Vice President of Channel Sales
and Marketing at SCO. From August 1990 to October 1993 he served as Vice
President Government Systems Group at SCO.

MR. HUMMER has served as a director of the Company since October 1990. Mr.
Hummer has served as a partner at, Hummer Winblad Venture Partners, a venture
capital firm, since its foundation in 1989. Mr. Hummer serves as a director of
several privately held companies, including Netgravity, an Internet and online
marketing communications company, and IMX, a provider of electronic commerce for
the mortgage industry. From June 1992 to May 1997, Mr. Hummer was a director of
Books That Work, a consumer software company, until its acquisition by CUC
International. From May 1995 to February 1997, he was a director of Centerview
Software, an enterprise software company, until its acquisition by Informix.
From April 1991 to February 1995, he was a director of Powersoft Corporation, an
application development software provider, until its acquisition by Sybase
Incorporated. From August 1990 to April 1995, Mr. Hummer was a director of Wind
River Systems, Inc., a software provider for embedded real-time applications.

MR. GRADY has served as a director of the Company since August 1996. Mr.
Grady currently serves as Managing Director, Venture Capital of H.J. Meyers &
Co., Inc., an investment banking firm. 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 served as Vice President of Corporate Finance at
Josephthal, Lyon & Ross, an investment banking firm. Mr. Grady serves as a
director of Borealis Technology Corp., an enterprise wide sales force automation
software Company, and SoloPoint, Inc., a provider of small office/home office
communication management products.

MR. MARENGI has served as a director of the Company since July 1997. Mr.
Marengi currently serves as Senior Vice President of Dell Computer Corporation,
a computer systems manufacturer. From August 1996 to July 1997, Mr. Marengi
served as President of Novell, Inc., a network software provider. Prior to
August 1996, he served as Executive Vice President, Worldwide Sales and as Vice
President of Channel Sales at Novell. Mr. Marengi serves as a director of Corel
Corporation, an

50
<PAGE>
applications, graphics and Internet software developer, Network Peripherals,
Inc., an ethernet switching solutions provider, and Borealis, Inc., an
automation software company.

MR. MENDEL has served as a director of the Company since July 1997. From
January 1994 to July 1997, he served as a director of Site/technologies/inc.
From March 1993 to March 1994, Mr. Mendel served as Chief Executive Officer,
President and Director of AXS, an image database software provider. From January
1990 to March 1993, he served as Chief Executive Officer, President and Director
of Ithaca Software, a 3-D interactive portable graphics software developer. Mr.
Mendel serves as a director of Direct Language Communications, Inc., a
multilingual communication services provider, and Knowledge Revolution, Inc., a
motion simulation software provider.

MR. ALLEN has served as Vice President of Channel Marketing of the Company
since July 1997. From February 1995 to July 1997, he served as Director of
Marketing at the Santa Cruz Operation, Inc. ("SCO"), a software developer and
publisher. From January 1994 to February 1995, Mr. Allen served as Manager,
Government, Latin American, OEM and Communications Marketing at SCO. From June
1992 to January 1994, he served as Manager, North American Government Marketing.
Prior to June 1992, Mr. Allen served in a variety of additional managerial
capacities for SCO dating back to January 1986.

MR. HUANG joined the Company in January 1996 as Vice President of Internet
Products and has served as Vice President of Product Management of the Company
since July 1997. From September 1995 to December 1996, he served as Director of
Marketing at Frame Technology, an application development software provider.
From November 1990 to September 1990, Mr. Huang served as Senior Product Manager
at Borland International, Inc., an application development software provider.

MR. BATTERMAN joined the Company in August 1996 as Director of Engineering
and has served as Vice President of Development since December 1996. From
January 1994 to August 1996, he was President of Media Computer Systems, an
Internet-based marketing software provider. From 1986 to January 1994, he was
Manager of Graphics Research and Development at Borland International, Inc. an
application development software provider.

FAMILY RELATIONSHIPS

There are no family relationships among any of the directors or executive
officers.

BOARD COMMITTEES

The Board of Directors has had a Compensation and an Audit Committee since
December 1, 1995. The Compensation Committee makes recommendations to the Board
concerning salaries and incentive compensation for the Company's officers and
employees and administers the Company's Executive Bonus Plan, 1990 Key Employee
Incentive Stock Option Plan, 1992 Non-Statutory Stock Option Plan, 1995 Stock
Option Plan and 401(k) Plan. The Audit Committee aids management in the
establishment and supervision of the Company's financial controls, evaluates the
scope of the annual audit, reviews audit responses, consults with management and
the Company's independent auditors prior to the presentation of financial
statements to shareholders and, as appropriate, initiates inquiries into aspects
of the Company's financial affairs.

DIRECTOR COMPENSATION

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" and "-- Principal Shareholders."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors currently consists of
Messrs. Hummer, Grady, Marengi and Mendel. None of these individuals were at any
time since the formation of the

51
<PAGE>
Company, an officer or employee of the Company. No executive officer of the
Company serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee.

EMPLOYMENT CONTRACTS

On March 24, 1997, Jeffrey F. Ait executed an offer letter with the Company
pursuant to which Mr. Ait became Chief Executive Officer of the Company. The
offer letter provides for an annual salary of $165,000 and for the grant of
options to purchase an aggregate of 225,000 shares of Common Stock at an
exercise price equal to the fair market value per share on the date the options
are granted. The options will become exercisable for 25% of the shares after one
year of service and for the balance of the shares in equal monthly installments
over the next 36 months of service. If Mr. Ait's employment with the Company is
terminated for reasons other than cause within six months following a specified
change in control of the Company, the letter provides that Mr. Ait's base salary
shall continue to be paid for one year following his last day of employment. All
of Mr. Ait's stock options vest in full and become exercisable as to all of the
shares immediately prior to the acquisition by any person of at least 50% of the
total outstanding voting securities of the Company, a merger or consolidation of
the Company (other than a merger which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent at
least 50% of the total outstanding voting securities of the Company or the
surviving entity), a liquidation of the Company or the sale of all of the
Company's assets.

See "Certain Transactions -- Employment Contracts" for a description of
additional employment and termination agreements entered into between the
Company and certain Named Executive Officers.

52
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth the compensation earned by the Company's two
former Chief Executive Officer and two other executive officers who earned
salary and bonus for the 1996 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($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- --------------------------- --------- -------------- ------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John J. Ambrose (1) 1996 $ 78,461 $ 25,000(2) $ 4,500(3) 145,000 $ 26(4)
Chief Executive Officer, 1995
and Director
Raymond R. Kingman, Jr. (5) 1996 32,000 900(6) 100,000 141,253(7)
Chairman of the Board, 1995 108,000 4,708(6) 66(4)
President and Chief
Executive Officer
Donald B. Witmer (8) 1996 120,000 30,000(8) 50,000 251(4)
Chief Operating Officer, 1995 19,845(9) 5,000(8) 135,000
Chief Financial Officer
and Director
William G. Pryor (10) 1996 104,950 100,000 87(4)
Vice President of 1995 92,500 87(4)
Development and Director
</TABLE>

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

(1) Mr. Ambrose served as the Company's Chief Executive Officer from April 22,
1996 through March 27, 1997.

(2) Represents a signing bonus of $25,000.

(3) Represents a $500 per month car allowance.

(4) Represents life insurance premiums made by the Company with respect to
insurance policies on the lives of Messrs. Ambrose, Kingman, Witmer and
Pryor.

(5) Mr. Kingman resigned as Chief Executive Officer and a director of the
Company, effective April 5, 1996.

(6) Represents a $300 per month car allowance.

(7) Represents a $22 life insurance premium and a severance payment of $141,231.

(8) Mr. Witmer served as the Company's Chief Financial Officer and Chief
Operating Officer from November 1, 1995 to June 20, 1997.

(9) Represents a $2,000 per month housing allowance and a $500 per month car
allowance.

53
<PAGE>
(10) Mr. Pryor has entered into a Separation Agreement and Release pursuant to
which he has resigned from the Company effective October 9, 1997. See
"Certain Transactions -- Employment Contracts."

STOCK OPTION INFORMATION

The following table contains information concerning stock option grants made
to the Named Officers during the year ended December 31, 1996. No stock
appreciation rights were granted to these individuals during such year.

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>
John J. Ambrose................................................... 145,000 33% $ 9.50 04/21/06
Raymond R. Kingman, Jr............................................ 0 0 0 --
Donald B. Witmer.................................................. 10,000 2% 9.50 04/21/06
Donald B. Witmer.................................................. 40,000 9% 7.50 11/03/06
William G. Pryor.................................................. 0 0 0 --
</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) In March 1997, the Board of Directors approved a repricing of all options
granted under the Company's stock option plans that were outstanding on such
date and had an exercise price in excess of the fair market value on such
date of $2.25 per share. This option repricing resulted in the cancellation
of all the options granted in the last fiscal year to the named officers and
a regrant of options for the same number of shares at an exercise price of
$2.25 per share.

(3) The exercise price may be paid in cash, in previously held 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 through a third party. 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, 1996 with respect to each of the Named Officers. No
stock appreciation rights were exercised during such year or were outstanding at
the end of that year.

54
<PAGE>
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)
SHARES ACQUIRED VALUE -------------------------------- --------------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ----------- ----------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
John J. Ambrose............ 0 $ 0 145,000 0 $ 0 0
Raymond R. Kingman, Jr..... 72,000 379,517 5,894 0 4,028 0
Donald B. Witmer........... 0 0 185,000 0 337,500 0
William G. Pryor........... 0 0 101,894 0 250,000 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, 1996 of $6.00, 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
June 30, 1997, 2,143 shares had been issued under the 1990 Plan, options to
purchase an aggregate of 33,720 shares were outstanding and 3,059 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.

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

55
<PAGE>
June 30, 1997, no shares had been issued under the 1992 Plan, options to
purchase an aggregate of 13,780 shares were outstanding and 14,521 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.

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 the 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 share increase of 200,000 shares to
be reserved for issuance under the 1995 Plan to a total of 820,000 shares, which
share increase was subsequently approved by the Company's shareholders at the
1996 annual meeting. On March 21, 1997, the Board of Directors approved a share
increase of 400,000 shares to be reserved for issuance under the 1995 Plan to a
total of 1,220,000 shares, which share increase was subsequently approved by the
Company's shareholders at the 1997 annual meeting. As of June 30, 1997, 85,333
shares had been issued under the 1995 Plan, options for 744,887 shares were
outstanding and 390,225 shares remained available for future grant under the
1995 Plan. 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.

56
<PAGE>
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.

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 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

57
<PAGE>
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.

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.

58
<PAGE>
CERTAIN TRANSACTIONS

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
SHARES OF SHARES OF SHARES OF SHARES OF WARRANTS TO COMMON STOCK
SERIES A SERIES B SERIES C SERIES D PURCHASE ISSUED UPON
PREFERRED PREFERRED PREFERRED PREFERRED COMMON STOCK PROMISSORY NOTE
INVESTOR (1) STOCK (2) STOCK (3) STOCK (4) STOCK (5) (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, 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.

(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 issued upon the conversion of the notes at
a conversion price of $3.25 per share. Of the $300,000 principal amount of
the notes, $150,000 was issued to Hummer Winblad Venture Partners ("Hummer
Winblad Ventures") and an affiliate and $150,000 was issued to Oak
Investment Partners V, L.P. ("Oak Investment") and an affiliate. In November
1995, Hummer Winblad Ventures and Oak Investment and their respective
affiliates agreed to convert the principal amount of such notes, plus
accrued interest, into an aggregate of 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 and at a price of $8.40 per
share thereafter through November 6, 2000. See "Description of Capital Stock
-- Warrants."

(8) Mr. Hummer, an affiliate of Hummer Winblad Venture Partners and Hummer
Winblad Technology Fund ("Hummer Winblad Technology"), 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 its affiliate,
Oak V Affiliates Fund, L.P. ("Oak Affiliates") purchased 137 units. American
High Growth Equities Retirement Fund Trust purchased 50,000 units. See
"Description of Capital Stock -- Warrants."

In November 1996, the Company issued 30,970 shares of Common Stock to Oak
Investment, 697 shares of Common Stock to Oak Affiliates, 30,084 shares of
Common Stock to Hummer Winblad Ventures and 1,583 shares of Common Stock to
Hummer Winblad Technology, all pursuant to the conversion of the notes described
in the chart and footnote 7 above.

In December 1996, the Company issued an aggregate of 145,547 shares of
Common Stock to Oak Investment and Oak Affiliates at a price of $5.00 per share
pursuant to the exercise of warrants, including the warrants described in the
chart and footnote 7 above, of which warrants to purchase 62,421 shares were
acquired from Hummer Winblad Ventures and Hummer Winblad Technology.

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<PAGE>
In December 1996, the Company issued $2,000,000 in principal amount of
Convertible Notes to HRO pursuant to the Debt Financing (as defined below). In
April through June, 1997, HRO converted $457,120 in principal amount of
Convertible Notes into an aggregate of 307,000 shares of Common Stock, at an
average conversion price of $1.53 per share. At June 30, 1997 the remaining
$1,530,000 principal balance of the Convertible Notes held by HRO were converted
into Series A Preferred Stock. If all of HRO's Series A Preferred Stock were to
have been converted into Common Stock on August 14, 1997, they would have been
converted, subject to the limitation described below, into 764,316 shares of
Common Stock, based on an assumed conversion price of $1.06 per share. To the
extent that the trailing five day average trading price of the Common Stock is
lower on the date of conversion of Series A Preferred Stock into shares of
Common Stock than on August 14, 1997, a greater number of shares of Common Stock
and a greater percentage of the then issued and outstanding shares of Common
Stock would be issuable on such conversion. Notwithstanding the foregoing, the
holder of the Series A Preferred Stock may not convert such stock without the
Company's prior written consent if such conversion would cause such holder's
aggregate ownership of the Company's capital stock to exceed 4.9% of the
Company's then issued and outstanding capital stock. As a result of the
foregoing, the holders of Common Stock will suffer immediate and significant
dilution to their percentage ownership of the Common Stock upon the conversion
of the Series A Preferred Stock. See "Description of Capital Stock -- Preferred
Stock and Convertible Notes and Warrants" and "Risk Factors -- Dilution Upon
Conversion of Series A Preferred Stock Held by HRO."

EMPLOYMENT CONTRACTS

In November 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 (as defined). 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 connection with his resignation on April 5, 1996, the Company entered
into a Separation Agreement and Release with Mr. Kingman which, among other
things, provided for certain payments and other financial compensation. Pursuant
to such 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.

In connection with his resignation to be effective October 9, 1997, the
Company entered into a Separation Agreement and Release with Mr. Pryor on August
5, 1997 which, among other things, provided for certain payments and other
financial compensation. Pursuant to such agreement, the Company agreed to pay
Mr. Pryor a 6 month severance payment payable bi-weekly over a 6 month period,
to accelerate vesting of his remaining unvested options totaling 33,113 and to
grant Mr. Pryor 25,000 shares of Common stock.

In November 1995, the Company also 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

60
<PAGE>
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). 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
May 1997, the Company fully vested Mr. Witmer's option in lieu of payments owed
to Mr. Witmer as part of his annual salary in order to alleviate operating cash
constraints. On June 20, 1997, Mr. Witmer voluntarily terminated his employment
with the Company.

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.
John Ambrose's service as Chief Executive Officer and a director of the Company
ceased on March 27, 1997. On July 3, 1997, the Company and Mr. Ambrose entered
into a Separation Agreement and Release in connection with his resignation,
which provided for a severance payment of $95,000.

TRANSACTIONS WITH 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 aggregate 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 retained H.J. Meyers to act as placement agent in connection
with the Debt Financing. Under the terms of the placement agent agreement, H.J.
Meyers received a placement fee of 7% of the gross proceeds from the Debt
Financing, reimbursement of accountable expenses of 1% of such gross proceeds
and a warrant to purchase 16,538 shares of Common Stock at an exercise price of
$6.50 per share. The Company granted the holder of the warrant certain
registration rights with respect thereto and the shares of Common Stock issuable
upon its exercise. See "Description of Capital Stock -- Registration Rights."
The Company 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.

The Company's initial public offering was underwritten by H.J. Meyers. In
addition to an underwriting discount of $660,000, in connection with the
Company's initial public offering, the Company paid H.J. Meyers a
non-accountable expense allowance equal to 2.5% of the gross proceeds from the
initial public offering. In connection with its initial public offering, the
Company also issued to H.J. Meyers a warrant to purchase up to 110,000 shares of
Common Stock at a price of $7.20 per share at any time during the four-year
period commencing December 20, 1996. The Company has granted the holder of such
warrant certain registration rights with respect thereto and the shares of
Common Stock issuable upon its exercise.

The Company believes that all of 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

61
<PAGE>
the Company and the terms of such transactions are no less favorable to the
Company than could be obtained from unaffiliated parties.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of August 14, 1997, 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 Executive Officer and (iv) all
directors and executive officers as a group. 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>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED BEFORE OFFERING
- -------------------------------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
Entities affiliated with High Risk Opportunities Hub Fund Ltd. (3)........ 764,316 15.5%
c/o Mr. Scott Wiener
250 South Australian Avenue
West Palm Beach, FL 33401
Entities affiliated with Hummer Winblad Venture Partners (4).............. 186,321 4.5%
Two South Park
Second Floor
San Francisco, CA 94107
Entities affiliated with Oak Investment Partners V, L.P. (5).............. 332,601 8.0%
One Gorham Island
Westport, CT 06880
Jeffrey F. Ait (6)........................................................ 244,000 5.5%
c/o DeltaPoint, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
William G. Pryor (7)...................................................... 142,535 3.3%
c/o DeltaPoint, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
Donald B. Witmer (8)...................................................... 203,750 4.7%
c/o Delta Point, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
John Hummer (4)........................................................... 186,321 4.5%
c/o Hummer Winblad Venture Partners
Two South Park
Second Floor
San Francisco, CA 94107
Patrick W. Grady (9)...................................................... 147,538 3.4%
c/o Delta Point, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
Joseph Marengi (10)....................................................... 52,000 1.4%
c/o Delta Point, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
</TABLE>

62
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED BEFORE OFFERING
- -------------------------------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
Stephen Mendel (11)....................................................... 143,713 3.4%
c/o Delta Point, Inc.
22 Lower Ragsdale Drive
Monterey, CA 93940
All directors and executive officers as a group (5 persons) (12).......... 773,572 15.7%
</TABLE>

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

* Less than one percent (1%).

(1) To the Company's knowledge, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this table.

(2) Percentage ownership is based on 4,177,545 shares of Common Stock
outstanding as of August 14, 1997 and any shares issuable pursuant to
securities convertible into or exercisable for shares of Common Stock by the
person or group in question on August 14, 1997 or within 60 days thereafter.

(3) Assumes the full conversion of the shares of Series A Preferred Stock held
by High Risk Opportunities Hub Fund Ltd. ("HRO") in an aggregate principal
amount of $810,000 at an average conversion price of $1.06 per share at
August 14, 1997. HRO disclaims beneficial ownership as to 517,223 shares,
assuming full conversion of the Series A Preferred Stock as of August 14,
1997, because no holder may convert any principal amount of Series A
Preferred Stock, without the Company's prior written consent, to the extent
such conversion would cause such holder's aggregate ownership of the
Company's capital stock to exceed 4.9% of the Company's then issued and
outstanding capital stock. See "Certain Transactions" and "Description of
Capital Stock."

(4) Consists of 181,877 shares of Common Stock held by Hummer Winblad Venture
Partners and 4,444 shares of Common Stock held by Hummer Winblad Technology
Fund ("Hummer Winblad Technology"). Mr. Hummer, a director of the Company,
is a General Partner of Hummer Winblad Equity Partners, which is the General
Partner of Hummer Winblad Venture Partners 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.

(5) Consists of 325,289 shares of Common Stock held by Oak Investment Partners
V, L.P. ("Oak Investment") and 7,312 shares of Common Stock held by Oak V
Affiliates Fund, L.P. ("Oak Affiliates"). 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 --
Warrants." Oak Affiliates is an affiliate of Oak Investment.

(6) Includes 225,000 shares of Common Stock subject to a stock option granted in
March 1997 which is currently exercisable or exercisable within sixty (60)
days after August 14, 1997.

(7) Includes 101,894 shares of Common Stock subject to stock options currently
exercisable or exercisable within sixty (60) days after August 14, 1997,
including an option to purchase 100,000 shares of Common Stock granted on
November 10, 1995 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 -- Stock Option Information" and "Certain
Transactions -- Employment Contracts."

(8) 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, 10,000 and 40,000 shares of Common Stock, respectively granted on
November 10, 1995, April 22, 1996 and November 4, 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 "Certain
Transactions -- Employment Contracts."

63
<PAGE>
(9) Includes an option to purchase 20,000 shares of Common Stock granted on
August 13, 1996 and 1,000 shares of Common Stock granted on June 20, 1997
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." Also includes 110,000
shares of Common Stock that may be acquired by H.J. Meyers upon exercise of
the warrant issued to H.J. Meyers in connection with the Company's initial
public offering and 16,538 shares of Common Stock that may be acquired upon
exercise of the warrant issued to H.J. Meyers in connection with the Debt
Financing. Mr. Grady, a director of the Company, is a Managing Director,
Venture Capital of H.J. Meyers. Mr. Grady disclaims beneficial ownership of
the securities that may be acquired by H.J. Meyers except to the extent of
his pecuniary interest therein.

(10) Consists of 50,000 shares of Common Stock subject to a stock option granted
in July 1997 which is currently exercisable or exercisable within sixty (60)
days after August 14, 1997 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.

(11) Includes an option to purchase 20,000 shares of Common Stock granted in
July 1997 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. Also includes 123,713 shares of Common Stock held by SLF
Partners II, L.P. and SLF Partners III, L.P. Mr. Mendel, a director of the
Company, is a special limited partner in each of SLF Partners II, L.P. and
SLF Partners III, L.P. Mr. Mendel disclaims beneficial ownership of the
securities held by these entities except to the extent of his pecuniary
interest therein arising from his limited partnership interest in SLF
Partners II, L.P. and SLF Partners III, L.P.

(12) Consists of 331,034 shares of Common Stock, immediately exercisable
warrants to purchase 126,538 shares of Common Stock and 316,000 shares of
Common Stock subject to stock options currently exercisable or exercisable
within sixty (60) days of August 14, 1997.

64
<PAGE>
DESCRIPTION OF CAPITAL STOCK

As of August 14, 1997 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 August 14, 1997, there were 4,177,545 shares of Common Stock
outstanding held of record by approximately 60 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 AND CONVERTIBLE NOTES

At the closing of the Company's initial public offering in December 1995,
all previously outstanding shares of Preferred Stock were converted into Common
Stock. As of July 31, 1997, the Company is authorized to issue up to 4,000,000
shares of undesignated Preferred Stock. The Board of Directors has 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.

In December 1996, the Company raised approximately $1,949,000 in net
proceeds from the sale and issuance of 6% Convertible Subordinated Debentures
("Convertible Notes") to HRO and AHG (the "Debt Financing"). The Company issued
$2,150,000 principal amount of Convertible Notes that are convertible at the
option of the holders thereof, in whole or in part, into shares of Common Stock,
at a conversion price (the "Conversion Price") equal to the lower of (i) 80% of
the average closing bid price of the Common Stock, as publicly reported, for the
five business days prior to the business day on which notice of conversion is
transmitted by the note holder (or, in the event of automatic conversion, as
described below, five business days prior to the business day on which the
conversion is deemed to take place) or (ii) $6.70. All unconverted Convertible
Notes will convert automatically into Common Stock at the Conversion Price on
the second anniversary of the Debt Financing closing, or earlier in the event of
a merger of the Company into another entity, a change in control of the Company
or a sale of all or substantially all the Company's assets. The Conversion Price
is subject to adjustment in certain circumstances. The Convertible Notes may be
redeemed by the Company at 120% of the principal amount being redeemed, plus
accrued interest, at the Company's sole election if the average closing offer
price for the Common Stock for any five-day period is below $4.00. Moreover, no
holder may convert any principal amount of Convertible Notes, without the
Company's prior written consent, if such conversion would cause such holder's
aggregate ownership of the Company's capital stock to exceed 4.9% of the
Company's then issued and outstanding capital stock. As of August 14, 1997 and
after giving effect to the Series A Transaction (as described below), all
Convertible Notes had been exchanged for Common Stock or Series A Preferred
Stock.

65
<PAGE>
In May 1997, the Company entered into a Series A Preferred Stock Purchase
Agreement (the "Series A Purchase Agreement") with HRO, pursuant to which HRO
agreed to exchange the entire then-outstanding principal amount of Convertible
Notes held by it for shares of the Company's Series A Preferred Stock ("Series A
Preferred Stock") at a purchase price of $1,000 principal amount of Convertible
Notes per share of Series A Preferred Stock (such transaction being referred to
herein as the "Series A Transaction"). The Series A Purchase Agreement contains
a covenant by HRO not to convert any shares of Series A Preferred Stock without
the prior written consent of the Company where such conversion would result in
HRO being deemed the beneficial owner of more than 4.9% of any class of the
Company's equity securities. The Company has agreed not to consummate any
private placement financing so long as HRO holds any share of Series A Preferred
Stock.

The conversion of HRO's Convertible Notes into the Series A Preferred Stock
took place on June 30, 1997. As of August 14, 1997, 810 shares of Series A
Preferred Stock were outstanding. As described in the following paragraph,
shares of Series A Preferred Stock are convertible into shares of Common Stock.
If all the shares of Series A Preferred Stock were to have been converted into
Common Stock on August 14, 1997, such shares would have been converted, subject
to the limitations described below, into approximately 764,000 shares of Common
Stock, based on an assumed conversion price of $1.06 per share. To the extent
that the trailing five day average trading price of the Common Stock is lower on
the date of conversion of Series A Preferred Stock into shares of Common Stock
than on August 14, 1997, a greater number of shares of Common Stock and a
greater percentage of the then issued and outstanding shares of Common Stock
would be issuable on such conversion. As a result of the foregoing, the holders
of Common Stock will suffer immediate and significant dilution to their
percentage ownership of the Common Stock upon the conversion of the Series A
Preferred Stock. See "Risk Factors -- Dilution Upon Conversion of Series A
Preferred Stock Held by HRO."

In connection with the Series A Transaction, the Company filed an Amended
and Restated Certificate of Determination of Series A Preferred Stock (the
"Certificate of Determination") with the California Secretary of State. The
Certificate of Determination authorizes 2,500 shares of Series A Preferred
Stock. Each share of Series A Preferred Stock is convertible, at any time, at
the option of the holder, into the number of shares of the Company's Common
Stock determined by dividing $1,000 by the lower of (i) 80% of the average of
the fair market value of the Common Stock for the five business days prior to
the conversion date, or (ii) $3.50 per share. The conversion price is subject to
adjustment in certain circumstances. The shares of Series A Preferred Stock are
also automatically convertible into Common Stock on the second anniversary of
their issue date or, if earlier, upon the occurrence of certain other events.
The holders of Series A Preferred Stock are entitled to cumulative dividends at
an annual rate of $90.00 per share, payable quarterly. Dividends are payable in
cash or, at the Company's election, in shares of Common Stock valued at 80% of
the average fair market value thereof for the five business days prior to the
day on which dividends are payable. Upon liquidation of the Company or a merger
of the Company that results in the transfer of 50% or more of the voting power
of the Company or the sale of all or substantially all of the Company's assets,
holders of Series A Preferred Stock are entitled to receive $1,000 per share
plus any accrued but unpaid dividends.

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 the warrants are exercised and shares are purchased thereunder.
The warrants and the shares of Common Stock issuable upon exercise thereof may
not be offered for sale except in compliance with the applicable provisions of
the Securities Act. Of such warrants, warrants to purchase an aggregate of
53,125 shares were exercised during November 1996 and

66
<PAGE>
warrants to purchase an aggregate of 71,875 shares were outstanding at July 31,
1997. The Company has filed a registration statement in respect of such warrants
and the shares of Common Stock issuable upon the conversion thereof.

The Company has issued or will issue warrants to H.J. Meyers to purchase
shares of Common Stock in connection with the Company's initial public offering
and the Debt Financing. With respect to (i) the warrant for 110,000 shares of
Common Stock with an exercise price per share of $7.20 issued in connection with
the Company's initial public offering and exercisable for a four-year period
commencing December 20, 1996 and (ii) the warrant for 16,538 shares of Common
Stock with an exercise price per share of $6.50 issued in connection with the
Debt Financing and exercisable for a five-year period commencing on December 31,
1996. The parties have agreed that such warrants, subject to certain exceptions,
are not transferable prior to their exercise dates. Each of the warrants
contains anti-dilution provisions providing adjustment in the event of any
recapitalization, stock dividend, stock split or similar transaction. The
warrants do not entitle any holder thereof to any rights as a shareholder of the
Company until such warrants are 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.
The Company has agreed that, if it shall cause to be filed with the Securities
and Exchange Commission a registration statement, the holder(s) of the warrants
have the right during certain specified periods to include in such amendment or
registration statement the warrant and the shares of Common Stock issuable upon
its exercise at no expense to the holder(s) thereof. Additionally, the Company
has agreed in each of the warrants 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 the warrant. The Company
will use its best efforts to keep such registration statement(s) for a period of
at least 180 days (and up to an additional 90 days if requested by the
holder(s)) from the effective date thereof. See "-- Registration Rights."

REGISTRATION RIGHTS

On April 9, 1997, the Company has filed a post-effective amendment to a
registration statement on Form SB-2 (No. 333-17733) covering the resale of
298,396 shares of outstanding Common Stock issued upon conversion of Series D
Preferred Stock, conversion of certain promissory notes and issued in the Global
Technologies transaction. The Company also filed a post-effective amendment to a
registration statement on Form SB-2 on June 12, 1997 covering the resale of
262,922 outstanding shares of Common Stock, 71,875 shares of Common Stock
issuable upon exercise of outstanding warrants, and 71,875 outstanding warrants.
These registration statements were filed pursuant to the terms of the agreements
governing the issuance of the Common Stock issued or issuable pursuant thereto.
Such agreements require the Company to use its best efforts to maintain the
effectiveness of these registration statements for varying periods of time or
until the Company is satisfied that all of the Common Stock covered by such
registration statements could be resold pursuant to Rule 144.

The Company has also granted registration rights to the holders of
Convertible Notes issued in connection with the Debt Financing. Pursuant to the
terms of the Convertible Notes, the Company agreed to use its best efforts to
effect a registration statement covering the shares issuable upon conversion of
the Convertible Notes, subject to certain conditions. The Company further agreed
to keep such registration statement effective until the earlier of December 31,
1998, the date upon which all of the registrable securities have been resold or
the date upon which all of the registrable securities held by a holder could be
resold pursuant to Rule 144. In connection with the Series A Transaction, HRO
agreed to exchange the entire then-outstanding principal amount of Convertible
Notes held by it for shares of Series A Preferred Stock. The Series A Purchase
Agreement executed between the Company and HRO contains substantially the same
registration rights that existed in the original Convertible Notes, except that
the Company has agreed to keep the registration statement effected

67
<PAGE>
pursuant to the Series A Purchase Agreement effective until the earlier of May
6, 1999, the date upon which all of the registrable securities have been resold
or the date upon which all of the registrable securities held by HRO could be
resold pursuant to Rule 144. See "Description of Capital Stock -- Preferred
Stock and Convertible Notes."

The Company has granted certain registration rights to H.J. Meyers in
connection with the Company's grant of warrants to acquire shares of Common
Stock in connection with the Company's initial public offering, the Debt
Financing. The Company has agreed that if it files a registration statement
covering its equity securities, H.J. Meyers shall have the right to include in
such registration statement the Common Stock shares issuable upon exercise of
the respective warrants; provided, however, that such right shall expire (i) on
December 20, 2000 with respect to the 110,000 shares of Common Stock issuable
upon conversion of the warrant granted in connection with the Company's initial
public offering and (ii) on January 1, 2002 with respect to the 16,538 shares of
Common Stock issuable upon conversion of the warrant granted in connection with
the Debt Financing. The Company has agreed to maintain the effectiveness of such
registration statement(s) for so long as such shares remain outstanding.
Additionally, the Company has agreed in each of the three warrants 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 the warrant. See "Description of Capital Stock -- Warrants."

In connection with the Site Tech Acquisition, the Company also granted
registration rights with respect to the 550,000 shares of Common Stock paid to
the former Site stockholders. Pursuant to such registration rights, the Company
agreed to use its best efforts within 9 months and 12 months, respectively,
following the closing of the Site Tech Acquisition to effect a registration
statement covering the sale and distribution of the 550,000 shares, subject to
certain conditions. The Company further agreed to keep each such registration
statement effective for a period of 180 days or until the holder(s) have
completed the distribution pursuant to such registration statement.

The Letter of Intent with respect to the Inlet Technology Acquisition
contemplates that Inlet will receive registration rights with respect to the
260,000 shares of Common Stock issuable to Inlet pursuant to such transaction.
The parties to the Letter of Intent are negotiating the definitive documentation
with respect to the Inlet Technology Acquisition, including the documentation
with respect to such registration rights. See "Corporate Developments."

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Corporation.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering the Company will have outstanding
approximately 4,391,971 shares of Common Stock, of which 3,534,024 will be
freely tradeable without restriction under the Securities Act and 857,947 will
be freely tradeable, subject to Rule 144 volume limitations. In addition, the
Company intends to file a registration statement relating to a proposed offering
of Common Stock. Depending on market conditions, the Company expects to issue
shares of Common Stock with an aggregate value of $6.1 million (before related
fees and expenses), which shares will be freely tradeable. Sales 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.

In addition, the holders of warrants to purchase a total of 198,413 shares
of Common Stock, the former stockholders of Site/technologies/inc., who hold a
total of 550,000 shares of Common Stock and Inlet, who is expected to receive
260,000 shares of Common Stock pursuant to the Inlet Technology Acquisition, are
each entitled to or are expected to become entitled to certain rights with
respect to registration of such shares of Common Stock for offer or sale to the
public. If such holders, by

68
<PAGE>
exercising their rights, cause a large number of shares to be registered and
sold in the public market, such sales could have a material adverse effect on
the market price for the Company's Common Stock.

The Company intends to file an amendment to its registration statement on
Form S-8 under the Securities Act to cover an additional 400,000 (for an
aggregate of 1,220,000) shares of Common Stock reserved for issuance under its
1995 Option Plan. Accordingly, shares registered under such registration
statement will, subject to vesting restrictions and Rule 144 volume limitations
applicable to affiliates of the Company, be available for sale in the open
market. See "Risk Factors -- Shares Eligible for Future Sale" and "Description
of Capital Stock -- Registration Rights."

LEGAL MATTERS

The validity of the shares offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.

EXPERTS

The financial statements as of December 31, 1995 and 1996 and for each of
the two years in the period ended December 31, 1996 included in this Prospectus
have been so included in reliance on the report (which contains an explanatory
paragraph relating to the Company's ability to continue as a going concern, as
described in Note 1 to the financial statements) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

69
<PAGE>
DELTAPOINT, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Accountants........................... F-2

Balance Sheet as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-3

Statement of Operations for the Years Ended December 31,
1995 and 1996 and for the six months ended June 30, 1996
and 1997 (unaudited)...................................... F-4

Statement of Shareholders' Equity for the Years Ended
December 31, 1995 and 1996 and for the six months ended
June 30, 1997 (unaudited)................................. F-5

Statement of Cash Flows for the Years Ended December 31,
1995 and 1996 and for the six months ended June 30, 1996
and 1997 (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 statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of DeltaPoint, Inc. at December 31,
1995 and 1996, 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.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has an accumulated deficit of $13,666,000 and
has incurred recent significant losses that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

PRICE WATERHOUSE LLP

San Jose, California
March 25, 1997

F-2
<PAGE>
DELTAPOINT, INC.

BALANCE SHEET

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
JUNE 30,
1995 1996 1997
------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 4,629 $ 3,142 $ 1,211
Accounts receivable, net of allowance for doubtful accounts
of $259, $118 and $111................................... 1,225 1,904 812
Inventories................................................ 182 133 117
Prepaid expenses and other current assets.................. 194 557 485
------- -------- ------------
Total current assets..................................... 6,230 5,736 2,625
Property and equipment, net.................................. 49 277 235
Purchased software, net...................................... 438 299 224
Deposits and other assets.................................... 47 34 30
------- -------- ------------
$ 6,764 $ 6,346 $ 3,114
------- -------- ------------
------- -------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 665 $ 1,238 $ 1,305
Accrued liabilities........................................ 1,337 1,146 923
Reserve for returns........................................ 398 771 225
Notes payable.............................................. 865 2,150 38
Current portion of capital lease obligations............... 50 -- --
------- -------- ------------
Total current liabilities................................ 3,315 5,305 2,491
------- -------- ------------
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred Stock, no par value, 4,000,000 shares authorized,
2,500 shares designated as Series A, 1,530 shares issued
and outstanding.......................................... -- -- 1,530
Common Stock, no par value, 25,000,000 shares authorized,
2,025,243, 2,485,540 and 2,871,873 shares issued and
outstanding.............................................. 12,267 14,707 15,847
Accumulated deficit........................................ (8,818) (13,666) (16,754)
------- -------- ------------
Total shareholders' equity............................... 3,449 1,041 623
------- -------- ------------
$ 6,764 $ 6,346 $ 3,114
------- -------- ------------
------- -------- ------------
</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 DECEMBER SIX MONTHS ENDED
31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues......................................................... $ 4,043 $ 4,950 $ 1,893 $ 1,495

Cost of revenues..................................................... 1,337 1,181 621 470
--------- --------- --------- ---------

Gross profit....................................................... 2,706 3,769 1.272 1,025
--------- --------- --------- ---------

Operating expenses:
Sales and marketing................................................ 1,922 4,685 2,051 2,241
Research and development........................................... 2,036 2,618 1,088 1,347
General and administrative......................................... 1,234 1,388 961 479
--------- --------- --------- ---------

Total operating expenses........................................... 5,192 8,691 4,100 4,067
--------- --------- --------- ---------

Loss from operations................................................. (2,486) (4,922) (2,828) (3,042)
Interest (expense) income, net....................................... (146) 74 39 (817)
Other income......................................................... -- -- -- 771
--------- --------- --------- ---------

Net loss............................................................. $ (2,632) $ (4,848) $ (2,789) $ (3,088)
--------- --------- --------- ---------
--------- --------- --------- ---------

Net loss per share................................................... $ (2.42) $ (2.17) $ (1.27) $ (1.20)
--------- --------- --------- ---------
--------- --------- --------- ---------

Shares and share equivalents used in per share calculations.......... 1,086 2,231 2,193 2,571
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>
DELTAPOINT, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- ---------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
--------- --------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994............... -- -- 182,717 $ 145 $ (6,186) $ (6,041)

Exercise of stock options................ -- -- 382 1 -- 1
Issuance of warrants -- -- -- 6 -- 6
Sale of Common Stock -- -- 1,100,000 5,143 -- 5,143
Issuance of Common Stock for acquisition
of purchased technology................ -- -- 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................. -- -- 379,297 1,797 -- 1,797
Exercise of stock options................ 81,000 643 -- 643
Net loss................................. -- -- -- -- (4,848) (4,848)
--------- --------- ----------- --------- ------------ ---------

Balance at December 31, 1996............... -- -- 2,485,540 14,707 (13,666) 1,041
Exercise of stock options (unaudited).... 4,333 21 -- 21
Discounted conversion feature of notes
payable (unaudited).................... -- -- -- 537 -- 537
Conversion of notes payable to Preferred
Stock (unaudited)...................... 1,530 $ 1,530 -- -- -- 1,530
Conversion of notes payable to Common
Stock (unaudited)...................... -- -- 382,000 582 -- 582
Net loss (unaudited)..................... -- -- -- -- (3,088) (3,088)
--------- --------- ----------- --------- ------------ ---------

Balance at June 30, 1997 (unaudited)....... 1,530 $ 1,530 2,871,873 $ 15,847 $ (16,754) $ 623
--------- --------- ----------- --------- ------------ ---------
--------- --------- ----------- --------- ------------ ---------
</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,
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $ (2,632) $ (4,848) $ (2,789) $ (3,088)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................... 163 254 102 342
In process research and development.............................. 1,240 -- -- --
Discounted conversion feature of notes payable................... -- -- -- 537
Gain on DeltaGraph disposition................................... -- -- -- (771)
Other................................................................ 40 -- -- --
Change in assets and liabilities:
Accounts receivable............................................ (642) (679) 336 1,092
Inventories.................................................... 44 49 65 16
Prepaid expenses and other current assets...................... (113) (162) (1) 72
Accounts payable............................................... (751) 573 410 67
Accrued liabilities............................................ 670 (191) (283) (223)
Reserve for returns............................................ 326 373 (158) (546)
Deposits and other assets ..................................... 9 13 18 4
--------- --------- --------- ---------
Net cash used in operating activities ....................... (1,646) (4,618) (2,300) (2,699)
--------- --------- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment.............................. (29) (340) (272) (24)
Acquisition of purchased software ................................. (225) (3) -- --
--------- --------- --------- ---------
DeltaGraph disposition............................................. -- -- -- 771
Net cash (used in) provided by investing activities ......... (254) (343) (272) (747)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net..................... 1,815 -- -- --
Proceeds from issuance of Common Stock and warrants, net........... 5,150 2,440 790 21
Proceeds from issuance of notes payable, net....................... -- 1,949 -- --
Repayment of notes payable......................................... (289) (865) -- --
Repayment of capitalized lease obligations......................... (177) (50) (45) --
--------- --------- --------- ---------
Net cash provided by financing activities ................... 6,499 3,474 745 21
Increase (decrease) in cash and cash equivalents..................... 4,599 (1,487) (1,827) (1,931)
Cash and cash equivalents at beginning of period .................... 30 4,629 4,629 3,142
--------- --------- --------- ---------
Cash and cash equivalents at end of period .......................... $ 4,629 $ 3,142 $ 2,802 $ 1,211
--------- --------- --------- ---------
--------- --------- --------- ---------
</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:

Founded in 1989, DeltaPoint, Inc. (the Company), has headquarters in
Monterey, California, and distribution partners in the United States, Europe,
Japan, and Asia-Pacific. DeltaPoint, Inc. provides developers of individual,
corporate and commercial Web sites with advanced Web site creation and
management tools based on database component technology. In addition, the
Company provides visualization software products that are designed to facilitate
the collection, interpretation and management of business and technical
information across multiple computing environments.

At December 31, 1996, the Company has an accumulated deficit of $13,666,000
and has incurred significant recent losses from operations. The Company plans to
continue to develop and introduce updated versions of its existing products and
to continue to promote its Web tools software products. There can be no
assurance that the Company will not incur additional losses until its planned
and existing products generate significant revenues. The accompanying financial
statements have been prepared assuming the Company will continue as a going
concern. Additional equity or debt financing will be required to enable the
Company to continue its operations and achieve its plans for 1997 and beyond.
Management is currently pursuing additional capital financing although recent
attempts to secure financing on acceptable terms have been unsuccessful. If the
Company is unable to obtain such financing, it will be required to reduce
discretionary spending in order to maintain operations at a reduced level.
Management believes that it will be able to reduce discretionary spending if
required. The accompanying financial statements do not include any adjustments
that might result from the outcome of these uncertainties.

In June 1997, the Company completed the sale of its DeltaGraph product line
for aggregate proceeds of $1,310,000 in cash, of which $910,000 was attributable
to the sale of the DeltaGraph product line and $400,000 was attributable to
services to be rendered by the Company pursuant to a management agreement (See
Note 11).

The following is a summary of the Company's significant accounting policies:

INTERIM RESULTS (UNAUDITED)

The accompanying balance sheet as of June 30, 1997, the statements of
operations and of cash flows for the six months ended June 30, 1996 and 1997,
and the statement of shareholders' equity for the six months ended June 30, 1997
are unaudited. In the opinion of management, these 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.

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.

F-7
<PAGE>
DELTAPOINT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 40%,
26%, 19% and 27% of net revenues in 1995 and 1996 and the six months ended June
30, 1996 and 1997, respectively. Sales to customers in excess of 10% of net
revenues is presented below:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31,
---------------- ----------------
1995 1996 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Customer A.................... 35 % 21 % -- 23 %
Customer B.................... 13 % 30 % 18 % 23 %
Customer C.................... -- -- -- 10 %
</TABLE>

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, 1996, were $1,000,000 in certificates of
deposit. The Company did not have any short-term investments outstanding at
December 31, 1995 and 1996 and June 30, 1997.

STOCK BASED COMPENSATION

The Company applies Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" and related interpretations in accounting for its
stock-based compensation plans, as permitted by the Financial Accounting
Standards Board's Statement No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation." FAS 123 defines a "fair value" based method of accounting for an
employee stock option or similar equity instrument and encourages, but does not
require, entities to adopt that method of accounting for their employee stock
compensation plans. The pro forma disclosures of the difference between
compensation cost included in net loss and the related cost measured by the fair
value method are presented in Note 9.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.

F-8
<PAGE>
DELTAPOINT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 life of the asset.

SOFTWARE DEVELOPMENT COSTS

Research and development costs are expensed as incurred. Statement of
Financial Accounting Standards No. 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.

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 Com-
pany 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 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 credit losses.

At December 31, 1995, five customers accounted for 86% of accounts
receivable. At December 31, 1996, three customers accounted for 83% of accounts
receivable. At June 30, 1997 three customers accounted for 83% of accounts
receivable.

NET LOSS PER SHARE

Net loss per share is based upon the weighted average number of common
shares outstanding during the period. Common equivalent shares (consisting of
warrants and stock options) 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).

F-9
<PAGE>
DELTAPOINT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 and
accordingly, 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.

RECLASSIFICATIONS

Certain reclassifications have been made to the financial statements in
order to conform to the 1996 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per Share."
This statement is effective for the Company's year ending December 31, 1997. The
Statement redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share. FAS 128 will
require the retroactive restatement of all previously reported amounts upon
adoption. Due to the Company's net loss, the adoption of FAS 128 will not have a
material affect on the reported loss per share.

F-10
<PAGE>
DELTAPOINT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- BALANCE SHEET DETAILS (IN THOUSANDS):

<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30,
-------------------- ----------
1995 1996 1997
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Inventories:
Raw materials................................................................ $ 119 $ 84 $ 97
Finished goods............................................................... 63 49 20
--------- --------- ----------
$ 182 $ 133 $ 117
--------- --------- ----------
Purchased software:
Purchased software........................................................... $ 450 $ 453 $ 453
Less: accumulated amortization............................................... (12) (154) (229)
--------- --------- ----------
$ 438 $ 299 $ 224
--------- --------- ----------
Property and equipment:
Computer equipment and software.............................................. $ 936 $ 1,160 $ 1,184
Furniture and fixtures....................................................... 139 139 139
Leasehold improvements....................................................... -- 31 31
--------- --------- ----------
1,075 1,330 1,354
Less: accumulated depreciation............................................... (1,026) (1,053) (1,119)
--------- --------- ----------
$ 49 $ 277 $ 235
--------- --------- ----------
--------- --------- ----------
Accrued liabilities:
Accrued royalties............................................................ $ 351 $ 315 $ 236
Accrued compensation......................................................... 303 369 338
Other........................................................................ 683 462 349
--------- --------- ----------
$ 1,337 $ 1,146 $ 923
--------- --------- ----------
--------- --------- ----------
</TABLE>

Included in the December 31, 1995 and 1996 and June 30, 1997 balances of
computer equipment and software are $531,000 of assets acquired under capital
leases. Accumulated depreciation associated with these leases approximates
$481,000, $531,000 and $531,000 at December 31, 1995, December 31, 1996 and June
30, 1997, respectively.

In 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 is also required to pay
royalties on sales of the products developed from these technologies. The
Company made installment payments for the technology of $225,000 and $865,000
for the years ended December 31, 1995 and 1996, respectively. Cash paid for
royalties on sales of the product totaled $0 in 1995 and $33,000 in 1996.
Amounts due to these suppliers for royalties are included in accrued liabilities
at December 31, 1996 and June 30, 1997 and totaled $205,000 and $124,000,
respectively. In connection with these acquisitions, the Company determined that
$1,240,000 of the aggregate purchase price represented in-process technology,
and because such technology had not reached the stage of technological
feasibility and had no alternative future use, this amount was immediately
charged to operations.

F-11
<PAGE>
DELTAPOINT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 -- SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION

In December 1995, upon the closing of the Company's initial public offering,
all outstanding shares of Mandatorily Redeemable Convertible Preferred Stock
were converted into common stock. In addition, the Company converted notes
payable to preferred shareholders totaling $300,000 and accrued interest on the
notes totaling $80,000 into 63,334 shares of common stock.

In November and December 1995, the Company acquired certain Internet
technologies 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 which was paid in installments through
August 1996.

During the six months ended June 30, 1997, holders of notes payable
converted $2,112,000 in principal value into $1,530,000 of Series A Preferred
Stock and 382,000 shares of Common Stock. In addition, during the six months
ended June 30, 1997, the recognition of the discounted conversion feature
associated with the notes payable resulted in an increase to Common Stock of
$537,000.

Cash paid for interest totaled $146,000, $28,000, $26,000 and $0 for the
years ended December 31, 1995 and 1996 and the six months ended June 30, 1996
and 1997, respectively.

NOTE 4 -- RELATED PARTY TRANSACTIONS:

The Company purchases goods and services from a supplier who is a
shareholder of the Company. Purchases from this supplier totaled $354,000,
$271,000, $101,000 and $103,000 for the years ended December 31, 1995 and 1996
and the six months ended June 30, 1996 and 1997, respectively. Amounts due to
this supplier are included in accounts payable at December 31, 1995 and 1996 and
June 30, 1997 and totaled $55,000, $72,000 and $58,000, respectively.

NOTE 5 -- NOTES PAYABLE:

On December 31, 1996, the Company issued $2,150,000 of convertible
promissory notes payable. The notes bear interest at 6% payable semi-annually
over their two year term. The notes convert into Common Stock automatically at
the end of the two year term and are convertible at the option of the holder
with a total of 33%, 67%, and 100% of the principal value of the notes
convertible on March 1, March 31, and April 30, 1997, respectively. The
conversion price of the notes is calculated as the lower of (a) 80% of the
average closing bid price of the Company's common stock for the five days prior
to notice of conversion or (b) the average offer price of the Company's Common
Stock for the five business days prior to the notes' issuance which is $6.70 per
share. The Company recognized the value of the discounted conversion feature, or
$537,000, and the deferred debt issuance costs, or $262,000, as additional
interest expense during the six months ended June 30, 1997. The amortization of
the discounted conversion feature resulted in an increase to Common Stock of
$537,000 during six months ended June 30, 1997. During the six months ended June
30, 1997, holders of notes payable converted $2,112,000 in principal value into
$1,530,000 of Series A Preferred Stock and 382,000 shares of Common Stock.

NOTE 6 -- COMMITMENTS AND CONTINGENCIES:

COMMITMENTS

The Company leases its facilities under noncancellable operating leases.
Rent expense was $262,000 and $194,000 for the years ended December 31, 1995 and
1996, respectively. Rent expense for the six months ended June 30, 1996 and 1997
was $95,000 and $100,000, respectively.

F-12
<PAGE>
DELTAPOINT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 6 -- COMMITMENTS AND CONTINGENCIES: (CONTINUED)
At December 31, 1996, future minimum lease payments are as follows (in
thousands):

<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
1997............................................................................... $ 206
1998............................................................................... $ 155
-----
Total minimum lease payments....................................................... $ 361
-----
-----
</TABLE>

CONTINGENCIES

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. At December 31, 1996, the Company had approximately
$7,000,000 of federal net operating loss carryforwards which expire in varying
amounts through 2011. Due to certain changes in the ownership of the Company,
approximately $1,700,000 and $1,200,000 of these losses are subject to annual
limitations of approximately $142,000 and $301,000, respectively.

A reconciliation of the Company's effective tax rate to the U.S. federal
statutory rate follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
U.S. federal statutory rate.............................. (34.0)% (34.0)%
State and local taxes, net of U.S. federal benefit....... (9.1) (8.8)
Reserved net deferred tax assets and others.............. 43.1 42.8
----- -----
-- % -- %
----- -----
----- -----
</TABLE>

The components of the net deferred tax assets consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating losses................................................ $ 940 $ 2,788
Reserves, accruals and depreciation................................. 885 767
Tax credit carryforwards............................................ 10 --
---------- ----------
1,835 3,555
Deferred tax valuation allowance.................................. (1,835) (3,555)
---------- ----------
Net deferred tax asset................................................ $ -- $ --
---------- ----------
---------- ----------
</TABLE>

F-13
<PAGE>
DELTAPOINT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- INCOME TAXES: (CONTINUED)
The Company has determined that it is more likely than not that the deferred
tax assets at December 31, 1995 and 1996 will 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 -- PREFERRED STOCK, COMMON STOCK AND WARRANTS:

PREFERRED STOCK:

The Company has authorized up to 4,000,000 shares of Preferred Stock
available for issuance upon approval of the Board of Directors. On June 30,
1997, the Company issued 1,530 shares of Series A Preferred Stock at a price of
$1,000 per share in exchange for $1,530,000 in principal value of convertible
notes outstanding. Each share of Series A Preferred Stock is convertible, at any
time, at the option of the holders into the number of shares of the Company's
Common Stock determined by dividing $1,000 by the lower of (i) 80% of the
average of the fair market value of the Common Stock for the five business days
prior to the conversion date, or (ii) $3.50 per share. The conversion price is
subject to adjustment in certain circumstances. The shares of Series A Preferred
Stock are also automatically convertible into Common Stock on the second
anniversary of their issue date or, if earlier, upon the occurrence of certain
other events. The holders of Series A Preferred Stock are entitled to cumulative
dividends at an annual rate of $90.00 per share, payable quarterly. Dividends
are payable in cash or, at the Company's election, in shares of Common Stock
valued at 80% of the average fair market value thereof for the five business
days prior to the day on which dividends are payable. Upon liquidation of the
Company or a merger of the Company that results in the transfer of 50% or more
of the voting power of the Company or the sale of all or substantially all of
the Company's assets, holders of Series A Preferred Stock are entitled to
receive $1,000 per share plus any accrued but unpaid dividends.

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. In addition, Common Stock as of December 31, 1996
reflects the January 1996 sale of 165,000 shares of Common Stock issued in the
overallotment of the Company's initial public offering. Net proceeds to the
Company resulting from the overallotment were $831,000. Common Stock also
reflects net proceeds resulting from the exercise of warrants totaling $966,000
and the exercise of stock options from the 1995 Stock Option Plan of $643,000.

WARRANTS:

The following warrants were outstanding and exercisable at December 31,
1996:

<TABLE>
<CAPTION>
WARRANTS
OUTSTANDING ISSUED IN CONNECTION WITH ISSUANCE DATE EXPIRATION DATE WARRANT EXERCISE PRICE
- ----------- ------------------------- ------------- --------------- -----------------------
<S> <C> <C> <C> <C>
71,875 Equity Nov. 1995 Nov. 2000 $ 7.20
110,000 Equity Dec. 1995 Dec. 2000 $ 7.20
16,538 Convertible Notes Dec. 1996 Dec. 2002 $ 6.50
- -----------
198,413
- -----------
- -----------
</TABLE>

F-14
<PAGE>
DELTAPOINT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 -- PREFERRED STOCK, COMMON STOCK AND WARRANTS: (CONTINUED)
The warrants issued in November 1995 have 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 Company has reserved 198,413 shares of
common stock for issuance upon the exercise of the outstanding warrants.

NOTE 9 -- STOCK OPTION PLANS:

The Company has three Stock Option Plans (the Plans) which provide for the
issuance of stock options to employees of the Company. The Company has reserved
an aggregate of 1,285,462 shares of Common Stock for issuance upon the exercise
of options granted under these plans, including 200,000 shares approved by the
Company's shareholders at the annual meeting in June 1996 and 400,000 shares
approved by the Company's shareholders at the annual meeting in June 1997.
Options to purchase 41,588 and 171,804 shares were vested and exercisable at
December 31, 1995 and 1996 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 market value at the date of grant, except for the 1995 Plan for which
options can be granted at prices not less than 85% of the fair market value at
the date of grant. The Board of Directors may amend, modify or terminate the
Plans at their discretion.

In recognition of the decline in the fair market value of the Company's
Common Stock in 1996 and 1997, the Company repriced options to purchase
approximately 699,696 shares of Common Stock in March 1997 to an exercise price
of $2.25 per share, which was the fair market value of the Company's Common
Stock on that date.

The following table summarizes activity under the Company's Stock Option
Plans:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES --------------------------------
AVAILABLE FOR WEIGHTED AVERAGE
GRANT SHARES EXERCISE PRICE
--------------- ----------- -------------------
<S> <C> <C> <C>
Balance at December 31, 1994..................................... 27,230 38,127 6.63
Additional shares reserved....................................... 620,000 -- --
Options granted.................................................. (525,000) 525,000 4.08
Options exercised................................................ -- (382) 6.63
Options canceled................................................. 3,321 (3,321) 6.63
--------------- -----------

Balance at December 31, 1995..................................... 125,551 559,424 3.89
Additional shares reserved....................................... 200,000 -- --
Options granted.................................................. (433,677) 433,677 8.54
Options exercised................................................ -- (81,000) 3.64
Options canceled................................................. 171,593 (171,593) 4.85
--------------- -----------

Balance at December 31, 1996..................................... 63,467 740,508 6.68
Additional shares reserved....................................... 400,000 -- --
Options granted (unaudited)...................................... (866,146) 866,146 2.25
Options exercised (unaudited).................................... -- (4,333) 4.80
Options canceled (unaudited)..................................... 810,484 (810,484) 6.11
--------------- -----------
Balance at June 30, 1997 (unaudited) ............................ 407,805 791,837 2.46
--------------- -----------
--------------- -----------
</TABLE>

F-15
<PAGE>
DELTAPOINT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- STOCK OPTION PLANS: (CONTINUED)
The following table summarizes information about employee stock options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------------------------
NUMBER OUTSTANDING WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED AVERAGE
AT DECEMBER 31, REMAINING CONTRACTUAL AVERAGE EXERCISABLE AT EXERCISE PRICE AT
RANGE OF EXERCISE PRICES 1996 LIFE EXERCISE PRICE DECEMBER 31, 1996 DECEMBER 31, 1996
- ------------------------- ------------------- --------------------- --------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
$3.50 236,611 8.9 3.50 92,998 3.50
$4.80-6.63 75,759 9.0 5.95 37,834 5.89
$7.50 140,000 9.9 7.50 2,222 7.50
$7.75-7.83 99,788 9.3 7.82 -- --
$9.50-11.50 188,350 9.4 9.78 38,750 9.50
-------- --------
Total 740,508 9.3 6.68 171,804 5.43
-------- --------
-------- --------
</TABLE>

The following table summarizes information about employee stock options
outstanding at June 30, 1997:

<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ---------------------------------
---------------------------------------- NUMBER
WEIGHTED AVERAGE WEIGHTED EXERCISABLE WEIGHTED AVERAGE
NUMBER OUTSTANDING REMAINING AVERAGE AT JUNE 30, EXERCISE PRICE AT
RANGE OF EXERCISE PRICES AT JUNE 30, 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 JUNE 30, 1997
- -------------------------- ------------------- ------------------- --------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
$1.44 10,500 10.0 1.44 --
$2.25 703,720 8.9 2.25 345,344 2.25
$2.50 40,950 9.7 2.50 -- --
$4.80-7.50 36,667 9.2 6.46 6,667 4.80
-------- ------------
Total 791,837 8.9 2.46 352,011 2.30
-------- ------------
-------- ------------
</TABLE>

In addition to the above stock options outstanding, in March 1997 the
Company granted a stock option to a certain executive for 120,000 shares of
Common Stock with an exercise price of $2.25 per share outside of the Plans.

FAIR VALUE DISCLOSURES

Had compensation cost for the Plans been determined based on the fair value
of each stock option grant on its grant date, as prescribed by FAS 123, the
Company's net loss and net loss per share would have been as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED JUNE
31, 30,
---------------------- ----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss:
As reported.................................................... $ (2,632) $ (4,848) $ (2,789) $ (3,088)
Pro forma...................................................... $ (2,704) $ (5,450) $ (3,024) $ (3,810)
Net loss per share:
As reported.................................................... $ (2.42) $ (2.17) $ (1.27) $ (1.20)
Pro forma...................................................... $ (2.49) $ (2.44) $ (1.38) $ (1.48)
</TABLE>

F-16
<PAGE>
DELTAPOINT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- STOCK OPTION PLANS: (CONTINUED)
The weighted average estimated grant date fair value, as defined by FAS123,
granted under the Plans was $2.72 and $5.46 per share for 1995 and 1996,
respectively.

The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the applicable period: dividend yields of 0%
for all periods reported; expected volatility of 80.6%; risk-free interest rate
of 5.57% for 1995 and 6.07% for 1996 and the six months ended June 30, 1996 and
6.58% for the six months ended June 30, 1997 for options granted; and a weighted
average expected option term of 4.3 years for 1995 and 3.9 years for 1996 and
six months ended June 30, 1996 and 3.8 years for the six months ended June 30,
1997.

The above pro forma amounts include compensation expense based on the fair
value of options granted and vesting during the years ended December 31, 1995
and 1996 and the six months ended June 30, 1996 and 1997 and exclude the effects
of options granted prior to January 1, 1995. Accordingly, the above pro forma
net loss and net loss per share are not representative of the effects of
computing stock option compensation expense using the fair value method for
future periods.

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.

NOTE 11 -- SALE OF DELTAGRAPH PRODUCT LINE (UNAUDITED):

On June 27, 1997, the Company completed the sale of its DeltaGraph product
line to SPSS, Inc. ("SPSS") with an effective date of May 1, 1997 for aggregate
proceeds of $1,300,000 in cash of which $910,000 was attributable to the sale of
the Delta Graph product line and $400,000 was attributable to services to be
rendered by the Company pursuant to a management agreement (the "Management
Agreement"). The Company received $910,000 on June 30, 1997. The Company will
recognize amounts due under the Management Agreement upon completion of all
obligations required under the Agreement.

In the quarter ended June 30, 1997, the Company recorded a non-operating
gain related to the sale of the DeltaGraph product line in other income as
follows:

<TABLE>
<CAPTION>
<S> <C>
Total sales price.............................................................. $ 910,000
Less:
Expenses related to the sale................................................. (105,000)
Net book value of assets transferred......................................... (34,000)
-------------
Gain on sale of DeltaGraph product line........................................ $ 771,000
-------------
-------------
</TABLE>

As a result of the Company's significant tax loss carry-forwards and other
tax benefits, the Company did not incur a tax expense related to this gain.

F-17
<PAGE>
DELTAPOINT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 11 -- SALE OF DELTAGRAPH PRODUCT LINE (UNAUDITED): (CONTINUED)
Following the effective date of this transaction, the Company no longer has
revenues related to the sales of the DeltaGraph product line. DeltaGraph
revenues were $3,067,000 and $659,000 for the year ended December 31, 1996 and
the six months ended June 30, 1997, respectively. Such revenues were 62.0% and
44.0% of total revenues for 1996 and the six months ended June 30, 1997,
respectively. During 1996 and the six months ended June 30, 1997, cost of
revenues and operating expenses directly attributable to DeltaGraph totaled
$1,800,000 and $530,000, respectively. Such revenues and expenses have not
continued subsequent to the disposition of the product.

The proforma net revenues, related net loss and net loss per share of the
Company for the year ended December 31, 1996 and six months ended June 30, 1997
after giving effect to the DeltaGraph transaction as if it had been consummated
at January 1, 1996, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTH ENDED
DECEMBER 31, 1996 JUNE 30, 1997
(PRO FORMA) (PRO FORMA)
----------------- ----------------
<S> <C> <C>
Net Revenues............................................ $ 1,883,000 $ 836,000
Net Loss................................................ $ (6,115,000) $ (3,988,000)
Net Loss per Share...................................... $ (2.74) $ (1.55)
</TABLE>

NOTE 12 -- PENDING AND RECENT ACQUISITIONS (UNAUDITED):

On April 16, 1997, the Company entered into a Letter of Intent with Inlet
Divestiture Corp. ("IDC"), Inlet, Inc. ("Inlet") and certain individuals
pursuant to which the Company would purchase certain Internet technologies
(including source code and related documentation). The purchase price would be
(i) $825,000 in cash, payable in installments, and (ii) the issuance of 260,000
shares of the Company's Common Stock. The Company would also pay royalties on
sales, licenses, sublicenses or other transactions pursuant to which units of
the software product are distributed. Half of the amount of royalties would be
paid in the Company's Common Stock. Pending the closing of the purchase, the
Company and IDC entered into an OEM agreement which grants the Company the
exclusive right to distribute the software product. The Letter of Intent
contemplates that if the closing of the purchase does not occur, the OEM
agreement would continue in effect. In addition, the Company entered into a
consulting agreement in which the Company is paying $20,000 a month in
consulting fees starting July 1, 1997. Both parties' obligations to consummate
the purchase are contingent upon the closing of an equity financing by the
Company within 165 days of the date of the Letter of Intent. Consummation of the
transactions contemplated in the Letter of Intent is subject to certain
additional conditions, including negotiation of a definitive purchase agreement
and other agreements. There can be no assurance that the transactions
contemplated in the Letter of Intent will be consummated.

On July 11, 1997 the Company completed the acquisition of
Site/technologies/inc. ("Site"), a privately held company. In connection with
this acquisition, the Company issued a total of 550,000 shares of its Common
Stock with an aggregate market value of $825,000 on the date of acquisition to
the former stockholders of Site, in exchange for all outstanding shares of Site.
In addition, the Company agreed to pay royalties on sales of certain products.
Upon consummation of the acquisition, Stephen Mendel, a member of the Board of
Directors of Site, was appointed as a member of the Board of Directors of the
Company.

F-18
<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
Prospectus Summary................................ 3
Corporate Developments............................ 7
Risk Factors...................................... 10
Price Range of Common Stock....................... 21
Dividend Policy................................... 21
Capitalization.................................... 22
Unaudited Pro Forma Financial Information......... 23
Selected Financial Data........................... 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 28
Business.......................................... 35
Management........................................ 50
Certain Transactions.............................. 59
Principal Shareholders............................ 62
Description of Capital Stock...................... 65
Shares Eligible for Future Sale................... 68
Legal Matters..................................... 69
Experts........................................... 69
Index to Financial Statements..................... F-1
</TABLE>

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 being registered. All amounts are estimates except
the SEC registration fee.

<TABLE>
<S> <C>
SEC Registration fee...................................................... $ 688
Printing and engraving expenses........................................... 5,000
Legal fees and expenses................................................... 8,060
Accounting fees and expenses.............................................. 4,500
Blue sky fees and expenses................................................ 2,500
Transfer agent fees....................................................... 2,500
Miscellaneous fees and expenses........................................... 2,312
---------
Total................................................................. $ 23,000
---------
---------
</TABLE>

II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

Since January 1, 1994, 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. 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."

5. 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."

6. 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."

7. 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), 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."

8. 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.

II-2
<PAGE>
9. 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.

10. 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.

11. 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.

12. On November 4, 1996, Registrant granted options to purchase 40,000
shares of Common Stock under its 1995 Stock Option Plan, at an exercise
price of $7.50 per share to Donald Witmer.

13. In December 1996, holders of warrants exercised warrants to purchase an
aggregate of 189,297 shares of Common Stock at a purchase price of $5.00
per share, including warrants to purchase an aggregate of 145,547 shares
of Common Stock exercised by Oak Investment Partners V, L.P. and Oak V
Affiliates Fund, L.P. The shares issued are covered by Post-Effective
Amendment No. 2 to Registration Statement on Form SB-2 (Registration No.
333-3784).

14. On December 31, 1996, Registrant issued $2,000,000 principal amount of
6% Convertible Subordinated Debentures to High Risk Opportunities Hub
Fund Ltd. and $150,000 principal amount thereof to American High Growth
Equities Retirement Trust.

15. In November 1996, Registrant issued 30,970 shares of Common Stock to Oak
Investment Partners V, L.P., 697 shares of Common Stock to Oak V
Affiliates Fund, L.P., 30,084 shares of Common Stock to Hummer Winblad
Venture Partners and 1,583 shares of Common Stock to Hummer Winblad
Technology Fund, all pursuant to the conversion of the notes described in
the chart and footnote 7 in "Certain Transactions." Such shares are
covered by this Registration Statement.

16. On December 31, 1996, Registrant issued the Placement Agent's Warrant to
purchase 16,538 shares of Common Stock at an exercise price of $6.50 per
share to H.J. Meyers & Co., Inc.

17. On March 27, 1997, Registrant granted options to purchase 120,000 shares
of Common Stock at an exercise price of $2.25 per share to Jeffrey Ait.

18. On July 11, 1997, Registrant issued 550,000 shares of Common Stock to
the former stockholders of Site/technologies/inc.

The issuance described in Items 1 through 16 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.

II-3
<PAGE>
ITEM 27. EXHIBITS

<TABLE>
<CAPTION>
EXHIBITS NO. DESCRIPTION
- --------------- --------------------------------------------------------------------------------------
<C> <S> <C>
3.1(1) Registrant's Amended and Restated Articles of Incorporation

3.2(2) Registrant's Bylaws

3.3(3) Amended and Restated Certificate of Determination of Series A Preferred Stock

4.1(2) Specimen Certificate of Registrant's Common Stock

4.2(2) Form of Warrant

4.3(2) Form of H.J. Meyers & Co.'s Warrant

4.4(2) Loan and Warrant Agreement between Registrant and certain investors dated as of March
29, 1993

4.5(2) Amended and Restated Investor Rights Agreement between Registrant and the investors
specified therein dated as of November 6, 1995

5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation

10.1(2) Real Property Lease between Registrant and Owens Mortgage Investment Fund dated as of
August 18, 1995

10.2(2) 1990 Stock Option Plan

10.3(2) 1992 Stock Option Plan

10.4(2)(5) 1995 Stock Option Plan

10.5(2) Form of Indemnification Agreement

10.6.1(2)(4) Distribution Agreement between Registrant and Nippon Polaroid Kabushiki Kaisha dated
as of November 12, 1991

10.6.2(2)(4) 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

10.7(2) Series E Preferred Stock and Warrant Purchase Agreement dated November 6, 1995 among
Registrant and the investors named therein

10.8(2) Employment Agreement dated as of November 1, 1995 between Registrant and Donald B.
Witmer

10.9(2) Employment Agreement dated November 8, 1995 between Registrant and Raymond R. Kingman,
Jr.

10.10(2) Employment Agreement dated November 8, 1995 between Registrant and William G. Pryor

10.11(2)(4) Agreement dated December 15, 1995 among Registrant, Global Technologies Corporation
and William French

10.12(2) Termination Agreement dated as of November 8, 1995 among the Registrant and certain
shareholders of the Company named therein

10.13(2) Amendment Agreement dated as of December , 1995 among the Registrant and certain
shareholders of the Company named therein

10.14(5) Employment Agreement dated December 26, 1995 between Registrant and William A. French

10.15(5) Separation Agreement and Release between Registrant and Raymond R. Kingman, Jr. dated
April 5, 1996.
</TABLE>

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Monterey, State of
California, on August 19, 1997.

DELTAPOINT, INC.

By: /s/ JEFFREY F. AIT

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

Jeffrey F. Ait

CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Jeffrey F. Ait, his true and lawful
attorneys-in-fact and agents with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 19TH DAY OF AUGUST, 1997 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ --------------------------------------

<C> <S> <C>
/s/ JEFFREY F. AIT Chief Executive Officer, Chief
------------------------------------------- Financial Officer and Director
Jeffrey F. Ait (Principal Executive Officer)

/s/ JOHN HUMMER*
------------------------------------------- Director
John Hummer

/s/ PATRICK GRADY*
------------------------------------------- Director
Patrick Grady
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
By: /s/ JEFFREY F. AIT
--------------------------------------
Jeffrey F. Ait Director
ATTORNEY-IN-FACT
</TABLE>

II-5
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBITS NUMBERED PAGE
- ----------- ------------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati..............................................

23.1 Consent of Wilson, Sonsini, Goodrich & Rosati (included in Exhibit 5.1)....................

23.2 Consent of Price Waterhouse, LLP...........................................................
</TABLE>

<PAGE>
Exhibit 5.1

August 19, 1997

DELTAPOINT, INC.
22 LOWER RAGSDALE DRIVE
MONTEREY, CALIFORNIA 93940
(408) 648-4000

RE: REGISTRATION STATEMENT ON FORM SB-2

Ladies and Gentlemen:

We have examined the Registration Statement on Form SB-2 filed by you with
the Securities and Exchange Commission (the "SEC") on June 12, 1997
(Registration No. 333-29177), as amended by Amendment No. 1 thereto filed with
the SEC on August 19, 1997 (the "Registration Statement"), in connection with
the registration under the Securities Act of 1933, as amended, of a total of
1,361,160 shares of your Common Stock (the "Shares") issuable upon the
conversion of certain shares of Series A Preferred Stock (as defined in the
Registration Statement). We understand that the Shares are to be sold from time
to time on the NASDAQ OTC Bulletin Board at prevailing prices or as otherwise
described in the Registration Statement. As your legal counsel, we have examined
the proceedings proposed to be taken by you in connection with the sale of the
Shares.

It is our opinion that upon conversion of the Series A Preferred Stock into
Shares pursuant to, and in accordance with the terms and conditions of the
Series A Preferred Stock, and upon conclusion of the proceedings being taken
contemplated by us, as your counsel, to be taken prior to the issuance and sale
of the Shares and upon completion of the proceedings being taken in order to
permit such transactions to be carried out in accordance with the securities
laws of the various states where required, the Shares, when issued and sold in
the manner described in the Registration Statement, would be legally and validly
issued, fully paid and non-assessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name under the caption "Legal
Matters" in the Registration Statement, including the Prospectus constituting a
part thereof, and any amendments thereto.

Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 1 to this Registration Statement on Form SB-2 of
our report dated March 25, 1997, relating to the financial statements of
DeltaPoint, Inc., which appears in such Prospectus. We also consent to the
references to us under the headings "Experts" and "Selected Financial Data" in
such Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."

/s/ PRICE WATERHOUSE LLP

PRICE WATERHOUSE LLP
San Jose, California
August 18, 1997