1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 2001 or
[ ] 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
(Exact name of registrant as specified in its charter)
Delaware 95-4102687
(State of incorporation) (I.R.S. Employer Identification Number)
498 Seventh Ave., Suite 1810, New York, NY 10018
(Address of principal executive offices)
(212) 201-0800
(Registrant's telephone number, including area code)
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 [ ]
As of August 6, 2001, there were outstanding 38,989,083 shares of the
registrant's Common Stock, $0.001 par value per share, which is the only
outstanding class of common or voting stock of the registrant.
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VIEWPOINT CORPORATION
FORM 10-Q
Table of Contents
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements........................................................ 3
Consolidated Balance Sheets - June 30, 2001 (unaudited) and
December 31, 2000 (audited)
Consolidated Statements of Operations - Three and six
months ended June 30, 2001 and 2000 (unaudited)
Consolidated Statements of Cash Flows - Six months
ended June 30, 2001 and 2000 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 8
Item 3. Quantitive and Qualitive Disclosures About Market Risk...................... 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 15
SIGNATURES ............................................................................ 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIEWPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30 DECEMBER 31
2001 2000
-----------------------------
(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 6,072 $ 13,320
Marketable securities .................................................... 16,772 15,713
Accounts receivable, net ................................................. 2,733 2,101
Notes receivable from related parties, net ............................... 1,270 1,620
Prepaid expenses and other current assets ................................ 2,254 1,957
Current assets related to discontinued operations ........................ 427 5,662
--------- ---------
Total current assets ................................................ 29,528 40,373
Property and equipment, net ................................................. 5,427 5,622
Goodwill and other intangibles .............................................. 52,184 56,111
Loans to officers ........................................................... 575 --
Other assets ................................................................ 141 179
Non-current assets related to discontinued operations ....................... -- 114
--------- ---------
Total assets ......................................................... $ 87,855 $ 102,399
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 2,969 $ 3,402
Accrued expenses ......................................................... 2,029 861
Due to related parties ................................................... 4,657 --
Deferred revenues ........................................................ 433 636
Accrued incentive compensation ........................................... 545 546
Current liabilities related to discontinued operations ................... 513 615
--------- ---------
Total current liabilities ............................................ 11,146 6,060
Stockholders' equity:
Preferred stock, $.001 par value, 5,000 shares authorized - no shares
issued and outstanding at June 30, 2001 and
December 31, 2000 ...................................................... -- --
Common stock, $.001 par value; 75,000 shares authorized - 38,905
and 37,964 shares issued and outstanding at
June 30, 2001 and December 31, 2000, respectively ...................... 39 38
Paid-in capital .......................................................... 262,756 264,698
Deferred compensation .................................................... (15,438) (22,595)
Treasury stock at cost; 160 shares at June 30, 2001 ...................... (1,015) --
Accumulated other comprehensive income ................................... 32 12
Accumulated deficit ...................................................... (169,665) (145,814)
--------- ---------
Total stockholders' equity ........................................... 76,709 96,339
--------- ---------
Total liabilities and stockholders' equity ........................... $ 87,855 $ 102,399
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues:
Licenses ...................................................... $ 1,780 $ 25 $ 3,688 $ 50
Services ...................................................... 971 130 1,854 267
-------- -------- -------- --------
Total revenues .................................................. 2,751 155 5,542 317
Cost of revenues ................................................ 635 -- 1,541 --
-------- -------- -------- --------
Gross profit .................................................... 2,116 155 4,001 317
-------- -------- -------- --------
Operating expenses:
Sales and marketing (including non-cash stock-based
compensation charges totaling $681 and $1,009 for
three months ended June 30, 2001 and 2000,
respectively, and $1,277 and $3,563 for six months
ended June 30, 2001 and 2000, respectively) .................. 5,356 3,669 10,531 7,328
Research and development (including non-cash stock-
based compensation charges totaling $745 and $594 for
three months ended June 30, 2001 and 2000,
respectively, and $1,485 and $1,573 for six months
ended June 30, 2001 and 2000, respectively) .................. 2,146 1,551 4,594 3,352
General and administrative (including non-cash stock-
based compensation charges totaling $388 and $1,544
for three months ended June 30, 2001 and 2000,
respectively, and $795 and $1,867 for six months ended
June 30, 2001 and 2000, respectively) ........................ 2,716 2,841 4,899 4,506
Amortization of goodwill and other intangibles ................ 4,283 38 8,420 76
Depreciation .................................................. 440 124 855 216
Non-cash sales and marketing charge ........................... -- 5,749 -- 5,749
-------- -------- -------- --------
Total operating expenses ........................................ 14,941 13,972 29,299 21,227
-------- -------- -------- --------
Loss from operations ............................................ (12,825) (13,817) (25,298) (20,910)
Other income .................................................... 293 466 717 987
-------- -------- -------- --------
Loss before minority interest in loss of subsidiary ............. (12,532) (13,351) (24,581) (19,923)
Minority interest in loss of subsidiary ......................... -- 2,642 -- 3,327
-------- -------- -------- --------
Net loss from continuing operations ............................. (12,532) (10,709) (24,581) (16,596)
Adjustment to net loss on disposal of discontinued
operations .................................................... 730 -- 730 1,265
-------- -------- -------- --------
Net loss ........................................................ $(11,802) $(10,709) $(23,851) $(15,331)
======== ======== ======== ========
Basic and diluted net loss per common share:
Net loss per common share from continuing
operations ................................................. $ (0.33) $ (0.39) $ (0.64) $ (0.61)
Net income per common share from
discontinued operations .................................... 0.02 -- 0.02 0.05
-------- -------- -------- --------
Net loss per common share ................................ $ (0.31) $ (0.39) $ (0.62) $ (0.56)
======== ======== ======== ========
Weighted average number of shares outstanding -
basic and diluted ............................................ 38,458 27,629 38,223 27,216
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
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VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2001 2000
----------- ----------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss ................................................................. $(23,851) $(15,331)
Adjustments to reconcile net loss to net cash used in operating
activities:
Net income of discontinued operations ................................ (730) (1,265)
Non-cash stock-based compensation charges ............................ 3,557 7,003
Depreciation and amortization ........................................ 9,275 292
Provision for losses on receivables .................................. 150 --
Minority interest in loss of subsidiary .............................. -- (3,327)
Non-cash sales and marketing charge .................................. -- 5,749
Reserve of notes receivable .......................................... (665) --
Changes in operating assets and liabilities:
Accounts receivable ................................................ (579) 116
Prepaid expenses and other assets .................................. (259) 857
Accounts payable ................................................... (433) 1,498
Accrued expenses ................................................... 1,168 (129)
Deferred revenues .................................................. (49) 36
Net cash provided by (used in) discontinued operations ............. 5,977 (12,983)
-------- --------
Net cash used in operating activities ............................ (6,439) (17,484)
Cash flows from investing activities:
Purchases of marketable securities ....................................... (19,232) (37,754)
Proceeds from sales and maturities of marketable securities .............. 18,200 52,517
Repayment of notes receivable from related parties ....................... -- 1,000
Purchases of property and equipment ...................................... (660) (2,035)
Purchases of patents and trademarks ...................................... (39) --
Net cash used for discontinued operations ................................ -- (84)
-------- --------
Net cash provided by (used in) investing activities .............. (1,731) 13,644
Cash flows from financing activities:
Issuance of loans to officers ............................................ (575) (1,500)
Issuance of preferred stock in subsidiary, net of issuance costs of
$175 ................................................................... -- 9,825
Collection of subscription receivable related to common stock of
subsidiary ............................................................. -- 1,000
Proceeds from exercise of stock options .................................. 1,504 10,537
-------- --------
Net cash provided by financing activities ........................ 929 19,862
Effect of exchange rate changes on cash ..................................... (7) 8
-------- --------
Net increase (decrease) in cash and cash equivalents ........................ (7,248) 16,030
Cash and cash equivalents at beginning of period ............................ 13,320 4,480
-------- --------
Cash and cash equivalents at end of period .................................. $ 6,072 $ 20,510
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements include the
accounts of Viewpoint Corporation and its subsidiaries (collectively "Viewpoint"
or the "Company"). All significant intercompany accounts and transactions have
been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statement presentation. In the opinion of management, the accompanying
consolidated balance sheets and related interim consolidated statements of
operations and cash flows include all adjustments (consisting only of normal
recurring items) considered necessary for their fair presentation. The
preparation of complete and interim financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates. The
consolidated results of operations for the period ended June 30, 2001 are not
necessarily indicative of results to be expected for the year ending December
31, 2001. The information included in this Form 10-Q should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto for the year ended December 31, 2000, as filed on Form 10-K.
Certain reclassifications have been made to the 2000 consolidated financial
statements to conform to the 2001 presentation.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position
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.
License revenue includes sales of perpetual and term based licenses for
broadcasting Viewpoint 3D content, and limited licenses for its digital content
library. License revenue is recognized over the term of the license in a
term-based broadcast license model and up-front in a perpetual broadcast license
model, providing that no significant vendor obligations remain and the resulting
receivable is deemed collectible by management.
Service revenue, which consists of fee-based 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 is in compliance with the provisions of SAB No. 101.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and other
intangibles will be evaluated against this new criteria and may result in
certain intangibles being subsumed into goodwill, or alternatively, amounts
initially recorded as goodwill may be separately identified and recognized apart
from goodwill. SFAS No. 142 requires the use of a nonamortization approach to
account for purchased goodwill and certain intangibles. Under a nonamortization
approach, goodwill and certain intangibles will not be amortized into results of
operations, but instead would be reviewed for impairment and written down and
charged to results of operations only in the periods in which the recorded value
of goodwill and certain intangibles is more than its fair value. The provisions
of each statement which apply to goodwill and intangible assets acquired prior
to June 30, 2001, will be adopted by the Company on January 1, 2002. The
financial statement impact of adopting these statements has not yet been
determined.
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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. NET LOSS PER COMMON SHARE
Basic net loss per common share is computed using the weighted average
number of shares of common stock and diluted net loss per common share is
computed using the weighted average number of shares of common stock and common
equivalent shares outstanding. Common equivalent shares related to stock options
and warrants are excluded from the computation of diluted net loss per common
share because their effect was antidilutive.
Basic and diluted net loss per common share for the three and six months
ended June 30, 2001, include the effect of the 744,740 shares to be issued to
Computer Associates International, Inc. ("Computer Associates") (see note 5), as
if the shares were issued and outstanding on June 8, 2001.
3. DISCONTINUED OPERATIONS
In December 1999, the Board of Directors of the Company approved a plan to
focus exclusively on its digital marketing technologies and services and to
correspondingly divest itself of its prepackaged graphics software business.
Accordingly, these operations are reflected as discontinued operations for all
periods presented in the accompanying consolidated statements of operations.
The Company recorded adjustments to net loss on disposal of discontinued
operations of $730,000 and $1,265,000 during the six months ended June 30, 2001
and 2000, respectively, as a result of changes in estimates related to assets
and liabilities of the discontinued business. Changes in estimates will be
accounted for prospectively and included in adjustment to net loss on disposal
of discontinued operations.
4. RELATED PARTY TRANSACTIONS
In connection with the acquisition of Real Time Geometry Corp. ("RTG") in
December 1996, the Company entered into a noncompetition agreement with one of
RTG's founders who was a former executive of the Company. In addition, the
Company loaned $2,000,000 to the former executive. The loan, which accrued
interest semi-annually at 5.67% and was payable on January 15, 2001, was
collateralized by shares of common stock of the Company owned by the former
executive. The former executive defaulted on the loan and the Company took
possession of the collateral on January 16, 2001. As a result, the Company
recorded treasury stock based on the closing price of the Company's common stock
on January 16, 2001. The former executive and the Company entered into a
consulting agreement under which, among other things, the former executive
agreed to pay the Company $520,000 in outstanding obligations under the loan. In
July 2001, the Company received the $520,000 from the former executive.
On April 2, 2001, the Company loaned $375,000 to an officer of the Company.
The loan, which bears interest at 4.94% per annum, compounding annually, is
secured solely by the officer's stock options in the Company and is non-recourse
to the officer, unless the Company terminates the officer for cause or the
officer resigns without good reason, in which case the loan will become fully
recourse to the officer. The officers' employment agreement provides that if
there is a change of control of the Company, or the officer is terminated
without cause or resigns for good reason, the loan will be forgiven.
On May 31, 2001, the Company loaned $200,000 to an officer of the Company.
The loan, which bears interest at 5.07% per annum, compounding annually, is
secured solely by the officer's stock options in the Company and is non-recourse
to the officer, unless the Company terminates the officer for cause.
5. AGREEMENTS WITH COMPUTER ASSOCIATES AND ACQUISITION OF VIEWPOINT DIGITAL
On April 19, 2001, the Company entered into an agreement with Computer
Associates regarding, among other things, the waiver of transfer restrictions
applicable to shares received by Computer Associates under the Exchange
Agreement, dated as of August 10, 2000, between the Company and Computer
Associates (the "Exchange Agreement") to enable Computer Associates to sell
1,000,000 shares of Viewpoint common stock to a third party in a private
transaction. The Company agreed to register the 1,000,000 shares under the
Securities Act of 1933. Under the agreement entered into on April 19, 2001,
Computer Associates agreed to accept newly-issued shares of Viewpoint common
stock having a value of $4,000,000, in partial repayment of a promissory note
due June 8, 2001 and issued by the Company in connection with its acquisition of
all of the outstanding capital stock of Viewpoint Digital, Inc. ("Viewpoint
Digital").
On May 9, 2001, the Company and Computer Associates entered into a
subsequent agreement under which, among other things:
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- The Company agreed to waive transfer restrictions applicable to an
additional 2,400,000 unregistered shares (the "Shares") of the Company's
common stock received by Computer Associates in accordance with the
Exchange Agreement to enable Computer Associates to transfer the Shares
to third parties in private transactions;
- The Company agreed to register the Shares under the Securities Act of
1933; and
- Computer Associates agreed to accept, at the Company's election, either
cash or newly-issued, unregistered shares of Viewpoint common stock at
an issue price of $4.00 per share in repayment of (a) any additional
amounts due under the promissory note due June 8, 2001, (b) $100,000 due
under the agreement entered into on April 19, 2001, and (c) the first
$8,943,000 of a $15,000,000 contingent promissory note due April 30,
2002, which amount will be determined by the achievement of certain
levels of future operating results and employee retention.
Pursuant to the April 19, 2001 and May 9, 2001 agreements, the Company
registered 3,400,000 shares of the Company's common stock under the Securities
Act of 1933.
The amount due Computer Associates under the promissory note due June 8,
2001, and the agreement dated April 19, 2001, is approximately $4,657,000. For
repayment of the first $4,000,000, the number of common shares to be issued was
calculated on the basis of the average closing price of Viewpoint common stock
over the ten-day trading period ending on and including June 8, 2001. The number
of shares to be issued to Computer Associates is 744,740. For repayment of the
remaining $657,000, the Company has the option of paying cash or issuing
unregistered shares of Viewpoint common stock valued at $4.00 per share. In
connection with this promissory note, the Company recorded additional goodwill
and due to related parties in its consolidated balance sheet.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto.
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," "targets," "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 "Factors That May Affect Future
Operating Results," as well as those discussed elsewhere in the Company's SEC
reports, including without limitation, the Company's audited consolidated
financial statements and notes thereto for the year ended December 31, 2000, as
filed on Form 10-K.
OVERVIEW
Viewpoint Corporation, ("Viewpoint" or the "Company") provides digital
marketing technologies and services for creating and deploying virtual products
for marketing and e-commerce on 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, 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. Computer Associates' interest was acquired by the Company in November
2000.
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 custom
3D content creation services to thousands of customers in the entertainment,
advertising, visual simulation, computer-based training and corporate
communications industries.
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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.
Viewpoint believes that its success will depend largely on its ability to
extend its technology and market leadership in rich media 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 June 30, 2001, had an accumulated deficit of $169,665,000.
OPERATING RESULTS
The following table sets forth for the three and six months ended June 30, 2001
and 2000, the Company's consolidated statements of operations expressed as a
percentage of total revenues.
THREE MONTHS SIX MONTHS
ENDED ENDED
------------------------- -------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000
-------- --------- --------- ---------
Revenues:
Licenses .............................................. 64.7% 16.1% 66.5% 15.8%
Services .............................................. 35.3 83.9 33.5 84.2
------- ------- ------- -------
Total revenues .......................................... 100.0 100.0 100.0 100.0
Cost of revenues ........................................ 23.1 -- 27.8 --
------- ------- ------- -------
Gross profit ............................................ 76.9 100.0 72.2 100.0
------- ------- ------- -------
Operating expenses:
Sales and marketing ................................... 194.7 2,367.1 190.0 2,311.7
Research and development .............................. 78.0 1,000.7 82.9 1,057.4
General and administrative ............................ 98.7 1,832.9 88.4 1,421.4
Amortization of goodwill and other intangibles ........ 155.7 24.5 152.0 24.0
Depreciation .......................................... 16.0 80.0 15.4 68.1
Non-cash sales and marketing charge ................... -- 3,709.0 -- 1,813.6
------- ------- ------- -------
Total operating expenses ................................ 543.1 9,014.2 528.7 6,696.2
------- ------- ------- -------
Loss from operations .................................... (466.2) (8,914.2) (456.5) (6,596.2)
Other income ............................................ 10.7 300.7 13.0 311.3
------- ------- ------- -------
Loss before minority interest in loss of subsidiary ..... (455.5) (8,613.5) (443.5) (6,284.9)
Minority interest in loss of subsidiary ................. -- 1,704.5 -- 1,049.6
------- ------- ------- -------
Net loss from continuing operations ..................... (455.5) (6,909.0) (443.5) (5,253.3)
Adjustment to net loss on disposal of discontinued
operations ............................................ 26.5 -- 13.1 399.0
------- ------- ------- -------
Net loss ................................................ (429.0)% (6,909.0)% (430.4)% (4,836.3)%
======= ======= ======= =======
REVENUES
JUNE 30, JUNE 30, %
2001 2000 CHANGE
-------- -------- ----------
Revenues: (DOLLARS IN THOUSANDS)
Three months ended:
Total revenues ......... $2,751 $ 155 1,675%
Six months ended:
Total revenues ......... $5,542 $ 317 1,648%
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The increase in revenues for the three and six months ended June 30, 2001,
compared to the same periods last year is primarily attributable to an increase
in sales of licenses and fee-based professional services due to the maturity of
Viewpoint Experience Technology, and incremental sales from the acquisition of
Viewpoint Digital.
COST OF REVENUES
JUNE 30, JUNE 30, %
2001 2000 CHANGE
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Three months ended:
Cost of revenues .................. $ 635 $ -- N/A
Percentage of total revenues ...... 23% --%
Six months ended:
Cost of revenues .................. $1,541 $ -- N/A
Percentage of total revenues ...... 28% --%
Cost of revenues consist primarily of salaries and consulting fees for those
who provide fee-based professional services. The increase in cost of revenue is
directly related to an increase in fee-based professional services.
SALES AND MARKETING (INCLUDING NON-CASH STOCK-BASED COMPENSATION CHARGES
TOTALING $681 AND $1,009 FOR THREE MONTHS ENDED JUNE 30, 2001 AND 2000,
RESPECTIVELY, AND $1,277 AND $3,563 FOR SIX MONTHS ENDED JUNE 30, 2001 AND 2000,
RESPECTIVELY)
JUNE 30, JUNE 30, %
2001 2000 CHANGE
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Three months ended:
Sales and marketing ............... $ 5,356 $ 3,669 46%
Percentage of total revenues ...... 195% 2,367%
Six months ended:
Sales and marketing ............... $10,531 $ 7,328 44%
Percentage of total revenues ...... 190% 2,312%
Sales and marketing expenses excluding non-cash stock-based compensation
charges increased for the three and six months ended June 30, 2001, compared to
the same periods last year primarily due to an increase in salaries, benefits,
and travel expenses related to an increase in personnel due to internal growth,
and the acquisition of Viewpoint Digital. In addition, advertising and trade
show costs increased as the Company continued to market Viewpoint Experience
Technology.
RESEARCH AND DEVELOPMENT (INCLUDING NON-CASH STOCK-BASED COMPENSATION CHARGES
TOTALING $745 AND $594 FOR THREE MONTHS ENDED JUNE 30, 2001 AND 2000,
RESPECTIVELY, AND $1,485 AND $1,573 FOR SIX MONTHS ENDED JUNE 30, 2001 AND 2000,
RESPECTIVELY)
JUNE 30, JUNE 30, %
2001 2000 CHANGE
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Three months ended:
Research and development .......... $2,146 $1,551 38%
Percentage of total revenues ...... 78% 1,001%
Six months ended:
Research and development .......... $4,594 $3,352 37%
Percentage of total revenues ...... 83% 1,057%
Research and development expenses excluding non-cash stock-based
compensation charges increased for the three and six months ended June 30, 2001,
compared to the same periods last year primarily due to an increase in salaries
and benefits related to increased internal development personnel in connection
with the further development of Viewpoint Experience Technology.
GENERAL AND ADMINISTRATIVE (INCLUDING NON-CASH STOCK-BASED COMPENSATION CHARGES
TOTALING $388 AND $1,544 FOR THREE MONTHS ENDED JUNE 30, 2001 AND 2000,
RESPECTIVELY, AND $795 AND $1,867 FOR SIX MONTHS ENDED JUNE 30, 2001 AND 2000,
RESPECTIVELY)
JUNE 30, JUNE 30, %
2001 2000 CHANGE
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Three months ended:
General and administrative ...... $2,716 $2,841 (4)%
Percentage of total revenues .... 99% 1,833%
Six months ended:
General and administrative ...... $4,899 $4,506 9%
Percentage of total revenues .... 88% 1,421%
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General and administrative expenses excluding non-cash stock-based
compensation charges increased for the three and six months ended June 30, 2001,
compared to the same periods last year primarily due to an increase in
facilities costs and salaries and benefits related to an increase in personnel,
and an increase in insurance, legal and accounting costs. The increases in the
aforementioned expenses are attributable to internal growth as well as the
acquisition of Viewpoint Digital.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
JUNE 30, JUNE 30, %
2001 2000 CHANGE
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Three months ended:
Amortization of goodwill and other intangibles ..... $4,283 $ 38 11,171%
Percentage of total revenues ....................... 156% 25%
Six months ended:
Amortization of goodwill and other intangibles ..... $8,420 $ 76 10,979%
Percentage of total revenues ....................... 152% 24%
Amortization of goodwill and other intangibles increased for the three and
six months ended June 30, 2001, compared to the same periods last year due to
the amortization of intangibles recorded as part of the acquisition of Viewpoint
Digital and the acquisition of Computer Associates' minority interest in
Metastream.
DEPRECIATION
JUNE 30, JUNE 30, %
2001 2000 CHANGE
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Three months ended:
Depreciation .................... $440 $124 255%
Percentage of total revenues .... 16% 80%
Six months ended:
Depreciation .................... $855 $216 296%
Percentage of total revenues .... 15% 68%
Depreciation increased for the three and six months ended June 30, 2001
compared to the same periods last year as a result of property and equipment
additions during 2000 and 2001.
NON-CASH SALES AND MARKETING CHARGE
JUNE 30, JUNE 30, %
2001 2000 CHANGE
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Three months ended:
Non-cash sales and marketing charge .... $ -- $5,749 (100)%
Percentage of total revenues ........... --% 3,709%
Six months ended:
Non-cash sales and marketing charge .... $ -- $5,749 (100)%
Percentage of total revenues ........... --% 1,814%
In connection with the issuance of mandatorily redeemable preferred stock to
America Online, Inc. ("AOL"), the Company recorded a one-time non-cash sales and
marketing charge of $5,749,000 during the three and six months ended June 30,
2000. The one-time non-cash charge represented the difference between the fair
value of the Company's common shares into which AOL could have converted the
preferred shares on the date of issuance, and the $10,000,000 cash consideration
paid by AOL.
OTHER INCOME
JUNE 30, JUNE 30, %
2001 2000 CHANGE
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Three months ended:
Other income ...................... $293 $466 (37)%
Percentage of total revenues ...... 11% 301%
Six months ended:
Other income ...................... $717 $987 (27)%
Percentage of total revenues ...... 13% 311%
Other income, which decreased for the three and six months ended June 30,
2001 compared to the same periods last year 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.
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MINORITY INTEREST IN LOSS OF SUBSIDIARY
JUNE 30, JUNE 30, %
2001 2000 CHANGE
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Three months ended:
Minority interest in loss of subsidiary .... $ -- $2,642 (100)%
Percentage of total revenues ............... --% 1,705%
Six months ended:
Minority interest in loss of subsidiary .... $ -- $3,327 (100)%
Percentage of total revenues ............... --% 1,050%
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 combined 20% interest were reported as minority interest in the
Company's consolidated statements of operations. In November 2000, the Company
acquired the minority interest in Metastream by issuing approximately 5,578,000
shares of Company common stock in exchange for 4,850,000 shares of Metastream
common stock.
ADJUSTMENT TO NET LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS
JUNE 30, JUNE 30, %
2001 2000 CHANGE
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Three months ended:
Adjustment to net loss on disposal
of discontinued operations ............ $ 730 $ -- N/A
Percentage of total revenues ........... 27% --%
Six months ended:
Adjustment to net loss on disposal
of discontinued operations ............ $ 730 $1,265 (42)%
Percentage of total revenues ........... 13% 399%
In December 1999, the Board of Directors of the Company approved a plan to
focus exclusively on its digital marketing technologies and services and to
correspondingly divest itself of its prepackaged graphics software business.
Accordingly, these operations are reflected as discontinued operations for all
periods presented in the accompanying consolidated statements of operations.
The Company recorded adjustments to net loss on disposal of discontinued
operations of $730,000 and $1,265,000 during the six months ended June 30, 2001
and 2000, respectively, as a result of changes in estimates related to assets
and liabilities of the discontinued business. Changes in estimates will be
accounted for prospectively and included in adjustment to net loss on disposal
of discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and investments totaled $22,844,000 at June 30, 2001, down from $29,033,000
at December 31, 2000. Net cash used in operating activities of the Company
totaled $6,439,000 for the six months ended June 30, 2001, compared to
$17,484,000 for the six months ended June 30, 2000. Net cash used in operating
activities for the six months ended June 30, 2001 primarily resulted from a
$24,581,000 net loss from continuing operations, offset by $5,977,000 in net
cash provided by discontinued operations, $3,557,000 in non-cash stock-based
compensation charges and $9,275,000 in depreciation and amortization. Net cash
used in operating activities for the six months ended June 30, 2000 primarily
resulted from a $16,596,000 net loss from continuing operations, $12,983,000 net
cash used for discontinued operations (principally severance and related
expenses) and $3,327,000 minority interest in loss of subsidiary, net of
$7,003,000 non-cash stock-based compensation charges and $5,749,000 non-cash
sales and marketing charge related to the issuance of Metastream preferred stock
to AOL.
Net cash used in investing activities totaled $1,731,000 million for the six
months ended June 30, 2001, compared to net cash provided by investing
activities of $13,644,000 for the six months ended June 30, 2000. Net cash used
in investing activities for the six months ended June 30, 2001 primarily
resulted from $1,032,000 of net purchases of marketable securities and $660,000
used for purchases of property and equipment. Net cash provided by investing
activities for the six months ended June 30, 2000 primarily resulted from
$14,763,000 of net proceeds from sales and maturities of marketable securities
and $1,000,000 of proceeds from the repayment of a note receivable from an
officer of the Company, net of $2,035,000 used for purchases of property and
equipment.
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Net cash provided by financing activities totaled $929,000 and $19,862,000 for
the six months ended June 30, 2001 and 2000, respectively. Net cash provided by
financing activities for the six months ended June 30, 2001 resulted from
$1,504,000 of proceeds received from the exercise of stock options by the
Company's employees, offset by $575,000 in loans to two officers of the Company.
Net cash provided by financing activities for the six months ended June 30, 2000
resulted from $10,537,000 of proceeds received from the exercise of stock
options by the Company's employees, $9,825,000 of net proceeds from the issuance
of Series A Convertible Preferred Stock in Metastream to AOL and $1,000,000
collected from Computer Associates in connection with a subscription receivable
related to Metastream common stock, net of a $1,500,000 note receivable issued
to an officer of the Company.
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.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Form 10-Q 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,"
"targets", "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 listed below.
Shares of the Company's common stock are speculative in nature and involve a
high degree of risk. The risks set forth below are described in more detail in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000
and 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 a History of Losses and Expect to Incur Losses in the Future;
- Our Future Revenues May Be Unpredictable and May Cause Our Quarterly
Results to Fluctuate;
- We May be Unable to Meet our Future Capital Requirements;
- Our Stock Price is Volatile and May Continue to Fluctuate in the Future;
- If the Internet Does Not Continue to Expand as a Widespread Commerce
Medium, Demand for Our Products and Technologies May Decline
Significantly;
- 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;
- Potential Delays in Product Releases Could Harm Our Business;
- Undetected Errors in Our Products and Technologies Could Result in
Adverse Publicity, Reduced Market Acceptance or Lawsuits by Customers;
- In Order to Increase Market Awareness of Our Products and Generate
Increased Revenue We Need to Expand our Sales and Marketing
Capabilities;
- We May Be Unable to Protect Our Intellectual Property Rights and We May
Be Liable For Infringing the Intellectual Property Rights of Others;
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- Security Risks Could Limit the Growth of E-commerce and Expose Us to
Litigation or Liability;
- Increasing Government Regulation Could Increase Our Cost of Doing
Business or Increase Our Legal Exposure;
- We Recently Acquired Viewpoint Digital And May Need to Enter Into Other
Business Combinations and Strategic Alliances Which Could Be Difficult
to Integrate and May Disrupt Our Business;
- The Loss of Any of Our Key Personnel Would Harm Our Business;
- Our Revenues Could be Negatively Affected by the Loss of Strategic
Partners;
- Our Future Success Depends on Our Ability to Identify, Hire, Train and
Retain Highly Qualified Employees;
- Our Charter Documents Could Make it More Difficult for a Third Party to
Acquire us;
- Our Business is Subject to General Economic Conditions.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and other
intangibles will be evaluated against this new criteria and may result in
certain intangibles being subsumed into goodwill, or alternatively, amounts
initially recorded as goodwill may be separately identified and recognized apart
from goodwill. SFAS No. 142 requires the use of a nonamortization approach to
account for purchased goodwill and certain intangibles. Under a nonamortization
approach, goodwill and certain intangibles will not be amortized into results of
operations, but instead would be reviewed for impairment and written down and
charged to results of operations only in the periods in which the recorded value
of goodwill and certain intangibles is more than its fair value. The provisions
of each statement which apply to goodwill and intangible assets acquired prior
to June 30, 2001, will be adopted by the Company on January 1, 2002. The
financial statement impact of adopting these statements has not yet been
determined.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
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 June 30, 2001. 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 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT
NUMBER EXHIBIT TITLE
-------- --------------------------------------------------------
10.1 Letter Agreement between the Registrant and Computer
Associates International, Inc., dated April 19, 2001
(incorporated by reference to the Registrant's Current
Report on Form 8-K filed on April 27, 2001 (File No.
000-27168))
10.2 Letter Agreement between the Registrant and Computer
Associates International, Inc., dated May 9, 2001
(incorporated by reference to the Registrant's Current
Report on Form 8-K filed on May 15, 2001 (File No.
000-27168))
(b) Reports on Form 8-K
On April 19, 2001, the Registrant filed a report on Form 8-K to report that
it had entered into an agreement with Computer Associates International,
Inc. under which, among other things, Computer Associates agreed to accept
common stock of the Registrant in satisfaction of certain financial
obligations due June 8, 2001 relating to the Registrant's acquisition from
Computer Associates of all of the outstanding capital stock of Viewpoint
Digital, Inc. on September 8, 2000.
On May 15, 2001, the Registrant filed a report on Form 8-K to report that it
had entered into an agreement with Computer Associates International, Inc.
under which, among other things, Computer Associates agreed to accept either
cash or common stock of the Registrant in satisfaction of certain financial
obligations due April 30, 2002 relating to the Registrant's acquisition from
Computer Associates of all of the outstanding capital stock of Viewpoint
Digital, Inc. on September 8, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIEWPOINT CORPORATION
(Registrant)
By /s/ ROBERT E. RICE
----------------------------------
Robert E. Rice
Director, President and
Chief Executive Officer
By /s/ JEFFREY J. KAPLAN
----------------------------------
Jeffrey J. Kaplan
Executive Vice President and
Chief Financial Officer
By /s/ ANTHONY L. PANE
----------------------------------
Anthony L. Pane
Vice President and
Controller
Date: August 14, 2001
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