UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| (Mark One) |
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2003
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission file number: 0-27168
_________________
VIEWPOINT CORPORATION
| Delaware | 95-4102687 | |
|
|
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
498 Seventh Avenue, Suite 1810, New York, NY 10018
(212) 201-0800
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 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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes x No o
As of August 11, 2003, 45,985,507 shares of $0.001 par value common stock were outstanding.
TABLE OF CONTENTS
| Page | |||||
PART I — FINANCIAL INFORMATION |
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Item 1. Consolidated Financial Statements |
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Consolidated Balance Sheets – June 30, 2003
and December 31, 2002 |
3 | ||||
Consolidated Statements of Operations – Three and six months
ended June 30, 2003 and 2002 |
4 | ||||
Consolidated Statements of Cash Flows – Six months
ended June 30, 2003 and 2002 |
5 | ||||
Notes to Consolidated Financial Statements |
7 | ||||
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
17 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
34 | ||||
Item 4. Controls and Procedures |
34 | ||||
PART II — OTHER INFORMATION |
|||||
Item 6. Exhibits and Reports on Form 8-K |
36 | ||||
Signatures |
37 | ||||
2
PART I — FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
VIEWPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(Unaudited)
| June 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 5,057 | $ | 10,678 | ||||||
Marketable securities |
1,686 | 890 | ||||||||
Accounts receivable, net |
1,273 | 2,925 | ||||||||
Related party accounts receivable, net |
972 | 838 | ||||||||
Notes receivable, net |
750 | 750 | ||||||||
Prepaid expenses and other current assets |
799 | 599 | ||||||||
Total current assets |
10,537 | 16,680 | ||||||||
Restricted cash |
488 | 987 | ||||||||
Property and equipment, net |
2,697 | 3,591 | ||||||||
Goodwill, net |
31,276 | 31,276 | ||||||||
Intangible assets, net |
160 | 165 | ||||||||
Other assets |
263 | 653 | ||||||||
Total assets |
$ | 45,421 | $ | 53,352 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current liabilities: |
||||||||||
Accounts payable |
$ | 3,357 | $ | 2,962 | ||||||
Accrued expenses |
1,530 | 759 | ||||||||
Due to related parties, net |
3,024 | 2,920 | ||||||||
Deferred revenues |
458 | 334 | ||||||||
Related party deferred revenues |
797 | 249 | ||||||||
Accrued incentive compensation |
545 | 545 | ||||||||
Current liabilities related to discontinued operations |
231 | 231 | ||||||||
Total current liabilities |
9,942 | 8,000 | ||||||||
Convertible notes |
3,541 | 6,712 | ||||||||
Warrants to purchase common stock |
242 | 288 | ||||||||
Subordinated notes |
1,579 | — | ||||||||
Commitments
and Contingencies |
||||||||||
Stockholders’ equity: |
||||||||||
Preferred stock, $.001 par value; 5,000 shares authorized — no shares
issued and outstanding at June 30, 2003 and December 31, 2002 |
— | — | ||||||||
Common stock, $.001 par value; 75,000 shares authorized –
46,146 shares issued and 45,986 shares outstanding at
June 30, 2003 and 41,179 shares issued and 41,019 shares
outstanding at December 31, 2002 |
46 | 41 | ||||||||
Paid-in capital |
269,339 | 267,569 | ||||||||
Deferred compensation |
(1,337 | ) | (4,130 | ) | ||||||
Treasury stock at cost; 160 shares at June 30, 2003 and
December 31, 2002 |
(1,015 | ) | (1,015 | ) | ||||||
Accumulated other comprehensive loss |
(49 | ) | (36 | ) | ||||||
Accumulated deficit |
(236,867 | ) | (224,077 | ) | ||||||
Total stockholders’ equity |
30,117 | 38,352 | ||||||||
Total liabilities and stockholders’ equity |
$ | 45,421 | $ | 53,352 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Revenues: |
|||||||||||||||||
Licenses |
$ | 217 | $ | 1,292 | $ | 1,849 | $ | 2,496 | |||||||||
Related party licenses |
1,010 | 2,570 | 1,060 | 4,905 | |||||||||||||
Services |
842 | 1,036 | 2,197 | 2,068 | |||||||||||||
Related party services |
2,405 | 406 | 3,393 | 693 | |||||||||||||
Total revenues |
4,474 | 5,304 | 8,499 | 10,162 | |||||||||||||
Cost of revenues: |
|||||||||||||||||
Licenses |
28 | 136 | 75 | 245 | |||||||||||||
Services |
2,372 | 914 | 3,548 | 1,822 | |||||||||||||
Total cost of revenues |
2,400 | 1,050 | 3,623 | 2,067 | |||||||||||||
Gross profit |
2,074 | 4,254 | 4,876 | 8,095 | |||||||||||||
Operating expenses: |
|||||||||||||||||
Sales and marketing (including non-cash stock-based
compensation
charges totaling $288 and $746 for the three months ended
June 30,
2003 and 2002, respectively, and $727 and $1,790 for the six
months ended June 30, 2003 and 2002, respectively) |
2,515 | 3,675 | 6,336 | 7,516 | |||||||||||||
Research and development (including non-cash stock-based
compensation charges totaling $158 and $160 for the three
months
ended June 30, 2003 and 2002, respectively, and $317 and $355
for the six months ended June 30, 2003 and 2002, respectively) |
1,103 | 1,444 | 2,576 | 2,830 | |||||||||||||
General and administrative (including non-cash stock-based
compensation charges totaling $412 and $414 for the three
months
ended June 30, 2003 and 2002, respectively, and $824 and $828
for
the six months ended June 30, 2003 and 2002, respectively) |
2,909 | 2,394 | 4,925 | 4,599 | |||||||||||||
Depreciation |
444 | 472 | 922 | 970 | |||||||||||||
Amortization of intangible assets |
7 | 2 | 8 | 663 | |||||||||||||
Restructuring and impairment charges related to office
closure |
— | — | 1,211 | — | |||||||||||||
Impairment of goodwill and other intangible assets |
— | — | — | 6,275 | |||||||||||||
Total operating expenses |
6,978 | 7,987 | 15,978 | 22,853 | |||||||||||||
Loss from operations |
(4,904 | ) | (3,733 | ) | (11,102 | ) | (14,758 | ) | |||||||||
Other income (expense): |
|||||||||||||||||
Interest and other income, net |
11 | 48 | 34 | 89 | |||||||||||||
Interest expense |
(323 | ) | — | (486 | ) | — | |||||||||||
Changes in fair values of warrants to purchase common
stock and conversion options of convertible notes |
(1,081 | ) | — | 343 | — | ||||||||||||
Loss on early extinguishment of debt |
— | — | (1,682 | ) | — | ||||||||||||
Total other income (expense) |
(1,393 | ) | 48 | (1,791 | ) | 89 | |||||||||||
Loss before provision for income taxes |
(6,297 | ) | (3,685 | ) | (12,893 | ) | (14,669 | ) | |||||||||
Provision for income taxes |
13 | — | 13 | — | |||||||||||||
Net loss from continuing operations |
(6,310 | ) | (3,685 | ) | (12,906 | ) | (14,669 | ) | |||||||||
Adjustment to net loss on disposal of discontinued
operations |
26 | 93 | 116 | 93 | |||||||||||||
Net loss |
$ | (6,284 | ) | $ | (3,592 | ) | $ | (12,790 | ) | $ | (14,576 | ) | |||||
Basic and diluted net loss per common share: |
|||||||||||||||||
Net loss per common share from continuing operations |
$ | (0.14 | ) | $ | (0.09 | ) | $ | (0.29 | ) | $ | (0.36 | ) | |||||
Net income per common share from discontinued
operations |
— | — | — | — | |||||||||||||
Net loss per common share |
$ | (0.14 | ) | $ | (0.09 | ) | $ | (0.29 | ) | $ | (0.36 | ) | |||||
Weighted average number of shares outstanding — basic
and diluted |
45,986 | 40,706 | 43,688 | 40,519 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Six Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (12,790 | ) | $ | (14,576 | ) | ||||||
Adjustments to reconcile net loss to net cash used
in operating activities: |
||||||||||||
Adjustment to net loss on disposal of discontinued operations |
— | (93 | ) | |||||||||
Non-cash stock-based compensation charges |
1,868 | 2,973 | ||||||||||
Restructuring and impairment charges related to office closure |
1,211 | — | ||||||||||
Depreciation and amortization |
930 | 1,633 | ||||||||||
Provision for bad
debt |
734 | 126 | ||||||||||
Impairment of goodwill and other intangible assets |
— | 6,275 | ||||||||||
Loss on sale or disposal of equipment |
— | 45 | ||||||||||
Accrued interest income |
— | (14 | ) | |||||||||
Changes in fair values of warrants to purchase common stock
and conversion options of convertible notes |
(343 | ) | — | |||||||||
Loss on early extinguishment of debt |
1,682 | — | ||||||||||
Amortization of debt discount and issuance costs |
196 | — | ||||||||||
Changes in operating assets and liabilities, net of acquisitions: |
||||||||||||
Accounts receivable |
918 | (459 | ) | |||||||||
Related party accounts receivable |
(134 | ) | (315 | ) | ||||||||
Prepaid expenses and other assets |
(333 | ) | 362 | |||||||||
Accounts payable |
838 | (6 | ) | |||||||||
Accrued expenses |
(79 | ) | (252 | ) | ||||||||
Due to related parties, net |
104 | 160 | ||||||||||
Deferred revenues |
124 | (66 | ) | |||||||||
Related party deferred revenues |
548 | (19 | ) | |||||||||
Net cash provided by discontinued operations |
— | 128 | ||||||||||
Net cash used in operating activities |
(4,526 | ) | (4,098 | ) | ||||||||
Cash flows from investing activities: |
||||||||||||
Proceeds from sales and maturities of marketable securities |
875 | 6,800 | ||||||||||
Purchases of marketable securities |
(1,670 | ) | (3,520 | ) | ||||||||
Net (increase) decrease in restricted cash |
499 | (1 | ) | |||||||||
Purchases of property and equipment |
(396 | ) | (558 | ) | ||||||||
Proceeds from sale of property and equipment |
7 | — | ||||||||||
Purchases of patents and trademarks |
(3 | ) | (27 | ) | ||||||||
Net cash provided by (used in) investing activities |
(688 | ) | 2,694 | |||||||||
Cash flows from financing activities: |
||||||||||||
Payment of issuance costs on convertible notes |
(508 | ) | — | |||||||||
Proceeds from issuance of subordinated notes and common
stock net of issuance costs paid of $85 |
3,415 | — | ||||||||||
Repayment of convertible notes |
(3,300 | ) | — | |||||||||
Proceeds from exercise of stock options |
— | 1,306 | ||||||||||
Net cash provided by (used in) financing activities |
(393 | ) | 1,306 | |||||||||
Effect of exchange rate changes on cash and cash equivalents |
(14 | ) | (1 | ) | ||||||||
Net decrease in cash and cash equivalents |
(5,621 | ) | (99 | ) | ||||||||
Cash and cash equivalents at beginning of period |
10,678 | 8,054 | ||||||||||
Cash and cash equivalents at end of period |
$ | 5,057 | $ | 7,955 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Six Months Ended | |||||||||
| June 30, | |||||||||
| 2003 | 2002 | ||||||||
Supplemental disclosure of cash flow activities: |
|||||||||
Cash paid during the period for income taxes |
$ | 54 | $ | 127 | |||||
Cash paid during the period for interest |
46 | — | |||||||