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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-27168
VIEWPOINT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4102687
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
498 SEVENTH AVENUE, SUITE 1810, NEW YORK, NY 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 201-0800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK,
$0.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
As of March 16, 2001, there were outstanding 38,187,658 shares of the
registrant's Common Stock, $0.001 par value, which is the only outstanding class
of common or voting stock of the registrant. As of that date, the aggregate
market value of the shares of Common Stock held by non-affiliates, based upon
the last sale price of the shares as reported on the NASDAQ National Market
System on such date, was approximately $96,789,384.
DOCUMENTS INCORPORATED BY REFERENCE:
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VIEWPOINT CORPORATION
FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 12
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for Registrant's Common Equity and Related 14
Stockholder Matters.......................................
Item 6. Selected Financial Data..................................... 15
Item Management's Discussion and Analysis of Financial Condition 16
7..... and Results of Operations.................................
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 22
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting 49
and Financial Disclosure..................................
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 57
Item 11. Executive Compensation...................................... 59
Item 12. Security Ownership of Certain Beneficial Owners and 62
Management................................................
Item 13. Certain Relationships and Related Transactions.............. 63
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 66
8-K.......................................................
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PART I
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates," variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and assumptions that are difficult to predict. Therefore, actual results could
differ materially from those expressed or forecasted in any such forward-
looking statements as a result of certain factors, including those set forth in
"Additional Factors Affecting Future Results." In connection with
forward-looking statements which appear in these disclosures, investors should
carefully review the factors set forth in this Form 10-K under "Additional
Factors Affecting Future Results."
ITEM 1. BUSINESS
Viewpoint Corporation, a Delaware corporation ("Viewpoint" or the
"Company"), provides e-commerce visualization solutions for the World Wide Web
(the "web" or the "internet"). Our technology, which we call Viewpoint
Experience Technology, is designed to make the use of rich media on the web,
particularly photo-realistic 3D, practical and widespread.
VIEWPOINT EXPERIENCE TECHNOLOGY
Viewpoint Experience Technology allows websites to integrate numerous rich
media types seamlessly on regular web pages. These media types, particularly
interactive 3D, can add dimension, animation, realistic color, shadows and
real-time reflections, movement and robust interactivity to formerly flat web
images. It enables users to better access and interact with images, rotate them,
change colors and patterns, all while experiencing extraordinary visual
dimension and accuracy. Viewpoint Experience Technology serves up these enhanced
product images so that every user, even those on narrowband connections, can
access and interact with them easily.
A key component of the Viewpoint Experience is the Viewpoint Media Player,
which allows the seamless integration of all major media types, including
Viewpoint Experience Technology, photographic panoramas, audio, object movies,
vector text and more. With the Viewpoint Media Player, internet end-users now
have easy access to a new, richer yet totally accessible media format.
While Viewpoint Experience Technology offers significant advantages to all
web users and website operators, we believe its most promising immediate
commercial application is as a means to make web marketing, branding and
commerce more effective.
VIEWPOINT PROFESSIONAL SERVICES
Viewpoint provides fee-based professional services for implementing
e-commerce visualization solutions. Our strategic, creative and consulting
services bring together our team of experts in 3D technology, content creation
and technology implementation to identify the ideal Viewpoint solution for each
client's unique needs and to ensure the timely, successful implementation of
that solution. Our professional services group uses Viewpoint Experience
Technology, as well as a spectrum of other tools and technology to create
enhanced multimedia 3D images for the web. Our professional services group
provides the support our clients need to implement 3D product and brand
visualization on their websites or in their advertising.
In addition to providing web services, our professional services group also
develops realistic digital effects and animation for the entertainment and game
industries, for film producers, and for major brands, advertising agencies and
commercial production houses. Our custom 3D models have had starring and
supporting roles in numerous feature films, including Dungeons & Dragons, What
Lies Beneath, The World is Not Enough,
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ANTZ, Star Trek, Insurrection, Independence Day, Air Force One and Godzilla.
Viewpoint's work can also be seen in:
- game titles such as Danger Girls, Need for Speed, Interstate '82,
Pandora's Box and Gauntlet: Dark Legends;
- television programs such as Star Trek Voyager and Jonny Quest;
- television advertisements for Toyota, Dodge, Taco Bell and Nike; and
- Viewpoint Experience Technology-enabled websites for companies such as
The Sharper Image, Remington, Sony, eluxury.com and Hewlett-Packard.
MARKET OPPORTUNITY
The number of internet users has increased rapidly over the past several
years. The Company believes that this growth will result in increasing
expenditures for online advertising, branding, and e-commerce, and that such
communications will increasingly utilize rich media formats. Forrester Research
projects that digital marketing campaigns that integrate online advertising,
promotions and e-mail strategies will reach $63 billion by 2005, a 42% compound
annual growth rate over the $11 billion spent in 2000. Jupiter Communications
projects that by 2005, almost 30 percent of online advertising will contain rich
media content. Jupiter Communications also estimates that online retail spending
will reach $118 billion by 2005, up from $24 billion in 2000. Similarly,
Forrester Research estimates that the e-commerce services market will increase
from $10.6 billion in 1999 to $64.8 billion in 2003.
The Company believes it is well positioned to capitalize on this trend to
rich media marketing. Viewpoint Experience Technology helps engage the
customer's attention and effectively communicate brand attributes and product
features and benefits. The Company believes that its Viewpoint Experience
Technology meets the market's requirements for:
- Effective merchandising to build brand awareness and drive sales.
- Realistic product interaction.
- Interoperability of all other media types required for compelling product
displays (including, for example, 3D, vector graphics, sound and
animation).
- Excellent compression and streaming delivery at narrowband and broadband
data rates.
- Client-side data logging of the use of downloaded rich media.
VIEWPOINT'S BUSINESS MODEL
The Company's business model differs from that of many other companies that
have developed website design and content-creation software for sale or license
to a target market of internet professionals -- that is, website developers,
interactive agencies, solutions integrators, application service providers
(ASPs) and content developers, as well as professionals working in-house at
e-merchants and other website owners. Instead of seeking our revenues primarily
by selling tools to internet professionals -- a relatively small market -- the
Company has sought to primarily target the much larger market of e-commerce
merchants and other website owners.
The Company's licensing strategy focuses on earning fees by providing
content providers with the ability to broadcast web content in the Viewpoint
format. Viewpoint's technology is designed so that content in the Viewpoint
format that is broadcast or otherwise distributed without a valid "key" will be
spoiled by a "watermarking" image. The Company offers these keys through a
variety of broadcast license arrangements that are tailored to the specific
needs of different clients. Many licenses are time-based and are tied to a
specific website address, permitting a client to broadcast unlimited Viewpoint
content for a limited period of time and from a single website address. The
Company also offers other types of broadcast licenses to clients who wish to
broadcast from multiple websites or for an unlimited period of time, to
"narrowcast" only to a
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local area network or intranet, or to distribute content by means of CDs, DVDs
and other portable storage media. The Company believes that this revenue model,
if successful, should produce a recurring stream of revenues from existing
clients and the opportunity to scale income substantially as new customers are
acquired.
A cornerstone of our strategy has been to pursue assignments to design
websites for the world's best brand names in each of several important product
categories. Success in this effort has the double benefit of driving those
companies' competitors to our technology, and of gaining exposure for Viewpoint
from these popular, much-marketed sites. The Company has been successful in
securing significant licensing transactions with many high-profile companies
such as Sony, Nike, Eddie Bauer, The Sharper Image, and others.
Another key aspect of our approach is an "open tools" philosophy. The
Company believes that the long-term success of its platform will be fueled by
having the most popular content creation tools natively output in the Viewpoint
format, rather than requiring design professionals to use Viewpoint's own
proprietary toolset. This approach also eliminates much of the very large cost
associated with development and support of proprietary commercial toolsets.
Another advantage of this strategy is that software tools companies that do
incorporate Viewpoint functionality, such as Adobe and Autodesk, have natural
incentives to promote the Viewpoint platform. More than 30 companies are
developing or have developed support for the Viewpoint format within their
tools. In addition, we make available on our website, without charge, the core
software necessary to develop Viewpoint content, as well as extensive tutorials
and related materials.
The Company further believes that its professional services group forms an
integral part of its overall strategy. Professional services provide a
significant revenue opportunity, through the sale of complete solutions
comprising technology and content creation services to customers desiring a
single vendor solution. At the same time, the group increases our ability to
sell broadcast licenses, by enabling us to offer Viewpoint content to clients
who are impressed by the advantages of Viewpoint Experience Technology but who
do not wish to create Viewpoint content themselves. Also, the group's work keeps
us on the cutting-edge of the industry, giving us hands-on experience with the
design and development problems faced by our own clients, and enabling us to
provide thorough, up-to-date training for other industry professionals.
While we believe our strategy of focusing on broadcast licensing fees and
professional services is the right one, it is a new business model for the
Company. The majority of the Company's revenues from continuing operations have
historically been from strategic partners. Specifically, revenues from the
National Center for Missing and Exploited Children and Computer Associates
accounted for 26% and 14% of total revenues, respectively, in 2000; revenues
from Intel and Computer Associates accounted for 49% and 39% of total revenues,
respectively, in 1999; and revenues from Intel, Kodak and Minolta accounted for
66%, 15% and 15% of total revenues, respectively, in 1998. The Company's
decision to de-emphasize these one-time technology licenses, in favor of
implementing the current broadcast licensing model, was made at the end of March
2000, and there can be no assurance that our new strategy will prove to be
successful.
STRATEGIC ALLIANCES
Forging strategic alliances with a wide range of companies in our own and
related industries is a principal engine of our expected future growth. These
alliances have taken a number of forms. The Company has entered into several
marketing, distribution and licensing agreements, with companies such as AOL,
Adobe and Computer Associates, to obtain wider distribution of the Viewpoint
Media Player and to leverage these companies' large sales forces. The Company
will continue to pursue such transactions, especially where distribution and
indirect sales leverage can be gained.
The Company also aggressively pursues alliances with interactive agencies,
internet professionals and traditional advertising agencies, who already have
strong relationships with website owners. In this way, the Company believes it
can accelerate access to key target markets. As part of a value added reseller
(VAR) relationship with these intermediaries, we generally provide them with
software tools, including the Company's proprietary 3D capture technologies, as
well as with training and support, and with financial
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incentives to evangelize for Viewpoint Experience Technology. Our VAR partners
are entitled to a reseller commission for each broadcast license that they
place. In effect, these VARs enable us to leverage our strategic partners'
relationships as an indirect sales force while minimizing our own sales and
marketing expenses.
The following table lists some of the internet professionals and
Independent Software Vendors (ISVs) with whom we have formed alliances to date:
INTERACTIVE AGENCIES
Design Media FCBi
Fry Multimedia
Grey Interactive
Impossible, Inc.
Organic
Rare Medium
Razorfish
rp interactive
Symetri
SOLUTIONS INTEGRATORS AND ASPS
Computer Associates
Cybelius
IP Technologies
Kusp Limited
Reality Buy
CONTENT DEVELOPERS
e-Vox
SIA Sistemas
SOFTWARE VENDORS
Adobe Systems, Inc.
Autodesk, Inc.
C3D Imaging
Curious Labs
egi.sys AG
Internet Pictures Corporation
INUS Technology Inc.
Okino Computer Graphics
Raindrop Geomagic
Right Hemisphere
Softimage
SolidWorks
Testarossa
Think 3
COMPETITION
The Company's current competitors include Cycore AB (Cult3D); IBM
Corporation (Hotmedia); Macromedia, Inc.; Shells Interactive Ltd. (3D
Dreams -- in conjunction with Macromedia, Inc.'s Shockwave); Pulse
Entertainment; Shout 3D; Virtue 3D, Inc. (Virtuoso); and Rich FX. Some of the
Company's competitors have longer operating histories and significantly greater
financial, management, technology, development, sales, marketing and other
resources than the Company. As the Company competes with larger competitors
across a broader range of products and technologies, the Company may face
increasing competition from such companies. If these or other competitors
develop products, technologies or solutions that offer significant performance,
price or other advantages over those of the Company, the Company's business
would be harmed.
A variety of other possible actions by the Company's competitors could also
have a material adverse effect on the Company's business, including increased
promotion or the introduction of new or enhanced products and technologies.
Moreover, new personal computer platforms and operating systems may provide new
entrants with opportunities to obtain a substantial market share in the
Company's markets.
The Company's competitors may be able to develop products or technologies
comparable or superior to those of the Company, or may be able to develop new
products or technologies more quickly. The Company also faces competition from
developers of personal computer operating systems such as Microsoft and Apple
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Computer, Inc., as well as from open-source operating systems such as Linux.
These operating systems may incorporate functions that could be superior to or
incompatible with the Company's products and technologies. Such competition
would adversely affect the Company's business.
The Company believes that Viewpoint Experience Technology offers
significant advantages over many of our competitors' products:
- GREATER VISUAL REALISM -- We believe that 3D images created in the
Viewpoint format offer higher quality and a more true-to-life online
experience than competitors' formats.
- INTERACTIVITY -- Viewpoint Experience Technology lets a customer interact
with our clients' brands and examine their products in ways not possible
with our competitors' formats. Viewpoint lets consumers pick up/put down,
zoom in/out, see how parts move, add/remove components, turn products
on/off, change colors/fabrics/textures.
- NARROWBAND FRIENDLY -- Viewpoint's proprietary compression technology,
TrixelsNT, greatly cuts download time of 3D objects to almost what is
expected from ordinary 2D images, so that even consumers with slow
connections to the internet can see 3D images quickly and can manipulate
them in real time.
- SEAMLESS INTEGRATION -- Viewpoint integrates seamlessly with other rich
media types like IPIX Panoramas, vector text, audio and more, enabling
clients to create more compelling web experiences.
- NO POP-UP WINDOWS -- Viewpoint's transparent "windowless rendering"
allows 3D images to share space on the page with text, graphics, and even
buttons and hyperlinks.
- AUTOMATIC UPDATES -- Once users download the Viewpoint Media Player, they
automatically receive all releases and upgrades. Because new releases and
additional functionality are sent automatically, in the background,
users' online experience is never interrupted.
PRODUCT DEVELOPMENT
Continuous development of new products and enhancement of our existing
products is critical to our success. The Company's principal current product
development efforts are focused on the development of Viewpoint and other
complementary technologies. From time to time, the Company may also acquire
basic software technologies that it considers complementary to its Viewpoint
solution.
The Company's growth will be dependent upon the introduction of new
products, technologies and services and future enhancements to existing products
and technologies. Any such new products, technologies or enhancements may not
achieve market acceptance. In addition, the Company has in the past experienced
delays in the development of new products, technologies and enhancements, and
such delays may occur in the future. If the Company were unable, due to resource
constraints or technological or other reasons, to develop and introduce such
products, technologies or enhancements in a timely manner, this inability could
have a material adverse effect on the Company's business. In particular, the
introductions of new products, technologies and enhancements, are subject to the
risk of development delays. Any delay in the availability of new products,
technologies and enhancements could have a material adverse effect on the
Company's business.
The Company's research and development expenses were approximately $6.3
million, $2.7 million, and $1.6 million, for 2000, 1999, and 1998, respectively.
The Company anticipates the hiring of additional engineers in connection with
its continued product development efforts, which will result in increased
research and development expenses.
INTELLECTUAL PROPERTY
The Company regards its patents, copyrights, service marks, trademarks,
trade dress, trade secrets, propriety technology and similar intellectual
property as critical to its success, and relies on trademark, copyright and
patent law, trade secret protection and confidentiality and/or license
agreements with its
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employees, partners, customers and others to protect its proprietary rights. The
Company has applied for the registration of certain of its trademarks and
service marks in the United States and internationally. In addition, the Company
has filed U.S. and international patent applications covering certain of its
proprietary technology. Effective trademark, service mark, copyright, patent and
trade secret protection may not be available in every country in which the
Company's products and services are made available online. The Company has
licensed in the past, and expects that it may license in the future, certain of
its proprietary rights, such as patents, trademarks, technology or copyrighted
material, to third parties.
EMPLOYEES
As of March 15, 2001, Viewpoint Corporation had 228 full time employees,
including 62 in sales and marketing; 93 in creative services; 41 in research,
development and quality assurance; and 32 in administration. The Company also
employs independent contractors. The employees and the Company are not parties
to any collective bargaining agreements, and the Company believes that its
relationships with its employees are good.
ADDITIONAL FACTORS AFFECTING FUTURE RESULTS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates," variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and assumptions that are difficult to predict. Therefore, actual results could
differ materially from those expressed or forecasted in any such forward-
looking statements as a result of certain factors, including those listed below.
Shares of the Company's common stock are speculative in nature and involve
a high degree of risk. The following risk factors should be considered
carefully. The risks described below are not the only ones facing the Company.
Many factors could cause our results to be different, including the following
risk factors and other risks described in this document. If any of the following
risks occur, our business would likely be adversely affected and the trading
price of the Company's common stock could decline. This could result in a loss
of all or part of your investment.
WE HAVE A LIMITED OPERATING HISTORY THAT MAKES AN EVALUATION OF OUR BUSINESS
DIFFICULT
We have been developing e-commerce visualization solutions for the Web
since our acquisition of Real Time Geometry Corp. in December 1996.
Additionally, the e-commerce market is relatively new and evolving rapidly.
Accordingly, we have a relatively short operating history in this market upon
which you can evaluate our business and prospects. You should consider our
prospects in light of the risks and difficulties frequently encountered by early
stage online companies, including, but not limited to:
- We have an evolving and unpredictable business model;
- We face intense competition;
- We must establish and develop broad market acceptance of our products,
technologies and services;
- We must continue to develop new products, technologies and enhancements;
- We must respond quickly to rapidly changing market developments, customer
demands and industry standards;
- We must attract, train and retain qualified employees; and
- We must effectively manage our growth.
If we are not successful in addressing these risks and challenges, we will
not be able to grow our business, compete effectively or achieve profitability.
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WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE
We have had significant quarterly and annual operating losses since our
inception, and as of December 31, 2000, we had an accumulated deficit of
approximately $145,814,000. We have recently changed the focus of our business
from prepackaged graphics software products to e-commerce visualization
solutions. We believe that, despite this change in our strategic focus, we will
continue to incur operating losses for the foreseeable future.
OUR FUTURE REVENUES MAY BE UNPREDICTABLE AND MAY CAUSE OUR QUARTERLY RESULTS TO
FLUCTUATE
As a result of our limited operating history and the rapidly changing
nature of the markets in which we compete, we may be unable to forecast our
quarterly and annual revenues accurately. If our future quarterly operating
results fall below the expectations of securities analysts or investors, the
trading price of our common stock will likely drop. Our quarterly operating
results have fluctuated significantly in the past and may continue to fluctuate
in the future as a result of many factors, including:
- Ability to retain existing customers, attract new customers, and satisfy
our customers' demands;
- Market acceptance of our products, technologies and services;
- Introduction or enhancement of new products, technologies or services by
us or our competitors;
- Changes in prices for our products, technologies and services or our
competitors' products, technologies and services;
- Changes in usage of the Internet and online services and consumer
acceptance of the Internet and e-commerce;
- Costs of litigation and intellectual property protection;
- Growth in Internet use;
- Emergence of new competition;
- Varying operating costs and capital expenditures related to the expansion
of our business operations and infrastructure; and
- Technical difficulties with our technologies.
Based on these factors, we believe our revenues, expenses and operating
results could vary significantly in the future and period-to-period comparisons
should not be relied upon as indications of future results.
Our staffing and other operating expenses are based in large part on
anticipated revenues. It would be difficult for us to adjust our spending to
compensate for any unexpected shortfall. If we are unable to reduce our spending
following any such shortfall, our results of operations would be adversely
affected.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS
We expect that our cash on hand, cash equivalents, marketable securities
and short-term investments will meet our working capital and capital expenditure
needs for at least the next 12 months. After that time, we may need to raise
additional funds and we cannot be certain that we would be able to obtain
additional financing on favorable terms, if at all. If we cannot raise funds, if
needed, on acceptable terms, we may not be able to develop or enhance our
products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, which could have a material adverse
effect on our business, operating results and financial condition.
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OUR STOCK PRICE IS VOLATILE AND MAY CONTINUE TO FLUCTUATE IN THE FUTURE
The market price of our common stock has fluctuated significantly in the
past. The price at which our common stock will trade in the future will depend
on a number of factors including:
- Our historical and anticipated operating results;
- General market and economic conditions;
- Our announcement of new products, technologies or services;
- Actual or anticipated fluctuations in our operating results; and
- Developments regarding our products, technologies or services, or those
of our competitors.
In addition, the stock market has experienced extreme price and volume
fluctuations in recent months. This volatility has had a substantial effect on
our stock price, as well as the stock prices of other software companies,
particularly Internet companies. These broad market and industry fluctuations
may adversely affect the market price of our common stock. As a result, the
market price of our common stock may continue to fluctuate.
Also, securities class action litigation has often been brought against
companies following periods of volatility in the market price of its securities.
We may in the future be the target of similar litigation. Securities litigation
could result in substantial costs and divert management's attention and
resources, which could have a material adverse effect on our business, operating
results and financial condition.
IF THE INTERNET DOES NOT CONTINUE TO EXPAND AS A WIDESPREAD COMMERCE MEDIUM,
DEMAND FOR OUR PRODUCTS AND TECHNOLOGIES MAY DECLINE SIGNIFICANTLY
The market for our products, technologies and services is new and evolving
rapidly. Growth in this market depends on increased use of the Internet for
e-commerce. If the rate of adoption of the Internet as a method for e-commerce
slows, the market for our products, technologies and services may not grow, or
may develop more slowly than expected.
We believe that increased Internet use may depend on the availability of
greater bandwidth or data transmission speeds or on other technological
improvements, and we are largely dependent on third party companies to provide
or facilitate these improvements. Changes in content delivery methods and
emergence of new Internet access devices such as TV set-top boxes could
dramatically change the market for streaming media products and services if new
delivery methods or devices do not use streaming media or if they provide a more
efficient method for transferring data than streaming media.
The e-commerce market is relatively new and evolving. Licensing of our
products and technologies depends in large part on the development of the
Internet as a viable commercial marketplace. There are now substantially more
users and much more "traffic" over the Internet than ever before, use of the
Internet is growing faster than anticipated, and the technological
infrastructure of the Internet may be unable to support the demands placed on it
by continued growth. Delays in development or adoption of new technological
standards and protocols, or increased government regulation, could also affect
Internet use. In addition, issues related to use of the Internet, such as
security, reliability, cost, ease of use and quality of service, remain
unresolved and may affect the amount of business that is conducted over the
Internet.
OUR MARKET IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGY, AND IF WE DO NOT
RESPOND IN A TIMELY MANNER, OUR PRODUCTS AND TECHNOLOGIES MAY NOT SUCCEED IN THE
MARKETPLACE
The market for e-commerce visualization is characterized by rapidly
changing technology. As a result, our success depends substantially upon our
ability to continue to enhance our products and technologies and to develop new
products and technologies that meet customers' increasing expectations.
Additionally, we may not be successful in developing and marketing enhancements
to our existing products and technologies or introducing new products and
technologies on a timely basis. Our new or enhanced products and technologies
may not succeed in the marketplace.
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We expect our research and development expenditures will increase in the
future. If our increased research and development spending is not accompanied by
increased revenues, our business would be harmed.
POTENTIAL DELAYS IN PRODUCT RELEASES COULD HARM OUR BUSINESS
We also depend upon internal efforts for the development of new products,
technologies and enhancements. In the past, we have had delays in the
development of new products, technologies and enhancements. We may experience
similar delays in the future, which would harm our business.
UNDETECTED ERRORS IN OUR PRODUCTS AND TECHNOLOGIES COULD RESULT IN ADVERSE
PUBLICITY, REDUCED MARKET ACCEPTANCE OR LAWSUITS BY CUSTOMERS
We offer complex software products and technologies, which may contain
undetected errors. If errors are found in our products or technologies after we
have commercially released them, we could likely experience adverse publicity,
reduced market acceptance or lawsuits by customers. This would adversely affect
our business.
IN ORDER TO INCREASE MARKET AWARENESS OF OUR PRODUCTS AND GENERATE INCREASED
REVENUE WE NEED TO EXPAND OUR SALES AND MARKETING CAPABILITIES
We must expand our sales and marketing operations to increase market
awareness of our products and generate increased revenue. We cannot be certain
that we will be successful in these efforts. In addition, market acceptance of
these and future products will depend on continued market development for
Internet products and services and the commercial adoption of standards on which
our Viewpoint technology products are based. We have recently expanded our sales
force and plan to hire additional personnel. Our products and services require a
sophisticated sales effort targeted at the senior management of our prospective
clients. New hires will require training and take time to achieve full
productivity. We cannot be certain that our recent hires will become as
productive as necessary or that we will be able to hire enough qualified
individuals or retain existing employees in the future.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
Our success and ability to compete partly depend on the uniqueness or value
of our products and technologies. We rely on a combination of copyright,
trademark, patent, trade secret laws, employee and third-party nondisclosure
agreements and exclusive contracts to protect our intellectual and proprietary
rights, products, and technologies. Policing unauthorized use of our products
and technologies is difficult and the steps we take may not prevent the
misappropriation or infringement of technology or proprietary rights. In
addition, litigation may be necessary to enforce our intellectual property
rights. Such misappropriation or litigation could result in substantial costs
and diversion of resources and the potential loss of intellectual property
rights, any of which would adversely impair our business.
Our products and technologies may be the subject of infringement claims in
the future. This could result in costly litigation and could require us to
obtain a license to the intellectual property of third parties. We may be unable
to obtain licenses from these third parties on favorable terms, if at all. Even
if a license is available, we may have to pay substantial royalties to obtain
it. If we cannot obtain necessary licenses on reasonable terms, our business
would be adversely affected.
SECURITY RISKS COULD LIMIT THE GROWTH OF E-COMMERCE AND EXPOSE US TO LITIGATION
OR LIABILITY
E-commerce depends on the ability to transmit confidential information
securely over public networks. Any compromise of our customers' ability to
transmit confidential information securely could harm our business. Online
transmissions are subject to the following risks, among others:
- Encryption and authentication technology may be subject to events or
developments that could compromise or breach the security of customer
information;
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- A third party could circumvent security measures and misappropriate
proprietary information or interrupt operations;
- Credit card companies could restrict online credit card transactions; or
- Security breaches could damage our or our customers' reputation and
expose us to litigation or liability.
INCREASING GOVERNMENT REGULATION COULD INCREASE OUR COST OF DOING BUSINESS OR
INCREASE OUR LEGAL EXPOSURE
In 1999 Congress passed legislation that regulates certain aspects of the
Internet, including on-line content, copyright infringement, user privacy,
taxation, access charges, liability for third-party activities and jurisdiction.
In addition, federal, state, local and foreign governmental organizations have
and may continue to enact legislation applicable to the Internet in areas such
as content distribution, performance and copying, other copyright issues,
network security, encryption, the use of key escrow data, privacy protection,
caching of content by server products, electronic authentication or "digital"
signatures, illegal or obscene content, access charges and retransmission
activities. The applicability to the Internet of existing laws governing issues
such as property ownership, content, taxation, defamation and personal privacy
is also uncertain. Export or import restrictions, new legislation or regulation
or governmental enforcement of existing regulations may limit the growth of the
Internet, increase our cost of doing business or increase our legal exposure.
In addition, our business may be indirectly affected by our clients who may
be subject to such legislation. Increased regulation of the Internet may
decrease the growth in the use of the Internet, which could decrease the demand
for our services, increase our cost of doing business or otherwise have a
material adverse effect on our business, results of operations and financial
condition.
WE RECENTLY ACQUIRED VIEWPOINT DIGITAL, INC. AND MAY NEED TO ENTER INTO OTHER
BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES WHICH COULD BE DIFFICULT TO
INTEGRATE AND MAY DISRUPT OUR BUSINESS
On September 8, 2000, we acquired Viewpoint Digital, Inc., as described in
footnote 1 to the financial statements herein. In addition, we may continue to
expand our operations or market presence by entering into other business
combinations, investments, joint ventures or other strategic alliances with
other companies. These transactions create risks such as:
- Difficulty assimilating the operations, technology and personnel of the
combined companies;
- Disruption of our ongoing business;
- Problems retaining key technical and managerial personnel;
- Expenses associated with amortization of goodwill and other purchased
intangible assets;
- Additional operating losses and expenses of acquired businesses; and
- Impairment of relationships with existing employees, customers and
business partners.
If the Viewpoint Digital acquisition or such other business combinations
and strategic alliances are not successful in addressing these risks, our
business would be adversely affected.
THE LOSS OF ANY OF OUR KEY PERSONNEL WOULD HARM OUR BUSINESS
We depend on the continued employment of our senior executive officers and
other key management personnel. We do not have any long-term employment
agreements (other than an employment agreement with Jeffrey Kaplan, CFO, for a
term of 3 years) with any of our key personnel, and we do not have "key person"
life insurance policies. If any of our senior officers or other key employees
leave our company and are not adequately replaced, our business would be
adversely affected.
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OUR REVENUES COULD BE NEGATIVELY AFFECTED BY THE LOSS OF STRATEGIC PARTNERS
The majority of the Company's revenues have historically been from
strategic partners. Specifically, revenues from the National Center for Missing
and Exploited Children and Computer Associates accounted for 26% and 14% of
total revenues, respectively, 2000; revenues from Intel and Computer Associates
accounted for 49% and 39% of total revenues, respectively, in 1999; and revenues
from Intel, Kodak and Minolta accounted for 66%, 15% and 15% of total revenues,
respectively, in 1998. The loss of any strategic partner could significantly
reduce our revenues, which could have a material adverse effect on our financial
condition, operating results and business.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO IDENTIFY, HIRE, TRAIN AND RETAIN
HIGHLY QUALIFIED EMPLOYEES
Our future success depends on our continuing ability to identify, hire,
train and retain other highly qualified technical and managerial employees. The
competition for such employees is intense, and we have experienced difficulty in
identifying and hiring qualified engineering personnel. If we do not succeed in
attracting and retaining necessary technical and managerial employees in the
future, our business would be adversely affected.
Additionally, in order to attract and retain employees in the past, we have
granted options to purchase shares of common stock to employees at an exercise
price below the fair value of the common stock on the date of grant. As a
result, we have had to record deferred compensation related to the intrinsic
value of the option. This deferred compensation is amortized over the vesting
period of applicable options, which is generally four years, resulting in a
non-cash charge to earnings over the related vesting period. If we have to issue
additional options at an exercise price below the fair value of the common stock
on the date of grant, our business would be adversely affected.
OUR CHARTER DOCUMENTS COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE
US.
Our Certificate of Incorporation and By-laws are designed to make it
difficult for a third party to acquire control of us, even if a change in
control would be beneficial to stockholders. For example, our Certificate or
Incorporation authorizes our Board of Directors to issue up to 5,000,000 shares
of "blank check" preferred stock. Without stockholder approval, the Board of
Directors has the authority to attach special rights, including voting and
dividend rights, to this preferred stock. With these rights, preferred
stockholders could make it more difficult for a third party to acquire our
company.
In addition, we must receive a stockholders' proposal for an annual meeting
within a specified period for that proposal to be included on the agenda.
Because stockholders do not have the power to call meetings and are subject to
timing requirements in submitting stockholder proposals for consideration at an
annual or special meeting, any third-party takeover not supported by the Board
of Directors would be subject to significant delays and difficulties.
OUR BUSINESS IS SUBJECT TO GENERAL ECONOMIC CONDITIONS
Our revenues and results of operations will be subject to fluctuations
based upon the general economic conditions in the United States and, to a lesser
extent, abroad. If there is a general economic downturn or a recession in the
United States, we expect that business enterprises, including our customers and
potential customers, could substantially and immediately reduce their budgets or
delay implementation of Internet-focused business solutions. A deterioration in
existing economic conditions could therefore materially and adversely affect our
financial condition, operating results and business.
ITEM 2. PROPERTIES
The Company leases approximately 16,000 square feet of space in a 24-story
building in New York City, New York. This space houses substantially all of the
Company's general and administrative and research and development personnel as
well as a significant portion of the sales and marketing and creative services
personnel. The lease agreement expires in February 2010, if not renewed. The
Company believes that this
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office space is adequate for its current needs and that additional space is
available in the building or in the New York City area to provide for
anticipated growth.
The Company also leases approximately 12,000 square feet of office space in
Draper, Utah, pursuant to a sublease agreement which expires in April 2010. This
space houses approximately 55 personnel principally engaged in sales and
marketing, creative services, and management information systems services as
well as the model catalog licensing operations.
The Company also leases approximately 12,000 square feet of office space in
Los Angeles, California, pursuant to a lease which expires in December 2004.
This space houses approximately 30 personnel principally engaged in sales and
marketing, creative services, and management information systems services.
The Company also leases approximately 4,700 square feet of office space in
San Francisco, California pursuant to a lease which expires in December 2003.
This space houses approximately 5 personnel principally engaged in creative
services and research and development.
The Company also leases small office spaces in London and Tokyo under
short-term leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in certain legal actions arising in the ordinary
course of business. The Company believes it has adequate legal defenses and
believes that the ultimate outcome of these actions will not have a material
effect on the Company's consolidated financial position, results of operations,
or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on November 28, 2000.
At the meeting, stockholders voted on:
- the election of directors,
- the Company's proposal to issue 5,520,000 shares of Company common stock
to Computer Associates International, Inc. in exchange for shares of
common stock of Metastream owned by Computer Associates,
- the Company's proposal to amend its Stock Option Plan to increase the
number of shares available for issuance under the plan, and
- ratifying the appointment of PricewaterhouseCoopers LLP as independent
accountants for the Company for the 2000 fiscal year.
Twelve million, nine hundred sixty-one thousand, two hundred twenty-three
(12,961,223) shares voted for the proposal to issue shares to Computer
Associates in exchange for shares of Metastream, 129,265 shares voted against
the exchange, 18,784 shares abstained from voting, and 11,364,293 shares were
withheld as broker nonvotes.
Twenty-one million, five hundred one thousand, fifty-two (21,501,052)
shares voted for the proposal to amend the Company's Stock Option Plan,
2,943,724 shares voted against the amendment, and 28,789 shares abstained from
voting.
Twenty-four million, three hundred ninety-four thousand, nine hundred six
(24,394,906) voted to ratify the appointment of PricewaterhouseCoopers, 66,096
voted against ratifying the appointment, and 12,563 shares abstained from
voting.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION FOR COMMON STOCK
The Company's common stock, $0.001 par value, which began trading over the
counter in December 1995, is quoted on the NASDAQ National Market tier of the
NASDAQ Stock Market under the symbol "VWPT." The following table sets forth, for
the periods indicated, the range of high and low closing sale prices per share
as reported on the NASDAQ National Market System:
HIGH LOW
------ -----
2000
4th Quarter................................................. $11.00 $4.63
3rd Quarter................................................. 14.06 8.00
2nd Quarter................................................. 18.50 6.00
1st Quarter................................................. 30.88 8.06
1999
4th Quarter................................................. $ 8.94 $5.06
3rd Quarter................................................. 7.25 5.13
2nd Quarter................................................. 7.38 4.56
1st Quarter................................................. 8.88 5.75
HOLDERS
As of March 16, 2001, there were approximately 335 holders of record and
approximately 12,500 beneficial owners of the Company's common stock.
DIVIDENDS
The Company has not paid any cash dividends on its capital stock to date.
The Company currently anticipates that it will retain all future earnings, if
any, for use in its business and does not anticipate paying any cash dividends
on its capital stock in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected condensed financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
notes thereto appearing elsewhere in this Annual Report on Form 10-K.
YEARS ENDED DECEMBER 31,
--------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA
Net revenues.................................. $ 3,580 $ 3,093 $ 3,001 $ 1,262 $ --
Cost of revenues............................ 1,543 -- -- -- --
-------- -------- -------- ------- -------
Gross profit................................ 2,037 3,093 3,001 1,262 --
-------- -------- -------- ------- -------
Operating expenses:
Sales and marketing (excluding non-cash
stock-based compensation and non-cash
sales and marketing charges totaling
$25,120 in 2000 and $675 in 1999)........ 15,877 2,567 981 624 --
Research and development (excluding non-cash
stock-based compensation totaling $4,193
in 2000 and $2,540 in 1999).............. 6,283 2,741 1,584 2,357 --
General and administrative (excluding
non-cash stock-based compensation
totaling $3,026 in 2000 and $2,866 in
1999).................................... 5,289 4,065 4,409 3,471 --
Compensation charge related to forgiveness
of an officer loan....................... 2,322 -- -- -- --
Non-cash stock-based compensation charges... 12,341 6,081 -- -- --
Non-cash sales and marketing charges........ 19,998 -- -- -- --
Amortization of goodwill and other
intangibles.............................. 3,025 75 -- -- --
Acquired in-process research and
development.............................. 963 -- -- -- --
-------- -------- -------- ------- -------
Total operating expenses................. 66,098 (15,529) 6,974 6,452 --
-------- -------- -------- ------- -------
Loss from operations.......................... (64,061) (12,436) (3,973) (5,190) --
Other income.................................. 2,180 2,286 2,618 3,157 --
-------- -------- -------- ------- -------
Loss before provision (benefit) for income
taxes....................................... (61,881) (10,150) (1,355) (2,033) --
Provision (benefit) for income taxes.......... -- 5,481 (353) (210) --
-------- -------- -------- ------- -------
Loss before minority interest in loss of
subsidiary.................................. (61,881) (15,631) (1,002) (1,823) --
Minority interest in loss of subsidiary....... 4,429 1,048 -- -- --
-------- -------- -------- ------- -------
Net loss from continuing operations........... (57,452) (14,583) (1,002) (1,823) --
Discontinued operations:
Loss from discontinued operations........... -- (14,811) (18,829) (6,355) (7,650)
Income (loss) on disposal of discontinued
operations............................... 1,496 (21,260) -- -- --
-------- -------- -------- ------- -------
Net income (loss) from discontinued
operations............................. 1,496 (36,071) (18,829) (6,355) (7,650)
-------- -------- -------- ------- -------
Net loss...................................... (55,956) (50,654) (19,831) (8,178) (7,650)
Accretion of mandatorily redeemable preferred
stock of subsidiary......................... (438) -- -- -- --
-------- -------- -------- ------- -------
Net loss applicable to common shareholders.... $(56,394) $(50,654) $(19,831) $(8,178) $(7,650)
======== ======== ======== ======= =======
Basic and diluted net loss per share:
Net loss per common share from continuing
operations............................... $ (2.01) $ (0.59) $ (0.04) $ (0.08) $ --
Net income (loss) per common share from
discontinued operations.................. 0.05 (1.47) (0.79) (0.28) (0.37)
-------- -------- -------- ------- -------
Net loss per common share................ $ (1.96) $ (2.06) $ (0.83) $ (0.36) $ (0.37)
======== ======== ======== ======= =======
Weighted average number of shares outstanding
-- basic and diluted........................ 28,718 24,581 23,779 22,965 20,590
======== ======== ======== ======= =======
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DECEMBER 31,
------------------------------------------------
2000 1999 1998 1997 1996
-------- ------- ------- ------- -------
(IN THOUSANDS)
BALANCE SHEET DATA
Cash, cash equivalents and marketable
securities.................................... $ 29,033 $37,247 $46,335 $50,002 $66,293
Working capital................................. 34,313 33,638 55,439 77,677 79,254
Total assets.................................... 102,399 50,574 79,116 97,257 97,935
Stockholders' equity............................ 96,339 29,901 70,181 87,242 86,112
- ---------------
(1) In November 2000, the Company consummated a share exchange with Computer
Associates International, Inc. and another shareholder of Metastream,
pursuant to which the Company issued 1.15 shares of the Company's common
stock in exchange for each outstanding share of common stock of Metastream.
The share exchanges were accounted for as acquisitions of minority interest
under the purchase method of accounting, and goodwill of $42,892,000 was
recorded.
(2) In September 2000, the Company purchased all the outstanding capital stock
of Viewpoint Digital, Inc. The purchase price of $19,169,000, excluding
contingent consideration of $30,000,000 in notes payable, consisted of
715,000 shares of common stock valued at $8,938,000, cash consideration of
$10,000,000 and $231,000 in direct acquisition costs. The contingent
consideration consists of two promissory notes each in the amount of
$15,000,000. Both notes are contingent upon the achievement of certain
levels of future operating results and employee retention through April 30,
2002. The acquisition was accounted for under the purchase method of
accounting, and goodwill and other intangibles of $17,039,000 were recorded,
inclusive of acquired in-process research and development costs of $963,000.
(3) In December 1999, the Board of Directors of the Company approved a plan to
focus exclusively on the Company's 3D and rich media visualization and
marketing technologies, and to correspondingly divest itself of all its
prepackaged graphics software business. Consequently, the results of
operations of the prepackaged graphics software business have been
classified as income (loss) from discontinued operations for the years ended
December 31, 1996 through 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis below contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," and variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual results could differ materially from those expressed
or forecasted in any such forward-looking statements as a result of certain
factors, including those set forth in "Additional Factors Affecting Future
Results." In connection with forward-looking statements which appear in these
disclosures, investors should carefully review the factors set forth in this
Form 10-K under "Additional Factors Affecting Future Results."
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OVERVIEW
Viewpoint Corporation, a Delaware corporation ("Viewpoint" or the
"Company") is focused on providing complete end-to-end solutions for creating
and deploying virtual products centered on the Company's Viewpoint Experience
Technology for e-commerce and the Web environment.
Until December 1999, the Company was primarily engaged in the development,
marketing, and sales of prepackaged software graphics products. Its principal
products were computer graphics "painting" tools and photo imaging software
products. With its acquisition of Real Time Geometry Corporation in December
1996, however, the Company became involved, on a limited basis, in the
development of technologies designed to make practical the efficient display and
deployment of rich media on the Internet.
In June 1999, the Company increased its commitment to the development of
rich media internet technologies and formed Metastream.com Corporation
("Metastream") to operate a business exploiting these technologies. The Company
originally held an 80% equity interest in Metastream with Computer Associates
International, Inc. ("Computer Associates") holding the remaining 20% equity
interest.
In December 1999, the Board of Directors of the Company approved a plan to
focus exclusively on the internet technologies of its majority-owned subsidiary
and to correspondingly divest the Company of all its prepackaged software
business. By April 2000, the Company had sold substantially all of its
prepackaged software product lines.
In September 2000, the Company acquired Viewpoint Digital, Inc. ("Viewpoint
Digital"), a wholly-owned subsidiary of Computer Associates. Viewpoint Digital
publishes the world's largest library of 3D digital content and provides
creative 3D services to thousands of customers in entertainment, advertising,
visual simulation, computer-based training and corporate communications.
The Company's primary initiatives include:
- Licensing technology for specific marketing visualization solutions;
- Providing a full range of fee-based professional services for
implementing marketing visualization solutions;
- Forging technological alliances with leading interactive agencies and web
content providers; and
- Maximizing market penetration and name recognition.
Viewpoint believes that its success will depend largely on its ability to
extend its technology and market leadership in e-commerce visualization.
Accordingly, Viewpoint intends to invest heavily in research and development and
sales and marketing. Revenues from continuing operations primarily have been
from the sale of technology licenses and fee based professional services.
In light of its recent change in strategic focus, Viewpoint has a limited
operating history upon which an evaluation of the Company and its prospects can
be based. Viewpoint prospects must be considered in light of the risks and
difficulties frequently encountered by early stage technology companies. There
can be no assurance that Viewpoint will achieve or sustain profitability.
Viewpoint has had significant quarterly and annual operating losses since its
inception, and as of December 31, 2000, had an accumulated deficit of
$145,814,000.
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OPERATING RESULTS
The following table sets forth certain selected financial information
expressed as a percentage of net revenues for the periods indicated:
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
STATEMENT OF OPERATIONS DATA
Net revenues................................................ 100.0% 100.0% 100.0%
Cost of revenues............................................ 43.1 -- --
-------- -------- --------
Gross profit.............................................. 56.9 100.0 100.0
-------- -------- --------
Operating expenses:
Sales and marketing (excluding non-cash stock-based
compensation and non-cash sales and marketing
charges)............................................... 443.5 83.0 32.7
Research and development (excluding non-cash stock-based
compensation).......................................... 175.5 88.6 52.8
General and administrative (excluding non-cash stock-based
compensation).......................................... 147.7 131.4 146.9
Compensation charge related to forgiveness of an officer
loan................................................... 64.9 -- --
Non-cash stock-based compensation charges................. 344.7 196.6 --
Non-cash sales and marketing charges...................... 558.6 -- --
Amortization of goodwill and other intangibles............ 84.5 2.5 --
Acquired in-process research and development.............. 26.9 -- --
-------- -------- --------
Total operating expenses.................................... 1,846.3 502.1 232.4
-------- -------- --------
Loss from operations........................................ (1,789.4) (402.1) (132.4)
Other income................................................ 60.9 73.9 87.2
-------- -------- --------
Loss before provision (benefit) for income taxes............ (1,728.5) (328.2) (45.2)
Provision (benefit) for income taxes........................ -- 177.2 (11.8)
-------- -------- --------
Loss before minority interest in loss of subsidiary......... (1,728.5) (505.4) (33.4)
Minority interest in loss of subsidiary..................... 123.7 33.9 --
-------- -------- --------
Net loss from continuing operations......................... (1,604.8) (471.5) (33.4)
Discontinued operations:
Loss from discontinued operations......................... -- (478.9) (627.4)
Income (loss) on disposal of discontinued operations...... 41.8 (687.3) --
-------- -------- --------
Net income (loss) from discontinued operations......... 41.8 (1,166.2) (627.4)
-------- -------- --------
Net loss.................................................... (1,563.0) (1,637.7) (660.8)
-------- -------- --------
Accretion of mandatorily redeemable preferred stock of
subsidiary................................................ (12.2) -- --
-------- -------- --------
Net loss applicable to common shareholders.................. (1,575.2)% (1,637.7)% (660.8)%
======== ======== ========
NET REVENUES
2000 % CHANGE 1999 % CHANGE 1998
------ -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
Net revenues............................... $3,580 16% $3,093 3% $3,001
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, "Software Revenue Recognition," as amended. Accordingly, revenue
from software arrangements involving multiple elements (e.g., software products,
upgrades/enhancements, post contract customer support, etc.) is allocated to
each element based on the relative fair value of the elements. The determination
of fair value is based on objective evidence, which is specific to the Company.
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Service revenue, which consists of fees for professional services, is
recognized as the services are performed or, if no pattern of performance is
discernible, on a straight-line basis over the period during which the services
are performed.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which gives additional guidance in applying generally accepted
accounting principles to revenue recognition in the financial statements. The
Company was in compliance with the provisions of SAB No. 101.
Net revenues in 2000 were related to broadcast licenses, fee-based
professional services and 3D digital content sales with the National Center for
Missing and Exploited Children and Computer Associates accounting for 26% and
14% of total revenues, respectively. Fee based professional services and 3D
digital content sales of $2,459,000 were the result of the acquisition of
Viewpoint Digital. Historically, revenues primarily consisted of one-time
licenses for Viewpoint and related technologies from a limited number of
strategic partners. Specifically, revenues from Intel and Computer Associates
accounted for 49% and 39% of total revenues, respectively, in 1999 and revenues
from Intel, Kodak and Minolta accounted for 66%, 15% and 15% of total revenues,
respectively, in 1998.
COST OF REVENUES
2000 % CHANGE 1999 % CHANGE 1998
------- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
Cost of Revenues.......................... $ 1,543 N/A $ -- N/A $ --
As % of net revenues.................... 43% --% --%
Cost of revenues consist primarily of salaries and consulting fees for
those who provide fee-based professional services. The Company did not provide
fee-based professional services in 1999 and 1998.
SALES AND MARKETING (EXCLUDING NON-CASH STOCK-BASED COMPENSATION AND NON-CASH
SALES AND MARKETING CHARGES TOTALING $25,120 IN 2000 AND $675 IN 1999)
2000 % CHANGE 1999 % CHANGE 1998
------- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
Sales and marketing....................... $15,877 519% $2,567 162% $ 981
As % of net revenues.................... 444% 83% 33%
Sales and marketing expenses consist primarily of salaries and benefits,
consulting fees, travel expenses, advertising costs and related facilities costs
for sales, marketing, business development and public relations personnel. The
519% increase in sales and marketing in 2000, is primarily due to an increase in
salaries and benefits, recruiting fees, travel expenses and facilities costs
related to an increase in personnel and consulting fees, and an increase in
advertising and public relation agency fees related to the launch of Viewpoint
Experience Technology. The 162% increase in sales and marketing expenses in 1999
is primarily due to increased salaries, consulting fees, and related travel and
facilities expenses in connection with the expansion of the Company's sales and
public relations departments. The Company is continuing to expand its sales and
marketing presence and, accordingly, expects sales and marketing expenses to
continue to increase in future periods, but such expenses may vary as a
percentage of net revenues.
RESEARCH AND DEVELOPMENT (EXCLUDING NON-CASH STOCK-BASED COMPENSATION TOTALING
$4,193 IN 2000 AND $2,540 IN 1999)
2000 % CHANGE 1999 % CHANGE 1998
------- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
Research and development.................. $ 6,283 129% $2,741 73% $1,584
As % of net revenues.................... 176% 89% 53%
Research and development expenses consist primarily of salaries, consulting
fees, and required equipment and facilities costs related to the Company's
product development efforts. The Company expenses as incurred
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research and development costs necessary to establish the technological
feasibility of its internally-developed software products and technologies. To
date, the establishment of technological feasibility of the Company's products
and general release have substantially coincided. As a result, the Company has
not capitalized any internal software development costs since costs qualifying
for such capitalization have not been significant. Additionally, the Company
capitalizes costs of software, consulting services, hardware and payroll-related
costs incurred to purchase or develop internal-use software, when technological
feasibility has been established, it is probable that the project will be
completed and the software will be used as intended. The Company expenses costs
incurred during preliminary project assessment, research and development, re-
engineering, training and application maintenance.
The 129% increase in research and development expenses in 2000 is due to an
increase in salaries, travel, and facilities expenses related to increased
internal development personnel, in addition to consulting fees in connection
with the further development of Viewpoint Experience Technology. In addition,
53% of the increase is due to a reserve against a loan from an executive whose
chief responsibilities are research and development. The 73% increase in
research and development expenses in 1999 is primarily due to increases in
internal development personnel, consulting fees and related travel and
facilities expenses in connection with the development of Metastream 3.0. The
Company expects research and development expenses to continue to increase in
future periods, but such expenses may vary as a percentage of net revenues.
GENERAL AND ADMINISTRATIVE (EXCLUDING NON-CASH STOCK-BASED COMPENSATION TOTALING
$3,026 IN 2000 AND $2,866 IN 1999)
2000 % CHANGE 1999 % CHANGE 1998
------- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
General and administrative................ $ 5,289 30% $4,065 (8)% $4,409
As % of net revenues.................... 148% 131% 147%
General and administrative expenses primarily consist of corporate overhead
of the Company, which includes compensation costs related to finance and
administration personnel along with other administrative costs such as legal,
accounting and investor relation fees, and insurance expense. The 30% increase
in general and administrative expenses in 2000 is primarily attributable to a
reserve against an officer's loan and an increase in corporate expenses
resulting from a full year of operations for Metastream. The 8% decrease in
general and administrative expenses in 1999 was primarily attributed to one-time
expenses in 1998 in connection with the recruiting and relocation of a former
chief executive officer in February 1998, as well as consulting costs related to
the preparation of the Company's 1998 strategic plan. This decrease in expenses
in 1999 was partially offset by increased general and administrative expenses
resulting from the formation of Metastream in June 1999.
COMPENSATION CHARGE RELATED TO FORGIVENESS OF AN OFFICER LOAN
2000 % CHANGE 1999 % CHANGE 1998
------- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
Compensation charge related to forgiveness
of an officer loan...................... $ 2,322 N/A $ -- N/A $ --
As % of net revenues.................... 65% --% --%
A loan to an officer which accrued interest semi-annually at 5.67%, was
forgiven in accordance with the contractual terms of the officer's employment
agreement, upon the merger of the Company and Metastream.
NON-CASH STOCK-BASED COMPENSATION CHARGES
2000 % CHANGE 1999 % CHANGE 1998
------- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
Non-cash stock-based compensation
charges................................. $12,341 103% $6,081 N/A $ --
As % of net revenues.................... 345% 197% --%
20
22
In connection with the grant of stock options of Metastream to certain
employees and non-employee directors, the Company recorded total deferred
compensation of approximately $24.2 million in 2000 and $16.8 million in 1999.
This deferred compensation represented the difference between the fair value of
Metastream's common stock and the exercise price of these options at the date of
grant. Stock-based compensation expense of $12.3 million and $6.1 million was
recognized during the years ended December 31, 2000 and December 31, 1999,
respectively.
NON-CASH SALES AND MARKETING CHARGES
2000 % CHANGE 1999 % CHANGE 1998
------- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
Non-cash sales and marketing charges...... $19,998 N/A $ -- N/A $ --
As % of net revenues.................... 559% --% --%
In connection with the issuance of mandatorily redeemable preferred stock
in Metastream to AOL and Adobe, the Company recorded one-time non-cash sales and
marketing charges of approximately $20.0 million during the year ended December
31, 2000. These charges represented the difference between the fair value of the
Company's common shares into which AOL and Adobe could have converted the
Metastream shares on the date of issuance, and the $20,000,000 aggregate cash
consideration received from AOL and Adobe. These charges were recorded as sales
and marketing, as the incremental value of the equity over the cash
consideration received was deemed to be the fair value of the license and
distribution agreements simultaneously entered into with AOL and Adobe.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
2000 % CHANGE 1999 % CHANGE 1998
------- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
Amortization of goodwill and other
intangibles............................. $ 3,025 3,933% $ 75 N/A $ --
As % of net revenues.................... 85% 3% --%
Amortization of goodwill and other intangibles is primarily attributable to
the amortization of intangibles recorded as part of the acquisition of Viewpoint
Digital and the acquisition of Computer Associates' minority interest in
Metastream.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
2000 % CHANGE 1999 % CHANGE 1998
------- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
Acquired in-process research and
development............................. $ 963 N/A $ -- N/A $ --
As % of net revenues.................... 27% --% --%
Acquired in-process research and development costs represents the write-off
of research and development costs recorded as part of the acquisition of
Viewpoint Digital.
OTHER INCOME
2000 % CHANGE 1999 % CHANGE 1998
------- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
Other Income.............................. $ 2,180 (5)% $2,286 (13)% $2,618
Other income primarily consists of interest and investment income on cash
and marketable securities. As a result, other income fluctuates with changes in
the Company's cash and marketable securities balances and market interest rates.
21
23
PROVISION FOR INCOME TAXES
In the fourth quarter of 1999, the Company recorded a provision for income
taxes in the amount of $5.5 million, which provided a full valuation allowance
against its net deferred tax assets. The Company's net deferred tax assets
include substantial amounts of net operating loss carryforwards. Inability to
generate taxable income within the carryforward period would affect the ultimate
realizability of such assets. Consequently, management determined that
sufficient uncertainty exists regarding the realizability of these assets to
warrant the establishment of the full valuation allowance. Utilization of the
Company's net operating loss carryforwards, which begin to expire in 2011 for
federal purposes and 2001 for state purposes, may be subject to certain
limitations under Section 382 of the Internal Revenues Code of 1986, as amended.
MINORITY INTEREST IN LOSS OF SUBSIDIARY
Metastream, originally a joint initiative between the Company and Computer
Associates, was formed in June 1999. For financial reporting purposes, the
assets, liabilities and operations of Metastream were included in the Company's
consolidated financial statements. Computer Associates and another minority
shareholder's combined 20% interest in Metastream was recorded as minority
interest in the Company's consolidated balance sheets, and the losses attributed
to their 20% interest have been reported as minority interest in the Company's
consolidated statements of operations. In November 2000, the Company acquired
Computer Associates' and the other minority shareholder's minority interests by
issuing 5,578,000 shares of Company common stock in exchange for 4,850,000
shares of Metastream common stock.
DISCONTINUED OPERATIONS
In December 1999, the Board of Directors approved a plan to focus
exclusively on its industry-leading, patented e-commerce visualization solution,
and to correspondingly divest itself of all its prepackaged graphics software
business. Accordingly, these operations are reflected as discontinued operations
for all periods presented in the accompanying statements of operations.
The loss on disposal of discontinued operations, which totaled
approximately $21,260,000 for the year ended December 31, 1999, consisted of the
estimated future results of operations of the discontinued business through the
estimated date of divestiture, the amounts expected to be realized upon the sale
of the discontinued business, severance and related benefits, and asset
write-downs (see table below). The Company recorded an adjustment to net loss on
disposal of discontinued operations of $1,496,000 during the year ended December
31, 2000 primarily as a result of better than expected net revenues during the
year from the discontinued business. During April 2000, the Company completed
the sale of a substantial portion of the Company's graphics software product
lines. Specifically, Corel Corporation acquired MetaCreations' Painter, Kai's
Power Tools, KPT Vector Effects and Bryce product lines; egi.sys AG acquired the
Poser product line; and fractal.com Corporation acquired the Headline Studio
product line for total consideration of $11,250,000, consisting of cash and
promissory notes, plus future royalties. At December 31, 2000, $4,000,000 was
still outstanding and is classified as a current asset of discontinued
operations in the accompanying consolidated balance sheets. The provision for
loss on disposal of discontinued operations is an estimate and subject to
change. Changes in estimates will be accounted for prospectively and included in
income (loss) from discontinued operations.
22
24
The following table depicts the loss on disposal of discontinued operations
activity through December 31, 2000 (in thousands):
LOSS ON DISPOSAL PROVISION AT PROVISION AT
OF DISCONTINUED DECEMBER 31, CHARGED TO DECEMBER 31,
OPERATIONS DEDUCTIONS 1999 EXPENSES DEDUCTIONS 2000
---------------- ---------- ------------ ---------- ---------- ------------
Write-down of operating
assets.................. $ 18,445 $18,103 $ 342 $ 1,035 $ 1,377 $--
Severance and benefits.... 8,415 504 7,911 26 7,937 --
Estimated loss of
discontinued operations
through divesture
date.................... 5,400 -- 5,400 (2,072) 3,328 --
Estimated net proceeds
from divesture.......... (11,000) -- (11,000) (485) (11,485) --
-------- ------- -------- ------- -------- --
$ 21,260 $18,607 $ 2,653 $(1,496) $ 1,157 $--
======== ======= ======== ======= ======== ==
Operating results from discontinued operations were as follows (in
thousands):
DECEMBER 31,
-------------------------------
2000 1999 1998
------- -------- --------
Net revenues................................................ $ 5,275 $ 33,079 $ 39,842
Cost of revenues............................................ 1,066 6,339 7,007
------- -------- --------
Gross profit.............................................. 4,209 26,740 32,835
Operating expenses:
Sales and marketing....................................... 3,045 25,022 27,699
Research and development.................................. 3,743 13,691 14,207
General and administrative................................ 749 4,758 2,453
Costs associated with mergers, acquisitions and
restructurings......................................... -- -- 7,305
------- -------- --------
Total operating expenses.......................... 7,537 43,471 51,664
------- -------- --------
Loss before gain on sale of assets.......................... (3,328) (16,731) (18,829)
Gain on sale of assets...................................... -- 1,920 --
------- -------- --------
Loss from discontinued operations........................... $(3,328) $(14,811) $(18,829)
======= ======== ========
LIQUIDITY AND CAPITAL RESOURCES
Cash and investments totaled $29.0 million at December 31, 2000, down from
$37.2 million at December 31, 1999 and $46.3 million at December 31, 1998. Net
cash used in operating activities of the Company totaled $28.7 million for 2000,
compared to net cash used in operating activities of $11.9 million for 1999 and
net cash provided by operating activities of $.5 million for 1998. Net cash used
in operating activities in 2000 primarily resulted from a $57.5 million net loss
from continuing operations and $8.6 million of net cash used for discontinued
operations, offset in part by $12.3 million in non-cash stock-based compensation
charges, $19.9 million in non-cash sales and marketing charges and $4.8 million
in depreciation and amortization. Net cash used in operating activities in 1999
primarily resulted from a $14.6 million net loss from continuing operations and
$10.2 million of net cash used for discontinued operations, offset in part by
$6.1 million in non-cash stock-based compensation charges and a $5.9 million
non-cash charge related to the full valuation allowance recorded against the
Company's deferred tax assets. Net cash provided by operating activities in 1998
primarily resulted from a $1.0 million net loss from continuing operations and
$.8 million of net cash used for discontinued operations, less $1.2 million of
depreciation and amortization expense. Net cash provided by (used in) investing
activities totaled $1.6 million, $(7.4) million and $5.3 million for 2000, 1999
and 1998, respectively. Net cash provided by investing activities in 2000
primarily resulted from $17.1 million of net proceeds from maturities of
marketable securities, net of $10.2 million of cash used to acquire Viewpoint
Digital and $4.2 million used to purchase property and equipment. Net cash used
in investing
23
25
activities in 1999 primarily resulted from $2.8 million of net purchases of
marketable securities and $4.5 million of net cash used for discontinued
operations. Net cash provided by investing activities in 1998 primarily resulted
from $10.3 million of net proceeds from maturities of marketable securities, net
of $3.8 million of net cash used for discontinued operations and the issuance of
$1.2 million of notes receivable from related parties. Net cash provided by
financing activities totaled $36.0 million, $7.5 million and $.8 million for
2000, 1999 and 1998, respectively. Net cash provided by financing activities in
2000 primarily resulted from $19.8 million received from AOL and Adobe relating
to their investment in Metastream, $12.6 million of proceeds from the exercise
of stock options and $3.5 million received from Computer Associates related to
its investment in Metastream. Cash provided by financing activities in 1999
primarily resulted from $4.0 million of proceeds from the exercise of stock
options and $3.5 million received from Computer Associates relating to its
investment in Metastream. Cash provided by financing activities in 1998 resulted
from $.8 million of proceeds from the exercise of stock options.
The Company believes that its current cash and marketable securities
balances and cash provided by future operations, if any, are sufficient to meet
its operating cash flow needs and anticipated capital expenditure requirements
through at least the next twelve months. In addition, the Company may pursue
additional debt or equity financing to augment their working capital position;
however, there can be no assurance that the Company can obtain financing at
terms acceptable to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. To
date, we have not engaged in derivative and hedging activities.
In March 2000, the Financial Accounting Standards Board issued Financial
Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving
Stock Compensation," which is an interpretation of Accounting Principal Board
Option ("APB") No. 25. This interpretation clarifies:
- The definition of employee for purposes of applying APB No. 25, which
deals with stock compensation issues;
- The criteria for determining whether a plan qualifies as a non
compensatory plan;
- The accounting consequence of various modifications to the terms of a
previously fixed stock option or award; and
- The accounting for an exchange of stock compensation awards in a business
combination.
The adoption of FIN No. 44 did not have a material impact on our financial
statements.
In March 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on EITF Issue 00-02, "Accounting
for Web Site Development Costs." This consensus provides guidance on what types
of costs incurred to develop web sites should be capitalized or expensed. The
Company adopted this consensus on July 1, 2000. The Company's policy for
accounting for costs incurred to operate the Company's web site was not impacted
by the adoption of the pronouncement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to concentration of credit risk and interest rate
risk related to cash equivalents and marketable securities. The Company does not
have any derivative financial instruments as of December 31, 2000. Credit risk
is managed by limiting the amount of securities placed with any one issuer,
investing in high-quality marketable securities and securities of the U.S.
government and limiting the average maturity of the overall portfolio. The
majority of the Company's portfolio, which is classified as available-for-sale,
is composed of fixed income securities that are subject to the risk of market
interest rate fluctuations, and all of
24
26
the Company's securities are subject to risks associated with the ability of the
issuers to perform their obligations under the instruments. The Company may
suffer losses in principal if forced to sell securities, which have declined in
market value due to changes in interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1. Index to Financial Statements
The following financial statements are filed as part of this Report:
PAGE
----
AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants........................... 26
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... 27
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 2000............... 28
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 2000..... 29
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2000............... 31
Notes to Consolidated Financial Statements.................. 33
2. Index to Financial Statement Schedule
PAGE
----
SCHEDULE
Schedule II -- Valuation and Qualifying Accounts............ 56
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
25
27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Viewpoint Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Viewpoint Corporation and its subsidiaries at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, 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 our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 12, 2001
26
28
VIEWPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
---------------------
2000 1999
--------- --------
ASSETS
Current assets:
Cash and cash equivalents (Note 8)........................ $ 13,320 $ 4,480
Marketable securities (Note 8)............................ 15,713 32,767
Accounts receivable, net (Note 16)........................ 2,101 123
Notes receivable from related parties, net (Note 10)...... 1,620 4,467
Prepaid expenses and other current assets................. 1,957 1,139
Current assets related to discontinued operations (Note
3)..................................................... 5,662 4,702
--------- --------
Total current assets.............................. 40,373 47,678
Property and equipment, net (Note 9)........................ 5,622 614
Goodwill and other intangibles (Notes 5 and 7).............. 56,111 150
Other assets................................................ 179 158
Non-current assets related to discontinued operations (Note
3)........................................................ 114 1,974
--------- --------
Total assets...................................... $ 102,399 $ 50,574
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,402 $ 224
Accrued expenses.......................................... 861 995
Deferred revenues......................................... 636 369
Accrued incentive compensation (Note 11).................. 546 621
Current liabilities related to discontinued operations
(Note 3)............................................... 615 9,178
Provision for loss on disposal of discontinued operations
(Note 3)............................................... -- 2,653
--------- --------
Total current liabilities......................... 6,060 14,040
Minority interest (Note 7).................................. -- 6,633
Commitments and contingencies (Notes 14 and 15)
Stockholders' equity:
Preferred stock, $.001 par value; 5,000 shares authorized
-- none issued and outstanding at December 31, 2000 and
1999................................................... -- --
Common stock, $.001 par value; 75,000 shares authorized --
37,964 and 25,496 shares issued and outstanding at
December 31, 2000 and 1999, respectively............... 38 25
Paid-in capital........................................... 264,698 119,940
Deferred compensation (Note 11)........................... (22,595) --
Accumulated other comprehensive income (loss)............. 12 (206)
Accumulated deficit....................................... (145,814) (89,858)
--------- --------
Total stockholders' equity........................ 96,339 29,901
--------- --------
Total liabilities and stockholders' equity........ $ 102,399 $ 50,574
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
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29
VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Net revenues (Note 16)..................................... $ 3,580 $ 3,093 $ 3,001
Cost of revenues........................................... 1,543 -- --
-------- -------- --------
Gross profit............................................. 2,037 3,093 3,001
-------- -------- --------
Operating expenses:
Sales and marketing (excluding non-cash stock-based
compensation and non-cash sales and marketing charges
totaling $25,120 in 2000, $675 in 1999, and $0 in
1998)................................................. 15,877 2,567 981
Research and development (excluding non-cash stock-based
compensation totaling $4,193 in 2000, $2,540 in 1999,
and $0 in 1998)....................................... 6,283 2,741 1,584
General and administrative (excluding non-cash
stock-based compensation totaling $3,026 in 2000,
$2,866 in 1999, and $0 in 1998)....................... 5,289 4,065 4,409
Compensation charge related to forgiveness of an officer
loan (Note 10)........................................ 2,322 -- --
Non-cash stock-based compensation charges (Note 11)...... 12,341 6,081 --
Non-cash sales and marketing charges (Note 6)............ 19,998 -- --
Amortization of goodwill and other intangibles (Notes 5
and 7)................................................ 3,025 75 --
Acquired in-process research and development (Note 5).... 963 -- --
-------- -------- --------
Total operating expenses.............................. 66,098 15,529 6,974
-------- -------- --------
Loss from operations....................................... (64,061) (12,436) (3,973)
Other income............................................... 2,180 2,286 2,618
-------- -------- --------
Loss before provision (benefit) for income taxes........... (61,881) (10,150) (1,355)
Provision (benefit) for income taxes (Note 12)............. -- 5,481 (353)
-------- -------- --------
Loss before minority interest in loss of subsidiary........ (61,881) (15,631) (1,002)
Minority interest in loss of subsidiary (Note 7)........... 4,429 1,048 --
-------- -------- --------
Net loss from continuing operations........................ (57,452) (14,583) (1,002)
Discontinued operations: (Note 3)
Loss from discontinued operations........................ -- (14,811) (18,829)
Income (loss) on disposal of discontinued operations..... 1,496 (21,260) --
-------- -------- --------
Net income (loss) from discontinued operations........ 1,496 (36,071) (18,829)
-------- -------- --------
Net loss................................................... (55,956) (50,654) (19,831)
Accretion of mandatorily redeemable preferred stock of
subsidiary (Note 6)...................................... (438) -- --
-------- -------- --------
Net loss applicable to common shareholders................. $(56,394) $(50,654) $(19,831)
======== ======== ========
Basic and diluted net loss per share:
Net loss per common share from continuing operations..... $ (2.01) $ (0.59) $ (0.04)
Net income (loss) per common share from discontinued
operations............................................ 0.05 (1.47) (0.79)
-------- -------- --------
Net loss per common share............................. $ (1.96) $ (2.06) $ (0.83)
======== ======== ========
Weighted average number of shares outstanding -- basic and
diluted.................................................. 28,718 24,581 23,779
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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30
VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(IN THOUSANDS)
ACCUMULATED
SERIES A OTHER
PREFERRED STOCK COMMON STOCK COMPREHENSIVE TOTAL
--------------- --------------- PAID-IN DEFERRED INCOME ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION (LOSS) DEFICIT EQUITY
------ ------ ------ ------ -------- ------------ ------------- ----------- -------------
Balances at December 31,
1997.................. -- $-- 23,606 $24 $109,896 $ -- $(135) $ (19,373) $ 90,412
Issuance of common stock
upon the exercise of
stock options......... -- -- 233 -- 840 -- -- -- 840
Issuance of common stock
in connection with the
employee stock
purchase plan......... -- -- 104 -- 404 -- -- -- 404
Issuance of common stock
in connection with the
acquisition of Canoma,
Inc. ................. -- -- 300 -- 1,305 -- -- -- 1,305
Tax benefit related to
stock options......... -- -- -- -- 376 -- -- -- 376
Conversion of accrued
compensation to equity
upon exercise of
certain options....... -- -- -- -- 8 -- -- -- 8
Translation
adjustment............ -- -- -- -- -- -- 7 -- 7
Net loss................ -- -- -- -- -- -- -- (19,831) (19,831)
-- -- ------ --- -------- -------- ----- --------- --------
Balances at December 31,
1998.................. -- -- 24,243 24 112,829 -- (128) (39,204) 73,521
Issuance of common stock
upon the exercise of
stock options......... -- -- 959 1 4,004 -- -- -- 4,005
Issuance of common stock
in connection with the
employee stock
purchase plan......... -- -- 168 -- 584 -- -- -- 584
Issuance of common stock
in connection with the
acquisition of
RAYflect S.A. ........ -- -- 126 -- 597 -- -- -- 597
Conversion of accrued
compensation to equity
upon exercise of
certain options....... -- -- -- -- 26 -- -- -- 26
Change in interest gain
related to
subsidiary............ -- -- -- -- 1,900 -- -- -- 1,900
Translation
adjustment............ -- -- -- -- -- -- (9) -- (9)
Unrealized loss on
investments........... -- -- -- -- -- -- (69) -- (69)
Net loss................ -- -- -- -- -- -- -- (50,654) (50,654)
-- -- ------ --- -------- -------- ----- --------- --------
Balances at December 31,
1999.................. -- -- 25,496 25 119,940 -- (206) (89,858) 29,901
Issuance of common stock
upon the exercise of
stock options......... -- -- 2,678 3 12,601 -- -- -- 12,604
Issuance of common stock
in connection with the
employee stock
purchase plan......... -- -- 47 -- 242 -- -- -- 242
Conversion of accrued
compensation to equity
upon exercise of
certain options....... -- -- -- -- 75 -- -- -- 75
Change in interest gain
related to
subsidiary............ -- -- -- -- 3,300 -- -- -- 3,300
TOTAL
COMPREHENSIVE
LOSS
-------------
Balances at December 31,
1997..................
Issuance of common stock
upon the exercise of
stock options.........
Issuance of common stock
in connection with the
employee stock
purchase plan.........
Issuance of common stock
in connection with the
acquisition of Canoma,
Inc. .................
Tax benefit related to
stock options.........
Conversion of accrued
compensation to equity
upon exercise of
certain options.......
Translation
adjustment