<PAGE>   1

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

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------
(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)

<TABLE>
<S>                                          <C>
                  DELAWARE                                    95-4102687
          (STATE OF INCORPORATION)                         (I.R.S. EMPLOYER
                                                        IDENTIFICATION NUMBER)
</TABLE>

               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:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                             VIEWPOINT CORPORATION

                                   FORM 10-K

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                                     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.......................................................
</TABLE>

                                        1
<PAGE>   3

                                     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,

                                        2
<PAGE>   4

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

                                        3
<PAGE>   5

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

                                        4
<PAGE>   6

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

                                        5
<PAGE>   7

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

                                        6
<PAGE>   8

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.

                                        7
<PAGE>   9

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.

                                        8
<PAGE>   10

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.
                                        9
<PAGE>   11

     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;

                                        10
<PAGE>   12

     - 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.

                                        11
<PAGE>   13

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

                                        12
<PAGE>   14

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.

                                        13
<PAGE>   15

                                    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:

<TABLE>
<CAPTION>
                                                               HIGH      LOW
                                                              ------    -----
<S>                                                           <C>       <C>
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
</TABLE>

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.

                                        14
<PAGE>   16

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.

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                --------------------------------------------------
                                                  2000       1999       1998      1997      1996
                                                --------   --------   --------   -------   -------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                             <C>        <C>        <C>        <C>       <C>
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
                                                ========   ========   ========   =======   =======
</TABLE>

                                        15
<PAGE>   17

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                  ------------------------------------------------
                                                    2000      1999      1998      1997      1996
                                                  --------   -------   -------   -------   -------
                                                                   (IN THOUSANDS)
<S>                                               <C>        <C>       <C>       <C>       <C>
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
</TABLE>

---------------
(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."

                                        16
<PAGE>   18

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.

                                        17
<PAGE>   19

OPERATING RESULTS

     The following table sets forth certain selected financial information
expressed as a percentage of net revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                                2000        1999        1998
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
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)%
                                                              ========    ========    ========
</TABLE>

NET REVENUES

<TABLE>
<CAPTION>
                                              2000     % CHANGE     1999     % CHANGE     1998
                                             ------    --------    ------    --------    ------
                                                           (DOLLARS IN THOUSANDS)
<S>                                          <C>       <C>         <C>       <C>         <C>
Net revenues...............................  $3,580       16%      $3,093       3%       $3,001
</TABLE>

     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.
                                        18
<PAGE>   20

     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

<TABLE>
<CAPTION>
                                             2000      % CHANGE     1999     % CHANGE     1998
                                            -------    --------    ------    --------    ------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>         <C>       <C>         <C>
Cost of Revenues..........................  $ 1,543      N/A       $   --      N/A       $   --
  As % of net revenues....................       43%                   --%                   --%
</TABLE>

     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)

<TABLE>
<CAPTION>
                                             2000      % CHANGE     1999     % CHANGE     1998
                                            -------    --------    ------    --------    ------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>         <C>       <C>         <C>
Sales and marketing.......................  $15,877      519%      $2,567      162%      $  981
  As % of net revenues....................      444%                   83%                   33%
</TABLE>

     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)

<TABLE>
<CAPTION>
                                             2000      % CHANGE     1999     % CHANGE     1998
                                            -------    --------    ------    --------    ------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>         <C>       <C>         <C>
Research and development..................  $ 6,283      129%      $2,741       73%      $1,584
  As % of net revenues....................      176%                   89%                   53%
</TABLE>

     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
                                        19
<PAGE>   21

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)

<TABLE>
<CAPTION>
                                             2000      % CHANGE     1999     % CHANGE     1998
                                            -------    --------    ------    --------    ------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>         <C>       <C>         <C>
General and administrative................  $ 5,289       30%      $4,065       (8)%     $4,409
  As % of net revenues....................      148%                  131%                  147%
</TABLE>

     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

<TABLE>
<CAPTION>
                                             2000      % CHANGE     1999     % CHANGE     1998
                                            -------    --------    ------    --------    ------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>         <C>       <C>         <C>
Compensation charge related to forgiveness
  of an officer loan......................  $ 2,322      N/A       $   --      N/A       $   --
  As % of net revenues....................       65%                   --%                   --%
</TABLE>

     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

<TABLE>
<CAPTION>
                                             2000      % CHANGE     1999     % CHANGE     1998
                                            -------    --------    ------    --------    ------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>         <C>       <C>         <C>
Non-cash stock-based compensation
  charges.................................  $12,341      103%      $6,081      N/A       $   --
  As % of net revenues....................      345%                  197%                   --%
</TABLE>

                                        20
<PAGE>   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

<TABLE>
<CAPTION>
                                             2000      % CHANGE     1999     % CHANGE     1998
                                            -------    --------    ------    --------    ------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>         <C>       <C>         <C>
Non-cash sales and marketing charges......  $19,998       N/A      $   --      N/A       $   --
  As % of net revenues....................      559%                   --%                   --%
</TABLE>

     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

<TABLE>
<CAPTION>
                                             2000      % CHANGE     1999     % CHANGE     1998
                                            -------    --------    ------    --------    ------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>         <C>       <C>         <C>
Amortization of goodwill and other
  intangibles.............................  $ 3,025     3,933%     $   75      N/A       $   --
  As % of net revenues....................       85%                    3%                   --%
</TABLE>

     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

<TABLE>
<CAPTION>
                                             2000      % CHANGE     1999     % CHANGE     1998
                                            -------    --------    ------    --------    ------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>         <C>       <C>         <C>
Acquired in-process research and
  development.............................  $   963       N/A      $   --      N/A       $   --
  As % of net revenues....................       27%                   --%                   --%
</TABLE>

     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

<TABLE>
<CAPTION>
                                             2000      % CHANGE     1999     % CHANGE     1998
                                            -------    --------    ------    --------    ------
                                                          (DOLLARS IN THOUSANDS)
<S>                                         <C>        <C>         <C>       <C>         <C>
Other Income..............................  $ 2,180        (5)%    $2,286      (13)%     $2,618
</TABLE>

     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
<PAGE>   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
<PAGE>   24

     The following table depicts the loss on disposal of discontinued operations
activity through December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                            LOSS ON DISPOSAL                PROVISION AT                             PROVISION AT
                            OF DISCONTINUED                 DECEMBER 31,   CHARGED TO                DECEMBER 31,
                               OPERATIONS      DEDUCTIONS       1999        EXPENSES    DEDUCTIONS       2000
                            ----------------   ----------   ------------   ----------   ----------   ------------
<S>                         <C>                <C>          <C>            <C>          <C>          <C>
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         $--
                                ========        =======       ========      =======      ========         ==
</TABLE>

     Operating results from discontinued operations were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                              -------------------------------
                                                               2000        1999        1998
                                                              -------    --------    --------
<S>                                                           <C>        <C>         <C>
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)
                                                              =======    ========    ========
</TABLE>

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
<PAGE>   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
<PAGE>   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:

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
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
</TABLE>

     2. Index to Financial Statement Schedule

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
SCHEDULE
Schedule II -- Valuation and Qualifying Accounts............   56
</TABLE>

     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
<PAGE>   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
<PAGE>   28

                             VIEWPOINT CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2000         1999
                                                              ---------    --------
<S>                                                           <C>          <C>
                                      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
                                                              =========    ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        27
<PAGE>   29

                             VIEWPOINT CORPORATION

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

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                               2000        1999        1998
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
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
                                                             ========    ========    ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        28
<PAGE>   30

                             VIEWPOINT CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
             FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                         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
                          ------   ------   ------   ------   --------   ------------   -------------   -----------   -------------
<S>                       <C>      <C>      <C>      <C>      <C>        <C>            <C>             <C>           <C>
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

<CAPTION>

                              TOTAL
                          COMPREHENSIVE
                              LOSS
                          -------------
<S>                       <C>
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............    $      7
Net loss................     (19,831)
                            --------
Balances at December 31,
  1998..................    $(19,824)
                            ========
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
  RAYflect S.A. ........
Conversion of accrued
  compensation to equity
  upon exercise of
  certain options.......
Change in interest gain
  related to
  subsidiary............
Translation
  adjustment............    $     (9)
Unrealized loss on
  investments...........         (69)
Net loss................     (50,654)
                            --------
Balances at December 31,
  1999..................    $(50,732)
                            ========
Issuance of common stock
  upon the exercise of
  stock options.........
Issuance of common stock
  in connection with the
  employee stock
  purchase plan.........
Conversion of accrued
  compensation to equity
  upon exercise of
  certain options.......
Change in interest gain
  related to
  subsidiary............
</TABLE>

                                        29
<PAGE>   31
                             VIEWPOINT CORPORATION

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
             FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                         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
                          ------   ------   ------   ------   --------   ------------   -------------   -----------   -------------
<S>                       <C>      <C>      <C>      <C>      <C>        <C>            <C>             <C>           <C>
Issuance of common stock
  option awards.........   --        --         --     --       22,925      (22,925)           --               --            --
Amortization of deferred
  compensation..........   --        --         --     --           --          330            --               --           330
Issuance of common stock
  in connection with
  Viewpoint Digital,
  Inc. acquisition......   --        --        715      1        8,937           --            --               --         8,938
Non-cash sales and
  marketing charges in
  connection with
  strategic alliances...   --        --         --     --       19,998           --            --               --        19,998
Issuance of common stock
  in exchange for
  minority interest in
  subsidiary............   --        --      5,578      6       56,844           --            --               --        56,850
Issuance of common stock
  in exchange for
  subsidiary preferred
  stock.................   --        --      3,450      3       19,836           --            --               --        19,839
Translation
  adjustment............   --        --         --     --           --           --           137               --           137
Unrealized gain on
  investment............   --        --         --     --           --           --            81               --            81
Net loss................   --        --         --     --           --           --            --          (55,956)      (55,956)
                            --       --     ------    ---     --------     --------         -----        ---------      --------
Balances at December 31,
  2000..................   --        $--    37,964    $38     $264,698     $(22,595)        $  12        $(145,814)     $ 96,339
                            ==       ==     ======    ===     ========     ========         =====        =========      ========

<CAPTION>

                              TOTAL
                          COMPREHENSIVE
                              LOSS
                          -------------
<S>                       <C>
Issuance of common stock
  option awards.........
Amortization of deferred
  compensation..........
Issuance of common stock
  in connection with
  Viewpoint Digital,
  Inc. acquisition......
Non-cash sales and
  marketing charges in
  connection with
  strategic alliances...
Issuance of common stock
  in exchange for
  minority interest in
  subsidiary............
Issuance of common stock
  in exchange for
  subsidiary preferred
  stock.................
Translation
  adjustment............    $    137
Unrealized gain on
  investment............          81
Net loss................     (55,956)
                            --------
Balances at December 31,
  2000..................    $(55,738)
                            ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        30
<PAGE>   32

                             VIEWPOINT CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                                2000        1999        1998
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss....................................................  $(55,956)   $(50,654)   $(19,831)
Adjustments to reconcile net loss to net cash provided by
  (used in) operating activities:
  Net (income) loss of discontinued operations..............    (1,496)     36,071      18,829
  Amortization of deferred compensation.....................    12,341       6,081          --
  Deferred income taxes.....................................        --       5,913        (760)
  Depreciation and amortization.............................     4,789         670       1,223
  Accrued interest income...................................        --        (130)       (171)
  Forgiveness and reserve of notes receivables..............     3,347          --          --
  Minority interest in loss of subsidiary...................    (4,429)     (1,048)         --
  Non-cash sales and marketing charges......................    19,998          --          --
  Changes in operating assets and liabilities, net of
     acquisitions:
     Accounts receivable....................................    (1,148)        790         109
     Prepaid expenses and other assets......................      (729)       (466)      1,390
     Accounts payable.......................................     2,768          62          (4)
     Accrued expenses.......................................       110         809         652
     Deferred revenue.......................................       267         369          --
     Accrued incentive compensation.........................        --        (161)       (147)
     Net cash used in discontinued operations...............    (8,607)    (10,209)       (792)
                                                              --------    --------    --------
       Net cash provided by (used in) operating
        activities..........................................   (28,745)    (11,903)        498
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.........................    (4,233)       (295)        (48)
Purchases of marketable securities..........................   (42,735)    (79,282)    (63,549)
Proceeds from maturities of marketable securities...........    59,870      76,484      73,860
Issuance of notes receivable from related parties...........    (1,500)       (100)     (1,150)
Repayment of notes receivable from related parties..........     1,000         254          --
Acquisition of minority interest in subsidiary..............      (507)         --          --
Acquisition of Viewpoint Digital, net of cash acquired......   (10,225)         --          --
Net cash used in discontinued operations....................       (86)     (4,471)     (3,814)
                                                              --------    --------    --------
       Net cash provided by (used in) investing
        activities..........................................     1,584      (7,410)      5,299
CASH FLOWS FROM FINANCING ACTIVITIES
Collection of subscription receivable related to subsidiary
  common stock..............................................     3,500       3,500          --
Issuance of mandatorily redeemable preferred stock of
  subsidiary, net of issuance costs of $161.................    19,839          --          --
Proceeds from exercise of subsidiary stock options..........        50          --          --
Proceeds from exercise of stock options.....................    12,604       4,005         840
                                                              --------    --------    --------
       Net cash provided by financing activities............    35,993       7,505         840
Effect of exchange rates on cash............................         8          (9)          7
                                                              --------    --------    --------
Net increase (decrease) in cash and cash equivalents........     8,840     (11,817)      6,644
Cash and cash equivalents at beginning of year..............     4,480      16,297       9,653
                                                              --------    --------    --------
Cash and cash equivalents at end of year....................  $ 13,320    $  4,480    $ 16,297
                                                              ========    ========    ========
</TABLE>

                                        31
<PAGE>   33
                             VIEWPOINT CORPORATION

              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                                2000        1999        1998
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES
Cash paid during the year for income taxes..................  $     --    $      2    $    147

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Net assets acquired in connection with acquisition of
  Viewpoint Digital:
  Cash......................................................  $      6    $     --    $     --
  Accounts receivable, net..................................       830          --          --
  Property and equipment....................................     1,576          --          --
  Prepaid expenses and other assets.........................       128          --          --
  Accounts payable and accrued expenses.....................      (410)                     --
Tax benefit related to stock options........................        --          --         376
Conversion of accrued compensation to equity upon exercise
  of certain options........................................        75          26           8
Acquisition of minority interest:
  Goodwill..................................................    42,892          --          --
  Minority interest.........................................    14,465          --          --
  Common stock..............................................        (6)         --          --
  Paid in capital...........................................   (56,844)         --          --
Issuance of stock in connection with employee stock purchase
  plan......................................................       242         584         404
Issuance of common stock in connection with acquisition of
  RAYflect S.A. ............................................        --         597          --
Issuance of common stock in connection with acquisition of
  Canoma, Inc. .............................................        --          --       1,305
Net assets acquired in connection with acquisition of
  RAYflect S.A.:
  Property and equipment....................................        --           6          --
  Prepaid expenses and other assets.........................        --       1,300          --
  Accounts payable and accrued expenses.....................        --          20          --
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        32
<PAGE>   34

                             VIEWPOINT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION

     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.

     Inherent in the Company's business are various risks and uncertainties,
including its limited operating history in the e-commerce visualization business
and the limited history of commerce on the Web. In addition, the Company has
sustained losses from continuing operations for the last four years and has an
accumulated deficit at December 31, 2000. The Company's future prospects are
highly dependent on its ability to keep pace with its competitors' innovations;
to adapt to new operating systems, hardware platforms and emerging industry
standards; and to provide additional functionality to the Company's existing
products and technologies. The Company's success depends on its ability to
develop and introduce such products and technologies in a timely manner, the
acceptance of the Company's products and technologies by the marketplace and its
ability to generate license and service revenues from the use of its products
and technologies on the Web.

     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.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of Viewpoint and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

REVENUE RECOGNITION

     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

                                        33
<PAGE>   35
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

     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.

     With respect to its discontinued prepackaged graphics software business
(Note 3), the Company recognized product revenue when contractual obligations
were satisfied, title and risk of loss had been transferred to the customer and
collection of the resulting receivable was reasonably assured. The Company
provided an allowance for estimated returns at the time of product delivery and
adjusted this allowance as needed based on actual return history. Such reserves
as a percentage of net revenues varied over recent years, reflecting the
Company's experience in product returns as it had significantly expanded the
proportion of its sales through third-party distribution channels and increased
its product portfolio. The Company's agreements with its distributors provided
the distributors with limited rights to return unsold inventories under a stock
balancing program.

     With respect to its discontinued prepackaged graphics software business
(Note 3), the Company entered into agreements whereby it licensed products to
original equipment manufacturers ("OEM's") and foreign publishers, which
provided such customers the right to produce and distribute multiple copies of
its software. Nonrefundable fixed fees were recognized as revenue at delivery of
the product master to the customer, satisfaction of Company obligations, if any,
and reasonable assurance regarding the collectability of the corresponding
receivable. Per copy royalties in excess of fixed amounts were recognized as
revenue when such amounts exceeded fixed minimum royalties.

SOFTWARE DEVELOPMENT COSTS

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," the Company provides for capitalization of certain software
development costs once technological feasibility is established. The costs
capitalized are amortized on a straight-line basis over the estimated product
life, or on the ratio of current revenue to total projected product revenues,
whichever is greater. 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.

SOFTWARE DEVELOPED FOR INTERNAL USE

     In accordance with SOP No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," 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.

     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

                                        34
<PAGE>   36
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

INCOME TAXES

     The Company accounts for income taxes using the liability method as
required by SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred income taxes are determined based on the differences between the
financial statement and tax bases of assets and liabilities, using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.

STOCK-BASED COMPENSATION

     The Company accounts for stock option grants in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." Under APB No. 25, compensation
expense is recognized over the vesting period based on the difference, if any,
at the date of grant between the fair value of the Company's stock and the
exercise price. The Company accounts for stock issued to non-employees in
accordance with SFAS No. 123 and EITF Issue No. 96-18 "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."

     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 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 the
accompanying consolidated financial statements.

CASH EQUIVALENTS AND MARKETABLE SECURITIES

     The Company considers all highly liquid investments purchased with an
original maturity of three months or less at date of acquisition to be cash
equivalents.

     The Company considers its marketable securities portfolio
available-for-sale as defined in SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." These available-for-sale securities
are accounted for at their fair value, and unrealized gains and losses on these
securities are reported as a separate component of stockholders' equity. At
December 31, 2000 and 1999, net unrealized gains and (losses) on
available-for-sale securities were approximately $12,000 and $(69,000),
respectively.

     The Company invests its cash in accordance with a policy that seeks to
maximize returns while ensuring both liquidity and minimal risk of principal
loss. The policy limits investments to certain types of instruments issued by
institutions with investment grade credit ratings, and places restrictions on
maturities and concentration by type and issuer. The majority of the Company's
portfolio is composed of fixed income securities that are subject to the risk of
market interest rate fluctuations, and all of the Company's marketable

                                        35
<PAGE>   37
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

securities are subject to risks associated with the ability of the issuers to
perform their obligations under the instruments.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Assets are depreciated on the
straight-line method over their estimated useful lives, which range from 3 to 7
years. Leasehold improvements are amortized over the shorter of the life of the
lease or the life of the asset. Upon sale, any gain or loss is included in the
consolidated statements of operations. Maintenance and minor replacements are
expensed as incurred.

LONG-TERM ASSETS

     The Company continually reviews the carrying value of long-term assets,
primarily consisting of property and equipment and goodwill and other intangible
assets to determine whether there are any indications of impairment losses.
Impairment losses, if any, are recorded when the expected undiscounted future
operating cash flows derived from such assets are less than their carrying
value.

FOREIGN CURRENCY TRANSLATION

     The functional currency of each of the Company's foreign subsidiaries is
its local currency. Financial statements of these foreign subsidiaries are
translated to U.S. dollars for consolidation purposes using current rates of
exchange for assets and liabilities and average rates of exchange for revenues
and expenses. The effects of currency translation adjustments are included as a
component of other comprehensive income (loss) in the statement of stockholders'
equity. Gains and losses on foreign currency transactions for 2000, 1999 and
1998 were not significant.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CONCENTRATION OF RISK

     The Company is subject to concentration of credit risk and interest rate
risk related to cash equivalents and marketable securities. Credit risk is
managed by limiting the amount of marketable 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. At
December 31, 2000, and periodically from 1998 through 2000, the Company has
maintained balances with various financial institutions in excess of the
federally insured limits.

     Carrying amounts of financial instruments held by the Company, which
include cash and cash equivalents, marketable securities, accounts receivable,
accounts payable, and accrued expenses, approximate fair value.

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
are excluded from the computation when their effect is antidilutive.

                                        36
<PAGE>   38
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMPREHENSIVE LOSS

     In accordance with SFAS No. 130, "Reporting Comprehensive Income," all
components of comprehensive income, including net income (loss), are reported in
the financial statements in the period in which they are recognized.
Comprehensive income (loss) is defined as the change in equity during a period
from transactions and other events and circumstances from non-owner sources. Net
income (loss) and other comprehensive income (loss), are reported net of their
related tax effect, to arrive at comprehensive income (loss).

STOCK SALES BY SUBSIDIARY

     Gains realized on stock sales by Metastream are recorded in the Company's
consolidated statements of operations, except for any transaction which may be
credited directly to equity in accordance with the provisions of SAB No. 51,
"Accounting for Sales of Stock of a Subsidiary."

RECLASSIFICATIONS

     Certain reclassifications have been made to the 1999 and 1998 consolidated
financial statements to conform to the 2000 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued 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, the Company has not engaged in derivative
and hedging activities.

3. DISCONTINUED OPERATIONS

     In December 1999, the Board of Directors approved a plan to focus
exclusively on its patented e-commerce visualization solutions, 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 consolidated 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.

                                        37
<PAGE>   39
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table depicts the loss on disposal of discontinued operations
activity through December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                      LOSS ON DISPOSAL                PROVISION AT                             PROVISION AT
                                      OF DISCONTINUED                 DECEMBER 31,   CHARGED TO                DECEMBER 31,
                                         OPERATIONS      DEDUCTIONS       1999        EXPENSE     DEDUCTIONS       2000
                                      ----------------   ----------   ------------   ----------   ----------   ------------
<S>                                   <C>                <C>          <C>            <C>          <C>          <C>
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         $--
                                          ========        =======       ========      =======      ========         ==
</TABLE>

     Operating results from discontinued operations were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                              -------------------------------
                                                               2000        1999        1998
                                                              -------    --------    --------
<S>                                                           <C>        <C>         <C>
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)
                                                              =======    ========    ========
</TABLE>

     In June 1999, the Company sold certain of its consumer graphics products
and licensed rights to certain of its technologies to a third party for total
consideration of $2,600,000. Expenses incurred by the Company in connection with
this transaction totaled $680,000. The net gain of $1,920,000 was recorded as
gain on sale of assets related to discontinued operations in the accompanying
statements of operations.

                                        38
<PAGE>   40
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The net assets related to discontinued operations included in the
accompanying consolidated balance sheets consist of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              ----------------
                                                               2000      1999
                                                              ------    ------
<S>                                                           <C>       <C>
Current assets related to discontinued operations:
  Notes receivable..........................................  $4,000    $   --
  Accounts receivable, net..................................   1,581     1,800
  Inventories, net..........................................      --        92
  Prepaid expenses and other current assets.................      81     2,810
                                                              ------    ------
     Current assets related to discontinued operations......  $5,662    $4,702
                                                              ======    ======
Non-current assets related to discontinued operations:
  Property and equipment, net...............................  $   --    $1,574
  Other assets..............................................     114       400
                                                              ------    ------
Non-current assets related to discontinued operations.......  $  114    $1,974
                                                              ======    ======
Current liabilities related to discontinued operations:
  Accounts payable..........................................  $  303    $5,631
  Accrued expenses..........................................     312     2,824
  Royalties payable.........................................      --       723
                                                              ------    ------
  Current liabilities related to discontinued operations....  $  615    $9,178
                                                              ======    ======
</TABLE>

     Property and equipment relating to discontinued operations consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ---------------
                                                              2000      1999
                                                              -----    ------
<S>                                                           <C>      <C>
Computer equipment..........................................   $--     $4,218
Office furniture and equipment..............................    --      2,060
Leasehold improvements......................................    --        492
                                                               ---     ------
                                                                --      6,770
Less accumulated depreciation and amortization..............    --      5,196
                                                               ---     ------
                                                               $--     $1,574
                                                               ===     ======
</TABLE>

     Accrued expenses relating to discontinued operations consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              --------------
                                                              2000     1999
                                                              ----    ------
<S>                                                           <C>     <C>
Other accrued expenses......................................  $312    $1,436
Accrued compensation........................................    --     1,128
Accrued advertising.........................................    --       260
                                                              ----    ------
                                                              $312    $2,824
                                                              ====    ======
</TABLE>

4. RESTRUCTURING

     On June 30, 1998, the Company announced a restructuring plan aimed at
reducing costs and improving competitiveness and efficiency, which was
implemented during the third quarter of 1998. In connection with the
restructuring, management considered the Company's future operating costs and
levels of revenue in 1998 and beyond, and determined that a restructuring charge
of approximately $4,955,000 was required to cover the

                                        39
<PAGE>   41
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

costs of reducing certain sectors of its workforce and facilities. The
restructuring charge included an accrual of approximately $2,208,000 related to
severance and benefits associated with the reduction of approximately 75
positions during July 1998, as well as the related reduction of certain of the
Company's facilities. Non-cash restructuring costs, which totaled approximately
$2,747,000, primarily related to the write-down of non-strategic business assets
made redundant or obsolete due to the streamlining of the Company's product
lines and/or reduction of facilities. The restructuring plan was completed
during the first quarter of 1999. The restructuring charge has been included
within discontinued operations in the Company's consolidated statements of
operations.

     The following table depicts the restructuring activity through December 31,
1999 (in thousands):

<TABLE>
<CAPTION>
                                                    SPENDING/                    SPENDING/
                                       TOTAL         CHARGES      BALANCE AT      CHARGES      BALANCE AT
                                   RESTRUCTURING     DURING      DECEMBER 31,     DURING      DECEMBER 31,
                                      CHARGES         1998           1998          1999           1999
                                   -------------    ---------    ------------    ---------    ------------
<S>                                <C>              <C>          <C>             <C>          <C>
Write-down of operating assets...     $2,747         $2,747          $ --          $ --             $--
Severance and benefits...........      1,801          1,684           117           117              --
Vacated facilities...............        116            116            --            --              --
Other............................        291            291            --            --              --
                                      ------         ------          ----          ----             ---
                                      $4,955         $4,838          $117          $117             $--
                                      ======         ======          ====          ====             ===
</TABLE>

5. ACQUISITIONS

VIEWPOINT DIGITAL

     On September 8, 2000, the Company purchased all the outstanding capital
stock of Viewpoint Digital, a wholly-owned subsidiary of Computer Associates.
The acquisition was accounted for under the purchase method of accounting. The
purchase price of $19,169,000, excluding contingent consideration of $30,000,000
in notes payable, consisted of 715,000 shares of the Company's common stock
valued at $8,938,000, cash consideration of $10,000,000 and $231,000 in direct
acquisitions 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 purchase price in excess of the value of tangible
assets and liabilities assumed of $2,130,000, has been allocated as follows:
$3,253,000 to a covenant not to compete, $3,180,000 to work force, $1,558,000 to
technology, $1,203,000 to customer list, $963,000 to in-process research and
development, $643,000 to tradename and $6,239,000 to goodwill. Goodwill and
other intangibles, excluding in-process research and development, will be
amortized over their expected periods of benefit, which ranges from 1.5 to 4
years. Amortization expense of $1,980,000 was recorded for the year ended
December 31, 2000. In-process research and development was written off during
the month of September 2000. The operating results of Viewpoint Digital have
been included in the accompanying consolidated financial statements from the
date of acquisition.

RAYFLECT S.A.

     On June 29, 1999, the Company completed the acquisition of RAYflect S.A.
("RAYflect"), a privately held company based in France that developed and
marketed 3D graphic design tools for professionals. The acquisition was
accounted for by the Company under the purchase method of accounting. Under the
terms of the Purchase Agreement, the stockholders of RAYflect received 125,996
shares of the Company's common stock valued at approximately $597,000 at June
29, 1999, the closing date, and cash consideration totaling $622,000. The
purchase price of approximately $1,277,000 was capitalized by the Company as
goodwill and was being amortized over 3 years. At December 31, 1999, the Company
wrote off the remaining goodwill related to the RAYflect acquisition, to
discontinued operations. The operating results of RAYflect have been included in
the accompanying consolidated financial statements from the date of acquisition
and classified as discontinued operations for all periods presented.

                                        40
<PAGE>   42
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CANOMA, INC.

     On December 31, 1998, the Company completed the acquisition of Canoma, Inc.
("Canoma"), a privately held development-stage software company based in
Northern California, that was developing software technology that creates 3D
digital images and content from 2D digital images for use primarily over the
Internet and in other applications. The acquisition was accounted for by the
Company under the purchase method of accounting. Under the terms of the Purchase
Agreement, the stockholders of Canoma received 300,000 shares of the Company's
common stock valued at approximately $1,305,000 at December 31, 1998, the
closing date, and cash consideration totaling $1,750,000. As of December 31,
1998, neither technological feasibility nor commercial viability had been
reached with regard to Canoma's technology or potential products. Based upon
projected future cash flows, risk-adjusted using a 33% discount rate, Canoma's
in-process technology was valued at approximately $2,250,000, which, including
acquisition costs totaling approximately $100,000, resulted in a one time charge
to earnings of approximately $2,350,000 for the year ended December 31, 1998.
The remaining purchase price of approximately $805,000 was capitalized by the
Company as goodwill and acquired technology and was being amortized over 5
years. At December 31, 1999, the Company wrote off the remaining goodwill
related to the Canoma acquisition, to discontinued operations. The operating
results of Canoma have been included in the accompanying consolidated financial
statements from the date of acquisition and classified as discontinued
operations for all periods presented.

6. MANDATORILY REDEEMABLE PREFERRED STOCK OF SUBSIDIARY

     In June 2000, Metastream issued 1,500,000 shares of Series A Convertible
Preferred Stock to America Online, Inc. ("AOL") for cash consideration totaling
$10,000,000. Prior to the merger of the Company and Metastream (Note 7), each
share of Series A Convertible Preferred Stock was exchanged by the Company, into
1,725,000 shares of the Company's common stock. In connection with the issuance
of the shares of Series A Convertible Preferred Stock to AOL and the
simultaneous execution of a licensing and distribution arrangement, the Company
recorded a one-time non-cash sales and marketing charge of $5,740,000 related to
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.

     The Series A Convertible Preferred Stock held by AOL also contained a put
right whereby AOL could have required the Company to purchase the preferred
shares, unless exchanged, at a price equal to the original purchase price paid
by AOL, plus interest.

     In July 2000, Metastream issued 1,500,000 shares of Series B Convertible
Preferred Stock to Adobe Systems Incorporated ("Adobe") for cash consideration
totaling $10,000,000. Prior to the merger of the Company and Metastream (Note
7), each share of Series B Convertible Preferred Stock was exchanged by the
Company, into 1,725,000 shares of Company common stock. In connection with the
issuance of the shares of Series B Convertible Preferred Stock to Adobe and the
simultaneous execution of a licensing and distribution arrangement, the Company
recorded a one-time non-cash sales and marketing charge of $14,258,000 related
to the difference between the fair value of the Company's common shares into
which Adobe could have converted the preferred shares on the date of issuance,
and the $10,000,000 cash consideration paid by Adobe.

     The Series B Convertible Preferred Stock held by Adobe also contained a put
right whereby Adobe could have required the Company to purchase the preferred
shares, unless exchanged, at a price equal to the original purchase price paid
by Adobe, plus interest.

     Accretion for these mandatorily redeemable securities totaled $438,000
prior to the date the preferred stock was exchanged for Company common stock.

7. AGREEMENTS WITH COMPUTER ASSOCIATES AND MINORITY INTEREST

     Beginning in June 1999, the Company entered into a series of agreements
with Computer Associates. The agreements included a non-exclusive limited-use
perpetual license to use the Company's 3D related technologies and a

                                        41
<PAGE>   43
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

service agreement whereby the Company would provide a defined number of
development personnel to Computer Associates on an as needed basis. Concurrent
with the license agreement, the Company also granted Computer Associates a 20%
equity interest in Metastream, for certain non-monetary support as
consideration. The Company concluded that the series of transactions with
Computer Associates should be viewed in the aggregate and the monetary
consideration allocated to each component based on their fair values. Since the
limited-use license of related technologies was a unique, one-time transaction,
the Company did not have the requisite evidence of its fair value pursuant to
the provisions of SOP No. 97-2. An independent valuation of the 20% interest in
Metastream indicated a fair value in excess of the monetary consideration
ascribed to Computer Associates limited-use licensing rights; therefore, the
Company concluded the appropriate recognition for the transactions was to
allocate the committed monetary consideration to the equity component. The
Company allocated the consideration received of $7,000,000 between minority
interest and "change in interest gain" pursuant to the provisions of SAB No. 51.
The "change in interest gain" has been recorded to paid-in capital in the
Company's consolidated balance sheets.

     For financial reporting purposes, the assets, liabilities and earnings of
Metastream are 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 allocable to their 20% interest have been
reported as minority interest in the Company's consolidated statements of
operations.

     In connection with the grant of stock options in Metastream to certain
employees and non-employee directors, the Company recorded total deferred
compensation of approximately $24,206,000 and $16,811,000 for the years ended
December 31, 2000 and 1999, respectively. This deferred compensation represented
the difference between the fair value of Metastream common stock and the
exercise price of these options at the date of grant. Minority interest in the
Company's consolidated balance sheets was credited with its proportionate
interest in stock-based compensation expense that was recognized through
November 30, 2000.

     On August 10, 2000, the Company entered into an Exchange Agreement with
Computer Associates pursuant to which the Company issued to Computer Associates
1.15 shares of the Company's common stock in exchange for each share of common
stock of Metastream held by Computer Associates. On consummation of the share
exchange in November 2000, Computer Associates exchanged its 4,800,000 shares of
Metastream common stock for 5,520,000 newly issued shares of Company common
stock.

     The consideration paid by the Company in connection with the exchange
approximated $57,087,000, consisting of the following:

     - The issuance of 5,520,000 shares of Company common stock valued at $10.25
       per common share, which was the average market price of the Company's
       common stock for the two trading days before and after August 10, 2000,
       for equity consideration of $56,580,000; and

     - Transaction costs of $507,000.

     The exchange of shares was accounted for as an acquisition of minority
interest under the purchase method of accounting. Accordingly, the purchase
price was allocated to goodwill, net of the carrying value of Computer
Associates' minority interest. The goodwill recorded is being amortized over
four years.

     On completion of the share exchange with Computer Associates and the
preferred stock exchanges with AOL and Adobe (Note 6), the Company owned 99.8%
of the outstanding capital stock of Metastream. The other shareholder holding an
interest in Metastream was a former director of the Company who was issued and
subsequently exercised an option to purchase 50,000 shares of Metastream common
stock. This shareholder's shares were exchanged for 57,500 newly issued shares
of Company common stock, which was accounted for as an acquisition of minority
interest under the purchase method of accounting. Accordingly, the purchase
price of $270,000 was allocated to goodwill, net of the carrying value of this
shareholder's minority interest. The goodwill recorded will be amortized over
four years.

     Amortization expense related to the acquisitions of minority interest
totaled $894,000 for the year ended December 31, 2000.

                                        42
<PAGE>   44
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Subsequent to the acquisitions of minority interest, the Company merged
with Metastream.

     The following unaudited pro forma consolidated amounts give affect to the
Viewpoint Digital acquisition (Note 5) and the minority interest acquisitions,
as if they all had taken place on January 1, 1999. In management's opinion, the
following unaudited pro forma consolidated information is not necessarily
indicative of the actual results that would have occurred had the acquisitions
been consummated on January 1, 1999, and should not be construed as being
representative of future operating results.

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                              --------------------------
                                                                 2000            1999
                                                              ----------      ----------
                                                              (IN THOUSANDS, EXCEPT PER
                                                                    SHARE AMOUNTS)
<S>                                                           <C>             <C>
Revenues....................................................   $  8,244        $ 11,377
Net loss from continuing operations applicable to common
  shareholders..............................................   $(79,207)       $(35,472)
Basic and diluted net loss per common share from continuing
  operations................................................   $  (2.30)       $  (1.15)
</TABLE>

8. MARKETABLE SECURITIES

     The cost and fair value of the Company's marketable securities portfolio as
of December 31, 2000, by type of security, contractual maturity, and its
classification in the balance sheet, is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 GROSS         GROSS
                                                  AMORTIZED    UNREALIZED    UNREALIZED
                                                    COST          GAIN         (LOSS)      FAIR VALUE    MATURITY
                                                  ---------    ----------    ----------    ----------    --------
<S>                                               <C>          <C>           <C>           <C>           <C>
TYPE OF SECURITY:
Money Market Funds..............................   $13,064        $--           $--         $13,064       2001
Corporate Debt Securities.......................     7,947          6            --           7,953       2001
U.S. Government Agencies........................     6,697          7            (1)          6,703       2001
Certificates of Deposit.........................     1,057         --            --           1,057       2001
                                                   -------        ---           ---         -------
                                                   $28,765        $13           $(1)        $28,777
                                                   =======        ===           ===         =======
CLASSIFICATION IN BALANCE SHEET:
Cash and Cash Equivalents.......................   $13,064        $--           $--         $13,064       2001
Marketable Securities...........................    15,701         13            (1)         15,713       2001
                                                   -------        ---           ---         -------
                                                   $28,765        $13           $(1)        $28,777
                                                   =======        ===           ===         =======
</TABLE>

     The cost and fair value of the Company's marketable securities portfolio as
of December 31, 1999, by type of security, contractual maturity, and its
classification in the balance sheet, is as follows (in thousands):

<TABLE>
<CAPTION>
                                                             GROSS         GROSS
                                              AMORTIZED    UNREALIZED    UNREALIZED
                                                COST          GAIN         (LOSS)      FAIR VALUE     MATURITY
                                              ---------    ----------    ----------    ----------    -----------
<S>                                           <C>          <C>           <C>           <C>           <C>
TYPE OF SECURITY:
Money Market Funds..........................   $   253         $--          $ --        $   253         2000
Corporate Debt Securities...................    32,016          2            (51)        31,967      2000 - 2001
U.S. Government Agencies....................     3,048         --            (20)         3,028      2000 - 2001
                                               -------         --           ----        -------
                                               $35,317         $2           $(71)       $35,248
                                               =======         ==           ====        =======
CLASSIFICATION IN BALANCE SHEET:
Cash and Cash Equivalents...................   $ 2,481         $--          $ --        $ 2,481         2000
Marketable Securities.......................    32,836          2            (71)        32,767      2000 - 2001
                                               -------         --           ----        -------
                                               $35,317         $2           $(71)       $35,248
                                               =======         ==           ====        =======
</TABLE>

                                        43
<PAGE>   45
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. PROPERTY AND EQUIPMENT

     Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ---------------
                                                               2000     1999
                                                              ------    -----
<S>                                                           <C>       <C>
Computer equipment and software.............................  $3,432    $ 573
Office furniture and equipment..............................   1,545      129
Leasehold improvements......................................   1,405      104
Other.......................................................     233       --
                                                              ------    -----
                                                               6,615      806
Less accumulated depreciation and amortization..............    (993)    (192)
                                                              ------    -----
                                                              $5,622    $ 614
                                                              ======    =====
</TABLE>

10. RELATED PARTY TRANSACTIONS

     During 2000, the Company recorded revenue of $500,000 related to services
provided to Computer Associates. In March 1999, the Company recorded revenue
from Computer Associates totaling $1,200,000, of which $950,000 related to an
agreement granting Computer Associates a license to 3D-related technologies,
which date was prior to Computer Associates becoming a minority interest owner
in Metastream (Note 7), and $250,000 related to services performed on behalf of
Computer Associates during 1999.

     During 2000, the Company loaned $1,500,000 to an officer of the Company.
The loan, which was non-interest bearing and was collateralized by 200,000
shares of restricted Company common stock, as well as options to purchase
790,000 shares of Company common stock, is currently in default. The loan, which
was originally due on May 1, 2004, became due 30 days after the officer ceased
to be an employee of the Company. As of December 31, 2000, the Company recorded
a reserve against the loan in the amount of $750,000.

     During 1998, the Company loaned $1,000,000 to an officer and director of
the Company. The loan, which was non-interest bearing, was repaid in March 2000.
The Company also loaned $150,000 to another officer and director of the Company.
The loan, which accrued interest semi-annually at 4.47%, was repaid in 1999.

     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 is an executive of the Company. The agreement, which carries
a term of four years, provided for payments to the executive in the amount of
$300,000 in 1997 and $150,000 in each of 1998 and 1999. In addition, the Company
loaned $2,000,000 to the executive. The loan, which accrued interest
semi-annually at 5.67% and was payable on January 15, 2001, is collateralized by
shares of common stock of the Company owned by the executive. The loan is
currently in default and the Company intends to exercise its rights with respect
to the collateral. As of December 31, 2000, the Company recorded a reserve
against the loan in the amount of $1,442,000, which represented the unsecured
portion of the loan as of December 31, 2000. The Company also loaned $1,000,000
to another of RTG's founders, who is an officer and director of the Company. The
loan, which accrued interest semi-annually at 5.67% was contractually forgiven
in accordance with the officer's employment agreement, upon the merger of the
Company with Metastream (Note 7). The Company recorded a compensation charge of
$2,322,000 related to the forgiveness of the loan and the income taxes thereon.

11. EMPLOYEE BENEFIT PLANS

EMPLOYEE STOCK PURCHASE PLAN

     The Company's 1995 Employee Stock Purchase Plan (the "1995 Purchase Plan"),
which is qualified under Section 423 of the Internal Revenue Code of 1986, as
amended, permitted eligible employees of the Company, via payroll deductions, to
purchase shares of the Company's common stock semi-annually at 85 percent of the
market price, on either

                                        44
<PAGE>   46
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the purchase date or the offering date, whichever was lower. As of December 31,
2000, approximately 281,000 shares of common stock have been issued under the
1995 Purchase Plan. At December 31, 2000, no shares of common stock were
reserved for future issuance under the 1995 Purchase Plan.

401(K) PLAN

     In September 1995, the Company adopted a Defined Contribution Plan (the
"401(k) Plan"). Participation in the 401(k) Plan is available to substantially
all employees. Employees can contribute up to 15% of their salary, up to the
Federal maximum allowable limit, on a before tax basis to the 401(k) Plan.
Company contributions to the 401(k) Plan are discretionary. The Company made
contributions totaling $121,000, $164,000 and $161,000 to the 401(k) Plan during
the years ended December 31, 2000, 1999 and 1998, respectively.

STOCK OPTION PLANS

  1992 Incentive Stock Option Plan

     The Company's 1992 Incentive Stock Option Plan (the "1992 Plan") provides
for the grant to employees of incentive stock options and nonstatutory stock
options and for the sale or award of restricted common stock to employees and
consultants of the Company. As of December 31, 2000, options to purchase an
aggregate of 25,000 shares of common stock were outstanding under the 1992 Plan,
with vesting provisions ranging up to five years. Options granted under the 1992
Plan are exercisable for a period of ten years. At December 31, 2000, no shares
of common stock were reserved for additional grants of options or awards of
restricted stock under the 1992 Plan.

  1994 Incentive Stock Option, Non-Qualified Stock Option and Restricted Stock
Purchase Plan

     The Company's 1994 Incentive Stock Option, Non-Qualified Stock Option and
Restricted Stock Purchase Plan (the "1994 Plan") provides for the grant to
employees of incentive stock options and nonstatutory stock options and for the
sale of restricted common stock to employees and consultants of the Company,
with vesting provisions ranging up to five years. Options granted under the 1994
Plan are exercisable for a period of ten years. As of December 31, 2000, options
to purchase an aggregate of 47,000 shares of common stock were outstanding under
the 1994 Plan. At December 31, 2000, no shares of common stock were reserved for
additional grants of options or awards of restricted stock under the 1994 Plan.

  1995 Stock Plan

     The Company's 1995 Stock Plan (the "1995 Plan") provides for the grant to
employees (including officers and employee directors) of incentive stock options
and for the grant to employees (including officers and employee directors), non
employee directors and consultants of nonstatutory stock options and stock
purchase rights. Upon the merger of the Company and Metastream, Metastream's
Option Plan was merged into the Company's 1995 plan. As of December 31, 2000,
options to purchase an aggregate of 9,034,000 shares of common stock were
outstanding under the 1995 Plan, with vesting provisions ranging up to four
years. Options granted under the 1995 Plan are exercisable for a period of ten
years. At December 31, 2000, an aggregate of 1,020,000 shares of common stock
were reserved for future issuance under the 1995 Plan.

  1995 Director Option Plan

     The Company's 1995 Director Option Plan (the "Director Plan") provides for
an automatic grant of options to purchase shares of common stock to each
non-employee director of the Company. Options granted under the 1995 Director
Plan vest over one and a half to four and a half years and are exercisable for a
period of ten years. As of December 31, 2000, 45,000 options were outstanding
under the 1995 Director Plan. At December 31, 2000, an aggregate of 81,000
shares of common stock were reserved for future issuance under the 1995 Director
Plan.

                                        45
<PAGE>   47
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  1996 Nonstatutory Stock Option Plan

     The Company's 1996 Nonstatutory Stock Option Plan (the "1996 Nonstatutory
Plan") provides for the grant to employees (including officers and employee
directors) and consultants of nonstatutory stock options and stock purchase
rights. As of December 31, 2000, options to purchase an aggregate of 919,000
shares of common stock were outstanding under the 1996 Nonstatutory Plan, with
vesting provisions ranging up to four years. Options granted under the 1996
Nonstatutory Plan are exercisable for a period of ten years. At December 31,
2000, an aggregate of 1,484,000 shares of common stock were reserved for future
issuance under the 1996 Nonstatutory Plan.

Fractal Stock Option Plan

     In connection with the Company's merger with Fractal Design Corporation
("Fractal"), which became effective on May 30, 1997, the Company assumed all of
the options outstanding under the Ray Dream 1992 Stock Option Plan, the Fractal
1993 Stock Option Plan, the Fractal 1995 Stock Option Plan, the Fractal Director
Plan and the Fractal Outside Plan (collectively, the "Fractal Plans"). All such
options were converted into options to purchase 0.749 shares of Company common
stock at an exercise price equal to the exercise price of the converted option
divided by 0.749. Options granted under the Fractal Plans generally vest over a
four year period and are exercisable for a period of ten years. As of December
31, 2000, options to purchase an aggregate of 65,000 shares of common stock were
outstanding under the Fractal Plans. At December 31, 2000, no shares of common
stock were reserved for future issuance under the Fractal Plans.

Metastream Option Plan

     Metastream's Stock Plan (the "Metastream Option Plan") provided for the
grant to employees (including officers and employee directors), non-employee
directors and consultants, of nonstatutory stock options and stock purchase
rights. Upon the merger of the Company and Metastream, all outstanding options
to purchase Metastream common stock were converted into options to purchase 1.15
shares of Company common stock at an exercise price equal to the exercise price
of the converted option divided by 1.15, and the Metastream Option Plan was
merged into the 1995 Plan.

                                        46
<PAGE>   48
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OPTIONS ISSUED UNDER STOCK OPTION PLANS

     The following summarizes activity in the Stock Option Plans for the years
ended December 31, 1998, 1999, and 2000 (in thousands, except per share data and
lives):

<TABLE>
<CAPTION>
                                                                              OPTIONS OUTSTANDING
                                                               OPTIONS     -------------------------
                                                              AVAILABLE    NUMBER        WEIGHTED
                                                                 FOR         OF          AVERAGE
                                                                GRANT      SHARES     EXERCISE PRICE
                                                              ---------    -------    --------------
<S>                                                           <C>          <C>        <C>
Options outstanding at December 31, 1997....................      464        5,503        $8.66
  Shares reserved under new plans...........................    2,700           --           --
  Reduction in shares reserved under plans..................     (426)          --           --
  Granted -- exercise price equal to fair value.............   (5,412)       5,412         6.07
  Granted -- exercise price greater than fair value.........   (1,577)       1,577         5.09
  Exercised.................................................       --         (233)        3.66
  Canceled..................................................    5,176       (5,176)        9.38
                                                               ------      -------        -----
Options outstanding at December 31, 1998....................      925        7,083         5.53
  Shares reserved under new plans...........................    1,225           --           --
  Reduction in shares reserved under plans..................     (117)          --           --
  Granted -- exercise price equal to fair value.............   (2,113)       2,113         5.74
  Exercised.................................................       --         (959)        4.24
  Canceled..................................................    1,778       (1,778)        5.58
                                                               ------      -------        -----
Options outstanding at December 31, 1999....................    1,698        6,459         5.78
  Shares reserved under plans...............................    7,250           --           --
  Reduction in shares reserved under plans..................       (9)          --           --
  Granted -- exercise price equal to fair value.............     (306)         306         7.77
  Exchange of options as part of merger.....................   (9,222)       9,222         2.45
  Exercised.................................................       --       (2,678)        4.69
  Canceled..................................................    3,174       (3,174)        5.54
                                                               ------      -------        -----
Options outstanding at December 31, 2000....................    2,585       10,135        $3.17
                                                               ======      =======        =====
</TABLE>

                                        47
<PAGE>   49
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following summarizes information about the Company's stock options
outstanding at December 31, 2000 (in thousands, except per share data and
lives):

<TABLE>
<CAPTION>
                                                          OUTSTANDING                EXERCISABLE
                                                 -----------------------------    ------------------
                                                                      WEIGHTED              WEIGHTED
                                                                      AVERAGE               AVERAGE
                                                           AVERAGE    EXERCISE              EXERCISE
EXERCISE PRICE RANGE                             SHARES    LIFE(A)     PRICE      SHARES     PRICE
--------------------                             ------    -------    --------    ------    --------
<S>                                              <C>       <C>        <C>         <C>       <C>
$0.08 -- $0.87.................................   4,634     8.38       $ 0.87     2,322      $ 0.87
$1.00 -- $3.50.................................   1,159     8.91         2.58       308        2.50
$4.35 -- $4.35.................................   2,010     9.59         4.35       607        4.35
$4.69 -- $8.56.................................   1,828     7.90         5.78       841        5.55
$8.70 -- $25.13................................     504     6.89        11.57       400       12.22
                                                 ------                           -----
Total..........................................  10,135     8.52       $ 3.17     4,478      $ 3.35
                                                 ======                           =====
</TABLE>

---------------
(a) Average contractual life remaining in years.

     The Company accrued incentive compensation expense for the difference
between the grant price and the deemed fair value of the common stock underlying
options, which are fully vested, issued in connection with the RTG acquisition
in December 1996. At December 31, 2000 accrued incentive compensation related to
the options totaled, $546,000.

     The following summarizes options exercisable at December 31, 2000, 1999 and
1998, (in thousands):

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                              2000     1999     1998
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Options exercisable.........................................  4,478    3,592    1,847
</TABLE>

OPTIONS ISSUED UNDER METASTREAM OPTION PLAN

     The following summarizes activity in the Metastream Option Plan for the
years ended December 31, 1999 and 2000 (in thousands, except per share data and
lives):

<TABLE>
<CAPTION>
                                                                           OPTIONS OUTSTANDING
                                                                           --------------------
                                                               OPTIONS                WEIGHTED
                                                              AVAILABLE    NUMBER      AVERAGE
                                                                 FOR         OF       EXERCISE
                                                                GRANT      SHARES       PRICE
                                                              ---------    -------    ---------
<S>                                                           <C>          <C>        <C>
Shares reserved under new plan..............................    6,000          --       $  --
  Granted -- exercise price below fair value................   (3,663)      3,663        1.00
  Exercised.................................................       --          --          --
  Canceled..................................................       40         (40)       1.00
                                                               ------      ------       -----
Options outstanding at December 31, 1999....................    2,377       3,623        1.00
  Shares reserved under plan................................    2,000          --          --
  Granted -- exercise price below fair value................   (4,084)      4,084        4.01
  Granted -- exercise price equal to fair value.............     (421)        421        6.69
  Exercised.................................................       --         (50)       1.00
  Canceled..................................................       59         (59)       3.01
  Exchange of options as part of merger.....................    8,019      (8,019)       2.82
  Termination of plan.......................................   (7,950)         --          --
                                                               ------      ------       -----
Options outstanding at December 31, 2000....................       --          --       $  --
                                                               ======      ======       =====
</TABLE>

                                        48
<PAGE>   50
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In connection with the grant of stock options in Metastream to certain
employees and non-employee directors, the Company recorded total deferred
compensation of approximately $24,206,000 and $16,811,000 for the years ended
December 31, 2000 and 1999, respectively. This deferred compensation represented
the difference between the fair value of Metastream common stock and the
exercise price of these options at the date of grant. Stock based compensation
expense of $12,341,000 and $6,081,000 was recognized during the years ended
December 31, 2000 and 1999, respectively.

PRO FORMA INFORMATION

     Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company has
accounted for the Plans under the fair value method of SFAS No. 123. The fair
value of options issued under the Plans was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              ------------------------
                                                              2000      1999     1998
                                                              -----     ----     -----
<S>                                                           <C>       <C>      <C>
Risk-free interest rate.....................................    6.0%    5.8%       5.6%
Dividend yield..............................................     --      --         --
Volatility factor...........................................   1.00     .90       1.00
Weighted average expected life in years.....................    4.5     4.5        4.3
</TABLE>

     The following summarizes the weighted average fair value of options granted
during the years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              -------------------------
                                                              2000      1999      1998
                                                              -----     -----     -----
<S>                                                           <C>       <C>       <C>
Exercise price equal to fair value..........................  $4.68     $4.04     $4.46
Exercise price greater than fair value......................     --        --      2.23
Exercise price less than fair value.........................   9.32      5.14        --
</TABLE>

     For purposes of pro forma disclosures, the estimated fair value of the
Company's options is amortized to expense over the options' vesting period. The
Company's pro forma net loss and net loss per common share would approximate the
following (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                              AS REPORTED    PRO FORMA
                                                              -----------    ---------
<S>                                                           <C>            <C>
Year Ended December 31, 2000:
  Net loss applicable to common shareholders................   $(56,394)     $(67,231)
  Net loss per common share.................................      (1.96)        (2.34)
Year Ended December 31, 1999:
  Net loss applicable to common shareholders................   $(50,654)     $(54,600)
  Net loss per common share.................................      (2.06)        (2.22)
Year Ended December 31, 1998:
  Net loss applicable to common shareholders................   $(19,831)     $(21,732)
  Net loss per common share.................................      (0.83)        (0.91)
</TABLE>

     The effects of applying SFAS No. 123 in this proforma disclosure are not
indicative of future amounts. The Company anticipates grants of additional
awards in future years.

                                        49
<PAGE>   51
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. INCOME TAXES

     The components of the provision (benefit) for income taxes for the years
ended December 31, 2000, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              ------------------------
                                                              2000      1999     1998
                                                              -----    ------    -----
<S>                                                           <C>      <C>       <C>
Current:
  Federal...................................................   $--     $ (435)   $ 190
  State.....................................................    --          3        1
  Foreign...................................................    --         --      216
                                                               ---     ------    -----
          Total current.....................................    --       (432)     407
Deferred:...................................................    --
  Federal...................................................    --      3,971       67
  State.....................................................    --      1,184     (394)
  Foreign...................................................    --        758     (433)
                                                               ---     ------    -----
          Total deferred....................................    --      5,913     (760)
                                                               ---     ------    -----
                                                               $--     $5,481    $(353)
                                                               ===     ======    =====
</TABLE>

     The differences between the statutory rate and the Company's effective
income tax rate are as follows:

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              -------------------------
                                                               2000      1999     1998
                                                              ------    ------    -----
<S>                                                           <C>       <C>       <C>
Federal tax benefit at the statutory rate...................   (34.0)%   (34.0)%  (34.0)%
State income taxes, net of Federal income tax benefit.......   (3.03)     (4.4)    (5.1)
Nondeductible acquisition costs.............................      --        --      3.9
Other.......................................................    4.35       3.7      7.7
Change in valuation reserve.................................   32.68      50.3     25.7
                                                              ------    ------    -----
Effective income tax rate...................................      --%     15.6%    (1.8)%
                                                              ======    ======    =====
</TABLE>

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, together with net
operating loss

                                        50
<PAGE>   52
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and tax credit carryforwards. Significant components of the Company's deferred
tax assets and liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Deferred tax assets:
  Balance sheet reserves....................................  $    937    $  3,623
  Accrued expenses..........................................       230       1,057
  Tax credit carryforwards..................................     3,247       3,290
  Net operating loss carryforwards..........................    41,626      15,679
                                                              --------    --------
                                                                46,040      23,649
  Valuation allowance.......................................   (42,044)    (23,611)
                                                              --------    --------
     Net deferred tax assets................................     3,996          38
     Net deferred tax liabilities...........................    (3,996)        (38)
                                                              --------    --------
     Net deferred taxes.....................................  $     --    $     --
                                                              ========    ========
</TABLE>

     The valuation allowance for deferred taxes increased by approximately
$18,433,000 and $17,509,000 during 2000 and 1999, respectively, providing a full
valuation allowance against the Company's 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. Management's assessment with respect to the amount of deferred tax
assets considered realizable may be revised over the near term based on actual
operating results and revised financial statement projections.

     At December 31, 2000, the Company has net operating loss and tax credit
carryforwards of approximately $107,646,000 and $2,175,000, respectively, for
federal income tax purposes, which begin expiring in 2011. The Company's federal
net operating loss carryforward relates to the Company's acquisitions of RTG and
Specular and the net losses incurred by the Company during the years ended
December 31, 2000, 1999 and 1998. The Company also has net operating loss and
tax credit carryforwards for state income tax purposes, which begin expiring in
2001. The Company's state net operating loss carryforward primarily relates to
the net losses incurred by the Company during the years ended December 31, 2000,
1999 and 1998. Additionally, the Company has net operating loss and tax credit
carryforwards of approximately $10,690,000 and $211,000, respectively, for
foreign income tax purposes, which do not expire. The Company's foreign net
operating loss carryforward relates to net losses incurred by the Company's
subsidiary in Ireland during the years ended December 31, 1999, 1998 and 1997
which have been included in discontinued operations. The net operating loss
carryforwards may be used to offset any future taxable income, subject to
potential limitations on the Company's ability to utilize such loss
carryforwards pursuant to the ownership rule changes of the Internal Revenue
Code, Section 382.

                                        51
<PAGE>   53
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. EARNINGS PER SHARE

     The following table provides a reconciliation of the numerators and
denominators of the basic and diluted per-share computations for the years ended
December 31, 2000, 1999 and 1998 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                              LOSS           SHARES        PER-SHARE
                                                           (NUMERATOR)    (DENOMINATOR)     AMOUNT
                                                           -----------    -------------    ---------
<S>                                                        <C>            <C>              <C>
Year Ended December 31, 2000:
  Basic EPS..............................................   $(56,394)        28,718         $(1.96)
  Effect of dilutive securities -- stock options.........         --             --             --
                                                            --------         ------         ------
  Diluted EPS............................................   $(56,394)        28,718         $(1.96)
                                                            ========         ======         ======
Year Ended December 31, 1999:
  Basic EPS..............................................   $(50,654)        24,581         $(2.06)
  Effect of dilutive securities -- stock options.........         --             --             --
                                                            --------         ------         ------
  Diluted EPS............................................   $(50,654)        24,581         $(2.06)
                                                            ========         ======         ======
Year Ended December 31, 1998:
  Basic EPS..............................................   $(19,831)        23,779         $(0.83)
  Effect of dilutive securities -- stock options.........         --             --             --
                                                            --------         ------         ------
  Diluted EPS............................................   $(19,831)        23,779         $(0.83)
                                                            ========         ======         ======
</TABLE>

     The computation of diluted EPS excluded stock options to purchase
approximately 10,135,000, 6,459,000 and 7,083,000 shares of common stock for the
years ended December 31, 2000, 1999 and 1998, respectively, because to do so
would have been anti-dilutive for the periods presented.

14. COMMITMENTS

     The Company leases its primary office space in New York City pursuant to
various lease agreements with terms through February of 2010. In conjunction
with the acquisition of Viewpoint Digital, the Company began leasing office
space in Salt Lake City, Utah with a lease term through April of 2010. Also
pursuant to the Viewpoint Digital acquisition, the Company began leasing office
space in San Francisco and Los Angeles, California, with lease terms through
December of 2003 and December of 2004, respectively.

     The Company also leases certain equipment and a vehicle for an executive in
the Company with lease terms of up to three years. Rent expense for office
space, equipment, and vehicle totaled approximately $2,259,000, $2,028,000 and
$1,552,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
Sublease income totaled approximately $177,000, $382,000 and $24,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.

     Future minimum lease payments relating to continuing operations under
non-cancelable operating leases for each twelve-month period subsequent to
December 31, 2000 are as follows (in thousands):

<TABLE>
<S>                                                           <C>
2001........................................................  $1,372
2002........................................................   1,187
2003........................................................     931
2004........................................................     943
2005........................................................     743
Thereafter..................................................   3,133
                                                              ------
                                                              $8,309
                                                              ======
</TABLE>

                                        52
<PAGE>   54
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. CONTINGENCIES

     The Company is engaged in certain legal actions arising in the ordinary
course of business. On advice of counsel, the Company believes it has adequate
legal defenses and that the ultimate outcome of these actions will not have a
material adverse effect on the Company's consolidated financial position,
results of operations, or cash flows.

16. SEGMENT INFORMATION AND ENTERPRISE-WIDE DISCLOSURES

     The Company's continuing operations are focused on one business segment,
e-commerce visualization. The Company is organized into a single reporting
segment, which is evaluated by management for making operating decisions and
assessing performance. The Company's customers consist primarily of companies
located in the United States. The Company's long-lived assets from continuing
operations are located solely in the United States.

MAJOR CUSTOMERS

     Customers whose net revenues represent greater than 10 percent of the
Company's consolidated net revenues from continuing operations for the years
ended December 31, 2000, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              -------------------------
                                                              2000      1999      1998
                                                              -----     -----     -----
<S>                                                           <C>       <C>       <C>
Customer A (Note 10)........................................   14%       39%       --%
Customer B..................................................   26%       --%       --%
Customer C..................................................   --%       49%       66%
Customer D..................................................   --%       --%       15%
Customer E..................................................   --%       --%       15%
</TABLE>

     Customers whose accounts receivable represent greater than 10 percent of
the Company's consolidated net accounts receivable from continuing operations at
December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              ------------
                                                              2000    1999
                                                              ----    ----
<S>                                                           <C>     <C>
Customer A..................................................   12%     --%
Customer B..................................................   13%     --%
Customer F..................................................   14%     --%
Customer G..................................................   --%    100%
</TABLE>

                                        53
<PAGE>   55
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     Summarized quarterly financial information for the years 2000 and 1999, are
as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                    QUARTER ENDED
                                                 ---------------------------------------------------
                                                 MARCH 31    JUNE 30     SEPTEMBER 30    DECEMBER 31
                                                 --------    --------    ------------    -----------
<S>                                              <C>         <C>         <C>             <C>
Fiscal year 2000:
  Net revenues.................................  $   162     $    155      $  1,139       $  2,124
  Net loss from continuing operations..........   (5,887)     (10,709)      (23,485)       (17,371)
  Net income (loss) from discontinued
     operations................................    1,265           --          (593)           824
  Net loss applicable to common shareholders...   (4,622)     (10,709)      (24,353)       (16,710)
  Net loss per share (diluted).................    (0.17)       (0.39)        (0.86)         (0.52)
Fiscal year 1999:
  Net revenues.................................  $ 2,263     $     15      $    646       $    169
  Net income (loss) from continuing
     operations................................      855       (1,565)       (1,132)       (12,741)
  Net loss from discontinued operations........   (1,947)      (1,296)       (2,543)       (30,285)
  Net loss applicable to common shareholders...   (1,092)      (2,861)       (3,675)       (43,026)
  Net loss per share (diluted).................    (0.04)       (0.12)        (0.15)         (1.73)
</TABLE>

                                        54
<PAGE>   56
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                             VIEWPOINT CORPORATION

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                              BALANCE AT    CHARGED TO                                  BALANCE AT
                                              BEGINNING      REVENUE/       OTHER         COSTS AND       END OF
DESCRIPTION                                   OF PERIOD      EXPENSE      ADDITIONS       DEDUCTIONS      PERIOD
-----------                                   ----------    ----------    ---------       ----------    ----------
<S>                                           <C>           <C>           <C>             <C>           <C>
ALLOWANCE FOR ACCOUNTS RECEIVABLE:
  Year Ended December 31, 2000..............   $    --       $    40       $   756(1)      $    --       $   796
  Year Ended December 31, 1999..............        --            --            --              --            --
  Year Ended December 31, 1998..............        --            --            --              --            --
ALLOWANCE FOR NOTES RECEIVABLE:
  Year Ended December 31, 2000..............   $    --       $ 2,192       $    --         $    --       $ 2,192
  Year Ended December 31, 1999..............        --            --            --              --            --
  Year Ended December 31, 1998..............        --            --            --              --            --
ALLOWANCES RELATED TO DISCONTINUED
  OPERATIONS:
  Year Ended December 31, 2000..............   $14,745       $    --       $    --         $12,329       $ 2,416
  Year Ended December 31, 1999..............     3,143        16,254        10,699(2)       15,351        14,745
  Year Ended December 31, 1998..............     3,969        13,079         1,323(3)       15,228         3,143
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
  FROM CONTINUING OPERATIONS:
  Year Ended December 31, 2000..............   $23,611       $18,433       $    --         $    --       $42,044
  Year Ended December 31, 1999..............     6,102        17,509            --              --        23,611
  Year Ended December 31, 1998..............       911         5,191            --              --         6,102
</TABLE>

---------------
(1) Reserve established in connection with the acquisition of Viewpoint Digital
    in September 2000.

(2) Reserves established in connection with the disposal of discontinued
    operations in December 1999.

(3) Reserves established in connection with the restructuring in June 1998.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not applicable.

                                        55
<PAGE>   57
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS OF THE REGISTRANT

     The following table sets forth certain information regarding the Company's
directors as of March 15, 2001:

<TABLE>
<CAPTION>
                NAME                   AGE                     PRINCIPAL OCCUPATION
                ----                   ---                     --------------------
<S>                                    <C>   <C>
Thomas Bennett.......................  44    Senior Vice President, Business Development, Computer
                                             Associates International, Inc.
Bruce R. Chizen......................  45    President and Chief Executive Officer of Adobe Systems
                                             Incorporated
Samuel H. Jones, Jr. ................  67    President of S-J Transportation Company
Lennert J. Leader....................  44    President of the Venture Group of AOL Time Warner
                                             Investments
Robert E. Rice.......................  46    Chairman, President and Chief Executive Officer of the
                                             Company
</TABLE>

     Except as set forth below, each nominee has been engaged in his principal
occupation described above during the past five years. There is no family
relationship among any directors or executive officers of the Company.

     Mr. Bennett has been a director of the Company since November 2000. He has
been with Computer Associates International, Inc. since 1988 and has been
serving as its Senior Vice President of Business Development since April 1997.
On February 8, 2000, he became a director of Metastream Corporation (a
subsidiary of the Company from its formation in June 1999 until its merger with
the Company in November 2000). Mr. Bennett currently serves as a member of the
board of directors of I-Storm, Inc. and several private companies.

     Mr. Chizen has been a director of the Company since November 2000. He has
been the Chief Executive Officer of Adobe Systems Incorporated since December
2000 and has been the President of Adobe since April 2000. Mr. Chizen joined
Adobe in August 1994 as Vice President and General Manager, Consumer Products
Division. In December 1997, he was promoted to Senior Vice President and General
Manager, Graphic Products Division and in August 1998, Mr. Chizen was promoted
to Executive Vice President, Products and Marketing.

     Mr. Jones has been a director of the Company since April 1992. He has been
President of S-J Venture Capital Company since 1991 and President of S-J
Transportation Company, an industrial waste transportation company, since 1971.
Mr. Jones is a director of Fulton Financial Corp.

     Mr. Leader has been a director of the Company since November 2000. Mr.
Leader became President of the Venture Group of AOL Time Warner Investments upon
the merger of America Online, Inc. and Time Warner Inc. in January 2001. Prior
to the merger, Mr. Leader served as the President of AOL Investments, a division
of America Online, Inc., beginning in February 1998. Mr. Leader served as Senior
Vice President, Chief Financial Officer, and Treasurer of AOL from September
1989 until July 1998. Prior to joining AOL, Mr. Leader was a Vice
President -- Finance of LEGENT Corporation, a computer software and services
company, from March 1989 to September 1989, and Chief Financial Officer of
Morino, Inc., a computer software and services company, from 1986 to March 1989
and Director of Finance from 1984 to 1986. Prior to joining Morino, Inc. in
1984, he was an audit manager of Price Waterhouse. Mr. Leader serves as a
director of iVillage Inc. and Multex.com, Inc. Mr. Leader graduated with a B.S.
in Accounting in 1977 from the University of Baltimore.

     Mr. Rice has been a director of the Company since April 4, 2000. Mr. Rice
co-founded Real Time Geometry Corp. and served as its chairman until its sale to
the Company in 1996. At the Company, he served as vice president of strategic
affairs until September 1999. He has been the President and a director of
Metastream Corporation since its formation in June 1999 and has been President
and Chief Executive Officer of the Company since April 7, 2000. Before founding
Real

                                        56
<PAGE>   58
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Time Geometry, Mr. Rice was a partner at the law firm of Milbank, Tweed, Hadley
and McCloy LLP, where he advised on various corporate, tax, and intellectual
property issues.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth certain information regarding the Company's
current executive officers as of March 15, 2001:

<TABLE>
<CAPTION>
                NAME                   AGE                           POSITION
                ----                   ---                           --------
<S>                                    <C>   <C>
Robert E. Rice.......................  46    Chairman, President and Chief Executive Officer
Jeffrey J. Kaplan....................  52    Executive Vice President and Chief Financial Officer
David Feldman........................  34    Executive Vice President, Business Development and Chief
                                             Strategist
Anders Vinberg.......................  51    Executive Vice President of Technology, Engineering and
                                             Information Systems
Christopher Gentile..................  42    Executive Vice President, Creative Services
Paul Kadin...........................  47    Executive Vice President, Sales
</TABLE>

     Mr. Feldman has been Executive Vice President of Marketing and Chief
Strategist of the Company since February 2001. Mr. Feldman served as Vice
President of Business Development and Chief Strategist of Metastream from its
formation in June 1999 through its merger with the Company in November 2000 and
served as Vice President and Chief Strategist at the Company from November 2000
until his appointment to Executive Vice President of Marketing in February 2001.
Mr. Feldman served as Vice President, Business Development of the Company in
1999 and had served as Director, Business Development, and Director, Princeton
Products Group of the Company from 1997 to 1999. Mr. Feldman served both as
Chief Strategist and a member of the board of directors of Specular
International from 1995 until its acquisition by the Company in 1997.

     Mr. Kadin has been with the Company since February 2000. His initial
responsibilities were Sales, Marketing, and Client Services globally. His
current focus is on development of indirect sales channels, key strategic
alliances, and international markets for the Company. Prior to joining
Viewpoint, Mr. Kadin was President- North America for Customer Dialogue Systems,
a Belgian based financial services software provider. During 1996-98, he was
Executive Vice President of Dreyfus Corporation in charge of retail investments
sales, product management and internet activities. From 1988-1996, Mr. Kadin
held senior positions in retail banking at Chase Manhattan. A series of consumer
brand management positions from 1975-1987 at Procter and Gamble, Warner Lambert
and Sara Lee established Mr. Kadin's marketing background.

     Mr. Kaplan has been the Executive Vice President and Chief Financial
Officer of the Company since February 2001. Mr. Kaplan served as Executive Vice
President and Chief Financial Officer of Rare Medium Group, Inc. from September
1999 until joining the Company and served as Executive Vice President, Chief
Financial Officer and Director of Safety Components International, Inc., a
leading manufacturer of airbag cushions and fabric from February 1997 to August
1999. Safety Components filed for bankruptcy on April 10, 2000 and emerged from
bankruptcy on October 11, 2000. From October 1993 to February 1997, Mr. Kaplan
served as Executive Vice President, Chief Financial Officer and Director of
International Post Limited, a leading provider of post-production services for
commercial and advertising markets.

     Mr. Gentile has been Executive Vice President, Creative Services of the
Company since November 2000. Before the merger of Metastream and Viewpoint, Mr.
Gentile served at Metastream as Vice-President of Production from July 1999
through February 2000, and as Managing Director of Professional Services from
February 2000 through November 2000. Before joining Metastream, Mr. Gentile
founded or co-founded several businesses, including MC Squared Incorporated, a
wholly owned consulting company that he founded in 1999 and where he has served
as President since that date; Millennium RUS, LLC, a software development
company that he founded in 1996 and where he served as President; and

                                        57
<PAGE>   59
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Abrams Gentile Entertainment, Inc. a developer of consumer products and theme
park designs that he co-founded in 1986 and where he served as a partner.

     Mr. Vinberg has been Executive Vice President of Technology at the Company
since September 2000. Before this, Mr. Vinberg was Divisional Senior Vice
President at Computer Associates International, Inc., a software company, since
1986. In this position, Mr. Vinberg acted as chief architect and was responsible
for the architecture of several of Computer Associates' strategic products. Mr.
Vinberg also represented Computer Associates on the board of directors of
Metastream from October 1999 until its merger with the Company in November 2000.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires the Company's directors and executive officers, and persons who
own more than 10% of a registered class of the Company's securities, to file
with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater-than-10% stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.

     To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that during the year ended December
31, 2000, its officers, directors and greater-than-10% stockholders complied
with all Section 16(a) filing requirements, with the exception of late filings
of Initial Statements of Beneficial Ownership of Securities on Form 3 for each
of Computer Associates International, Inc., and Paul Kadin. Such forms were
subsequently filed with the SEC.

                                        58
<PAGE>   60
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth certain information with respect to annual
compensation and long-term compensation awarded during fiscal 1998, 1999 and
2000 to each person who served as the Company's Chief Executive Officer and the
Company's four other most highly compensated executive officers as of December
31, 2000 and other executive officers during 2000 (collectively, the "Named
Executive Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                  ANNUAL COMPENSATION
                                                        ---------------------------------------       SECURITIES
                                                                                      OTHER           UNDERLYING
                                                                                      ANNUAL           COMPANY
          NAME AND PRINCIPAL POSITION            YEAR    SALARY      BONUS         COMPENSATION        OPTIONS
          ---------------------------            ----   --------   ----------      ------------       ----------
<S>                                              <C>    <C>        <C>             <C>                <C>
Robert Rice....................................  2000   $275,000   $   65,000       $2,352,132(9)       287,500
  Chairman, President and                        1999    185,000       65,000(5)            --          887,500
  Chief Executive Officer                        1998    173,333      100,000(6)            --          297,500
Mark Zimmer(1).................................  2000    121,201    1,125,000          253,000(10)
  Former President and Chief                     1999    250,000      169,743(7)            --           57,500
  Executive Officer                              1998    239,375       15,000(6)            --           40,000
James A. Abate(2)..............................  2000    141,670       50,000           70,727(11)      990,000
  Former Executive Vice President and
  Chief Financial Officer
Christopher Gentile............................  2000    145,833      100,000               --          115,000
  Executive Vice President,
  Creative Services
Paul Kadin.....................................  2000    155,589       30,000               --          460,000
  Executive Vice President, Sales
Anders Vinberg.................................  2000     66,667           --               --        1,185,000
  Executive Vice President,
  Technology, Engineering and
  Information Systems
John P. Leddy(3)...............................  2000     87,156      355,000           97,500(10)
  Former Senior Vice President,                  1999    177,500       50,000(8)            --           75,000
  Product Development                            1998     57,028       25,000               --          130,000
Jay W. Jennings(4).............................  2000    135,826      125,000           75,000(10)       85,000
  Former Controller                              1999    105,833        7,000               --           22,000
                                                 1998     81,990           --               --
</TABLE>

---------------
 (1) Mr. Zimmer served as Chief Technical Officer until his promotion to
     President and Chief Executive Officer on December 14, 1999. Mr. Zimmer
     resigned as President and Chief Executive Officer effective April 2000.

 (2) Mr. Abate resigned as Executive Vice President and Chief Financial Officer,
     effective January 2001.

 (3) Mr. Leddy resigned as Senior Vice President, Product Development, effective
     June 2000.

 (4) Mr. Jennings resigned as Controller, effective September 2000.

 (5) Represents amount paid in 2000 for services performed in 1999.

 (6) Represents amount paid in 1999 for services performed in 1998.

 (7) Includes $125,000 paid in 1999 for services performed in 2000.

 (8) Includes $15,000 paid in 1999 for services performed in 1998.

 (9) Represents loan forgiveness of $2,321,632, triggered by contractually
     specified events which occurred during 2000, auto allowance of $30,500.

(10) Represents severance payments.

                                        59
<PAGE>   61
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) Represents imputed income, based on the applicable Federal rate under
     Section 1274(d) of the Internal Revenue Code, with respect to an
     interest-free loan made by the Company in connection with an employment
     agreement with Mr. Abate.

OPTION GRANTS

     The following tables set forth information regarding stock options granted
to the Named Executive Officers during fiscal year 2000. In accordance with the
rules of the SEC, also shown below is the potential realizable value over the
term of the option (the period from the grant date to the expiration date) based
on assumed rates of stock appreciation from the option exercise price of 5% and
10%, compounded annually. These amounts do not represent the Company's estimate
of future stock price. Actual gains, if any, on stock option exercises will
depend on the future performance of Company common stock.

                         COMPANY OPTION GRANTS IN 2000

<TABLE>
<CAPTION>
                                                         INDIVIDUAL GRANTS
                                       -----------------------------------------------------   POTENTIAL REALIZABLE VALUES
                                       NUMBER OF     PERCENT OF                                  AT ASSUMED ANNUAL RATES
                                       SECURITIES   TOTAL OPTIONS                              OF STOCK PRICE APPRECIATION
                                       UNDERLYING    GRANTED TO                                      FOR OPTION TERM
                                        OPTIONS     EMPLOYEES IN    EXERCISE OR   EXPIRATION   ---------------------------
                NAME                   GRANTED(1)    FISCAL YEAR    BASE PRICE       DATE           5%            10%
                ----                   ----------   -------------   -----------   ----------   ------------   ------------
<S>                                    <C>          <C>             <C>           <C>          <C>            <C>
Robert E. Rice.......................    287,500         5.3%          $2.61       6/29/10      $  471,907     $1,195,904
Mark Zimmer..........................         --                          --         --                 --             --
John P. Leddy........................         --                          --         --                 --             --
Jay W. Jennings......................         --                          --         --                 --             --
James A. Abate.......................    690,000        12.7%          $4.35                     1,887,627      4,783,618
                                         100,000         1.8%          $8.13                       510,997      1,294,916
Anders Vinberg.......................    150,000         2.8%          $8.54       9/7/10          805,614      2,041,584
                                       1,035,000        19.0%          $4.35       9/7/10        2,831,441      7,175,427
Christopher Gentile..................    115,000         2.1%          $5.65       2/22/10         408,624      1,035,534
Paul Kadin...........................    460,000         8.4%          $2.61       2/22/10         755,051      1,913,447
</TABLE>

---------------
(1) Generally, 20% of the shares subject to the options vest on the date of
    grant, 20% vest on the first anniversary of the date of grant and one
    thirty-sixth vests each month thereafter.

COMPENSATION OF DIRECTORS

     The Company reimburses each of its non-employee directors as follows: each
non-employee director is paid (i) $2,500 at the end of each fiscal quarter in
which he or she is a director, (ii) $1,000 for each regular Board meeting he or
she attends, and (iii) $500 for each Board committee meeting he or she attends;
provided, however, that if more than one committee meeting is held on the same
day or a Board meeting and one or more committee meetings are held on the same
day, no more than the initial $500 or $1,000, as the case may be, is paid to any
director for all such meetings attended by such director on such date.

     Non-employee directors participate in the Company's 1995 Director Option
Plan (the "Director Plan"). Under the Director Plan, each non-employee director
who joins the Board in the future will automatically be granted a non statutory
option to purchase 20,000 shares of Common Stock on the date upon which such
person first becomes a director. In addition, each non-employee director,
including current non-employee directors, automatically receives a no statutory
option to purchase 5,000 shares of Common Stock on January 1 of each year,
provided the director has been a member of the Board for at least six months.
The exercise price of each option granted under the Director Plan is equal to
the fair market value of the Common Stock on the date of grant. The 20,000 share
grant vests at a rate of one-eighth of the option shares upon the end of the
first six-month period after the date of grant and one-forty-eighth of the
remaining option

                                        60
<PAGE>   62
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares per month thereafter, provided the optionee remains a director of the
Company. The 5,000 share grant vests at the rate of one-half of the option
shares upon the end of the first six-month period after the date of grant and
one-twelfth of the remaining option shares per month thereafter, provided the
optionee remains a director of the Company. Options granted under the Director
Plan have a term of ten (10) years unless terminated sooner, whether upon
termination of the optionee's status as a director or otherwise pursuant to the
Director Plan.

     In January 2000, Messrs. Bert Kolde, Gary Lauer, Jones and Lane were each
granted an option to purchase 5,000 shares of Common Stock under the Director
Plan at an exercise price of $9.00 per share. For their participation as
directors of Metastream Corporation, in January 2000, Mr. Jones and Dr. Morgan
were each granted an option to purchase 75,000 shares of Common Stock of
Metastream Corporation under the Metastream Stock Option Plan at an exercise
price of $1.00 per share. Additionally, for his participation as a director of
Metastream Corporation, in February 2000, Mr. Lane was granted an option to
purchase 75,000 shares of Common Stock of Metastream Corporation under the
Metastream Stock Option Plan at an exercise price of $1.00 per share. The 75,000
share grants vest one-fifth of the option shares on the date of grant, one-fifth
of the option shares at the end of the first year and one-thirty-sixth of the
option shares per month thereafter. On November 28, 2000, Messrs. Bennett,
Chizen and Leader were each granted an option to purchase 20,000 shares of
Common Stock under the Director Plan at an exercise price of $5.75 per share.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     From January 1, 2000 through November 28, 2000, the Compensation Committee
(the "Committee") of the Board of Directors consisted of Messrs. Jones and Lane.
Since November 28, 2000, the Compensation Committee has consisted of Messrs.
Bennett, Chizen, and Jones. None of the members of the Compensation Committee
was an officer or employee of the Company. No interlocking relationship exists
between any member of the Company's Compensation Committee and any member of any
other company's board of directors or compensation committee.

     The following table sets forth information with respect to options to
purchase Company common stock exercised during fiscal 2000 by the Named
Executive Officers and the value of unexercised options at December 31, 2000.

       COMPANY OPTION EXERCISES IN 2000 AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                 NUMBER OF SECURITIES
                                                                UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
                                                                      OPTIONS AT              IN-THE-MONEY OPTIONS AT
                                       SHARES                      DECEMBER 31, 2000           DECEMBER 31, 2000(1)
                                     ACQUIRED ON    VALUE     ---------------------------   ---------------------------
               NAME                   EXERCISE     REALIZED   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
               ----                  -----------   --------   -----------   -------------   -----------   -------------
<S>                                  <C>           <C>        <C>           <C>             <C>           <C>
Robert E. Rice.....................        --            --     827,269        732,396      $2,191,260     $2,691,509
Mark Zimmer........................    87,734      $373,245          --             --         262,631             --
John P. Leddy......................    35,000       419,375      43,333             --          50,702             --
Jay W. Jennings....................    18,000       138,161      57,500             --         262,631             --
James A. Abate.....................        --            --          --             --              --             --
Anders Vinberg.....................        --            --     448,500        736,500         487,744        637,819
Christopher Gentile................        --            --     129,375        208,125         380,815        407,078
Paul Kadin.........................        --            --      92,000        368,000         260,130      1,040,520
</TABLE>

---------------
(1) The value of unexercised, in-the-money options is the difference between the
    exercise price of the options and the fair market value of Company common
    stock at December 31, 2000 ($5.44).

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's common stock as of March
15, 2000 by (i) each beneficial owner of more than 5% of the Company's common
stock, (ii) each director and each nominee, (iii) each Named Executive Officer
and (iv) all directors and executive

                                        61
<PAGE>   63
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

officers as a group. Except as otherwise indicated, each person has sole voting
and investment power with respect to all shares shown as beneficially owned,
subject to community property laws where applicable.

<TABLE>
<CAPTION>
                                                                  NUMBER OF SHARES
                                                  -------------------------------------------------
                                                                                         COMMON
                                                                                         STOCK
                                                                                          AND         PERCENTAGE OF
            NAME OF BENEFICIAL OWNER              COMMON STOCK   VESTED OPTIONS(1)   VESTED OPTIONS     TOTAL(2)
            ------------------------              ------------   -----------------   --------------   -------------
<S>                                               <C>            <C>                 <C>              <C>
Computer Associates.............................   6,235,000                --         6,235,000          11.3
James Crabbe....................................   3,300,000                           3,300,000           8.6
West Highland Capital, Inc. (3).................   3,200,000                --         3,200,000           8.4
RS Management Co. LLC (4).......................   1,895,000                --         1,895,000           5.0
Samuel H. Jones, Jr.............................     980,055           141,500         1,121,555           2.9
Robert Rice.....................................          --           982,060           982,060           2.2
Thomas Bennett (5)..............................          --                --                --            --
Bruce R. Chizen (6).............................          --                --                --            --
Lennert J. Leader (7)...........................          --                --                --            --
Mark Zimmer.....................................          --                --                --             *
John P. Leddy...................................          --            43,333            43,333             *
Jay W. Jennings.................................          --            57,500            57,500             *
David Feldman...................................          --           229,541           229,541             *
Anders Vinberg..................................          --           534,750           534,750             *
Christopher Gentile.............................          --           157,500           157,500             *
Paul Kadin......................................          --           199,333           199,333             *
All directors and executive officers as a group
  (13 persons)..................................     980,055         2,345,517         3,325,572           8.2%
</TABLE>

---------------
 *  Percentage of shares beneficially owned is less than one percent of total.

(1) Represents shares issuable upon exercise of options to purchase Company
    common stock that are exercisable within 60 days of March 15, 2001.

(2) Beneficial ownership is determined in accordance with the rules of the SEC.
    In computing the number of shares beneficially owned by a person and the
    percentage ownership of that person, shares of common stock subject to
    options or warrants held by that person that are currently exercisable or
    exercisable within sixty (60) days of March 15, 2001 are deemed outstanding.
    Such shares, however, are not deemed outstanding for the purposes of
    computing the percentage ownership of any other person. Except as indicated
    in the footnotes to this table and pursuant to applicable community property
    laws, each stockholder named in the table has sole voting and investment
    power with respect to the shares set forth opposite such stockholder's name.
    Percentage ownership is based on 38,187,658 shares of Common Stock
    outstanding on March 15, 2001.

(3) According to information contained in a Schedule 13G/A filing dated as of
    January 30, 2001, West Highland Capital, Inc., a registered investment
    advisor, beneficially own 3,200,000 shares of the Company's common stock,
    and has the shared power to vote or to direct the vote of 3,200,000 shares
    of the Company's common stock; West Highland Partners, L.P., an investment
    limited partnership, beneficially owns 2,477,996 shares of the Company's
    common stock, and has the shared power to vote or to direct the vote of
    2,447,996 shares of the Company's common stock; Estero Partners, LLC, which
    is a general partner in West Highland Partners, L.P. (along with West
    Highland Capital, Inc.), beneficially owns 2,991,988 shares of the Company's
    common stock, and has the shared power to vote or direct the vote of
    2,991,988 shares of the Company's common stock; and Lang H. Gerhard, the
    sole shareholder of West Highland Capital, Inc. and the manager of Estero
    Partners, LLC , beneficially owns 3,200,000 shares of the Company's common
    stock, and has the shared power to vote or to direct the vote of 3,200,000
    shares of the Company's stock.

                                        62
<PAGE>   64
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(4) According to information contained in a Schedule 13G filing dated as of
    February 15, 2001, R.S. Investment Management, L.P., a registered investment
    advisor, beneficially owns 1,895,000 shares of the Company's common stock
    and has shared power to vote or to direct the vote of 1,895,000 shares of
    the Company's common stock; and RS Investment Management Co. LLC, a holding
    company, beneficially owns 1,895,000 shares of the Company's common stock,
    and has the shared power to vote or to direct the vote 1,895,000 of the
    Company's common stock.

(5) Mr. Bennett is Senior Vice President, Computer Associates International,
    Inc., which owns 6,235,000 shares of Company common stock. Mr. Bennett
    disclaims beneficial ownership of the shares owned by Computer Associates.

(6) Mr. Chizen is the President and Chief Executive Officer of Adobe Systems
    Incorporated which owns 1,725,000 shares of Company common stock. Mr. Chizen
    disclaims beneficial ownership of the shares owned by Adobe Systems.

(7) Mr. Leader is President of the Venture Group of AOL Time Warner Investments,
    a division of AOL Time Warner Inc. AOL Time Warner Inc. owns 1,725,000
    shares of Company common stock. Mr. Leader disclaims beneficial ownership of
    the shares owned by AOL Time Warner Inc.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company has employment agreements with Messrs. Rice, Kaplan, Vinberg,
Kadin and Gentile. The Company's employment agreement with Mr. Rice provides for
his employment through December 31, 2001 at an annual base salary of $275,000.
In addition, under the agreement, the Company has granted Mr. Rice a stock
option to purchase 287,500 shares of the Company's common stock at a price of
$2.61 per share. Twenty percent (20%) of the option vests over a four-year
period, with 20% of the total grant vesting on the date of grant, 20% vesting on
the first anniversary of the date of grant and the remainder vesting at the rate
of 1/36th per month thereafter.

     Mr. Rice obtained a $1,000,000 non-recourse loan from the Company
MetaCreations in 1996 concurrently with the acquisition by the Company of Mr.
Rice's interest in Real Time Geometry Corp. Pursuant to the terms of Mr. Rice's
employment contract, in connection with the merger of the Company and
Metastream, the Company forgave the loan and accrued interest thereon and paid
to Mr. Rice a "gross-up" payment in the amount of $1,077,000 to reimburse him
for any Federal or state taxes that he may be required to pay as a result of the
forgiveness of the loan or as a result of the "gross-up" payment.

     Mr. Rice's employment agreement provides that if his employment is
terminated by the Company without cause (as defined in the agreement), or by Mr.
Rice for good reason (as defined), he will be entitled to (1) immediate vesting
of all of his unvested Company stock options, (2) severance pay equal to his
annual base salary and annual bonus through December 31, 2001, and (3)
continuation of medical and certain other benefits.

     The Company's employment agreement with Mr. Kaplan provides for his
employment, beginning February 15, 2001 and continuing for three years after
that date, at a base salary of $250,000 per year. Mr. Kaplan is entitled to
participate in the Company's Executive Incentive Compensation plan and is
guaranteed a bonus of at least $100,000 under that Plan at the end of his first
year of employment. Under the employment agreement, upon the commencement of his
employment, Mr. Kaplan also received a signing bonus of $50,000 and a stock
option to purchase 500,000 shares of the Company's common stock. The stock
option has an exercise price of $6.12 per share, which was the closing price of
the Company's common stock on the day before Mr. Kaplan commenced employment,
and vests over a four-year period, with 25% of the shares vesting on February
15, 2002 and the balance vesting at the rate of 1/36th per month.

     The employment agreement also entitles Mr. Kaplan to two loans of $375,000
each from the Company. Mr. Kaplan is entitled to the first loan at any time
after commencing employment but has not yet requested the Company make that
loan. Mr. Kaplan will be entitled to request the second loan at any time after
February 15, 2002. Each loan will bear interest at the applicable Federal rate
established by Section 1274(d) of the Internal Revenue Code on the day it is
made. The loans will be secured solely by Mr. Kaplan's stock options in the
Company and are non-recourse to Mr. Kaplan, unless the Company fires Mr. Kaplan
for cause (as defined) or Mr. Kaplan quits without good reason (as defined), in
which case the loans will become fully recourse to him.

                                        63
<PAGE>   65
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Mr. Kaplan's employment agreement provides that if there is a change of
control (as defined in the agreement) of the Company, or if he is fired without
cause (as defined) or quits his job for good reason (as defined), he will be
entitled to (1) immediate vesting of the Company stock option described above,
(2) forgiveness of the two loans described above (and if the second loan has not
yet been made at that time, he will be entitled to a special bonus in the amount
of $375,000) and (3) severance pay equal to two times his annual base salary.

     The Company's employment agreement with Mr. Vinberg provides for his
employment at a base salary of $200,000 per year. Under the employment
agreement, Mr. Vinberg also received a stock option to purchase 1,035,000 shares
of the Company's common stock at an exercise price of $4.35 per share. Twenty
percent (20%) of the shares subject to the option vest on his hire date, 20%
vest on the first anniversary of his hire date, and the balance vesting at the
rate of 1/36th per month. In recognition of Mr. Vinberg's service as a director
of Metastream, the Company has agreed that, for purposes of vesting of this
option, the option will vest as though Mr. Vinberg's hire date was October 5,
1999 if Mr. Vinberg remains employed by the Company at least until February 28,
2001. Mr. Vinberg also received an additional stock option to purchase 172,500
shares of the Company's common stock at an exercise price of $8.56 per share.
This additional option vests over a four-year period, with 25% vesting on
September 6, 2002 and the balance vesting at the rate of 1/36th per month. In
the event of a change of control of the Company (as defined), both of these
stock options will vest immediately.

     The employment agreement also entitles Mr. Vinberg to a non-recourse loan
of $200,000, although Mr. Vinberg has not yet requested the Company to make that
loan. The loan, if made, will bear interest at the applicable Federal rate
established by Section 1274(d) of the Internal Revenue Code on the day the loan
is made. The loan will be secured solely by Mr. Vinberg's stock options in the
Company and will be non-recourse to Mr. Vinberg.

     Mr. Vinberg's employment agreement provides that for the first three years
of his employment, if he is fired by the Company after a change of control (as
defined) or without cause (as defined), or if he quits for good reason (as
defined), he will be entitled to base salary continuation, including medical
benefits, for six months following his termination.

     Mr. Kadin's employment agreement with the Company calls for his employment
at a starting base salary of $185,000 per year, along with an anticipated annual
bonus of $35,000 for his first year of employment and future bonuses as
determined by the Board of Directors. Mr. Kadin also received a signing bonus of
$30,000 and a stock option to purchase 460,000 shares of the Company's common
stock at an exercise price of $2.61 per share. This option vests over a
four-year period, with 20% vesting on the date of hire, 20% vesting on the first
anniversary of his hire date and the balance vesting at the rate of 1/36th per
month. Mr. Kadin's employment agreement provides that if the Company fires him
without cause (as defined), he will be entitled to a severance payment equal to
six months of his then-current base salary.

     Mr. Gentile's employment agreement with the Company provides for a starting
base salary of $125,000 per year. In addition, pursuant to the employment
agreement, Mr. Gentile received a stock option to purchase 50,000 shares of the
Company's common stock at an exercise price of $5.75 per share. This stock
option vests over a four-year period, with 25% of the total grant vesting on the
first anniversary of the date of grant and the remainder vesting at the rate of
1/36th per month. In lieu of bonuses to which Mr. Gentile was entitled under the
terms of the employment agreement, the Company issued to Mr. Gentile in
September 2000 an additional stock option to purchase 115,000 additional shares
of the Company's common stock at an exercise price of $5.65 per share. This
additional option also vests over a four-year period, with 20% of the total
grant vesting on the date of grant, 20% vesting on the first anniversary of the
date of grant and the remainder vesting at the rate of 1/36th per month. Mr.
Gentile also received a stock option to purchase 172,500 shares of the Company's
common stock at an exercise price of $0.87 per share.

     Prior to Mr. Abate's resignation, the Company had an employment agreement
with him. That employment agreement called for his employment at a base salary
of $200,000 per year, along with a targeted annual bonus of $50,000 for his
first year of employment and future bonuses as determined by the Board of
Directors. Mr. Abate also received 200,000 restricted shares of the Company's
common stock, a stock option to purchase 690,000 shares of the Company's common
stock at an exercise price of $4.35 per share, and an additional stock option to
purchase 100,000 shares of the Company's common stock at an exercise price of
$8.12 per share. Mr. Abate forfeited his restricted stock and his stock options
upon his resignation.
                                        64
<PAGE>   66
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In addition, under his employment agreement, Mr. Abate received an
interest-free loan of $1,500,000 from the Company. This loan was secured by Mr.
Abate's restricted stock and stock options and was repayable at the Company's
demand upon the termination of Mr. Abate's employment. The Company has demanded
repayment of this loan by Mr. Abate. Mr. Abate, however, has refused to repay
the loan, asserting that the loan was non-recourse to him and was secured solely
by his restricted stock and stock options. The Company believes that Mr. Abate's
assertion is entirely without merit, and that the loan is fully recourse to Mr.
Abate and the Company intends to enforce repayment by Mr. Abate using all
available legal means.

                                        65
<PAGE>   67
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

     (a) The following documents are filed as part of this report:

     1. Financial Statements and Financial Statement Schedule. See Index to
Financial Statements at Item 8 on page 25 of this Report.

     2. Exhibits.

        Exhibit No. 2: Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession

<TABLE>
<S>    <C>
2.1    Form of Agreement and Plan of Merger by and between the
       Registrant and MetaTools, Inc., a California corporation
       (incorporated by reference from Exhibit 2.1 to the
       Registrant's Registration Statement on Form SB-2, filed on
       December 11, 1995, as amended (File No. 33-98628LA))
2.2    Stock Purchase Agreement between the Registrant and Real
       Time Geometry Corp. dated December 23, 1996 (incorporated by
       reference from Exhibits 2.2, 10.22, 10.23, 10.24 and 10.25
       to the Registrant's Current Report on Form 8-K, filed on
       January 15, 1997 (File No. 000-27168))
2.3    Agreement and Plan of Reorganization, dated as of February
       11, 1997, among MetaTools, Inc., a Delaware corporation,
       Fractal Design Corporation, a Delaware corporation, and Rook
       Acquisition Corp., a Delaware corporation and wholly-owned
       subsidiary of MetaTools (incorporated by reference from
       Annex A to the Registrant's Registration Statement on Form
       S-4, filed on April 28, 1997 (File No. 333-25939))
2.4    Agreement and Plan of Merger among Fractal Design
       Corporation, a California corporation, and Rook Acquisition
       Corp., a Delaware corporation, dated as of May 29, 1997
       (incorporated by reference from Exhibit 2.2 to the
       Registrant's Form 8-K, filed on June 13, 1997 (File No.
       000-27168))
2.5    Stock Purchase Agreement, dated as of August 23, 2000, by
       And between the Registrant and Computer Associates
       International, Inc. (incorporated by reference from Exhibit
       2.1 to the Registrant's Current Report on form 8-K, filed on
       September 8, 2000 (File No. 000-27168))
</TABLE>

        Exhibit No. 3: Articles of Incorporation and Bylaws

<TABLE>
<S>    <C>
3.1    Restated Certificate of Incorporation of Registrant
       (incorporated by reference from Exhibit 3.4 to the
       Registrant's Annual Report on Form 10-K for the year ended
       December 31, 1995, filed on March 30, 1996 (File No.
       000-27168))
3.2    Certificate of Amendment of Restated Certificate of
       Incorporation of Registrant (incorporated by reference from
       Exhibit 2.3 to the Registrant's Form 8-K, filed on June 13,
       1997 (File No. 000-27168))
3.3    Bylaws of Registrant, as amended on July 24, 1998
       (incorporated by reference from Exhibit 3.6 to the
       Registrant's Form 10-Q for the quarter ended June 30, 1998,
       filed on August 14, 1998 (File No. 000-27168))
</TABLE>

        Exhibit No. 4: Instruments Defining the Rights of Security Holders

<TABLE>
<S>    <C>
4.1    Specimen of Common Stock Certificate of Registrant
       (incorporated by reference from Exhibit 2.4 to the
       Registrant's Form 8-K, filed on June 13, 1997 (File No.
       000-27168))
</TABLE>

                                        66
<PAGE>   68
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S>    <C>
4.2    Amended and Restated Rights Agreement, dated as of June 24,
       1999 between the Registrant and BankBoston, N.A., including
       form of Certificate of Designations, Rights Certificate and
       the Summary of Rights attached thereto as Exhibits A, B, and
       C respectively (incorporated by reference from Exhibit 4 to
       the Registrant's Form 8-A/A, filed on October 29, 1999 (File
       No. 000-27168))
4.3    Amendment No. 1 to Amended and Restated Rights Agreement,
       dated as of June 24, 1999 between the Registrant and
       BankBoston, N.A. (incorporated by reference from Exhibit 5
       to the Registrant's Form 8-A/A, filed on December 5, 2000
       (File No. 000-27168))
</TABLE>

        Exhibit No. 10: Material Contracts
        Executive Compensation Plans and Agreements

<TABLE>
<S>    <C>
10.1   1992 Incentive Stock Plan (incorporated by reference from
       Exhibit 10.3 to the Registrant's Registration Statement on
       Form SB-2, filed on December 11, 1995, as amended (File No.
       33-98628LA))
10.2   1994 Incentive Stock Option, Non-Qualified Stock Option and
       Restricted Stock Purchase Plan (incorporated by reference
       from Exhibit 10.4 to the Registrant's Registration Statement
       on Form SB-2, filed on December 11, 1995, as amended (File
       No. 33-98628LA))
10.3   1995 Stock Plan, as amended on November 28, 2000
10.4   1995 Director Option Plan (incorporated by reference from
       Exhibit 10.7 to the Registrant's Registration Statement on
       Form SB-2, filed on December 11, 1995, as amended (File No.
       33-98628LA))
10.5   1996 Dive Option Plan (incorporated by reference from
       Exhibit 10.23 to the Registrant's Registration Statement on
       Form S-8, filed on December 3, 1996 (File No. 333-17209))
10.6   1996 Nonstatutory Stock Option Plan, as amended on June 29,
       1999 (incorporated by reference from Exhibit 4.2 to the
       Registrant's Registration Statement on Form S-8, filed on
       September 9, 1999 (File No. 333-86817))
10.7   Letter Agreement between the Registrant and Mark Zimmer,
       dated December 10, 1999 (incorporated by reference from
       Exhibit 10.9 to the Registrant's Annual Report on Form 10-K
       for the year ended December 31, 1999, filed on March 30,
       2000 (File No. 000-27168))
10.8   Letter Agreement between the Registrant and Terance
       Kinninger, dated December 10, 1999 (incorporated by
       reference from Exhibit 10.12 to the Registrant's Annual
       Report on Form 10-K for the year ended December 31, 1999,
       filed on March 30, 2000 (File No. 000-27168))
10.9   Letter Agreement between the Registrant and John Leddy,
       dated December 12, 1999 (incorporated by reference from
       Exhibit 10.15 to the Registrant's Annual Report on Form 10-K
       for the year ended December 31, 1999, filed on March 30,
       2000 (File No. 000-27168))
10.10  Employment Agreement between the Registrant and Gary L.
       Lauer dated February 20, 1998 (incorporated by reference
       from Exhibit 10.38 to the Registrant's Annual Report on Form
       10-K for the year ended December 31, 1997, filed on March
       31, 1998 (File No. 000-27168))
10.11  Amendment to Employment Agreement between the Registrant and
       Gary L. Lauer dated July 16, 1998 (incorporated by reference
       from Exhibit 10.39 to the Registrant's Form 10-Q for the
       quarter ended June 30, 1998, filed on August 14, 1998 (File
       No. 000-27168))
</TABLE>

                                        67
<PAGE>   69
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S>    <C>
10.12  Letter Agreement between the Registrant and Gary Lauer,
       dated December 31, 1999 (incorporated by reference from
       Exhibit 10.18 to the Registrant's Annual Report on Form 10-K
       for the year ended December 31, 1999, filed on March 30,
       2000 (File No. 000-27168))
10.13  Severance Agreement and Release between the Registrant and
       Kai Krause, dated May 1, 1999 (incorporated by reference
       from Exhibit 10.20 to the Registrant's Annual Report on Form
       10-K for the year ended December 31, 1999, filed on March
       30, 2000 (File No. 000-27168))
10.14  Amended Employment Agreement between the Registrant and
       Robert E. Rice dated June 29, 2000 (incorporated by
       reference from Exhibit 10.1 to the Registrant's Form 10-Q
       for the quarter ended June 30, 2000, filed on August 21,
       2000 (File No. 000-27168))
10.15  Letter Agreement between the Registrant and James A. Abate,
       dated March 28, 2000 (incorporated by reference from Exhibit
       10.1 to the Registrant's Form 10-Q for the quarter ended
       June 30, 2000, filed on August 21, 2000 (File No.
       000-27168))
10.16  Letter Agreement between the Registrant and Anders Vinberg,
       dated September 6, 2000 (incorporated by reference from the
       Registrant's Form 10-Q for the quarter ended September 30,
       2000, filed on November 14, 2000 (File No. 000-27168))
10.17  Letter Agreement between the Registrant and Jeffrey J.
       Kaplan, dated January 29, 2001
10.18  Letter Agreement between the Registrant and Paul J. Kadin,
       dated February 17, 2000
10.19  Letter Agreement between the Registrant and Christopher
       Gentile, dated June 25, 1999
</TABLE>

        Other Material Contracts

<TABLE>
<S>    <C>
10.20  Form of Indemnification Agreement for Executive Officers and
       Directors (incorporated by reference from Exhibit 10.1 to
       the Registrant's Registration Statement on Form SB-2, filed
       on December 11, 1995, as amended (File No. 33-98628LA))
10.21  Licensing and Services Agreement dated June 30, 1999 by and
       among MetaStream.com Corporation, Computer Associates
       International, Inc. and Registrant (incorporated by
       reference from Exhibit 10.26 to the Registrant's Annual
       Report on Form 10-K for the year ended December 31, 1999,
       filed on March 30, 2000 (File No. 000-27168))
10.22  Licensing and Services Agreement dated September 30, 1999 by
       and among MetaStream.com Corporation, Computer Associates
       International, Inc. and Registrant (incorporated by
       reference from Exhibit 10.27 to the Registrant's Annual
       Report on Form 10-K for the year ended December 31, 1999,
       filed on March 30, 2000 (File No. 000-27168))
10.23  Agreement for Purchase and Sale of Assets, dated March 24,
       2000, by and among the Registrant, Corel Corporation and
       Corel Corporation Limited
10.24  Series A Preferred Stock Purchase Agreement and Related
       Exchange Agreement between the Registrant and American
       Online, Inc., dated June 12, 2000 (incorporated by reference
       from Exhibit 10.3 to the Registrant's Quarterly Report on
       Form 10-Q for the quarter ended June 30, 2000, filed on
       August 21, 2000 (File No. 000-27168))
</TABLE>

                                        68
<PAGE>   70
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<S>        <C>
10.25      Series B Preferred Stock Purchase Agreement and Related Exchange Agreement between the
           Registrant and Adobe Systems Incorporated dated July 18, 2000 (incorporated by reference
           from Exhibit 10.2 To the Registrant's Form 10-Q for the quarter ended September 30,
           2000, filed on November 14, 2000 (File No. 000-27168))
10.26      Exchange Agreement, dated as of August 10, 2000, by and between the Registrant and
           Computer Associates International, Inc. (incorporated by reference from Annex A to the
           Registrant's Proxy Statement filed on October 31, 2000 (File No. 000-27168))
</TABLE>

        Exhibit No. 21: Subsidiaries of the Registrant

<TABLE>
<S>    <C>
21.1   Listing of Registrant's Subsidiaries
</TABLE>

        Exhibit No. 23: Consents of Experts and Counsel

<TABLE>
<S>    <C>
23.1   Consent of PricewaterhouseCoopers LLP, Independent
       Accountants
</TABLE>

        Exhibit No. 24: Power of Attorney

<TABLE>
<S>    <C>
24.1   Power of Attorney (included on the signature pages of this
       Annual Report on Form 10-K)
</TABLE>

     (b) Reports on Form 8-K

     On November 1, 2000, the Registrant filed a report on Form 8-K to file
copies of the promissory notes issued by the Registrant to Computer Associates
International, Inc. as partial consideration for the acquisition by the
Registrant of all the outstanding capital stock of Viewpoint Digital, Inc. On
November 22, 2000, the Registrant filed a report on Form 8-K to file financial
information and pro forma financial information relating to the acquisition of
Viewpoint Digital, Inc.

     (c) Exhibits

        See Item 14(a)(2) above.

     (d) Financial Statement Schedule

        See Item 14(a)(1) above.

                                        69
<PAGE>   71
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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, in the City of New
York, State of New York, on the 30th day of March, 2001.

                                      VIEWPOINT CORPORATION

                                      By:        /s/ ROBERT E. RICE
                                        ----------------------------------------
                                                     Robert E. Rice
                                         President and Chief Executive Officer

                               POWER OF ATTORNEY

     KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey J. Kaplan and Brian J. O'Donoghue, his
attorneys-in-fact, with the power of substitution, for him and any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitutes, may do or cause to be done
by virtue hereof.

                                        70
<PAGE>   72
                             VIEWPOINT CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated.

<TABLE>
<CAPTION>
                     SIGNATURE                                         TITLE                           DATE
                     ---------                                         -----                           ----
<C>                                                  <C>                                          <S>
                /s/ ROBERT E. RICE                            Director, President and             March 30, 2001
---------------------------------------------------           Chief Executive Officer
                  Robert E. Rice                           (Principal Executive Officer)

               /s/ JEFFREY J. KAPLAN                       Executive Vice President and           March 30, 2001
---------------------------------------------------           Chief Financial Officer
                 Jeffrey J. Kaplan                         (Principal Financial Officer)

                 /s/ ANTHONY PANE                          Vice President and Controller          March 30, 2001
---------------------------------------------------       (Principal Accounting Officer)
                   Anthony Pane

                /s/ THOMAS BENNETT                                   Director                     March 30, 2001
---------------------------------------------------
                  Thomas Bennett

                /s/ BRUCE R. CHIZEN                                  Director                     March 30, 2001
---------------------------------------------------
                  Bruce R. Chizen

             /s/ SAMUEL H. JONES, JR.                                Director                     March 30, 2001
---------------------------------------------------
               Samuel H. Jones, Jr.

                                                                     Director
---------------------------------------------------
                 Lennert J. Leader
</TABLE>

                                        71