<PAGE>


                       U.S. SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549
                                           
                                     FORM 10-QSB
                                           
               [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                            SECURITIES EXCHANGE ACT OF 1934
                                           
                  For the quarterly period ended September 30, 1997
                                           
         [   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 
                                 EXCHANGE ACT OF 1934
                                           
                            Commission file number 0-27328
                                           
                                   DELTAPOINT, INC.
                (Exact Name of Registrant as specified in its charter)


                  California                              77-0216760
         (State or Other Jurisdiction of               (I.R.S. Employer
          Incorporation or Organization)            Identification Number)


                                380 El Pueblo Road
                                    Suite 100
                              Scotts Valley, CA 95066
                     (Address of principal executive offices)
                                           
                                   408-461-3017
               (Registrant's telephone number, including area code)
                                           
                                           
    Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for 
such shorter period that the registrant was required to file such reports), 
and (2) has been subject to such filing requirements for the past 90 days.   
Yes   X    No
   -----     -----

State the number of shares outstanding of each of the issuer's classes of 
common equity, as of October 31, 1997:  8,131,380

Transitional Small Business Disclosure Format (check one)  Yes       No  X
                                                              -----    -----

<PAGE>

                                DELTAPOINT, INC.

                                    INDEX


                                                                         Page 
                                                                         ----
Part 1.   FINANCIAL INFORMATION  

          Item 1.  Financial Statements
    
                   Condensed Balance Sheets   
                   September 30, 1997 (unaudited) and December 31, 1996    3

                   Condensed Statements of Operations (unaudited)      
                   Three months and nine months ended September 30, 
                   1997 and 1996                                           4
  
                   Condensed Statements of Cash Flows (unaudited)
                   Nine months ended September 30, 1997 and 1996           5
                  
                   Notes to Condensed Financial Statements                 6

         Item 2.  Management's Discussion and Analysis of Financial 
                  Condition and Results of Operations                      9

Part II. OTHER INFORMATION

         Item 1.  Legal Proceedings                                       23

         Item 6.  Exhibits and Reports on Form 8-K                        23

Signature                                                                 24


                                       2
<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM I.  FINANCIAL STATEMENTS

                              DELTAPOINT, INC.

                         CONDENSED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT NUMBER OF SHARES)


                                                     SEPTEMBER 30, DECEMBER 31,
                                                         1997        1996
                                                     ------------- -----------
                                                      (UNAUDITED)
                                  ASSETS
Current assets:
  Cash and cash equivalents. . . . . . . . . . . . . .  $     85    $  3,142
  Accounts receivable, net of allowance for 
   doubtful accounts of $110 and $118  . . . . . . . .       364       1,904
  Inventories. . . . . . . . . . . . . . . . . . . . .       146         133
  Prepaid expenses and other current assets. . . . . .       440         557
                                                        --------    --------
          Total current assets . . . . . . . . . . . .     1,035       5,736
Property and equipment, net. . . . . . . . . . . . . .       279         277
Purchased software, net. . . . . . . . . . . . . . . .       248         299
Deposits and other assets. . . . . . . . . . . . . . .       101          34
                                                        --------    --------
                                                        $  1,663    $  6,346
                                                        --------    --------
                                                        --------    --------

            LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY 
Current liabilities:
  Accounts payable . . . . . . . . . . . . . . . . . .  $  1,435    $  1,238
  Accrued liabilities. . . . . . . . . . . . . . . . .       590       1,146
  Reserve for returns. . . . . . . . . . . . . . . . .        95         771
  Notes payable. . . . . . . . . . . . . . . . . . . .        --       2,150
                                                        --------    --------
          Total current liabilities. . . . . . . . . .     2,120       5,305
                                                        --------    --------

Commitments and contingencies

Shareholders' (deficit) equity:
  Common stock, no par value, 25,000,000 shares
    authorized 4,631,380 and 2,485,540 shares were
    issued and outstanding . . . . . . . . . . . . . .    17,921      14,707
  Accumulated deficit. . . . . . . . . . . . . . . . .   (18,378)    (13,666)
                                                        --------    --------
          Total shareholders' (deficit) equity . . . .      (457)      1,041
                                                        --------    --------
                                                        $  1,663    $  6,346
                                                        --------    --------
                                                        --------    --------

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


                                       3
<PAGE>

                               DELTAPOINT, INC.

                     CONDENSED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED            NINE MONTHS ENDED
                                                                      SEPTEMBER 30                 SEPTEMBER 30
                                                                -----------------------      -------------------------
                                                                   1997          1996           1997           1996
                                                                ---------     ---------      ----------     ----------
<S>                                                             <C>            <C>            <C>            <C>
Net revenues . . . . . . . . . . . . . . . . . . . . . . .      $    182       $  1,506       $  1,677       $  3,399
Cost of revenues . . . . . . . . . . . . . . . . . . . . .            84            335            553            956
                                                                --------       --------       --------       -------- 
  Gross profit . . . . . . . . . . . . . . . . . . . . . .            98          1,171          1,124          2,443
                                                                --------       --------       --------       -------- 
Operating expenses:
  Sales and marketing. . . . . . . . . . . . . . . . . . .           684          1,094          2,926          3,145
  Research and development . . . . . . . . . . . . . . . .         1,245            789          2,592          1,877
  General and administrative . . . . . . . . . . . . . . .           181            206            660          1,167
                                                                --------       --------       --------       -------- 
                                                                   2,110          2,089          6,178          6,189
                                                                --------       --------       --------       -------- 
Loss from operations . . . . . . . . . . . . . . . . . . .        (2,012)          (918)        (5,054)        (3,746)
Interest  income (expense), net. . . . . . . . . . . . . .             1             16          ( 816)            55
Other income . . . . . . . . . . . . . . . . . . . . . . .           400                         1,171             --
                                                                --------       --------       --------       -------- 
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .      $ (1,611)      $   (902)      $ (4,699)      $ (3,691)
                                                                --------       --------       --------       -------- 
                                                                --------       --------       --------       -------- 
Net loss per share . . . . . . . . . . . . . . . . . . . .      $  (0.46)      $  (0.40)      $  (1.58)      $  (1.67)
                                                                --------       --------       --------       -------- 
                                                                --------       --------       --------       -------- 

Shares used in per share calculations. . . . . . . . . . .         3,489          2,230          2,966          2,206
                                                                --------       --------       --------       -------- 
                                                                --------       --------       --------       -------- 
</TABLE>

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


                                       4

<PAGE>

                               DELTAPOINT, INC.

                      CONDENSED STATEMENTS OF CASH FLOWS
                           (IN THOUSANDS, UNAUDITED)

<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                            ------------------------
                                                               1997          1996
                                                            -----------   ----------
<S>                                                         <C>           <C>
Cash flows from operating activities:
  Net loss . . . . . . . . . . . . . . . . . . . . . . . .  $  (4,699)    $  (3,691)
  Adjustments to reconcile net loss to net cash used
    in operating activities:
    Depreciation and amortization . . . . . . . . . . . .         422           179
    In process research and development . . . . . . . . .         500            --
    Amortization of discounted conversion feature of 
     notes payable. . . . . . . . . . . . . . . . . . . .         537            --
    Gain on DeltaGraph disposition. . . . . . . . . . . .      (1,171)           --
    Change in assets and liabilities:
      Accounts receivable . . . . . . . . . . . . . . . .       1,547          (590)
      Inventories . . . . . . . . . . . . . . . . . . . .         (13)           43
      Prepaid expenses and other current assets . . . . .         (81)          (36)
      Accounts payable. . . . . . . . . . . . . . . . . .         159           631
      Accrued liabilities . . . . . . . . . . . . . . . .        (591)         (591)
      Reserve for returns . . . . . . . . . . . . . . . .        (676)          254
      Deposits and other assets . . . . . . . . . . . . .         (67)           13
                                                            ---------     ---------
        Net cash used in operating activities . . . . . .      (4,133)       (3,788)
                                                            ---------     ---------

Cash flows from investing activities:
  Purchase of property and equipment . . . . . . . . . . .        (80)         (308)
  DeltaGraph disposition . . . . . . . . . . . . . . . . .      1,171            --
  Site Tech Acquisition (net of cash acquired) . . . . . .        (24)
                                                            ---------     ---------
        Net cash used in investing activities  . . . . . .      1,067          (308)
                                                            ---------     ---------

Cash flows from financing activities:
  Proceeds from issuance of common stock, exercise of stock
   options and warrants, net . . . . . . . . . . . . . . .         22         1,049
  Dividend payable . . . . . . . . . . . . . . . . . . . .        (13)
  Repayment of capitalized lease obligations . . . . . . .         --           (50)
                                                            ---------     ---------
        Net cash provided by financing activities. . . .            9           999
                                                            ---------     ---------

Decrease in cash and cash equivalents. . . . . . . . . . .     (3,057)       (3,097)

Cash and cash equivalents at beginning of period . . . . .      3,142         4,629
                                                            ---------     ---------
Cash and cash equivalents at end of period . . . . . . . .  $      85     $   1,532
                                                            ---------     ---------
                                                            ---------     ---------
</TABLE>

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


                                       5
<PAGE>
                                 DELTAPOINT, INC.

                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                                    UNAUDITED
                                           
NOTE 1 -- THE COMPANY AND BASIS OF PRESENTATION:

    Founded in 1989, DeltaPoint, Inc. (the Company), has headquarters in 
Scotts Valley, California, and distribution partners in the United States, 
Europe and Japan. 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 provided visualization software products that were designed to 
facilitate the collection, interpretation and management of business and 
technical information across multiple computing environments until May 1, 
1997 at which time the Company sold its DeltaGraph product line.

    The condensed financial statements should be read in conjunction with the 
audited financial statements contained in the Company's Annual Report on Form 
10-KSB.  In the opinion of management, all adjustments, including normal 
recurring accruals, necessary for a fair presentation of the Company's 
financial position, results of operations and cash flows for the interim 
periods presented have been made. The interim results are not necessarily 
indicative of the results to be expected for the entire year.

    RECENT ACCOUNTING PRONOUNCEMENTS

    In February 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 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 is 
replaced by diluted earnings per share.  If the Company had adopted this 
Statement for the nine month period ended September 30, 1996 and for the nine 
month period ended September 30, 1997, the Company's loss per share would 
have been as follows:

                                    Nine Months Ended     Nine Months Ended
                                    September 30, 1996    September 30, 1997
                                    ------------------    ------------------
Basic loss per share                     ($1.67)               ($1.58)
Diluted loss per share                   ($1.67)               ($1.58)

NOTE 2 -- NOTES PAYABLE / SERIES A PREFERRED STOCK:

    On December 31, 1996, the Company issued $2,150,000 of convertible 
promissory notes payable.  The notes bear interest at 6% payable semiannually 
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 or after March 1, March 31, and April 30, 1997, respectively.  
The conversion price of the notes is 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 and (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 deferred debt issuance costs, or $262,000, as 
additional interest expense during the three months ended March 31, 1997.  
The amortization of the discounted conversion feature resulted in an increase 
to Common Stock of $537,000.  During the nine months ended September 30, 
1997, holders of notes payable converted $2,150,000 in principal value into 
$1,530,000 of Series A Preferred Stock and 427,000 shares of Common Stock.  
The 

                                       6
<PAGE>

holders of the Series A Preferred Stock subsequently converted the $1,530,000 
of Series A Preferred Stock into 1,215,000 shares of Common Stock during the 
three months ended September 30, 1997.

NOTE 3 -- NET LOSS PER SHARE:
    
    Net loss per share is computed using the weighted-average number of 
shares of common stock and common equivalent shares, when dilutive, from 
convertible promissory notes payable (using the if-converted method) and from 
stock options and warrants (using the treasury stock method).  Pursuant to 
Securities and Exchange Commission Requirements, common and common stock 
equivalent shares, options and warrants issued by the Company during the 
12-month period prior to the Company's initial public offering have been 
included in the calculation as if they were outstanding for all periods 
presented.  Due to the net loss for the nine month periods ended September 
30, 1997 and 1996, the common stock equivalents were excluded from the net 
loss per share calculation because their effect was anti-dilutive.

NOTE 4  -- 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 $1,310,000 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 recognized the $400,000 due under the Management Agreement 
during the three months ended September 30, 1997, upon completion of all 
obligations required under the agreement. Such amount is included in other 
income.

    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:
         
         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
                                                         ---------
                                                         ---------

    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.

    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 nine months ended September 30, 1997, respectively.  Such revenues 
were 62.0% and 39.3% of total revenues for 1996 and the nine months ended 
September 30, 1997, respectively.  During 1996 and the nine months ended 
September 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.


                                       7
<PAGE>

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

                                   YEAR ENDED       NINE MONTHS
                                   DECEMBER 31,   ENDED SEPT. 30,
                                      1996             1997 
                                   (PRO FORMA)      (PRO FORMA)
            Net Revenues           $1,883,000       $1,018,000
            Net Loss               (6,115,000)      (5,999,000)
            Net Loss per Share          (2.74)           (2.02)

NOTE 5 -- SITE/TECHNOLOGIES/INC. ACQUISITION:

    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 550,029 shares of its 
Common Stock valued at $505,000, incurred net cash costs of $24,000 and 
assumed liabilities of $73,000 (for a total purchase price of $602,000) in 
exchange for all outstanding shares of Site.  The acquisition of Site was 
accounted for as a purchase. The purchase price was allocated as follows:

     In process research and development      $500,000
     Property and equipment                     68,000
     Other                                      34,000
                                              --------
                                              $602,000
                                              --------
                                              --------

In addition, the Company agreed to pay royalties on sales of certain products.

NOTE 6  -- PENDING ACQUISITION:

    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 
360,000 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. 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.

NOTE 7 --  FOLLOW-ON OFFERING (UNAUDITED):

    The Company completed a follow-on offering on October 15, 1997.  The 
Company issued 3,450,000 shares of  common stock at a per share price of 
$2.25 and realized net proceeds of approximately $6,300,000.


                                       8
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS.

    THIS REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT 
INVOLVE RISKS AND UNCERTAINTIES.  THE COMPANY'S ACTUAL RESULTS MAY DIFFER 
MATERIALLY 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 "FACTORS THAT MAY AFFECT FUTURE RESULTS" BELOW, IN "RISK 
FACTORS" IN PART I OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB AT AND FOR 
THE YEAR ENDED DECEMBER 31, 1996 AND "RISK FACTORS" IN THE COMPANY'S 
REGISTRATION STATEMENT ON FORM SB-2 (REGISTRATION  NO. 333-34825) AS FILED 
WITH THE COMMISSION ON OCTOBER 7, 1997. THE FOLLOWING DISCUSSION SHOULD BE 
READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING 
ELSEWHERE IN THIS REPORT.

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 and completed a follow-on offering in October 1997. 
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.  In July 1997 the Company acquired technology to develop Site 
Sweeper 2.0 which was released in September 1997. 

    DELTAGRAPH DISPOSITION.  On June 27, 1997, as part of the Company's 
continuing strategy to focus its development, sales and marketing efforts on 
Internet software products, the Company consummated the "DeltaGraph 
Disposition" pursuant to which the Company sold those assets related to its 
DeltaGraph software product line to SPSS, Inc. ("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 made an additional $400,000 
cash payment to DeltaPoint on August 10, 1997.  See Note 4 to the Notes to 
Condensed Financial Statements.

    In addition, to further focusing the Company on Internet software 
products, the DeltaGraph disposition provided the Company with much needed 
liquidity.  

    RECENT ACQUISITION.  On July 11, 1997, the Company consummated the "Site 
Tech Acquisition" pursuant to which the Company acquired, from 
Site/technologies/inc. ("Site"), among other things, SiteSweeper 1.0, a Web 
site quality control and maintenance product.  The Company subsequently 
developed SiteSweeper 2.0, which is designed to enable Web development and 
management professionals to maintain the integrity of mission critical Web 
based business environments.  The Company introduced SiteSweeper 2.0 in the 
third quarter of 1997. In connection with the Site Tech Acquisition, the 
Company issued a total of 550,029 shares of Common Stock with a fair value of 
$505,000, incurred net cash costs of $24,000 and assumed liabilities of 
$73,000 (for a total purchase price of $602,000) in exchange for all 
outstanding shares of Site.  The Company recognized a charge to operations of 
$500,000 in the quarter ended September 30, 1997 for the portion of the 
purchase price determined to be in-process research and development. In 
addition, the Company also agreed to pay the specified royalties on sales of 
certain products developed from the technologies acquired from Site. 

    PENDING ACQUISITION.  On April 16, 1997, DeltaPoint entered into the 
Letter of Intent for the "Inlet 


                                       9
<PAGE>

Technology Acquisition"  with, among others, Inlet, Inc. ("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 
in installments) and 360,000 shares of the Company's Common Stock payable at 
closing.  There can be no assurance that the Inlet Technology Acquisition 
will be consummated.  Such transaction is contingent on a number of factors 
including negotiation of definitive documentation.  See Note 6 to the Notes 
to Condensed Financial Statements. 

    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.

    COMPANY NAME CHANGE TO SITE TECHNOLOGIES.  In connection with the Site 
Tech Acquisition, the Company obtained the rights to the name 
Site/technologies/inc.  Beginning on October 24, 1997 the Company began doing 
business as Site Technologies.  This name change will require an amendment to 
the Company's Articles of Incorporation and, as a result, will require 
shareholder approval.  The Company has begun the legal steps necessary to 
obtain such shareholder approval.

    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 
small to medium businesses ("SMBs") and corporate department user markets for 
scalable Web site development and management 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"). 

    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 AND THE SITE TECH ACQUISITION.  As a 
result of the DeltaGraph Disposition and the Site Tech Acquisition, the 
Company's future operating results will not be comparable to its historical 
operating results and should not be 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 and the Site Tech Acquisition are the Company's net revenues, 
operating losses and gross profit for the year ended December 31, 1996 and 
the nine months ended September 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. 


                                       10
<PAGE>

                             For the Year Ended     For the Nine Months Ended
                              December 31, 1996        September 30, 1997 
                           ----------------------   -------------------------
                            Actual     Pro Forma      Actual      Pro Forma
                           --------   -----------   ----------   ------------
Net Revenues               $ 4,950      $ 1,911       $ 1,677      $ 1,047
Loss from Operations       $(4,922)     $(7,647)      $(5,054)     $(5,506)
Gross Profit Percentage       76.1%        72.5%         67.0%        65.0%

    HISTORIC AND ANTICIPATED LOSSES. The Company incurred net losses of 
$4,848,000 for the year ended December 31, 1996 and $4,699,000 for the nine 
months ended September 30, 1997, and had an accumulated deficit of 
$18,378,000 as of September 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 small to medium businesses ("SMB's") 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 Value Added retailers ("VARs"), original equipment manufacturers 
("OEMs") and Internet Service providers ("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 in order to service these markets.  

    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 (the Company's revenues in the quarter ended 
September 30, 1997 were particularly impacted by a competitor's new product 
introduction), 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 SMB and corporate departmental 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 its 6% Convertible 
Subordinated Debentures ("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 shares of the 
Company's Series A Preferred Stock ("Series A Preferred Stock").  


                                       11
<PAGE>

In July and August 1997 the remaining balance on the Convertible Notes of 
$37,500 and the Series A Preferred Stock were converted into shares of Common 
Stock.  The Series A Preferred Stock and Convertible Notes were converted 
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 aggregating $799,000 as additional interest expense.  The 
Company does not expect to record any similar charges related to these 
securities in future quarters. 

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

    NET REVENUES.  Net revenues for the three month period ended September 
30, 1997 decreased by 87.9% to $182,000 from $1,506,000 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 no revenues in 
the three month period ended September 30, 1997 as compared to $881,000 in 
the three month period ended September 30, 1996.  In addition, sales of the 
Company's Internet products were adversely affected by the Company's limited 
promotional activities due to cash constraints during this period and the 
introduction of competing products by a Company competitor. The Company 
anticipates revenues will remain flat until the Company has successfully 
expanded its use of non-retail distribution channels.  

    For the three month period ended September 30, 1997, international 
revenue decreased to 0% of net revenues compared to 26.0% of net revenues for 
the period ended September 30, 1996.  The decrease in international revenue 
was attributable to the sale of the DeltaGraph product as the Company's 
Japanese and major international distributor principally sold DeltaGraph 
products.  The Company expects international revenue to remain flat until the 
relationship with the Company's Japanese distributor is clarified or other 
international distribution channels can be established. 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.

    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 three month period ended September 30, 1997 decreased as a percentage 
of net revenues to 53.8% from 77.8% for the corresponding period in the prior 
fiscal year principally as a result of the Company's significantly reduced 
level of sales. The Company's gross profit 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 three month period
ended September 30, 1997 decreased in absolute dollars to $684,000 or 375.8% of
net revenues compared to $1,094,000 or 72.6% of revenues for the corresponding
period in the prior year. The decrease in sales and marketing expenses, in
absolute dollars, was primarily due to the Company's 


                                       12
<PAGE>

decrease in overall marketing activities due to cash flow constraints. The 
Company expects that sales and marketing expenses will increase in absolute 
dollars in future periods because the Company plans to add sales and 
marketing personnel to support the anticipated introduction of new products 
and updated versions of the Company's existing products. 

    RESEARCH AND DEVELOPMENT.  Research and development expenses for the 
three month period ended September 30, 1997 increased in absolute dollars to 
$1,245,000 or 684.1% of net revenues compared to $789,000 or 52.4% of 
revenues for the corresponding period in the prior year. The increase in 
research and development expenses was primarily due to a $500,000 write-off 
for the portion of the Site Tech Acquisition technology determined to be 
in-process research and development and a $89,000 severance charge relating 
to the departure of one of the Company's founders. The Company expects that 
research and development expenses would increase in absolute dollars in 
future periods due to further development of the Company's new products and 
updated and cross platform versions of the Company's existing products.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the 
three month period ended September 30, 1997 decreased in absolute dollars to 
$181,000 or 99.5% of net revenues compared to $206,000 or 13.7% of revenues 
for the corresponding period in the prior year. The decrease in general and 
administrative expenses was primarily attributable to the mix of general and 
administrative employees. The Company expects that general and administrative 
expenses will increase in absolute dollars in future periods to the extent 
that the Company expands its operations.

    OTHER INCOME.  Other income for the three month period ended September 
30, 1997 consists of the $400,000 management fee relating to the Deltagraph 
Disposition.

    INTEREST INCOME, NET.  Interest income, net includes interest income 
earned on cash and cash equivalents.  Interest income decreased to $1,000 
during the third quarter of fiscal 1997 from $16,000 during the comparable 
1996 period. This decrease was primarily attributable to the Company's 
decreased cash balance during the third quarter of fiscal 1997.

    PROVISION FOR INCOME TAXES.  There was no provision for taxes during the 
three month periods ended September 30, 1997 and 1996 due to net operating 
losses and the availability of net operating loss carryforwards. 

NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

    NET REVENUES.  Net revenues for the nine month period ended September 30, 
1997 decreased by 50.7% to $1,677,000 from $3,399,000 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 $658,000 of 
net revenue in the nine month period ended September 30, 1997 as compared to 
$2,021,000 in the nine month period ended September 30,1996.  In addition, 
sales of the Company's Internet products were adversely affected by the 
Company's limited promotional activities due to cash contraints during the 
period and the introduction of competing products by a Company competitor. 
Included in the September 30, 1997 revenues is a one-time license fee of 
$150,000 received from an OEM.    

    For the nine month period ended September 30, 1997, international 
revenues increased to 23.7% of net revenues from 22.0% of net revenue in the 
corresponding period in the prior year. The increase in international 
revenues was primarily due to the overall decrease in revenue due to the 
disposition of the DeltaGraph product line.  In light of the DeltaGraph 
Disposition, the Company expects that in the near-term international revenues 
attributable to Internet products will 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.  Gross profit for the nine month period ended September 30, 
1997 decreased as a percentage of net revenues to 67.0% from 71.9% for the 
corresponding period in the prior year principally as a result of the 
Company's significantly reduced level of sales.  The Company's 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, gross 
profit on the sale of DeltaGraph products was consistent with the Company's 
overall 

                                       13
<PAGE>

gross profit. 

    SALES AND MARKETING.  Sales and marketing expenses for the nine month 
period ended September 30, 1997 decreased  to $2,926,000 or 174.5% of net 
revenues from $3,145,000 or 92.5% of net revenues for the corresponding 
period in the prior year. The decrease in sales and marketing expenses, in 
absolute dollars,  was primarily due to the Company's decrease in overall 
marketing activities due to cash flow constraints.

    RESEARCH AND DEVELOPMENT.  Research and development expenses for the nine 
month period ended September 30, 1997 increased to $2,592,000 or 154.6% of 
net revenues compared to $1,877,000 or 55.2% of net revenues for the 
corresponding period in the prior year. The increase in research and 
development expenses was primarily due to a $500,000 write-off for the 
portion of the Site Tech Acquisition technology determined to be in-process 
research and development and a $89,000 severance charge relating to the 
departure of one of the Company's founders. 

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the 
nine month period ended September 30, 1997 decreased to $660,000 or 39.4% 
of net revenues compared to $1,167,000 or 34.3% 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 nine months 
ended September 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 nine months of 1997 increased 
to $852,000 from $26,000 during the first nine 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 nine months ended September 30, 
consists of the one-time gain resulting from the DeltaGraph Disposition 
consummated on June 27, 1997 and the related management fee.

    PROVISION FOR INCOME TAXES.  There was no provision for taxes during the 
nine month periods ended September 30, 1997 and 1996 due to the Company's net 
operating losses.

LIQUIDITY AND CAPITAL RESOURCES

    As of September 30, 1997, the Company had a working deficit balance of 
$1,085,000 and  shareholders' deficit of $457,000. 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


                                       14
<PAGE>

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 $4,133,000 in the nine month 
period ended September 30, 1997 and $3,788,000 for the corresponding period 
of the prior year.  Net cash used in the first nine months of 1997 consisted 
primarily of a net loss of $4,699,000 offset by non-cash items and other 
working capital changes. Net cash used in operations during the nine months 
ended September 30, 1996 consisted primarily of a net loss of $3,691,000.

    Net cash provided by financing activities were insignificant during the 
nine month period ended September 30, 1997 and totaled $999,000 for the 
corresponding period of the prior year.  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.

    Net cash provided by investing activities during the nine months ended 
September 30, 1997 totaled $1,067,000 and primarily resulted from the 
DeltaGraph Disposition offset by property and equipment purchases.  For the 
nine month period ended September 30, 1997 the Company's capital expenditures 
totaled approximately $80,000 and were attributable to acquisitions of 
personal computer and computer workstation equipment used to support the 
Company's development efforts.

    At September 30, 1997 the Company's cash and cash equivalents was 
$85,000. In October 1997 the Company closed a follow-on offering of 3,450,000 
shares of common stock at $2.25 which provided net proceeds of approximately 
$6,300,000. To the extent the Company continues to incur losses or grows in 
the future, its operating and investing activities will use cash and, 
consequently, such losses or growth may require the Company to obtain 
additional sources of financing in the future.  In addition, the Company's 
actual capital needs will depend upon numerous factors, including the 
progress of the  Company's software development activities and the amount of 
cash generated from operations, none of which can be predicted with 
certainty. 

                                       15
<PAGE>

FACTORS THAT MAY AFFECT FUTURE RESULTS

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 $4,699,000 for the nine months ended September 30, 1997, and had 
an accumulated deficit of $18,378,000 as of September 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.  

    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 contained in the 
Company's Annual Report on Form 10-KSB.  

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; QuickSite 2.5, its updated version of QuickSite 1.0, introduced in May 
1997; and Site Sweeper 2.0, its quality control product for the Web 
professional.  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 solutions, 
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 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" and "--Distribution Risks; 
Substantial Reseller Customer Concentration." 

                                       16
<PAGE>

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 solutions, the Company consummated the Site Tech Acquisition in 
July 1997 and has entered into the pending Inlet Technology Acquisition.  The 
Company has introduced SiteSweeper 2.0, an updated version of the SiteSweeper 
1.0 product acquired in the Site Tech Acquisition and plans to introduce 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 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 departmental user markets, the Company must 
significantly increase its non-retail  distribution channels.  See 
"--Distribution Risks; Substantial Reseller Customer Concentration". 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 small 
office/home office ("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 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 expensed a  
significant portion of the Site Tech purchase price as in-process technology 
because the acquired technology had not reached technological feasibility and 
has no alternative future use.  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 


                                       17
<PAGE>

Company's business, financial condition and results of operations. 

    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 its 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. 

DISTRIBUTION RISKS; SUBSTANTIAL RESELLER CUSTOMER CONCENTRATION

    The Company currently sells its software products targeted at the 
individual and Small Office Home Office ("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." 

    The Company intends to introduce products targeted at the SMB and 
enterprise department user markets.  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." To 
the extent that the Company succeeds in its strategy to target the SMB and 
enterprise department user markets, among 


                                       18
<PAGE>

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. 

    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 10% for the nine months 
ended September 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 nine months ended September 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.  


RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DELAYS; RISK OF PRODUCT DEFECTS

    The markets in which the Company competes are characterized by ongoing 
technological developments, frequent new product announcements and 
introductions, evolving industry standards and changing customer 
requirements. The introduction of products embodying new technologies and the 
emergence of new industry standards and practices can render existing 
products obsolete and unmarketable. The Company's future success depends upon 
its ability on a timely basis to enhance its existing products, introduce new 
products that address the changing requirements of its customers and 
anticipate or respond to technological advances, emerging industry standards 
and practices in a timely, cost-effective manner. There can be no assurance 
that the Company will be successful in developing, introducing and marketing 
new products or enhancements to existing products or will not experience 
difficulties that could delay or prevent the successful development, 
introduction or marketing of these products, or that its new products and 
product enhancements will adequately meet the requirements of the marketplace 
and achieve any significant degree of commercial acceptance.  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. 

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 


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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, SoftQuad, Inc. Systems and NetObjects, 
Incorporated (majority owned by IBM).  In the market for Internet software 
solutions targeted at the SMB and corporate departmental 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. 

    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. 

RISKS ASSOCIATED WITH PRODUCT RETURNS; PRICE PROTECTION

   Consistent with industry practice, the Company allows distributors, 
retailers and end users to return products for credits towards the purchase 
of additional products. In addition, DeltaPoint's promotional activities, 
including free trial and satisfaction guaranteed offers, and competitors' 
promotional or other activities could cause returns to increase sharply at 
any time. Further, the Company expects that the rate of product returns could 
increase to the extent that the Company introduces new versions of its 
existing products. For example, product returns may increase above historical 
levels as a result of new product introductions. In addition, if the Company 
reduces its prices, the Company credits its distributors for the difference 
between the purchase price of products remaining in their inventory and the 
Company's reduced 


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<PAGE>

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. 

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 its products primarily under "shrink wrap" license agreements that 
are included in products shipped by the Company and are not signed by 
licensees, therefore they may be unenforceable under the laws of certain 
jurisdictions. In addition, some aspects of the Company's products are not 
subject to intellectual property protection.

    The Company cannot be certain that others will not independently develop 
substantially equivalent or superseding proprietary technology, or that an 
equivalent product will not be marketed in competition with the Company's 
products, thereby substantially reducing the value of the Company's 
proprietary rights. There can be no assurance that any confidentiality 
agreements between the Company and its employees will provide adequate 
protection for the Company's proprietary information in the event of any 
unauthorized use or disclosure of such proprietary information. 

    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.

VOLATILITY OF STOCK PRICE

    The Company's stock price has exhibited substantial volatility since the 
Company's initial public offering in December 1995. The trading price of the 
Company's Common Stock could be subject to significant fluctuations in 
response to variations in quarterly operating results, changes in analysts' 
estimates, announcements of technological innovations by the Company or its 
competitors, general conditions in the Internet tools and visualization 
software 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 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


                                       21
<PAGE>

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 should it ever 
satisfy the conditions of listing 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 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.


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<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS. 

          There are no material pending legal proceedings against the Company.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

          (a)  List of Exhibits

                   27.1 Financial Data Schedule

          (b)  Reports on Form 8-K
         
          On September 22, 1997, the Company filed an amended 8-K related to the
          acquisition of Site/technologies/inc.  


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<PAGE>

                                   SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.


                                       DELTAPOINT, INC.


                                       By:  /s/ Jeffrey F. Ait
                                            ------------------------------
                                            Jeffrey F. Ait
                                            Chief Executive Officer 
                                            (Principal Accounting Officer)




Date:  November 14, 1997


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