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                                  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, 2001

                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
         SECURITIES AND EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER: 0-27168

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

                              VIEWPOINT CORPORATION

             (Exact name of registrant as specified in its charter)

                       DELAWARE                    95-4102687
            (State or other jurisdiction of     (I.R.S. Employer
             incorporation or organization)    Identification No.)

               498 SEVENTH AVENUE, SUITE 1810, NEW YORK, NY 10018
               (Address of principal executive offices) (zip code)

                                 (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 22, 2002 there were 39,809,611 shares of common stock
issued and outstanding. The aggregate market value of such stock held by
non-affiliates as of that date, was approximately $250,402,453.

                      DOCUMENTS INCORPORATED BY REFERENCE:

         Portions of the definitive Proxy Statement to be delivered to
stockholders in connection with the Notice of Annual Meeting of Stockholders to
be held on June 12, 2002 are incorporated by reference into Part III.
<PAGE>
                                TABLE OF CONTENTS

<TABLE>
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                                                                                  PAGE
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<S>            <C>                                                                <C>
                                            PART I

Item 1.        Business                                                             3
Item 2.        Properties                                                           9
Item 3.        Legal Proceedings                                                   10
Item 4.        Submission of Matters to a Vote of Security Holders                 10

                                           PART II

Item 5.        Market for Registrant's Common Stock and Related                    11
               Stockholder Matters
Item 6.        Selected Financial Data                                             12
Item 7.        Management's Discussion and Analysis of Financial Condition         14
                 and Results of Operations

Item 7A.       Quantitative and Qualitative Disclosures About Market Risk          30
Item 8.        Financial Statements and Supplementary Data                         31
Item 9.        Changes in and Disagreements with Accountants on Accounting         58
               and Financial Disclosure

                                           PART III

Item 10.       Directors and Executive Officers of the Registrant                  59
Item 11.       Executive Compensation                                              59
Item 12.       Security Ownership of Certain Beneficial Owners and                 59
                 Management

Item 13.       Certain Relationships and Related Transactions                      59

                                           PART IV

Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form        60
               8-K
Signatures                                                                         63

</TABLE>


                                       2
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                                     PART I

         In addition to historical information, this Annual Report on Form 10-K
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors That May Affect Future Results of
Operations." You should carefully review the risks described in other documents
we file from time to time with the Securities and Exchange Commission, including
the Quarterly Reports on Form 10-Q to be filed in 2002. When used in this
report, the words "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "targets," "estimates," and similar expressions are generally intended
to identify forward-looking statements. You should not place undue reliance on
the forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. We undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances
after the date of this document.

ITEM 1. BUSINESS

         Viewpoint Corporation ("Viewpoint" or the "Company") is a leading
provider of interactive media technologies and services. Its graphics operating
system platform, the Viewpoint Media Player, has been licensed by Fortune 500
companies and others for use in online, offline and embedded applications
serving a wide variety of needs, including: business process visualizations,
marketing campaigns, rich media advertising and product presentations. The
Company also provides cross media digital solutions for film, broadcast
television and games.

         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. In December 1999, the Board of Directors of the Company approved a
plan to focus exclusively on the Internet technologies of Metastream and to
correspondingly divest the Company of all its prepackaged software business.

VIEWPOINT EXPERIENCE TECHNOLOGY AND THE VIEWPOINT MEDIA PLAYER

         Viewpoint Experience Technology ("VET") allows Websites and other media
publishers to integrate a full line of interactive graphics media technologies
seamlessly onto regular Web pages or through other digital formats. Available
media types include: photo-realistic 3D, ZoomView -- a "data on demand" 2D image
that users may pan and drill into, text annotations and animations,
Macromedia(R) Flash(TM)-compatible vector graphics animations, object movies,
immersive surround pictures, and digital audio and video. These interactive
digital media types can add dimension, contextual information, animation,
realistic color, shadows and real-time reflections, movement and robust
interactivity to static Web objects. VET enables users to better access and
interact with images and objects, seamlessly mixing the narrative drive of more
traditional media with the interaction of the Web, such that users can rotate
objects, view extended, narrowband friendly presentations, configure colors,
patterns and other options, all while experiencing extraordinary visual
dimension and accuracy. The interaction between the user and VET content
can educate users about a particular product, message or brand.

         The Viewpoint Media Player ("VMP") is the client-side software platform
that permits Viewpoint's customers to broadcast VET content through the
Internet into end users' browser (primarily Internet Explorer, Netscape,
and Gecko/Mozilla) and "non-browser" environments (primarily America Online,
Inc.'s "Rainman" and CompuServe clients).

         Like Sun Microsystem Inc.'s Java or Microsoft Corporation's
("Microsoft") .NET platform, with which VMP can interoperate, VET is a
fundamentally extensible "Web services" architecture--a graphics operating
system for the Web--focused on high visual quality, multimedia integration and
data visualization. The VET media technologies are entirely "serverless,"
meaning deployment of such content requires only standard HTTP servers on the
broadcast end.

         The key principle behind client-side software is to transmit "coarse,"
or highly compressed, digital information that is deployed from the server,
rather than numerous pictures and text. The client-side software then leverages
the user's CPU processing power to decompress, display,


                                       3
<PAGE>
and process this information "locally" on that CPU, no longer taxing network
bandwidth to examine, configure, interact, and explore digital content. VET
content contains instructions interpreted by the VMP components "on the fly"
and is continually re-interpreted into pictures and sounds that the browser (or
"non-browser") may present to the user. As CPU capacities have grown at a much
more rapid rate than that of connection speeds in recent years, the Company
believes VET's use of this speed advantage is of significant competitive
importance.

         Additionally, VET employs an extensible mark-up language (or "XML")
media "envelope", which enables Viewpoint content to exchange data with back-end
servers in real time and to perform dynamic content configuration. This XML
media envelope is also the basis for the extensibility of the VMP. Through this
XML data description format, VET digital content can seamlessly download and
extend new graphics services on the client-side, which in turn may interpret and
convert different and new media types and formats that may be referenced or
embedded in that digital content. This fundamental extensibility is a key
architecture advantage that has allowed the Company to extend the feature set of
the VMP continually since its launch in the summer of 2000, providing an
"instant upgrade" ability. This design prevents the "lowest common denominator"
syndrome that affects Web technologies as they mature - with VET, Web publishers
and content authors can be assured that users have the latest features and
enhancements of the VMP platform.

         As a form of efficient visual communication, the Company believes the
commercial applications of VET are virtually unlimited. However, the Company
has chosen to focus its near-term marketing efforts on several key areas,
including: enterprise applications, which entails building new or enhancing
existing software applications; media and Internet advertising; and Website
deployment into various vertical markets, such as: automotive, retail, and
medical.

VIEWPOINT PROFESSIONAL SERVICES

         Viewpoint provides fee-based professional services for implementing
visualization solutions. Encompassing both digital content creation and
application enhancing services, our strategic, creative and consulting services
bring together our teams of experts in rich media, content creation and
technology implementation in order to identify the ideal Viewpoint solution for
each client's unique needs and to ensure the timely, successful implementation
of those solutions. Our professional services groups use Viewpoint Experience
Technology, as well as a spectrum of tools and other technologies to create
enhanced rich media solutions for the client's particular purpose, whether over
the Web, intranet systems or offline media and applications. Our professional
services groups provide the support our clients need to implement the rich media
content, to fully utilize the enhanced software or to maximize the branding
potential of the advertising opportunity.

         In addition to providing Web services, our professional services groups
also develop realistic digital effects and animation for the entertainment and
game industries, film producers, major brands, advertising agencies and
commercial production houses. Our custom digital assets have had starring and
supporting roles in:

         -        numerous feature films, including Black Hawk Down, Driven and
                  ANTZ;

         -        television programs such as the telecasts of The Academy
                  Awards Ceremony and The 2002 Winter Olympics;

         -        television advertisements for Ford, Dodge, Chevy and Seiko;
                  and

         -        VET-enabled Websites for companies such as Ford Motor
                  Company, Nike, Inc., Compaq Computer Corporation, Dell
                  Computer Corporation, and Eddie Bauer.

MARKET OPPORTUNITY

         The number of Internet users has increased rapidly over the past
several years. In addition, commercial applications that are based on digital
technology, including the Internet, have increased at a rapid pace. The Company
believes that these patterns have resulted in increasing expenditures for online
marketing, advertising, branding, and e-commerce, and that such communications
will increasingly utilize rich media formats. Visualization as a means of
communication over wide areas, within and between companies and customers, has
become vital in conducting business over the past five years. The Company sees
an eventual convergence of the various media types, including: print, broadcast
television, the Web, gaming and motion pictures, among others that present a
tremendous opportunity for those who utilize or equip digital visualization.


                                       4
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         The Company's initial focus was on Website licensing for marketing and
direct selling. The Company believes that its Viewpoint Experience Technology
meets this 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, object movies, 2D, digital sound and video).

         -        Excellent compression and streaming delivery at narrowband and
                  broadband data rates.

         -        Client-side data logging of the use of downloaded rich media.

         -        Low infrastructure impact for deployment, and ease of
                  integration into Web, HTML, and IT infrastructures.

         -        Continual advancement and "refresh" of features through the
                  graphics operating system platform.

         -        Consistent and high quality playback across browser and
                  non-browser environments and all major playback platforms.

         The Company's focus has recently been broadened to include enterprise
applications. Viewpoint's graphics operating platform provides a powerful
visualization edge to complement existing enterprise application software. The
Company believes that, as data becomes more complicated and is communicated over
wider geographic distances, providing visualization becomes critical to success.
Examples of enterprise applications include: virtual product design, process
workflow and customer service applications. This Company's primary target
audience for enterprise applications is Fortune 500 companies who can benefit
from improving communication through visualization. The Company's model is to
apply its already developed engineering resources to create custom solutions to
address those needs.

         In addition, the Company has developed a new group to penetrate the
Internet advertising market as well as digital advertising on a broader scale.
The Company believes that the Web lacks compelling advertising formats and
that numerous additional digital advertising formats are emerging, such as those
for television's new digital set-top boxes. The Company believes it is
well-positioned to develop and deliver engaging, interactive advertisements
over digital media, including the Internet. It is believed that Viewpoint
Experience Technology can deliver compelling and interactive ad formats,
tapping into a large selection of technologies. The Company feels that creative
talent which may have objected to the limited formats of existing "banner" ads
will be drawn to the new formats and therefore bring credibility to the newly
enhanced medium. Further, the potential for client-side tracking and logging as
well as guaranteed playback quality and consistency across advertising
platforms should provide strong defensibility in this space.

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 and content developers, as well as professionals working in-house at
e-merchants and other Website owners. Instead of selling tools to Internet
professionals -- a relatively small market - the Company has sought primarily
to license technology to the audience where the value is created: the much
larger market of e-commerce merchants, Website owners and others who can
harvest benefits from communicating visually in the digital domain.

         The Company's licensing strategy focuses on earning fees by providing
clients with the ability to broadcast digital 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 document the client's rights under the
arrangement. Licenses are tailored to the specific needs of the client. Examples
of typical arrangements include:

         -        licenses which are time-based, which are generally limited to
                  specific Web site addresses or specific content;

         -        licenses which are perpetual, which are generally limited to
                  specific types or amounts of content;

         -        licenses which permit a "narrowcast" only to a local area
                  network or intranet; and


                                       5
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         -        licenses which permit the client 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 with the opportunity to scale
income substantially as new customers are acquired.

         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 Systems Incorporated
("Adobe") and Autodesk Incorporated, have natural incentives to promote the
Viewpoint platform. More than 50 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.

         Another cornerstone of the business model is that the Viewpoint Media
Player, representing the required client-side playback engine, is free for users
to playback broadcasted content. After downloading the player, users can
receive all updates of the media player software for free, seamlessly and
without interruption of the playback.

         The Company's professional services groups play an integral role in
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 groups increase 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 or trust that creation to others. Also, the
groups' 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. The Company is not reliant on its own content creation services,
however, as it has cultivated a network of thousands of independent content
developers trained to provide those services as well.

         Recently, the Company's professional services have begun to include
specific engineering services to enhance existing or create new software
applications meant to perform a specific task or set of tasks or assist in
communicating through visualization. While content creation services focus on
creating interactive digital objects and enhancing Websites, engineering
services create or alter software to enable clients to design products, improve
process workflow or enhance customer service experiences. The Company's
engineering services leverage off of the existing engineering staff and the
Company's growing engineering application developers network.

COMPETITION

         The Company's current competitors (and some of their products) include:
Kaon (Activate!3D); Cycore AB (Cult3D); IBM Corporation (Hotmedia); Macromedia,
Inc. (Shockwave and Flash); Shells Interactive Ltd. (3D Dreams); Pulse
Entertainment (Pulse3D); Shout Interactive (Shout 3D); Virtue 3D, Inc.
(Virtuoso); and Rich FX (Examine-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 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.


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         The Company believes that Viewpoint Experience Technology offers
significant advantages over many of our competitors' products:

         -        GREATER VISUAL REALISM -- We believe that 3D and other digital
                  rich media objects 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, instantly receive key data
                  (e.g. compare pricing).

         -        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 Viewpoint content quickly and can interact with them in
                  real time. The client-side rendering makes this possible as
                  only a small file of instructions are communicated to the
                  client-side CPU, where the object is actually rendered. Many
                  of the Company's competitors render objects on the server-side
                  which is more taxing on servers and connections and leads to
                  poorer user interoperability.

         -        MANY MEDIA/ONE PLAYER -- Viewpoint includes and integrates
                  seamlessly with many rich media types like IPIX Panoramas,
                  high quality 3D, text annotations, Flash(TM) vector graphics,
                  audio and more, enabling clients to create more compelling Web
                  experiences in a concise and integrated fashion.

         -        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. The new
                  "browserless rendering" now allows 3D objects and vector
                  graphics animation to play right over open windows. 2D images
                  can "hyper" zoom from traditional thumbnails into images that
                  utilize the entire screen's desktop area. The XML capabilities
                  of the technology allows a seamless and immediately updateable
                  data integration with back-end servers without generating
                  additional windows.

         -        AUTOMATIC UPDATES -- Once users download the Viewpoint Media
                  Player, they can automatically receive all releases and
                  upgrades. Because new releases and additional functionality
                  can be sent automatically, in the background, the user's
                  online experience is never interrupted.

         -        LACK OF DEPENDENCE ON JAVA -- The Company's technology is not
                  based upon the Java software language. It has been announced
                  publicly that Java is not supported in the current version of
                  Microsoft's browser, Internet Explorer 6.0, the latest version
                  of the world's most popular Internet browser. This lack of
                  support for Java requires users to download a plug-in in order
                  to view Java-based media. Many of Viewpoint's competitors base
                  their technology on the Java language and the Company feels
                  its lack of dependence on Java technology is an advantage.

         -        SEAMLESS INTEGRATION -- VET technology requires no special
                  server side software to deploy, and integrates easily with
                  existing HTML pages or back end database systems.

PRODUCT DEVELOPMENT

         Continuous development of new products and enhancements of our existing
products is critical to our success. The Company's principal current product
development efforts are focused on the development of VET 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, in part, be a function of 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 historically
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.


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         The Company's research and development expenses, exclusive of non-cash
stock compensation charges, were approximately $6,633,000, $6,241,000 and
$2,515,000, for 2001, 2000 and 1999, respectively. The Company may hire
additional engineers in connection with its continued product development
efforts, which would 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 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 22, 2002, Viewpoint had 172 full time employees, including
40 in sales and marketing; 66 in creative services; 46 in research, development
and quality assurance; and 20 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.

EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain information regarding the
Company's executive officers as of March 22, 2002:

<TABLE>
<CAPTION>
        NAME                             AGE                           POSITION
        ----                            ----                           --------
        <S>                             <C>       <C>
        Robert E. Rice                   47       Chairman, President and Chief Executive Officer
        David Feldman                    35       Executive Vice President and Chief Strategist
        Christopher Gentile              43       Executive Vice President, Creative Services
        Paul Kadin                       51       Executive Vice President, Business Development
        Jeffrey J. Kaplan                54       Executive Vice President, Business Affairs
        Anders Vinberg                   52       Executive Vice President, Engineering and Enterprise Solutions
        Anthony L. Pane                  36       Senior Vice President and Chief Financial Officer
</TABLE>

         Mr. Rice has been President and Chief Executive Officer since March
2000 and Chairman of the Company's Board of Directors since July 2000. At the
Company, he served as Vice President of Strategic Affairs until September 1999.
He served as the President and a Director of Metastream since its formation in
June 1999. Mr. Rice co-founded Real Time Geometry Corporation and served as its
chairman until its sale to the Company in 1996. Before founding Real 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. While at Milbank, Mr. Rice also co-founded the Professional
Chess Association with World Champion Garry Kasparov and served as its
commissioner for two years, organizing World Championships and major televised
events around the globe.

         Mr. Feldman has been Executive Vice President 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
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.


                                       8
<PAGE>
         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 1996 and where he has served
as President; Millennium RUSH, LLC, a software development company that he
founded in 1995 and where he served as President; and 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. Kadin has been with the Company since February 2000 and has served
as Executive Vice President, Business Development since February 2001. Following
an initial focus on Sales, Marketing, and Client Services globally, his current
focus is on development of the Company's digital advertising formats for the Web
and other media outlets. 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 investment 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 of Business Affairs of
the Company since November 2001 and was Executive Vice President and Chief
Financial Officer for the period from February 2001 to November 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. Vinberg has been Executive Vice President, Engineering and
Information Systems at the Company since September 2000. Before this, Mr.
Vinberg was Divisional Senior Vice President at Computer Associates
International, Inc., ("Computer Associates") 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.

         Mr. Pane joined the company in August of 2000 and has served as Senior
Vice President and Chief Financial Officer since November 2001. Previously Mr.
Pane was the Company's Vice President and Controller. From May 1999 to August
2000, Mr. Pane served as Controller of Computer Generated Solutions, Inc. From
July 1997 to March 1999, Mr. Pane was the Vice President and Controller of the
American Stock Exchange, Inc. From July 1994 to July 1997, Mr. Pane served in
various positions with Alliance Entertainment Corp., including as Chief
Financial Officer of its subsidiary, Abbey Road Distributors. Mr. Pane also
served in various positions, including Manager, for six years at
PricewaterhouseCoopers and Ernst & Young.

ITEM 2. PROPERTIES

         The Company leases approximately 17,000 square feet of space on the
18th floor of a 24-story office building in New York City, New York. This space
houses approximately 100 personnel, including 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 primary lease agreement expires in March 2010, if not renewed. The Company
believes that this 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 40 personnel principally engaged in sales
and marketing, creative services, and management information systems services.

         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 23 personnel principally engaged in sales
and marketing, creative services, and management information systems services.

         The Company also leases a small office space in London under a
short-term lease.


                                       9
<PAGE>
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 in legal
actions in which it is the defendant and believes that the ultimate outcome of
such actions will not have a material adverse 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

         None.


                                       10
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         Viewpoint Corporation's ("Viewpoint" or the "Company") common stock,
$0.001 par value, began trading over the counter in December 1995. The common
stock is traded on The Nasdaq National Market under the symbol "VWPT." On March
22, 2002, there were 304 holders of record of our common stock. Because many of
such shares are held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of stockholders
represented by these record holders. The following table sets forth, for the
periods indicated, the range of high and low closing sales prices per share of
our commons stock:

<TABLE>
<CAPTION>
                                                                                    HIGH        LOW
         <S>                                                                    <C>          <C>
             2001                                                                $    8.50    $    2.75
         4th    Quarter                                                               7.11         3.00
         3rd    Quarter                                                               7.65         2.86
         2nd    Quarter                                                               8.50         3.94
         1st    Quarter                                                               7.69         2.75

            2000                                                                $    30.88   $     4.63
         4th    Quarter                                                              11.00         4.63
         3rd    Quarter                                                              14.06         8.00
         2nd    Quarter                                                              18.50         6.00
         1st    Quarter                                                              30.88         8.06
</TABLE>


         The Company has not paid any cash dividends on its common 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 common stock in the foreseeable future.


                                       11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

         The following selected consolidated 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,
                                                             --------------------------------------------------------
                                                               2001        2000        1999        1998        1997
                                                             --------    --------    --------    --------    --------
                                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                          <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA
Revenues:

  Licenses ...............................................   $  9,681    $  1,421    $  2,818    $  3,001    $  1,262
  Services ...............................................      4,327       2,159         275          --          --
                                                             --------    --------    --------    --------    --------
Total revenues ...........................................     14,008       3,580       3,093       3,001       1,262
                                                             --------    --------    --------    --------    --------
Cost of Revenues:
  Licenses ...............................................        309          76          --          --          --
  Services ...............................................      3,283       1,467          --          --          --
                                                             --------    --------    --------    --------    --------
Total cost of revenues ...................................      3,592       1,543          --          --          --
                                                             --------    --------    --------    --------    --------
Gross profit .............................................     10,416       2,037       3,093       3,001       1,262
                                                             --------    --------    --------    --------    --------

Operating expenses:
  Sales and marketing (including non-cash stock-based
     compensation charges totaling $2,335 in 2001, $5,122
     in 2000, and $675 in 1999)...........................     17,814      18,741       3,000         981         624
  Research and development (including non-cash stock-based
     compensation charges totaling $2,920 in 2001, $4,193
     in 2000, and $2,540 in 1999).........................      9,553      10,434       5,055       1,434       2,207
  General and administrative (including non-cash
     stock-based compensation charges totaling $1,918 in
     2001, $3,026 in 2000, and $2,866 in 1999)............     10,423       9,814       6,993       4,010       3,266
  Compensation charge related to forgiveness of an officer
     loan ................................................         --       2,322          --          --          --
  Amortization of goodwill and other intangibles (1)(2) ..     17,453       3,025          75         150         150
  Goodwill impairment (3) ................................      7,925          --          --          --          --
  Depreciation ...........................................      1,804         801         406         399         205
  Non-cash sales and marketing charges (4) ...............         --      19,998          --          --          --
  Acquired in-process research and development costs (2) .         --         963          --          --          --
                                                             --------    --------    --------    --------    --------
Total operating expenses .................................     64,972      66,098      15,529       6,974       6,452
                                                             --------    --------    --------    --------    --------

Loss from operations .....................................    (54,556)    (64,061)    (12,436)     (3,973)     (5,190)
Other income .............................................      1,064       2,180       2,286       2,618       3,157
                                                             --------    --------    --------    --------    --------

Loss before provision for income taxes ...................    (53,492)    (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 ......    (53,492)    (61,881)    (15,631)     (1,002)     (1,823)
Minority interest in loss of subsidiary ..................         --       4,429       1,048          --          --
                                                             --------    --------    --------    --------    --------

Net loss from continuing operations ......................    (53,492)    (57,452)    (14,583)     (1,002)     (1,823)
Discontinued operations:
  Loss from discontinued operations (5) ..................         --          --     (14,811)    (18,829)     (6,355)
  Adjustment to net loss on disposal of discontinued
  operations (5)..........................................      1,122       1,496     (21,260)         --          --
                                                             --------    --------    --------    --------    --------

Net income (loss) from discontinued operations ...........      1,122       1,496     (36,071)    (18,829)     (6,355)
                                                             --------    --------    --------    --------    --------

Net loss .................................................    (52,370)    (55,956)    (50,654)    (19,831)     (8,178)
Accretion of mandatorily redeemable preferred stock of
  subsidiary .............................................         --        (438)         --          --          --
                                                             --------    --------    --------    --------    --------

Net loss applicable to common shareholders ...............   $(52,370)   $(56,394)   $(50,654)   $(19,831)   $ (8,178)
                                                             ========    ========    ========    ========    ========

Basic and diluted net loss per common share:

  Net loss per common share from continuing operations ...   $  (1.37)   $  (2.01)   $  (0.59)   $  (0.04)   $  (0.08)
  Net income (loss) per common share from discontinued
     operations ..........................................       0.03        0.05       (1.47)      (0.79)      (0.28)
                                                             --------    --------    --------    --------    --------
 Net loss per common share ...............................   $  (1.34)   $  (1.96)   $  (2.06)   $  (0.83)   $  (0.36)
                                                             ========    ========    ========    ========    ========

Weighted average number of shares outstanding -- basic
  and diluted ............................................     39,077      28,718      24,581      23,779      22,965
                                                             ========    ========    ========    ========    ========
</TABLE>


                                       12
<PAGE>
<TABLE>
<CAPTION>
                                                 DECEMBER 31,
                             ----------------------------------------------------
                               2001       2000       1999       1998       1997
                             --------   --------   --------   --------   --------
                                               (IN THOUSANDS)
<S>                          <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA
Cash, cash equivalents and
marketable securities.....   $ 15,413   $ 29,033   $ 37,247   $ 46,335   $ 50,002
Working capital (2) ......     12,056     34,313     33,638     55,439     77,677
Total assets .............     61,917    102,349     50,574     79,116     97,257
Stockholders' equity .....     52,737     96,339     29,901     70,181     87,242
</TABLE>

----------

(1)      In November 2000, the Company consummated a share exchange with
         Computer Associates International, Inc., ("Computer Associates") and
         another shareholder of Metastream Corporation ("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. ("Viewpoint Digital") from Computer
         Associates. 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 consisted 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 March
         8, 2002. During 2001, the Company entered into certain agreements with
         Computer Associates whereby Computer Associates agreed to accept
         newly-issued shares of Viewpoint common stock having a value of
         $4,000,000, in partial repayment of the first contingent promissory
         note due June 8, 2001. In addition Computer Associates agreed to
         accept, at the Company's election, either cash or newly-issued shares
         of Viewpoint common stock at an issue price of $4.00 per share in
         repayment of any additional amounts due under the promissory note due
         June 8, 2001, and the first $8,943,000 of the $15,000,000 contingent
         promissory note due April 30, 2002, which amount will be determined by
         the achievement of certain levels of future operating results and
         employee retention. The amount due Computer Associates under the
         promissory note due June 8, 2001 is approximately $4,657,000. In
         connection with this promissory note, the Company recorded additional
         goodwill and due to related parties in its consolidated balance sheet.
         The acquisition of Viewpoint Digital was accounted for under the
         purchase method of accounting, and goodwill and other intangibles of
         $21,589,000 were recorded, inclusive of acquired in-process research
         and development costs of $963,000.

(3)      During 2001, the Company performed impairment assessments on the
         goodwill and other intangibles recorded upon the acquisition of
         Viewpoint Digital and the acquisition of Computer Associates' minority
         interest in Metastream. As a result of continuing poor economic
         conditions, which resulted in a decrease in estimated undiscounted
         future cash flows, the Company recorded a $7,925,000 goodwill
         impairment charge on the Viewpoint Digital goodwill during the fourth
         quarter of 2001. The charge was determined based upon the estimated
         discounted cash flows over the remaining useful life of the goodwill
         using a discount rate of 15%. The assumptions supporting the cash flows
         including the discount rate were determined using the Company's best
         estimates as of the date the impairment was recorded.

(4)      In connection with the issuance of mandatorily redeemable preferred
         stock in Metastream to America Online, Inc. ("AOL") and Adobe Systems
         Incorporated ("Adobe"), the Company recorded one-time non-cash sales
         and marketing charges of approximately $19,998,000 during the year
         ended December 31, 2000. These charges represented the difference
         between the fair market 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 both 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.

(5)      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 net income (loss) from discontinued operations for the
         years ended December 31, 1997 through 2001.


                                       13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.

         In addition to historical information, this Annual Report on Form 10-K
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in the section entitled " Factors That May Affect Future Results of Operations."
You should carefully review the risks described in other documents we file from
time to time with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-Q to be filed in 2002. When used in this report,
the words "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"targets," "estimates," and similar expressions are generally intended to
identify forward-looking statements. You should not place undue reliance on the
forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. We undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances
after the date of this document.

OVERVIEW

         Viewpoint Corporation is a leading provider of interactive media
technologies and services. Its graphics operating system platform, the Viewpoint
Media Player, has been licensed by Fortune 500 companies and others for use in
online, offline and embedded applications serving a wide variety of needs,
including: business process visualizations, marketing campaigns, rich media
advertising and product presentations. The Company also provides cross media
digital solutions for film, broadcast television and games.

         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 to operate a business
exploiting these technologies. The Company originally held an 80% equity
interest in Metastream with 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 Metastream 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, 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 and e-commerce
                  visualization solutions;

         -        Providing a full range of fee-based digital asset content
                  creation and engineering professional services for
                  implementing visualization solutions for marketing and
                  creating new and enhancing existing enterprise software
                  applications;

         -        Proliferating the Viewpoint format into digital advertisements
                  on various digital media, primarily the Web and digital
                  set-top cable boxes;

         -        Forging technological alliances with leading interactive
                  agencies and Web content providers; and

         -        Maximizing market penetration and name recognition, including
                  distribution of the Company's client-side software graphics
                  operating system, the Viewpoint Media Player

         Viewpoint believes that its success will depend largely on its ability
to proliferate its digital technologies into various media, including broadcast
television, games, movies, print, closed intranets, new and existing enterprise
applications and television set-top


                                       14
<PAGE>
boxes. Accordingly, Viewpoint has and intends to continue to invest 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, including digital content creation services and
engineering services to enhance and create new enterprise software applications.

         In light of its relatively recent change in strategic focus from
selling prepackaged software, Viewpoint has a limited operating history upon
which an evaluation of the Company and its prospects can be based. Viewpoint's
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, 2001, had an accumulated deficit of $198,184,000.

         The Company may, from time to time, provide guidance of certain
financial and non-financial expectations and has done so within this Form 10-K.
We use these expectations to assist us in making decisions about our allocations
of resources, not as predictions of future results. The expectations are subject
to risks of our business as well as those contained in "Factors That May Affect
Future Results of Operations."

                              RESULTS OF OPERATIONS

         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,
                                                         -------------------------------
                                                           2001       2000         1999
                                                         -------     -------     -------
<S>                                                      <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA
Revenues:
  Licenses ...........................................      69.1%       39.7%       91.1%
  Services ...........................................      30.9        60.3         8.9
                                                         -------     -------     -------
Total revenues: ......................................     100.0       100.0       100.0
                                                         -------     -------     -------
Cost of revenues:
  Licenses ...........................................       2.2         2.1          --
  Services ...........................................      23.4        41.0          --
                                                         -------     -------     -------
Total cost of revenues ...............................      25.6        43.1          --
                                                         -------     -------     -------
Gross profit .........................................      74.4        56.9       100.0
                                                         -------     -------     -------

Operating expenses:
  Sales and marketing (including non-cash stock-based
     compensation charges) ...........................     127.2       523.4        97.1
  Research and development (including non-cash
     stock-based compensation charges)................      68.2       291.5       163.4
  General and administrative (including non-cash
     stock-based compensation charges)................      74.4       274.1       226.1
  Compensation charge related to forgiveness of an
     officer loan.....................................        --        64.9          --
  Amortization of goodwill and other intangibles .....     124.6        84.5         2.4
  Goodwill impairment ................................      56.6          --          --
  Depreciation .......................................      12.9        22.4        13.1
  Non-cash sales and marketing charges ...............        --       558.6          --
  Acquired in-process research and development costs .        --        26.9          --
                                                         -------     -------     -------
Total operating expenses .............................     463.9     1,846.3       502.1
                                                         -------     -------     -------

Loss from operations .................................    (389.5)   (1,789.4)     (402.1)
Other income .........................................       7.6        60.9        73.9
                                                         -------     -------     -------

Loss before provision for income taxes ...............    (381.9)   (1,728.5)     (328.2)
Provision for income taxes ...........................        --          --       177.2
                                                         -------     -------     -------

Loss before minority interest in loss of subsidiary ..    (381.9)   (1,728.5)     (505.4)
Minority interest in loss of subsidiary ..............        --       123.7        33.9
                                                         -------     -------     -------

Net loss from continuing operations ..................    (381.9)   (1,604.8)     (471.5)
Discontinued operations:
  Loss from discontinued operations ..................        --          --      (478.9)
  Adjustment to net loss on disposal of discontinued
  operations..........................................       8.0        41.8      (687.3)
                                                         -------     -------     -------
  Net income (loss) from discontinued operations .....       8.0        41.8    (1,166.2)
                                                         -------     -------     -------

Net loss .............................................    (373.9)   (1,563.0)   (1,637.7)
Accretion of mandatorily redeemable preferred stock of
  subsidiary .........................................        --       (12.2)         --
                                                         -------     -------     -------

Net loss applicable to common shareholders ...........    (373.9)%  (1,575.2)%  (1,637.7)%
                                                         =======     =======     =======
</TABLE>


                                       15
<PAGE>
REVENUES

<TABLE>
<CAPTION>
                   2001     % CHANGE   2000       % CHANGE   1999
                 -------    --------  -------     -------- -------
                               (DOLLARS IN THOUSANDS)
<S>              <C>        <C>       <C>         <C>      <C>
Total revenues   $14,008       291%   $ 3,580        16%   $ 3,093
</TABLE>

         The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, "Software Revenue Recognition," as amended, and Staff Accounting
Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements."

         Viewpoint generates revenues through two sources: (a) software license
revenues and (b) service revenues. License revenues are generated from licensing
the rights to use our products directly to end-users and indirectly through
value added resellers ("VARs"). Service revenues are generated from fee based
professional services, sales of customer support services (maintenance
contracts), and training services performed for customers that license our
products.

         License revenue includes sales of perpetual and term based licenses for
broadcasting viewpoint 3D content, and limited licenses for its digital content
library. License revenue is recognized over the term of the license in a
term-based broadcast license model and up-front in a perpetual broadcast license
model, providing that no significant vendor obligations remain and the resulting
receivable is deemed collectible by management.

         Fee-based professional services are performed on a time-and-material
basis or on a fixed-fee basis, under separate service arrangements. Revenues
related to these services are recognized on a percentage-of-completion basis in
accordance with the provisions of SOP 81-1 "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts."
Percentage-of-completion for service contracts is measured principally by the
percentage of costs incurred and accrued to date for each contract to the
estimated total cost for each contract at completion. Revenues from customer
support services are recognized ratably over the term of the contract. Revenues
from training services are recognized as services are performed.

         License revenue increased approximately $8,260,000 or 581% and service
revenue increased approximately $2,168,000 or 100% for the year ended December
31, 2001, compared to the year ended December 31, 2000. The increase in revenues
is primarily attributable to an increase in sales of licenses and fee-based
professional services resulting from increases to our direct sales force,
expansion of our indirect channel partnerships, and incremental sales from the
acquisition of Viewpoint Digital. The weakening of the U.S. economy, however,
continues to negatively impact our revenue growth. The Company's revenues can
also be negatively impacted by increased competition in the market, the lack of
acceptance of the Company's existing products or the Company's failure to
develop new products.

         During the year ended December 31, 2001, the Company recorded revenues
totaling $2,385,000 related to agreements, including reseller arrangements, with
two stockholders who have representatives on the Company's Board of Directors.
One of the agreements is a multi-year agreement that may significantly impact
revenues in the future.

         In furtherance of the Company's indirect sales strategy, the Company
entered into a license agreement under which the Company licensed certain of its
products to a long-time, leading distributor of 3D animation software. During
the year ended December 31, 2001 the Company recorded revenue of $750,000 for
this transaction and, after certain minimum revenue targets are met, the Company
will share in future revenues derived from sublicenses of the products. The
distributor will bear all marketing and sales costs. The Company expects this
type of transaction to lead to higher margins over time.

         During the year ended December 31, 2001, the Company established a
strategic relationship with one of its customers whereby the customer purchased
licenses from the Company and the Company agreed to purchase publicly traded
equities of the customer's parent. The Company also entered into a license
agreement with another customer in exchange for the customer's mass distribution
of the Viewpoint Media Player to an important target audience. These
transactions effectively include nonmonetary sales of our software for equity
securities and services of our customers, and accordingly the Company used the
fair value of the equities and services received in determining the amount of
revenues and expenses to record. Total revenues and expenses were $429,000 and
$264,000, respectively, related to these transactions.

         Revenues in 2000 were related to sales of licenses, fee-based
professional services and 3D digital content with two customers accounting for
40% of total revenues. Fee based professional services and 3D digital content
sales of $2,459,000 were the result of the acquisition of Viewpoint Digital.
Revenues in 1999 primarily consisted of one-time licenses for Viewpoint and
related technologies from a limited number of strategic partners. Specifically,
revenues from two customers accounted for 88% of total


                                       16
<PAGE>
revenues in 1999.

         The Company expects its revenue to continue to increase in 2002 based
upon the visible increase in the market acceptance of our technology. It is
anticipated that the increase in revenues will be derived from both license and
service revenues.

COST OF REVENUES

<TABLE>
<CAPTION>
                                 2001       % CHANGE     2000     % CHANGE    1999
                                -------     --------   -------     --------  -------
                                            (DOLLARS IN THOUSANDS)
<S>                             <C>         <C>        <C>         <C>        <C>
Total cost of revenues ......   $3,592          133%    $1,543       N/A      $--
Percentage of total revenues        26%                     43%                -- %
</TABLE>

         Cost of revenues consist primarily of salaries and consulting fees for
those who provide fee-based professional services. The increase in cost of
revenues is directly related to an increase in fee-based professional services.

         As the amount of services revenue is expected to increase in 2002, the
Company expects cost of revenues to increase in absolute dollars, while
decreasing slightly as a percentage of total revenues, due to improved
efficiencies and the mix of license and services revenues.

SALES AND MARKETING (INCLUDING NON-CASH STOCK-BASED COMPENSATION CHARGES
TOTALING $2,335 IN 2001, $5,122 IN 2000 AND $675 IN 1999)

<TABLE>
<CAPTION>
                                 2001       % CHANGE      2000     % CHANGE   1999
                                -------     --------   -------     --------  -------
                                               (DOLLARS IN THOUSANDS)
<S>                             <C>         <C>        <C>         <C>       <C>
Sales and marketing .........   $17,814         (5)%   $18,741        525%   $ 3,000
Percentage of total revenues        127%                   523%                   97%
</TABLE>

         Sales and marketing expenses include salaries and benefits, sales
commissions, non-cash stock-based compensation charges, consulting fees and
travel expenses for our sales and marketing personnel. Sales and marketing
expenses also include the cost of programs aimed at increasing revenue, such as
advertising, trade shows and public relations.

         Sales and marketing expenses decreased $927,000, or 5% in 2001 compared
to 2000 primarily due to a decrease in advertising costs, Web development costs
and non-cash stock-based compensation charges, which was partially offset by an
increase in salaries, benefits, sales commissions, and travel expenses related
to an increase in personnel due to internal growth and the acquisition of
Viewpoint Digital. Non-cash stock-based compensation charges decreased because
the Company generally no longer grants stock options to employees at below fair
market value at the date of grant and certain employees who were granted stock
options below fair market value have left the Company.

         Sales and marketing expenses increased $15,741,000, or 525%, in 2000
compared to 1999, primarily due to an increase in salaries and benefits,
non-cash stock based compensation charges, recruiting fees, travel expenses, and
an increase in advertising and public relation agency fees related to the launch
of Viewpoint Experience Technology.

         The Company does not expect a material increase in sales and marketing
expenses in 2002 over that of 2001 as a result of the company's indirect
marketing strategy and the increased utilization of creative services personnel,
which will increase cost of revenues, rather than sales and marketing expenses.
It is expected that these decreases in costs will be partially offset by
increases in selling expenses to support the projected higher revenues. As a
percentage of total revenues, sales and marketing expenses are expected to
decrease.

RESEARCH AND DEVELOPMENT (INCLUDING NON-CASH STOCK-BASED COMPENSATION CHARGES
TOTALING $2,920 IN 2001, $4,193 IN 2000 AND $2,540 IN 1999)

<TABLE>
<CAPTION>
                                 2001       % CHANGE    2000       % CHANGE   1999
                                -------     --------   -------     --------  -------
                                              (DOLLARS IN THOUSANDS)
<S>                             <C>         <C>        <C>         <C>       <C>
Research and development ....   $ 9,553         (8)%   $10,434        106%   $ 5,055
Percentage of total revenues         68%                   292%                  163%
</TABLE>


                                       17
<PAGE>
         Research and development expenses consist primarily of salaries and
benefits for software developers, contracted development efforts, non-cash
stock-based compensation charges, and required equipment costs related to the
Company's product development efforts. The Company expenses as incurred 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.

         Research and development expenses decreased $881,000, or 8% in 2001
compared to 2000 primarily due to a decrease in non-cash stock-based
compensation charges and a decrease in bad debt expense partially offset by an
increase in salaries and benefits and an increase in contracted development
efforts. Approximately $2,106,000 of the decrease is attributable to a decrease
in bad debt expense resulting from a $1,441,000 reserve against a loan from an
executive whose chief responsibilities were research and development in 2000 of
which approximately $665,000 was recovered during 2001. Non-cash stock-based
compensation charges decreased because the Company generally no longer grants
stock options to employees at below fair market value at the date of grant and
certain employees who were granted stock options below fair market value have
left the Company.

         Research and development expenses increased $5,379,000, or 106% in 2000
compared to 1999 due to an increase in salaries and benefits, non-cash
stock-based compensation charges, and travel related to increased internal
development personnel, and contracted development efforts in connection with the
further development of Viewpoint Experience Technology. In addition,
approximately $1,441,000 of the increase is due to a reserve against a loan from
an executive whose chief responsibilities were research and development.

         The Company expects research and development expenses to remain
relatively flat in 2002, as compared to 2001. Anticipated increases in research
and development expenditures are expected to be offset by customer-specific
engineering efforts in the enterprise applications group, which will be
classified as cost of revenues. As a percentage of total revenues, research and
development expenses are expected to decrease.

GENERAL AND ADMINISTRATIVE (INCLUDING NON-CASH STOCK-BASED COMPENSATION CHARGES
TOTALING $1,918 IN 2001, $3,026 IN 2000 AND $2,866 IN 1999)

<TABLE>
<CAPTION>
                                  2001       % CHANGE     2000       % CHANGE      1999
                                 -------     --------    ------      --------     -------
                                                (DOLLARS IN THOUSANDS)
<S>                              <C>         <C>         <C>         <C>          <C>
General and administrative...    $10,423         6%      $9,814         40%       $6,993
Percentage of total revenues.         74%                   274%                     226%
</TABLE>

         General and administrative expenses primarily consist of corporate
overhead of the Company, which includes salaries and benefits related to finance
and administration personnel along with other administrative costs such as
legal, accounting and investor relation fees, and insurance expense.

         General and administrative expenses increased $609,000 or 6% in 2001
compared to 2000 due to an increase in salaries and benefits, rent expense,
insurance and legal costs offset by a decrease in bad debt expense and non-cash
stock-based compensation charges. Non-cash stock-based compensation charges
decreased because the Company generally no longer grants stock options to
employees at below fair market value at the date of grant and certain employees
who were granted stock options below fair market value have left the Company.

         General and administrative expenses increased $2,821,000 or 40% in 2000
compared to 1999 due to a reserve against an officer's loan and an increase in
corporate expenses resulting from a full year of operations for Metastream.

         General and administrative expenses are expected to decrease in
absolute dollars and as a percentage of total revenues in 2002 compared to 2001,
due to the closing of the Company's Tokyo and San Francisco offices.


                                       18
<PAGE>
COMPENSATION CHARGE RELATED TO FORGIVENESS OF AN OFFICER LOAN

<TABLE>
<CAPTION>
                                           2001      % CHANGE   2000     % CHANGE       1999
                                           ----      --------  ------    --------       ----
                                                          (DOLLARS IN THOUSANDS)
                                           <S>       <C>       <C>       <C>            <C>
Compensation charge related to
forgiveness of an officer loan .........   $ --       (100)%   $2,322       N/A          $--
Percentage of total revenues..........       -- %                  65%                    -- %
</TABLE>

         A loan to an officer which accrued interest semi-annually at 5.67%, was
forgiven in 2000 in accordance with the contractual terms of the officer's
employment agreement, upon the merger of the Company and Metastream.

AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES

<TABLE>
<CAPTION>
                                           2001       % CHANGE   2000       % CHANGE   1999
                                          -------     --------  -------     --------  -------
                                                        (DOLLARS IN THOUSANDS)
<S>                                       <C>         <C>       <C>         <C>       <C>
Amortization of goodwill and
other intangibles ..........              $17,453        477%   $ 3,025      3,933%   $    75
Percentage of total revenues                  125%                   85%                    2%
</TABLE>

         Amortization of goodwill and other intangibles increased $14,428,000 or
477% in 2001 compared to 2000 due to a full year of amortization of intangibles
recorded as part of the acquisition of Viewpoint Digital and the acquisition of
Computer Associates' minority interest in Metastream.

         Amortization of goodwill and other intangibles increased $2,950,000 or
3,933% in 2000 compared to 1999 due to amortization of intangibles recorded as
part of the acquisition of Viewpoint Digital in September 2000 and the
acquisition of Computer Associates' minority interest in Metastream in November
2000.

         Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets," will be adopted by the Company on January 1, 2002,
and as a result, the Company will cease to amortize approximately $33,042,000 of
goodwill. The Company recorded approximately $13,068,000 and $1,414,000 of
goodwill amortization during 2001 and 2000, respectively. In lieu of
amortization, the Company will be required to test goodwill for impairment using
the two-step approach prescribed in SFAS No. 142.

GOODWILL IMPAIRMENT

<TABLE>
<CAPTION>
                                           2001      % CHANGE    2000       % CHANGE     1999
                                         -------     --------   -------     --------    ------
                                                         (DOLLARS IN THOUSANDS)
<S>                                      <C>         <C>        <C>         <C>         <C>
Goodwill impairment..............        $ 7,925        N/A      $   --      N/A         $ --
Percentage of total revenues.....             57%                    -- %                  -- %
</TABLE>

         The Company assesses the impairment of long-lived assets periodically
in accordance with the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
During 2001, the Company performed impairment assessments on the goodwill and
other intangibles recorded upon the acquisition of Viewpoint Digital and the
acquisition of Computer Associates' minority interest in Metastream. As a result
of continuing poor economic conditions, which resulted in a decrease in
estimated undiscounted future cash flows, the Company recorded a $7,925,000
goodwill impairment charge on the Viewpoint Digital goodwill during the fourth
quarter of 2001. The charge was determined based upon the estimated discounted
cash flows over the remaining useful life of the goodwill using a discount rate
of 15%. The assumptions supporting the cash flows including the discount rate
were determined using the Company's best estimates as of the date the impairment
was recorded.

         The Company has not completed its impairment analysis of goodwill under
SFAS No. 142, but it may need to take additional goodwill impairment charges in
2002.

DEPRECIATION

<TABLE>
<CAPTION>
                                           2001        % CHANGE   2000       % CHANGE    1999
                                          -------      --------  -------     --------   ------
                                                          (DOLLARS IN THOUSANDS)
<S>                                       <C>          <C>       <C>         <C>        <C>
Depreciation.....................         $ 1,804         125%   $   801         97%    $ 406
Percentage of total revenues.....              13%                    22%                  13%
</TABLE>

         Depreciation expense increased $1,003,000, or 125% in 2001 compared to
2000, and $395,000, or 97% in 2000 compared to 1999


                                       19
<PAGE>
due to increases in property and equipment additions.

         The Company expects that depreciation expense will increase in absolute
dollars in 2002 compared to 2001, in conjunction with the anticipated purchasing
of depreciable equipment during the year. As a percentage of total revenues,
depreciation expense is expected to decrease.

NON-CASH SALES AND MARKETING CHARGES

<TABLE>
<CAPTION>
                                      2001       % CHANGE       2000       % CHANGE      1999
                                     -------     ---------     -------     --------     -------
                                                          (DOLLARS IN THOUSANDS)
<S>                                  <C>         <C>           <C>         <C>          <C>
Non-cash sales and marketing
charges..........................    $   --        (100)%      $19,998         N/A       $ --
Percentage of total 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 $19,998,000 during the year ended December 31,
2000. These charges represented the difference between the fair market 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 both 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.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS

<TABLE>
<CAPTION>
                                     2001        % CHANGE       2000       % CHANGE       1999
                                    -------      --------      ------      --------      -----
                                                         (DOLLARS IN THOUSANDS)
<S>                                 <C>          <C>           <C>         <C>           <C>
Acquired in-process research
and development costs........       $   --         (100)%      $  963         N/A        $ --
Percentage of total revenues.           -- %                       27%                     -- %
</TABLE>

         Acquired in-process research and development costs represent the
write-off of research and development costs recorded as part of the Viewpoint
Digital acquisition in September 2000.

OTHER INCOME

<TABLE>
<CAPTION>
                                          2001      % CHANGE     2000        % CHANGE     1999
                                        -------     --------   --------      --------    ------
                                                  (DOLLARS IN THOUSANDS)
<S>                                     <C>         <C>        <C>           <C>        <C>
Other income.................            $ 1,064       (51)%    $  2,180         (5)%    $2,286
Percentage of total revenues.                  8%                     61%                    74%
</TABLE>

         Other income primarily consists of interest and investment income on
cash, cash equivalents and marketable securities. As a result, other income
fluctuates with changes in the Company's cash, cash equivalents and marketable
securities balances and market interest rates.

         Other income decreased $1,116,000 or 51% in 2001 compared to 2000, and
$106,000 or 5% in 2000 compared to 1999 due to a decrease in average cash, cash
equivalents and marketable securities balances as well as a decline in interest
rates.

         Other income is expected to decrease in absolute dollars and as a
percentage of total revenues in 2002 compared to 2001 due to a decline in
interest rates and an expected decrease in average cash, cash equivalents and
marketable security balances.

PROVISION FOR INCOME TAXES

<TABLE>
<CAPTION>
                                      2001      % CHANGE      2000        % CHANGE      1999
                                     -------    --------     -------      --------     -------
                                                      (DOLLARS IN THOUSANDS)
<S>                                  <C>        <C>          <C>          <C>          <C>
Provision for income taxes...        $   --         N/A      $   --         (100)%     $5,481
Percentage of total revenues.            -- %                    -- %                     177%
</TABLE>

         In the fourth quarter of 1999, the Company recorded a provision for
income taxes in the amount of $5,481,000, 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


                                       20
<PAGE>
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 and 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

<TABLE>
<CAPTION>
                                   2001      % CHANGE      2000        % CHANGE     1999
                                  -------    ---------    -------      --------    -------
                                                  (DOLLARS IN THOUSANDS)
<S>                               <C>        <C>          <C>          <C>         <C>
Minority interest in loss of
subsidiary...................     $   --       (100)%     $ 4,429         323%      $1,048
Percentage of total revenues.         -- %                    124%                      34%
</TABLE>

         Metastream, originally a joint initiative between the Company and
Computer Associates, was formed in June 1999. For financial reporting purposes,
the assets, liabilities and operations of Metastream were included in the
Company's consolidated financial statements. Computer Associates and another
minority shareholder's combined 20% interest in Metastream was recorded as
minority interest in the Company's consolidated balance sheets, and the losses
attributed to their combined 20% interest were reported as the minority interest
in the Company's consolidated statements of operations. In November 2000, the
Company acquired the minority interest by issuing approximately 5,578,000 shares
of Company common stock in exchange for 4,850,000 shares of Metastream common
stock.

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS

<TABLE>
<CAPTION>
                                  2001       % CHANGE      2000      % CHANGE        1999
                                 -------     --------    -------     --------     ----------
                                                 (DOLLARS IN THOUSANDS)
<S>                              <C>         <C>         <C>         <C>          <C>
Net income (loss) from
discontinued operations......    $ 1,122       (25)%     $ 1,496       (104)%     $ (36,071)
Percentage of total revenues.          8%                     42%                    (1,166)%
</TABLE>

         In December 1999, the Board of Directors of the Company approved a plan
to focus exclusively on its digital marketing technologies and services and to
correspondingly divest itself of its prepackaged graphics software business.
Accordingly, these operations are reflected as discontinued operations for all
periods presented in the accompanying consolidated statements of operations.

         The 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. 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. The Company also recorded an adjustment to net loss
on disposal of discontinued operations of $1,122,000 during the year ended
December 31, 2001, as a result of changes in estimates related to assets and
liabilities of the discontinued business. Changes in estimates will be accounted
for prospectively and included in net income (loss) from discontinued
operations.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

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;


                                       21
<PAGE>
         -        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.

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, 2001, we had an accumulated deficit of
approximately $198,184,000. 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;

         -        Acceptance of our technology in other digital medium, such as:
                  enterprise applications, digital cable set-top boxes, print,
                  motion pictures and broadcast television;

         -        Costs of litigation and intellectual property protection;

         -        Industry transitions to new business and information delivery
                  models;

         -        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 and other 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


                                       22
<PAGE>
         We expect that our cash on hand, cash equivalents, and marketable
securities will meet our operating expense, 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.

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 recently. 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, in large part, 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.

         It may be reasonable to 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 an alternative method for transferring data than streaming media.

         The e-commerce market is relatively new and evolving. Licensing of our
products and technologies depends in 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 and in other digital media.


                                       23
<PAGE>
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.

         In addition, the industry is subject to rapidly changing methods and
models of information delivery. If a general market migration to a method of
information delivery that is not conforming with the Company's technologies were
to occur, the Company's business and financial results would be adversely
impacted.

         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 on 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 MAY NEED TO EXPAND OUR SALES AND MARKETING CAPABILITIES

         We expanded our sales force in 2001 and may be required to continue to
expand our sales and marketing operations to increase market awareness of our
products and generate increased revenue. We cannot be certain that we would 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. Our products and services require a sophisticated
sales effort targeted at the senior management of our prospective clients. New
hires 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.


                                       24
<PAGE>
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;

         -        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 MAY NEED TO ENTER INTO BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES WHICH
COULD BE DIFFICULT TO INTEGRATE AND MAY DISRUPT OUR BUSINESS

         We may continue to expand our operations or market presence by entering
into 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 purchased intangible
                  assets;

         -        Additional operating losses and expenses of acquired
                  businesses;

         -        Impairment of relationships with existing employees, customers
                  and business partners; and

         -        If 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. Other than a very few instances, we do not
have long-term employment agreements with our key personnel, and we do not have
"key person" life


                                       25
<PAGE>
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.

OUR REVENUES COULD BE NEGATIVELY AFFECTED BY THE LOSS OF RESELLERS AND STRATEGIC
PARTNERS AND IF WE FAIL TO ESTABLISH, MAINTAIN OR EXPAND OUR STRATEGIC
RELATIONSHIPS FOR THE INTEGRATION OF OUR TECHNOLOGY WITH THE SERVICES OF THIRD
PARTIES, THE GROWTH OF OUR BUSINESS MAY CEASE OR DECLINE

         For the year ended December 31, 2001, the Company recorded revenues
totaling 17% of total 2001 revenues related to certain agreements, including
reseller arrangements, with two stockholders who have representatives on the
Company's Board of Directors. The loss of any reseller or strategic partner
could significantly reduce our revenues, which could have a material adverse
effect on our financial condition, operating results and business.

         In order to expand our business, we must generate, maintain and
strengthen strategic relationships with third parties. Currently, we have
relationships with AOL and Adobe, through which they integrate our technology
into their services. We may need to establish additional strategic relationships
in the future. If these parties do not provide sufficient, high-quality service
or integrate and support our technology correctly, or if we are unable to enter
into successful new strategic relationships, our revenues and growth may suffer.
We cannot be assured that the time and effort spent on developing or maintaining
strategic relationships will produce significant benefits to us.

OUR LENGTHY SALES CYCLE AND PRODUCT IMPLEMENTATION MAKES IT DIFFICULT TO PREDICT
OUR QUARTERLY RESULTS

         We have a long sales cycle because we generally need to educate
potential customers regarding the use and benefits of e-business applications.
Our long sales cycle makes it difficult to predict the quarter in which revenues
may fall. In addition, since we recognize a portion of our revenue throughout
completion of our services, the timing of product implementation could cause
significant variability in our license and service revenues and operating
results for any particular period. The implementation of our product requires a
significant commitment of resources by our customers which makes it difficult to
predict the quarter when implementation will be completed.

OUR PROJECTS VARY IN SIZE AND SCOPE; THEREFORE, A CLIENT THAT ACCOUNTS FOR A
LARGE PORTION OF OUR REVENUES IN ONE PERIOD MAY NOT GENERATE A SIMILAR AMOUNT OF
REVENUE IN SUBSEQUENT PERIODS

         We face a risk because a large amount of our revenues are generated
from a small number of clients, and there are no assurances that these clients
will retain our services for the same level of work in the future. Any
cancellation, deferral or significant reduction in work performed for these
principal clients or a significant number of smaller clients could have a
material adverse effect on our business, financial condition and results of
operations.

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 and creative services 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 market 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. We generally
no longer issue options at an exercise price below the fair market value of the
common stock on the date of grant, however, if we do so in the future, 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


                                       26
<PAGE>
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 AS WELL AS THOSE SPECIFIC
TO THE INTERNET AND RELATED INDUSTRIES, WHICH HAVE BECOME LESS CERTAIN FOLLOWING
THE TERRORIST ATTACKS OF SEPTEMBER 11, 2001

         Our revenues and results of operations have been and 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.

         The growth and prosperity of the Internet and industries which derive
their revenues from Internet will impact the results of the Company. Any
downturn in the growth rate of the Internet and related industries' as a
business segment would adversely impact the Company's financial condition,
operating results and stock price.

         Terrorist attacks in New York, Pennsylvania and Washington, D.C. on
September 11, 2001 disrupted commerce throughout the United States and other
parts of the world. The continued threat of terrorism within the United States
and abroad and the potential for military action and heightened security
measures in response to such threat may cause significant disruption to commerce
throughout the world. To the extent that such disruptions result in delays or
cancellations of customer orders, a general decrease in corporate spending on
information technology, or our inability to effectively market and sell our
licenses and services, our business and results of operations could be
materially and adversely affected. We are unable to predict whether the threat
of terrorism or the responses thereto will result in any long-term commercial
disruptions or if such activities or responses will have a long term material
adverse effect on our business, results of operations or financial condition.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Viewpoint's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its critical accounting policies and estimates, including
those related to revenue recognition and long-lived assets. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances though actual results may
differ from these estimates under different assumptions or conditions. For a
complete description of the Company's accounting policies, see Note 2 to the
consolidated financial statements included in this Annual Report on Form 10-K.

         We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements:

Revenue Recognition

         Revenue recognition rules for software companies are very complex. We
follow very specific and detailed guidelines in measuring revenue; however,
certain judgments affect the application of our revenue policy. Revenue results
are difficult to predict, and any shortfall in revenue or delay in recognizing
revenue could cause our operating results to vary significantly from quarter to
quarter.

         The Company recognizes revenue in accordance with SOP 97-2, "Software
Revenue Recognition," as amended, and SAB No. 101 "Revenue Recognition in
Financial Statements."


                                       27
<PAGE>
         Viewpoint generates revenues through two sources: (a) software license
revenues and (b) service revenues. License revenues are generated from licensing
the rights to use our products directly to end-users and indirectly through
VARs. Service revenues are generated from fee based professional services, sales
of customer support services (maintenance contracts), and training services
performed for customers that license our products.

         License revenue includes sales of perpetual and term based licenses for
broadcasting viewpoint 3D content, and limited licenses for its digital content
library. License revenue is recognized over the term of the license in a
term-based broadcast license model and up-front in a perpetual broadcast license
model, providing that no significant vendor obligations remain and the resulting
receivable is deemed collectible by management.

         Fee-based professional services are performed on a time-and-material
basis or on a fixed-fee basis, under separate service arrangements. Revenues
related to these services are recognized on a percentage-of-completion basis in
accordance with the provisions of SOP 81-1 "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts."
Percentage-of-completion for service contracts is measured principally by the
percentage of costs incurred and accrued to date for each contract to the
estimated total cost for each contract at completion. Revenues from customer
support services are recognized ratably over the term of the contract. Revenues
from training services are recognized as services are performed.

         Standard terms for license agreements call for payment within 90 days.
Probability of collection is based upon the assessment of the customer's
financial condition through the review of their current financial statements or
credit reports. For follow-on sales to existing customers, prior payment history
is also used to evaluate probability of collection. Our agreements with
customers do not contain product return rights.

         Fees from licenses sold together with fee-based professional services
are generally recognized upon delivery of the software, provided that the
payment of the license fees are not dependent upon the performance of the
services, and the services are not essential to the functionality of the
licensed software. If the services are essential to the functionality of the
software, or payment of the license fees are dependent upon the performance of
the services, both the software license and service fees are recognized on a
percentage of completion method of contract accounting.

         If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer. If a nonstandard acceptance period is
required, revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.

         The Company periodically enters into nonmonetary arrangements whereby
the Company's licenses or services are exchanged for services of its customer.
Nonmonetary revenue is recognized at the estimate fair value of the services
received. Generally, nonmonetary revenues equal nonmonetary expenses; however,
due to timing, nonmonetary accounts receivable and accounts payable may result.

Long-Lived Assets

         In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
periodically reviews the carrying value of long-lived assets, primarily
consisting of property and equipment, with estimated useful lives that range
from 3 to 5 years, and goodwill and other intangible assets, with estimated
useful lives that range from 1 to 4 years, to determine whether there are any
indications of impairment losses. Our judgments regarding the existence of
impairment indicators are based on legal factors, market conditions and
operational performance of acquired businesses. Impairment losses, if any, are
recorded when the expected undiscounted future operating cash flows derived from
such assets are less than their carrying value. Beginning in 2002, the
methodology for assessing potential impairments of intangibles will change based
on new accounting rules issued by the Financial Accounting Standards Board
("FASB"). Any resulting impairment loss could have a material adverse impact on
our financial condition and results of operations.

                         LIQUIDITY AND CAPITAL RESOURCES

         Cash, cash equivalents, and marketable securities totaled $15,413,000
at December 31, 2001, down from $29,033,000 at December 31, 2000 and $37,247,000
at December 31, 1999. Included in cash and cash equivalents at December 31,
2001, is $291,000 of restricted cash which was pledged as collateral to secure a
letter of credit used for a security deposit on the Company's New York facility.


                                       28
<PAGE>
         Net cash used in operating activities of the Company totaled
$15,026,000 for 2001 compared to $28,745,000 for 2000 and $11,903,000 for 1999.
Net cash used in operating activities in 2001 primarily resulted from a
$53,492,000 net loss from continuing operations offset in part by $6,488,000 of
net cash provided by discontinued operations, $7,173,000 in non-cash stock-based
compensation charges, $19,257,000 in depreciation and amortization and a
$7,925,000 goodwill impairment charge. Net cash used in operating activities in
2000 primarily resulted from a $57,452,000 net loss from continuing operations
and $8,607,000 of net cash used in discontinued operations, offset in part by
$12,341,000 in non-cash stock-based compensation charges, $19,998,000 in
non-cash sales and marketing charges and $4,789,000 in depreciation and
amortization. Net cash used in operating activities in 1999 primarily resulted
from a $14,583,000 net loss from continuing operations and $10,209,000 of net
cash used for discontinued operations, offset in part by $6,081,000 in non-cash
stock-based compensation charges and a $5,913,000 non-cash charge related to the
full valuation allowance recorded against the Company's deferred tax assets.

         Net cash provided by (used in) investing activities totaled $8,387,000,
$1,584,000 and $(7,410,000) for 2001, 2000, and 1999, respectively. Net cash
provided by investing activities in 2001 primarily resulted from $8,843,000 of
net proceeds from sales and maturities of marketable securities offset by
$872,000 used to purchase property and equipment. Net cash provided by investing
activities in 2000 primarily resulted from $17,135,000 of net proceeds from
sales and maturities of marketable securities, net of $10,225,000 of cash used
to acquire Viewpoint Digital and $4,233,000 used to purchase property and
equipment. Net cash used in investing activities in 1999 primarily resulted from
$2,798,000 of net purchases of marketable securities and $4,471,000 of net cash
used in discontinued operations.

         Net cash provided by financing activities totaled $1,874,000,
$35,993,000 and $7,505,000 for 2001, 2000 and 1999, respectively. Net cash
provided by financing activities in 2001 primarily resulted from $2,449,000 of
proceeds from the exercise of stock options by the Company's employees, offset
by $575,000 in loans to two officers of the Company. Net cash provided by
financing activities in 2000 primarily resulted from $19,839,000 received from
AOL and Adobe relating to their investment in Metastream, $12,604,000 of
proceeds from the exercise of stock options by the Company's employees and
$3,500,000 received from Computer Associates related to their investment in
Metastream. Cash provided by financing activities in 1999 primarily resulted
from $4,005,000 of proceeds from the exercise of stock options by the Company's
employees and $3,500,000 received from Computer Associates relating to their
investment in Metastream.

         As of December 31, 2001, the Company had cash commitments totaling
approximately $7,389,000 through 2010, related to future minimum lease payments
for office space, equipment, and an executive's vehicle. See Note 16 to the
consolidated financial statements included in this Annual Report on Form 10-K.

         Pursuant to the purchase of all of the outstanding capital stock of
Viewpoint Digital, the Company issued two contingent promissory notes to
Computer Associates each in the amount of $15,000,000. During 2001, the Company
entered into certain agreements with Computer Associates whereby Computer
Associates agreed to accept newly-issued shares of Viewpoint common stock having
a value of $4,000,000, in partial repayment of the first contingent promissory
note due June 8, 2001. In addition Computer Associates agreed to accept, at the
Company's election, either cash or newly-issued shares of Viewpoint common stock
at an issue price of $4.00 per share in repayment of any additional amounts due
under the promissory note due June 8, 2001, and the first $8,943,000 of the
$15,000,000 contingent promissory note due April 30, 2002, which amount will be
determined by the achievement of certain levels of future operating results and
employee retention. The amount due Computer Associates under the promissory note
due June 8, 2001 is approximately $4,657,000.

         The Company believes that its current cash, cash equivalents, 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. The Company
may seek additional funds before that time through public or private equity
financing or from other sources to fund our operations and pursue our growth
strategy. We have no commitment for additional financing, and we may experience
difficulty in obtaining additional financing on favorable terms, if at all. Any
financing we obtain may contain covenants that restrict our freedom to operate
our business or may have rights, preferences or privileges senior to our common
stock and may dilute our current shareholders' ownership interest in Viewpoint.

RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2001 the FASB issued SFAS No. 141 "Business Combinations" and
SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. SFAS No. 142 requires the use of a


                                       29
<PAGE>
nonamortization approach to account for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and certain intangibles
will not be amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value. The provisions of each statement, which apply to goodwill
and intangible assets acquired prior to July 1, 2001, will be adopted by the
Company on January 1, 2002. The Company will reclassify an assembled workforce
intangible asset with an unamortized balance of $1,767,000 into goodwill at the
date of adoption. This will result in approximately $33,042,000 of goodwill and
$2,361,000 of other intangible assets commencing on January 1, 2002. The Company
will test goodwill for impairment using the two-step approach prescribed in SFAS
No. 142. The first step is a screen for potential impairment, while the second
step measures the amount of the impairment, if any. The Company anticipates it
will complete its initial impairment test for the remaining goodwill balance as
of January 1, 2002 in the first half of 2002. Any impairment charge resulting
from these transitional impairment tests will be reflected as the cumulative
effect of a change in accounting principle in 2002. The Company has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.

         In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". The statement requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. The statement is effective for fiscal years beginning after June
15, 2002. The adoption of SFAS No. 143 is not expected to have a material impact
on the Company's financial statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," that is applicable to financial statements
issued for fiscal years beginning after December 15, 2001. The FASB's new rules
on asset impairment supersede SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and portions of
Accounting Principals Board ("APB") Opinion No. 30, "Reporting the Results of
Operations." This statement provides a single accounting model for long-lived
assets to be disposed of and significantly changes the criteria that would have
to be met to classify an asset as held-for-sale. Classification as held-for-sale
is an important distinction since such assets are not depreciated and are stated
at the lower of fair value and carrying amount. This statement also requires
expected future operating losses from discontinued operations to be displayed in
the period(s) in which the losses are incurred, rather than as of the
measurement date as presently required. The provisions of this statement are not
expected to have a material impact on the Company's financial statements.

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, cash equivalents and marketable securities. The
Company does not have any derivative financial instruments as of December 31,
2001. Credit risk is managed by limiting the amount of securities placed with
any one issuer, investing in high-quality marketable securities and securities
of the U.S. government and limiting the average maturity of the overall
portfolio. The majority of the Company's portfolio, which is classified as
available-for-sale, is composed of fixed income securities that are subject to
the risk of market interest rate fluctuations, and all of the Company's
securities are subject to risks associated with the ability of the issuers to
perform their obligations under the instruments. The Company may suffer losses
in principal if forced to sell securities, which have declined in market value
due to changes in interest rates.


                                       30
<PAGE>
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...................      32
                                   Consolidated Balance Sheets as of December 31, 2001
                                   and 2000............................................      33
                                   Consolidated Statements of Operations for each of the
                                   three years in the period ended December 31, 2001...      34
                                   Consolidated Statements of Stockholders' Equity for
                                   each of the three years in the period ended December 31,
                                   2001................................................      35
                                   Consolidated Statements of Cash Flows for each of the
                                   three years in the period ended December 31, 2001...      37
                                   Notes to Consolidated Financial Statements..........      39
</TABLE>

         2. Index to Financial Statement Schedule

<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
                                   <S>                                                      <C>
                                   SCHEDULE
                                   Schedule II -- Valuation and Qualifying Accounts.....     58
</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.


                                       31
<PAGE>
                        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, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001 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
February 8, 2002


                                       32
<PAGE>
                              VIEWPOINT CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                            DECEMBER 31,
                                                                                       ----------------------
                                                                                          2001        2000
                                                                                       ----------  ----------
                      <S>                                                              <C>         <C>
                      ASSETS
                      Current assets:
                        Cash and cash equivalents .................................    $    8,345  $   13,320
                        Marketable securities .....................................         7,068      15,713
                        Accounts receivable, net ..................................         4,096       2,101
                        Notes receivable from related parties, net ................           --          870
                        Notes receivable, net......................................           750         750
                        Due from related parties, net..............................           --          312
                        Prepaid expenses and other current assets..................           836       1,595
                        Current assets related to discontinued operations .........           141       5,662
                                                                                       ----------  ----------
                                Total current assets...............................        21,236      40,323

                      Property and equipment, net .................................         4,662       5,622
                      Goodwill and other intangibles ..............................        35,403      56,111
                      Loans to officers............................................           595         --
                      Other assets.................................................            21         179
                      Non-current assets related to discontinued operations .......           --          114
                                                                                       ----------  ----------
                                Total assets.......................................    $   61,917  $  102,349
                                                                                       ==========  ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      Current liabilities:
                        Accounts payable...........................................    $    1,314  $    3,352
                        Accrued expenses...........................................         1,304         861
                        Due to related parties, net................................         4,764         --
                        Deferred revenues..........................................           907         636
                        Accrued incentive compensation ............................           545         546
                        Current liabilities related to discontinued operations ....           346         615
                                                                                       ----------  ----------
                                Total current liabilities..........................         9,180       6,010

                      Commitments and contingencies

                      Stockholders' equity:
                        Preferred stock, $.001 par value; 5,000 shares authorized -
                          no shares issued and outstanding at December 31, 2001 and 2000       --          --

                        Common stock, $.001 par value; 75,000 shares authorized -
                          39,620 shares issued and 39,460 shares outstanding at
                          December 31, 2001, and 37,964 shares issued and
                          outstanding at December 31, 2000.........................            40          38
                        Paid-in capital............................................       263,157     264,698
                        Deferred compensation .....................................       (11,279)    (22,595)
                        Treasury stock at cost; 160 and no shares at December 31,
                          2001  and 2000, respectively.............................        (1,015)         --
                        Accumulated other comprehensive income.....................            18          12
                        Accumulated deficit........................................      (198,184)   (145,814)
                                                                                       ----------  ----------
                                Total stockholders' equity.........................        52,737      96,339
                                                                                       ----------  ----------
                                Total liabilities and stockholders' equity.........    $   61,917  $  102,349
                                                                                       ==========  ==========
</TABLE>

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


                                       33
<PAGE>
                              VIEWPOINT CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31,
                                                                            ---------------------------------
                                                                               2001         2000        1999
                                                                            ----------  -----------  --------
                   <S>                                                      <C>         <C>          <C>
                   Revenues:
                     Licenses...........................................    $    9,681  $    1,421   $  2,818
                     Services...........................................         4,327       2,159        275
                                                                            ----------    --------   --------
                   Total revenues ......................................        14,008       3,580      3,093
                                                                            ----------    --------   --------
                   Cost of Revenues:
                     Licenses...........................................           309          76         --
                     Services...........................................         3,283       1,467         --
                                                                            ----------    --------   --------
                   Total cost of revenues...............................         3,592       1,543         --
                                                                            ----------    --------   --------
                   Gross profit.........................................        10,416       2,037      3,093
                                                                            ----------    --------   --------

                   Operating expenses:
                     Sales and marketing (including non-cash stock-based
                        compensation charges totaling $2,335 in 2001,
                        $5,122 in 2000, and $675 in 1999)...............        17,814      18,741      3,000
                     Research and development (including non-cash stock
                        -based compensation charges totaling $2,920 in
                        2001, $4,193 in 2000, and $2,540 in 1999).......         9,553      10,434      5,055
                     General and administrative (including non-cash
                        stock-based compensation charges totaling $1,918
                        in 2001, $3,026 in 2000, and $2,866 in 1999)....        10,423       9,814      6,993
                     Compensation charge related to forgiveness of an
                        officer loan ...................................            --       2,322         --
                     Amortization of goodwill and other intangibles ....        17,453       3,025         75
                     Goodwill impairment................................         7,925         --          --
                     Depreciation.......................................         1,804         801        406
                     Non-cash sales and marketing charges ..............           --       19,998         --
                     Acquired in-process research and development costs.           --          963         --
                                                                            ----------    --------     ------
                   Total operating expenses.............................        64,972      66,098     15,529
                                                                            ----------    --------   --------

                   Loss from operations.................................       (54,556)    (64,061)   (12,436)
                   Other income.........................................         1,064       2,180      2,286
                                                                            ----------    --------   --------

                   Loss before provision for income taxes...............       (53,492)    (61,881)   (10,150)
                   Provision for income taxes ..........................           --          --       5,481
                                                                            ----------    --------   --------

                   Loss before minority interest in loss of subsidiary..       (53,492)    (61,881)   (15,631)
                   Minority interest in loss of subsidiary .............           --        4,429      1,048
                                                                            ----------    --------   --------

                   Net loss from continuing operations..................       (53,492)    (57,452)   (14,583)
                   Discontinued operations:
                     Loss from discontinued operations..................           --          --     (14,811)
                     Adjustment to net loss on disposal of discontinued          1,122       1,496    (21,260)
                      operations..................................          ----------    --------   --------
                   Net income (loss) from discontinued operations.......         1,122       1,496    (36,071)
                                                                            ----------    --------   --------

                   Net loss.............................................       (52,370)    (55,956)   (50,654)
                   Accretion of mandatorily redeemable preferred stock of
                     subsidiary ........................................           --         (438)       --
                                                                            ----------    --------   -------

                   Net loss applicable to common shareholders...........    $  (52,370)   $(56,394)  $(50,654)
                                                                            ==========    ========   ========

                   Basic and diluted net loss per common share:

                     Net loss per common share from continuing operations   $    (1.37)   $  (2.01)  $  (0.59)
                     Net income (loss) per common share from discontinued
                      operations........................................          0.03        0.05      (1.47)
                                                                            ----------    --------   --------
                   Net loss per common share............................    $    (1.34)   $  (1.96)  $  (2.06)
                                                                            ==========    ========   ========

                   Weighted average number of shares outstanding -- basic
                     and diluted........................................        39,077      28,718     24,581
                                                                            ==========    ========   ========
</TABLE>

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


                                       34
<PAGE>
                              VIEWPOINT CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                     SERIES A
                                  PREFERRED STOCK        COMMON STOCK                                         TREASURY STOCK
                                 -----------------     --------------------                                 -------------------
                                                                               PAID-IN         DEFERRED
                                  SHARES    AMOUNT      SHARES      AMOUNT     CAPITAL       COMPENSATION    SHARES     AMOUNT
                                 -------   -------     --------    --------  -------------   ------------   --------   --------
<S>                              <C>       <C>         <C>         <C>       <C>             <C>            <C>        <C>
Balances at December 31,
  1998 ..................             --   $    --       24,243    $     24  $     112,829   $         --         --   $     --
Issuance of common stock
  upon the exercise of
  stock options .........             --        --          959           1          4,004             --         --         --
Issuance of common stock
  in connection with the
  employee stock
  purchase plan .........             --        --          168          --            584             --         --         --
Issuance of common stock
  in connection with the
  acquisition of
  RAYflect S.A ..........             --        --          126          --            597             --         --         --
Conversion of accrued
  compensation to equity
  upon exercise of
  certain options .......             --        --           --          --             26             --         --         --
Change in interest gain
  related to
  subsidiary ............             --        --           --          --          1,900             --         --         --
Translation
  adjustment ............             --        --           --          --             --             --         --         --
Unrealized loss on
  marketable securities .             --        --           --          --             --             --         --         --
Net loss ................             --        --           --          --             --             --         --         --
                                 -------   -------     --------    --------  -------------   ------------   --------   --------
Balances at December 31,
  1999 ..................             --        --       25,496          25        119,940             --         --         --

Issuance of common stock
  upon the exercise of
  stock options .........             --        --        2,678           3         12,601             --         --         --
Issuance of common stock
  in connection with the
  employee stock
  purchase plan .........             --        --           47          --            242             --         --         --
Conversion of accrued
  compensation to equity
  upon exercise of
  certain options .......             --        --           --          --             75             --         --         --
Change in interest gain
  related to
  subsidiary ............             --        --           --          --          3,300             --         --         --
Issuance/cancellation of
  common stock option
  awards ................             --        --           --          --         22,925        (22,925)        --         --
</TABLE>


<TABLE>
<CAPTION>

                                  ACCUMULATED
                                     OTHER                       TOTAL           TOTAL
                            COMPREHENSIVE INCOME  ACCUMULATED   STOCKHOLDERS'  COMPREHENSIVE
                                     (LOSS)       DEFICIT       EQUITY           LOSS
                                  -----------   -----------   -------------  -------------
<S>                               <C>           <C>           <C>            <C>
Balances at December 31,
  1998 ..................         $      (117)  $   (39,204)  $      73,532  $          --
Issuance of common stock
  upon the exercise of
  stock options .........                  --            --           4,005             --
Issuance of common stock
  in connection with the
  employee stock
  purchase plan .........                  --            --             584             --
Issuance of common stock
  in connection with the
  acquisition of
  RAYflect S.A ..........                  --            --             597             --
Conversion of accrued
  compensation to equity
  upon exercise of
  certain options .......                  --            --              26             --
Change in interest gain
  related to
  subsidiary ............                  --            --           1,900             --
Translation
  adjustment ............                  (9)           --              (9) $          (9)
Unrealized loss on
  marketable securities .                 (80)           --             (80)           (80)
Net loss ................                  --       (50,654)        (50,654)       (50,654)
                                  -----------   -----------   -------------  -------------
Balances at December 31,
  1999 ..................                (206)      (89,858)         29,901  $     (50,743)
                                                                             =============
Issuance of common stock
  upon the exercise of
  stock options .........                  --            --          12,604             --
Issuance of common stock
  in connection with the
  employee stock
  purchase plan .........                  --            --             242             --
Conversion of accrued
  compensation to equity
  upon exercise of
  certain options .......                  --            --              75             --
Change in interest gain
  related to
  subsidiary ............                  --            --           3,300             --
Issuance/cancellation of
  common stock option
  awards ................                  --            --              --             --
</TABLE>


                                       35
<PAGE>
<TABLE>
<S>                              <C>       <C>         <C>         <C>       <C>             <C>            <C>        <C>
Amortization of deferred
  compensation ..........             --        --           --          --             --            330         --         --
Issuance of common stock
  in connection with
  Viewpoint Digital,
  Inc. acquisition ......             --        --          715           1          8,937             --         --         --
Non-cash sales and
  marketing charges in
  connection with
  strategic alliances ...             --        --          --           --         19,998             --         --         --
Issuance of common stock
  in exchange for
  minority interest in
  subsidiary ............             --        --        5,578           6         56,844             --         --         --
Issuance of common stock
  in exchange for
  subsidiary preferred
  stock .................             --        --        3,450           3         19,836             --         --         --
Translation
  adjustment ............             --        --           --          --             --             --         --         --
Unrealized gain on
  marketable securities .             --        --           --          --             --             --         --         --
Net loss ................             --        --           --          --             --             --         --         --
                                 -------   -------     --------    --------  -------------   ------------   --------   --------
Balances at December 31,
  2000 ..................             --        --       37,964          38        264,698        (22,595)        --         --

Issuance of common stock
  upon the exercise of
  stock options ...........           --        --        1,656           2          2,447             --         --         --
Issuance/cancellation
  of common stock option
  awards ................             --        --           --          --         (4,975)         4,975         --         --
Amortization of deferred
  compensation ..........             --        --           --          --             --          6,341         --         --
Issuance of common stock
  options for services ..             --        --           --          --            832             --         --         --
Conversion of accrued
   compensation to equity
   upon exercise of
   certain options ......             --        --           --          --              1             --         --         --
Issuance of warrants to
   purchase shares of
   common stock .........             --        --           --          --            154             --         --         --
Receipt of common stock
   upon default of notes
   receivable ...........             --        --           --          --             --             --       (160)    (1,015)
Translation
  adjustment ............             --        --           --          --             --             --         --         --
Unrealized gain on
  marketable securities .             --        --           --          --             --             --         --         --
Net loss ................             --        --           --          --             --             --         --         --
                                 -------   -------     --------    --------  -------------   ------------   --------   --------
Balances at December 31,
  2001 ..................             --   $    --       39,620    $     40  $     263,157   $    (11,279)      (160)  $ (1,015)
                                 =======   =======     ========    ========  =============   ============   ========   ========
</TABLE>

<TABLE>
<S>                               <C>           <C>           <C>            <C>
Amortization of deferred
  compensation ..........                  --            --             330             --
Issuance of common stock
  in connection with
  Viewpoint Digital,
  Inc. acquisition ......                  --            --           8,938             --
Non-cash sales and
  marketing charges in
  connection with
  strategic alliances ...                  --            --          19,998             --
Issuance of common stock
  in exchange for
  minority interest in
  subsidiary ............                  --            --          56,850             --
Issuance of common stock
  in exchange for
  subsidiary preferred
  stock .................                  --            --          19,839             --
Translation
  adjustment ............                 137            --             137  $         137
Unrealized gain on
  marketable securities .                  81            --              81             81
Net loss ................                  --       (55,956)        (55,956)       (55,956)
                                  -----------   -----------   -------------  -------------
Balances at December 31,
  2000 ..................                  12      (145,814)         96,339  $     (55,738)
                                                                             =============
Issuance of common stock
  upon the exercise of
  stock options .........                  --            --           2,449             --
Issuance/cancellation
  of common stock option
  awards ................                  --            --              --             --
Amortization of deferred
  compensation ..........                  --            --           6,341             --
Issuance of common stock
  options for services ..                  --            --             832             --
Conversion of accrued
   compensation to equity
   upon exercise of
   certain options ......                  --            --               1             --
Issuance of warrants to
   purchase shares of
   common stock .........                  --            --             154             --
Receipt of common stock
   upon default of notes
   receivable ...........                  --            --          (1,015)            --
Translation
  adjustment ............                 (27)           --             (27)           (27)
Unrealized gain on
  marketable securities .                  33            --              33             33
Net loss ................                  --       (52,370)        (52,370)       (52,370)
                                  -----------   -----------   -------------  -------------
Balances at December 31,
  2001 ..................         $        18   $  (198,184)  $      52,737  $     (52,364)
                                  ===========   ===========   =============  =============
</TABLE>

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


                                       36
<PAGE>
                              VIEWPOINT CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                         --------------------------------
                                                           2001        2000        1999
                                                         --------    --------    --------
<S>                                                      <C>         <C>         <C>
Cash flows from operating activities:
Net loss .............................................   $(52,370)   $(55,956)   $(50,654)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Net (income) loss of discontinued operations .......     (1,122)     (1,496)     36,071
  Non-cash stock-based compensation charges ..........      7,173      12,341       6,081
  Deferred income taxes ..............................         --          --       5,913
  Depreciation and amortization ......................     19,257       4,789         670
  Goodwill impairment ................................      7,925          --          --
  Provision for bad debt .............................        544          --          --
  Non-monetary sale of software for marketable
      securities......................................       (165)         --          --
  Loss on sale of equipment ..........................         12          --          --
  Accrued interest income ............................        (20)         --        (130)
  Forgiveness, reserve and recovery of notes .........
      receivables....................................        (665)      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 .............................     (2,336)     (1,148)        790
     Prepaid expenses and other assets ...............        917        (367)       (466)
     Accounts payable ................................     (2,038)      2,718          62
     Accrued expenses ................................        443         110         809
     Due to/from related parties .....................        323        (312)         --
     Deferred revenues ...............................        425         267         369
     Accrued incentive compensation ..................         --          --        (161)
     Net cash provided by (used in) discontinued
     operations.......................................      6,488      (8,607)    (10,209)
                                                           --------    --------    --------
       Net cash used in operating  activities ........    (15,209)    (28,745)    (11,903)

Cash flows from investing activities:
Purchases of property and equipment ..................       (872)     (4,233)       (295)
Sale of property and equipment .......................         16          --          --
Purchases of patents and trademarks ..................       (120)         --          --
Purchases of marketable securities ...................    (23,042)    (42,735)    (79,282)
Proceeds from sales and maturities of marketable
  securities..........................................     31,885      59,870      76,484
Issuance of notes receivable .........................         --      (1,500)         --
Issuance of notes receivable from related parties ....         --          --        (100)
Repayment of notes receivable from related parties ...        520       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)
                                                         --------    --------    --------
       Net cash provided by (used in) investing
       activities.....................................      8,387       1,584      (7,410)

Cash flows from financing activities:
Collection of subscription receivable related to
  common stock of subsidiary..........................         --       3,500       3,500
Issuance of loans to officers ........................       (575)         --          --
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 ..............      2,449      12,604       4,005
                                                         --------    --------    --------
       Net cash provided by financing activities .....      1,874      35,993       7,505

Effect of exchange rates changes on cash .............        (27)          8          (9)
                                                         --------    --------    --------

Net increase (decrease) in cash and cash equivalents .     (4,975)      8,840     (11,817)
Cash and cash equivalents at beginning of year .......     13,320       4,480      16,297
                                                         --------    --------    --------
Cash and cash equivalents at end of year .............   $  8,345    $ 13,320    $  4,480
                                                         ========    ========    ========
</TABLE>


                                       37
<PAGE>
                              VIEWPOINT CORPORATION
               CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
                                 (IN THOUSANDS)


<TABLE>
<S>                                                           <C>        <C>         <C>
Supplemental disclosure of cash flow activities:
Cash paid during the year for income taxes ................   $     78   $     --    $      2

Supplemental disclosure of non-cash investing
and financing activities:
Unrealized gains (losses) on marketable securities ........   $     33   $     81    $    (80)
Issuance of warrants to purchase shares of common stock ...        154         --          --
Receipt of treasury stock as forgiveness of loan
    receivable.............................................      1,015         --          --
Contingent consideration not yet issued in connection
    with the acquisition of Viewpoint Digital..............      4,753         --          --
Non-monetary purchase of marketable securities ............        165         --          --
Net assets acquired in connection with acquisition of
  Viewpoint Digital:
    Cash ..................................................         --          6          --
    Accounts receivable, net ..............................        203        830          --
    Property and equipment ................................         --      1,576          --
    Prepaid expenses and other assets .....................         --        128          --
    Accounts payable and accrued expenses .................         --       (410)
Conversion of accrued compensation to equity upon
    exercise of certain options............................          1         75          26
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
Issuance of common stock in connection with
    acquisition of RAYflect S.A............................         --         --         597
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.


                                       38
<PAGE>
                              VIEWPOINT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       BUSINESS AND ORGANIZATION

         Viewpoint Corporation is a leading provider of interactive media
technologies and services. Its graphics operating system platform, the Viewpoint
Media Player, has been licensed by Fortune 500 companies and others for use in
online, offline and embedded applications serving a wide variety of needs,
including: business process visualizations, marketing campaigns, rich
advertising and product presentations. The Company also provides cross media
digital solutions for film, broadcast television and games.

         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 to operate a business
exploiting these technologies. The Company originally held an 80% equity
interest in Metastream with 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 Metastream 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, 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 and e-commerce
                  visualization solutions;

         -        Providing a full range of fee-based digital asset content
                  creation and engineering professional services for
                  implementing visualization solutions for marketing and
                  creating new and enhancing existing enterprise software
                  applications;

         -        Proliferating the Viewpoint format into digital advertisements
                  on various digital media, primarily the Web and digital
                  set-top cable boxes;

         -        Forging technological alliances with leading interactive
                  agencies and Web content providers; and

         -        Maximizing market penetration and name recognition, including
                  distribution of the Company's client-side software graphics
                  operating system, the Viewpoint Media Player

         Viewpoint believes that its success will depend largely on its ability
to proliferate its digital technologies into various media, including broadcast
television, games, movies, print, closed intranets, new and existing enterprise
applications and television set-top boxes. Accordingly, Viewpoint has and
intends to continue to invest 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, including digital
content creation service and engineering services to enhance and create new
enterprise software applications.

         In light of its relatively recent change in strategic focus from
selling prepackaged software, Viewpoint has a limited operating history upon
which an evaluation of the Company and its prospects can be based. Viewpoint's
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, 2001, had an accumulated deficit of $198,184,000.

         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


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


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.

         Certain reclassifications have been made to the prior years
consolidated financial statements to conform to the 2001 presentation.

REVENUE RECOGNITION

         Revenue recognition rules for software companies are very complex. We
follow very specific and detailed guidelines in measuring revenue; however,
certain judgments affect the application of our revenue policy.

         The Company recognizes revenue in accordance with SOP 97-2, "Software
Revenue Recognition," as amended, and SAB No. 101 "Revenue Recognition in
Financial Statements."

         Viewpoint generates revenues through two sources: (a) software license
revenues and (b) service revenues. License revenues are generated from licensing
the rights to use our products directly to end-users and indirectly through
VAR's. Service revenues are generated from fee based professional services,
sales of customer support services (maintenance contracts), and training
services performed for customers that license our products.

         License revenue includes sales of perpetual and term based licenses for
broadcasting Viewpoint 3D content, and limited licenses for its digital content
library. License revenue is recognized over the term of the license in a
term-based broadcast license model and up-front in a perpetual broadcast license
model, providing that no significant vendor obligations remain and the resulting
receivable is deemed collectible by management.

         Fee-based professional services are performed on a time-and-material
basis or on a fixed-fee basis, under separate service arrangements. Revenues
related to these services are recognized on a percentage-of-completion basis in
accordance with the provisions of SOP 81-1 "Accounting For Performance of
Construction-Type and Certain Production-Type Contracts."
Percentage-of-completion for service contracts is measured principally by the
percentage of costs incurred and accrued to date for each contract to the
estimated total cost for each contract at completion. Revenues from customer
support services are recognized ratably over the term of the contract. Revenues
from training services are recognized as services are performed.

         Standard terms for license agreements call for payment within 90 days.
Probability of collection is based upon the assessment of the customer's
financial condition through the review of their current financial statements or
credit reports. For follow-on sales to existing customers, prior payment history
is also used to evaluate probability of collection. Our agreements with
customers do not contain product return rights.

         Fees from licenses sold together with fee-based professional services
are generally recognized upon delivery of the software, provided that the
payment of the license fees are not dependent upon the performance of the
services, and the services are not essential to the functionality of the
licensed software. If the services are essential to the functionality of the
software, or payment of the license fees are dependent upon the performance of
the services, both the software license and service fees are recognized under
the percentage of completion method of contract accounting.

         If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer. If a nonstandard acceptance period is
required, revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.

         The Company periodically enters into nonmonetary arrangements whereby
the Company's licenses or services are exchanged for services of its customer.
Nonmonetary revenue is recognized at the estimated fair value of the services
received. Generally,


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

nonmonetary revenues equal nonmonetary expenses; however, due to timing,
nonmonetary accounts receivable and accounts payable may result.

SOFTWARE DEVELOPMENT COSTS

         In accordance with 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 FASB
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.

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 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 Opinion 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 FASB issued Financial Interpretation ("FIN") No. 44,
"Accounting for Certain Transactions Involving Stock Compensation," which is an
interpretation of APB Opinion No. 25. This interpretation clarifies:

         -        The definition of employee for purposes of applying APB
                  Opinion 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.


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

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. Included in cash and cash equivalents at December 31, 2001, is
restricted cash amounting to $291,000, which was pledged as collateral to secure
a letter of credit used for a security deposit on the Company's New York
facility.

         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, 2001 and 2000, net unrealized gains on available-for-sale
securities were approximately $45,000 and $12,000, 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
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 5 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-LIVED ASSETS

         In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
periodically reviews the carrying value of long-lived assets, primarily
consisting of property and equipment, with estimated useful lives that range
from 3 to 5 years, and goodwill and other intangible assets, with estimated
useful lives that range from 1 to 4 years, to determine whether there are any
indications of impairment losses. Our judgments regarding the existence of
impairment indicators are based on legal factors, market conditions and
operational performance of acquired businesses. Impairment losses, if any, are
recorded when the expected undiscounted future operating cash flows derived from
such assets are less than their carrying value. Beginning in 2002, the
methodology for assessing potential impairments of intangibles will change based
on new accounting rules issued by the FASB. Any resulting impairment loss could
have a material adverse impact on our financial condition and results of
operations.

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 accumulated other comprehensive income (loss) in the statements of
stockholders' equity. Gains and losses on foreign currency transactions for
2001, 2000 and 1999 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.


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

CONCENTRATION OF RISK

         The Company is subject to concentration of credit risk and interest
rate risk related to cash, 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, 2001, and periodically from 1999 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
and warrants are excluded from the computation when their effect is
antidilutive.

COMPREHENSIVE LOSS

         In accordance with SFAS No. 130, "Reporting Comprehensive Income," all
components of comprehensive income (loss), 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).

RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2001 the FASB issued SFAS No. 141 "Business Combinations" and
SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. SFAS No. 142 requires the use of a
nonamortization approach to account for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and certain intangibles
will not be amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value. The provisions of each statement, which apply to goodwill
and intangible assets acquired prior to July 1, 2001, will be adopted by the
Company on January 1, 2002. The Company will reclassify an assembled workforce
intangible asset with an unamortized balance of $1,767,000 into goodwill at the
date of adoption. This will result in approximately $33,042,000 of goodwill and
$2,361,000 of other intangible assets commencing on January 1, 2002. The Company
will test goodwill for impairment using the two-step approach prescribed in SFAS
No. 142. The first step is a screen for potential impairment, while the second
step measures the amount of the impairment, if any. The Company anticipates it
will complete its initial impairment test for the remaining goodwill balance as
of January 1, 2002 in the first half of 2002. Any impairment charge resulting
from these transitional impairment tests will be reflected as the cumulative
effect of a change in accounting principle in 2002. The Company has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.

         In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The statement requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. The statement is effective for fiscal years beginning after June
15, 2002. The adoption of SFAS No. 143 is not expected to have a material impact
on the Company's financial statements.

         In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," that is applicable to financial
statements issued for fiscal years beginning after December 15, 2001. The FASB's
new rules on asset impairment supersede SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and portions of APB Opinion No. 30, "Reporting the Results of Operations." This
statement provides a single accounting model for long-lived assets to be
disposed of and significantly changes the criteria that would have to be met to
classify an


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

asset as held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated at the lower of
fair value and carrying amount. This statement also requires expected future
operating losses from discontinued operations to be displayed in the period(s)
in which the losses are incurred, rather than as of the measurement date as
presently required. The provisions of this statement are not expected to have a
material impact on the Company's financial statements.

3.       DISCONTINUED OPERATIONS

         In December 1999, the Board of Directors of the Company approved a plan
to focus exclusively on its digital marketing technologies and services and to
correspondingly divest itself of its prepackaged graphics software business.
Accordingly, these operations are reflected as discontinued operations for all
periods presented in the accompanying consolidated statements of operations.

         The 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. 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 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. The Company also recorded an adjustment to
net loss on disposal of discontinued operations of $1,122,000 during the year
ended December 31, 2001, as a result of changes in estimates related to assets
and liabilities of the discontinued business. Changes in estimates will be
accounted for prospectively and included in net income (loss) from discontinued
operations.

         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
                                     --------    --------
<S>                                  <C>         <C>
Net revenues .....................   $  5,275    $ 33,079
Cost of revenues .................      1,066       6,339
                                     --------    --------
  Gross profit ...................      4,209      26,740
Operating expenses:
  Sales and marketing ............      3,045      25,022
  Research and development .......      3,743      13,691
  General and administrative .....        749       4,758
  Costs associated with mergers,
  acquisitions and restructurings.         --          --
                                     --------    --------
          Total operating expenses      7,537      43,471
                                     --------    --------
Loss before gain on sale of assets     (3,328)    (16,731)
Gain on sale of assets ...........         --       1,920
                                     --------    --------
Loss from discontinued operations    $ (3,328)   $(14,811)
                                     ========    ========
</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


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

$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.

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

<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                              ---------------
                                               2001     2000
                                              ------   ------
<S>                                           <C>      <C>
Current assets related to discontinued
  operations:
  Notes receivable ........................   $   --   $4,000
  Accounts receivable, net ................      114    1,581
  Prepaid expenses and other current assets       27       81
                                              ------   ------
Current assets related to discontinued
  operations ..............................   $  141   $5,662
                                              ======   ======


Non-current assets related to discontinued
  operations:
  Other assets ............................       --      114
                                              ------   ------
Non-current assets related to discontinued
  operations ..............................   $   --   $  114
                                              ======   ======


Current liabilities related to discontinued
  operations:

  Accounts payable ........................   $  249   $  303
  Accrued expenses ........................       97      312
                                              ------   ------
Current liabilities related to discontinued
  operations ..............................   $  346   $  615
                                              ======   ======
</TABLE>


4.       COMPREHENSIVE LOSS

         Total comprehensive loss consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                   --------------------------------
                                                     2001        2000        1999
                                                   --------    --------    --------
<S>                                                <C>         <C>         <C>
Net loss .......................................   $(52,370)   $(55,956)   $(50,654)

Foreign currency translation adjustment ........        (27)        137          (9)
Unrealized  gain (loss) on marketable securities         33          81         (80)
                                                   --------    --------    --------
Comprehensive loss .............................   $(52,364)   $(55,738)   $(50,743)
                                                   ========    ========    ========
</TABLE>

5.       ACQUISITIONS

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.

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


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


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 AOL for cash consideration totaling $10,000,000.
Prior to the merger of the Company and Metastream, each share of Series A
Convertible Preferred Stock was exchanged by the Company, into a total of
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 for the
year ended December 31, 2000 related to the difference between the fair market
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 for cash consideration totaling
$10,000,000. Prior to the merger of the Company and Metastream, each share of
Series B Convertible Preferred Stock was exchanged by the Company, into a total
of 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 for the
year ended December 31, 2000 related to the difference between the fair market
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 in
November 2000.

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 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.


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

         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 (the
"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, 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 is being amortized over
four years.

         Amortization expense related to the acquisitions of minority interest
totaled $10,723,000 and $894,000 for the years ended December 31, 2001 and 2000,
respectively.

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

         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 consisted 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 March 8, 2002.

         On April 19, 2001, the Company entered into an agreement with Computer
Associates regarding, among other things, the waiver of transfer restrictions
applicable to shares received by Computer Associates under the Exchange
Agreement to enable Computer Associates to sell 1,000,000 shares of Viewpoint
common stock to a third party in a private transaction. The Company agreed to
register the 1,000,000 shares under the Securities Act of 1933. Under the
agreement entered into on April 19, 2001, Computer Associates agreed to accept
newly-issued shares of Viewpoint common stock having a value of $4,000,000, in
partial repayment of a


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

promissory note due June 8, 2001 and issued by the Company in connection with
its acquisition of all of the outstanding capital stock of Viewpoint Digital.

         On May 9, 2001, the Company and Computer Associates entered into a
subsequent agreement under which, among other things:

         -        The Company agreed to waive transfer restrictions applicable
                  to an additional 2,400,000 unregistered shares of the
                  Company's common stock received by Computer Associates in
                  accordance with the Exchange Agreement to enable Computer
                  Associates to transfer the shares to third parties in private
                  transactions;

         -        The Company agreed to register the shares under the Securities
                  Act of 1933; and

         -        Computer Associates agreed to accept, at the Company's
                  election, either cash or newly-issued, unregistered shares of
                  Viewpoint common stock at an issue price of $4.00 per share in
                  repayment of (a) any additional amounts due under the
                  promissory note due June 8, 2001, (b) $100,000 due under the
                  agreement entered into on April 19, 2001, and (c) the first
                  $8,943,000 of the $15,000,000 contingent promissory note due
                  April 30, 2002, which amount will be determined by the
                  achievement of certain levels of future operating results and
                  employee retention.

         Pursuant to the April 19, 2001 and May 9, 2001 agreements, the Company
registered 3,400,000 shares of the Company's common stock under the Securities
Act of 1933.

         The amount due Computer Associates under the promissory note due June
8, 2001, and the agreement dated April 19, 2001, is approximately $4,657,000.
For repayment of the first $4,000,000, the number of common shares to be issued
was calculated on the basis of the average closing price of Viewpoint common
stock over the ten-day trading period ending on and including June 8, 2001. The
number of shares to be issued to Computer Associates is 744,740. For repayment
of the remaining $657,000, the Company has the option of paying cash or issuing
unregistered shares of Viewpoint common stock valued at $4.00 per share. In
connection with this promissory note, the Company recorded $4,753,000 of
additional goodwill and due to related parties in its consolidated balance sheet
based on the closing price of Viewpoint common stock on June 8, 2001.

         The purchase price including the first contingent promissory note due
June 8, 2001, in excess of the value of tangible assets and liabilities assumed
of $2,333,000, 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 $10,789,000 to goodwill. Goodwill and other intangibles, excluding
in-process research and development, are amortized over their expected periods
of benefit, which ranges from 1.5 to 4 years. Amortization expense of $6,730,000
and $1,980,000 was recorded for the years ended December 31, 2001 and 2000,
respectively. 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.

         The following unaudited pro forma consolidated amounts give affect to
the Viewpoint Digital acquisition 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.       GOODWILL IMPAIRMENT CHARGE

         The Company assesses the impairment of long-lived assets periodically
in accordance with the provisions of SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." During 2001,
the Company performed impairment assessments on the goodwill and other
intangibles recorded upon the acquisition of Viewpoint Digital and the


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

acquisition of Computer Associates' minority interest in Metastream. As a result
of continuing poor economic conditions, which resulted in a decrease in
estimated undiscounted future cash flows, the Company recorded a $7,925,000
goodwill impairment charge on the Viewpoint Digital goodwill during the fourth
quarter of 2001. The charge was determined based upon the estimated discounted
cash flows over the remaining useful life of the goodwill using a discount rate
of 15%. The assumptions supporting the cash flows including the discount rate
were determined using the Company's best estimates as of the date the impairment
was recorded.

9.       CONCURRENT TRANSACTIONS

         During the year ended December 31, 2001, the Company established a
strategic relationship with one of its customers whereby the customer purchased
licenses from the Company and the Company agreed to purchase publicly traded
equities of the customer's parent. The Company also entered into a license
agreement with another customer in exchange for the customer's mass distribution
of the Viewpoint Media Player to an important target audience.

         The above transactions effectively include nonmonetary sales of our
software for equity securities and services of our customers, and accordingly
the Company used the fair market value of the equities and services received in
determining the amount of revenues and expenses to record. Total revenues and
expenses for the year ended December 31, 2001 were $429,000 and $264,000,
respectively, related to these transactions.

10.      MARKETABLE SECURITIES

         The cost and fair value of the Company's marketable securities
portfolio as of December 31, 2001, 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   FAIR
                                     COST       GAIN        (LOSS)     VALUE     MATURITY
                                   --------   --------    --------    -------    --------
<S>                               <C>        <C>          <C>         <C>        <C>
TYPE OF SECURITY:
Money Market Funds .............   $  4,486   $     --    $     --    $ 4,486       2002
U.S. Government Agencies .......      9,760         15          (1)     9,774       2002
Equity Securities ..............        165         31          --        196       2002
                                   --------   --------    --------    -------
                                   $ 14,411   $     46    $     (1)   $14,456
                                   ========   ========    ========    =======

CLASSIFICATION IN BALANCE SHEET:
Cash and Cash Equivalents ......   $  8,345   $     --    $     --    $ 8,345       2002
Marketable Securities ..........      7,023         46          (1)     7,068       2002
                                   --------    --------    -------    -------
                                     15,368         46          (1)    15,413
Less cash ......................        957         --          --        957
                                   --------   --------    --------    -------
                                   $ 14,411   $     46    $     (1)   $14,456
                                   ========   ========    ========    =======
</TABLE>

         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   FAIR
                                     COST        GAIN        (LOSS)     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 ......   $ 13,320    $     --    $     --    $13,320      2001
Marketable Securities ..........     15,701          13          (1)    15,713      2001
                                   --------    --------    --------    -------
                                     29,021          13          (1)    29,033
Less cash ......................        256          --          --        256
                                   --------    --------    --------    -------
                                   $ 28,765    $     13    $     (1)   $28,777
                                   ========    ========    ========    =======
</TABLE>


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

11.      PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                              ----------------
                                               2001      2000
                                              ------    ------
<S>                                           <C>       <C>
Computer equipment and software..........     $3,935    $3,432
Office furniture and equipment...........      1,724     1,545
Leasehold improvements...................      1,551     1,405
Other....................................        233       233
                                              ------    ------
                                               7,443     6,615
Less accumulated depreciation and
  amortization...........................     (2,781)     (993)
                                              ------    ------
                                              $4,662    $5,622
                                              ======    ======
</TABLE>

         Depreciation expense for the years ended December 31, 2001, 2000 and
1999 was approximately $1,804,000, $801,000 and $406,000, respectively.

12.      RELATED PARTY TRANSACTIONS

         On May 31, 2001, the Company loaned $200,000 to an officer of the
Company. The loan, which bears interest at 5.07% per annum, compounding
annually, is secured solely by the officer's stock options in the Company and is
non-recourse to the officer, unless the Company terminates the officer for
cause.

         On April 2, 2001, the Company loaned $375,000 to an officer of the
Company. The loan, which bears interest at 4.94% per annum, compounding
annually, is secured solely by the officer's stock options in the Company and is
non-recourse to the officer, unless the Company terminates the officer for cause
or the officer resigns without good reason, in which case the loan will become
fully recourse to the officer.

         In connection with the acquisition of Real Time Geometry Corp. ("RTG")
in December 1996, the Company entered into a noncompetition agreement with one
of RTG's founders who was a former executive of the Company. In addition, the
Company loaned $2,000,000 to the former executive. The loan, which accrued
interest semi-annually at 5.67% and was payable on January 15, 2001, was
collateralized by shares of common stock of the Company owned by the former
executive. The former executive defaulted on the loan and the Company took
possession of the collateral on January 16, 2001. As a result, the Company
recorded treasury stock based on the closing price of the Company's common stock
on January 16, 2001. The former executive and the Company entered into a
consulting agreement under which, among other things, the former executive
agreed to pay the Company $520,000 in outstanding obligations under the loan. In
July 2001, the Company received the $520,000 from the former executive.

         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.
The Company recorded a compensation charge of $2,322,000 during 2000 related to
the forgiveness of the loan and the income taxes thereon.

         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. The
Company has commenced litigation to pursue recovery of the full loan amount,
statutory interest accruing thereon since the date of default, as well as the
cost of litigation.

         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.

         During 2001 and 2000, the Company recorded revenues totaling $2,385,000
and $500,000 respectively, related to agreements, including reseller
arrangements, with two stockholders who have representatives on the Company's
Board of Directors. In March 1999, the Company recorded revenue from one of
these related parties totaling $1,200,000, of which $950,000 was related to an


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

agreement granting the related party a license to 3D-related technologies, which
date was prior to the related party becoming a stockholder of the Company.
Accounts receivable relating to transactions entered into with these related
parties was $1,129,000 and $250,000 as of December 31, 2001 and 2000,
respectively. Deferred revenue relating to these transactions was $526,000 as of
December 31, 2001.

13.      EMPLOYEE BENEFIT PLANS

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 20% 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 $96,000, $91,000 and $118,000 to the 401(k) Plan during
the years ended December 31, 2001, 2000 and 1999, respectively.

STOCK OPTION PLANS

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, 2001, options
to purchase an aggregate of 17,000 shares of common stock were outstanding under
the 1994 Plan. At December 31, 2001, 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, 2001, options to purchase an aggregate of 8,319,000 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, 2001, an aggregate of 162,000 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, 2001, 90,000 options were outstanding
under the 1995 Director Plan. At December 31, 2001, an aggregate of 30,000
shares of common stock were reserved for future issuance under the 1995 Director
Plan.

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, 2001, options to purchase an aggregate of
1,972,000 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, 2001, an aggregate of 397,000 shares of common stock were reserved
for future issuance under the 1996 Nonstatutory Plan.


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

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.

OPTIONS ISSUED UNDER STOCK OPTION PLANS

         The following summarizes activity in the Stock Option Plans for the
years ended December 31, 1999, 2000, and 2001 (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                                           OPTIONS OUTSTANDING
                                               OPTIONS    ----------------------
                                              AVAILABLE   NUMBER     WEIGHTED
                                                 FOR        OF        AVERAGE
                                                GRANT     SHARES   EXERCISE PRICE
                                              -------    -------   --------------
<S>                                            <C>        <C>       <C>
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
  Reduction in shares reserved under plans        (77)        --          --
  Granted -- exercise price equal to fair
    value .................................    (2,887)     2,887        4.42
  Granted -- exercise price greater than
    fair value ............................      (572)       572        6.07
  Granted -- exercise price less than fair
    value .................................       (26)        26        2.83
  Exercised ...............................        --     (1,656)       1.49
  Canceled ................................     1,566     (1,566)       4.18
                                              -------    -------    --------
Options outstanding at December 31, 2001 ..       589     10,398    $   3.79
                                              =======    =======    ========
</TABLE>

         The following summarizes information about the Company's stock options
outstanding at December 31, 2001 (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.......       2,911     7.26     $   0.87    1,893     $   0.87
$2.61 -- $3.88.......       2,129     9.15         3.37      502         2.67
$4.00 -- $4.47.......       2,325     7.95         4.37      984         4.35
$4.69 -- $6.13.......       2,369     7.79         5.33      766         5.15
$6.63 -- $25.13......         664     6.73        10.48      460        11.43
                           ------  -------     --------    -----     --------
Total................      10,398     7.89     $   3.79    4,605     $   3.58
                           ======  =======     ========    =====     ========
</TABLE>

----------
(a) Average contractual remaining life 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, 2001 and 2000 accrued incentive compensation
related to the options totaled, $545,000 and $546,000, respectively.


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

         The following summarizes options exercisable at December 31, 2001, 2000
and 1999, (in thousands):

<TABLE>
<CAPTION>
                              DECEMBER 31,
                       -----------------------
                        2001     2000     1999
                       -----     ----    -----
<S>                    <C>       <C>     <C>
Options exercisable    4,605     4,478   3,592
</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):

<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>

DEFERRED COMPENSATION

         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 $26,024,000 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 for $12,011,000 and
$6,081,000 for the years ended December 31, 2000 and 1999, respectively, which
represented stock-based compensation expense related to Metastream stock
options.

         In connection with the grant and cancellation of stock options to
certain employees and non-employee directors subsequent to the merger of the
Company and Metastream, the Company recorded total deferred compensation of
approximately $(4,975,000) and $(1,818,000) for the years ended December 31,
2001 and 2000, respectively. This deferred compensation represented the
difference between the fair market value of Company common stock and the
exercise price of these options at the date of grant and was offset by
reductions for cancellations during each period. Stock based compensation
expense of $6,341,000 and $330,000 was recognized during the years ended
December 31, 2001, and 2000, respectively.

         In connection with the issuance of stock options to non-employees for
services performed, the Company recorded stock based compensation expense of
$832,000 during the year ended December 31, 2001. The stock based compensation
recorded for non-employees represents the fair value of options using a
Black-Scholes option pricing model. The Company measures and records the fair
value of options as services are performed on a monthly basis.

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:


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


<TABLE>
<CAPTION>
                                     YEARS ENDED DECEMBER 31,
                                     ------------------------
                                       2001    2000    1999
                                       ----    ----    ----
<S>                                    <C>     <C>     <C>
Risk-free interest rate .........      4.6%    6.0%    5.8%
Dividend yield ..................       --      --      --
Volatility factor ...............      1.00    1.00     .90
Weighted average expected life
  in years ......................       4.5     4.5     4.5
</TABLE>

         The following summarizes the weighted average fair value of options
granted during the years ended December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                              YEARS ENDED DECEMBER 31,
                                         --------------------------------
                                           2001        2000        1999
                                         --------    --------    --------
<S>                                      <C>         <C>         <C>
Exercise price equal to fair value ...   $   3.28    $   4.68    $   4.04
Exercise price greater than fair value       4.30          --          --
Exercise price less than fair value ..       3.30        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, 2001:
  Net loss applicable to common shareholders   $  (52,370)   $  (55,380)
  Net loss per common share ................        (1.34)        (1.42)
Year Ended December 31, 2000:
  Net loss applicable to common shareholders   $  (56,394)   $  (61,888)
  Net loss per common share ................        (1.96)        (2.16)
Year Ended December 31, 1999:
  Net loss applicable to common shareholders   $  (50,654)   $  (53,405)
  Net loss per common share ................        (2.06)        (2.17)
</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.

14.      INCOME TAXES

         The components of the provision for income taxes for the years ended
December 31, 2001, 2000 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                            YEARS ENDED DECEMBER 31,
                           --------------------------
                            2001     2000       1999
                           ------   -------   -------
<S>                        <C>      <C>       <C>
Current:
  Federal ..............   $   --   $    --   $  (435)
  State ................       --        --         3
  Foreign ..............       --        --        --
                           ------   -------   -------
          Total current        --        --      (432)
Deferred: ..............                 --        --
  Federal ..............       --        --     3,971
  State ................       --        --     1,184
  Foreign ..............       --        --       758
                           ------   -------   -------
          Total deferred       --        --     5,913
                           ------   -------   -------
                           $   --   $    --   $ 5,481
                           ======   =======   =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                          --------------------------
                                                           2001      2000      1999
                                                          -------   ------    ------
<S>                                                       <C>       <C>       <C>
Federal tax benefit at the statutory rate ...........     (34.00)%  (34.00)%  (34.00)%
State income taxes, net of Federal income tax benefit      (3.17)    (3.03)    (4.40)
Other ...............................................       1.75      4.35      3.70
Change in valuation reserve .........................      35.42     32.68     50.30
                                                          -------    -----    ------
Effective income tax rate ...........................         -- %      -- %   15.60%
                                                          =======    =====    ======
</TABLE>


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

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

<TABLE>
<CAPTION>
                                         DECEMBER 31,
                                     --------------------
                                        2001       2000
                                     --------    --------
<S>                                  <C>         <C>
Deferred tax assets:
  Balance sheet reserves .........   $  1,083    $    937
  Accrued expenses ...............        542         230
  Tax credit carryforwards .......      3,247       3,247
  Net operating loss carryforwards     59,495      41,626
                                     --------    --------
                                       64,367      46,040

  Valuation allowance ............    (60,593)    (42,044)
                                     --------    --------
     Net deferred tax assets .....      3,774       3,996
     Net deferred tax liabilities      (3,774)     (3,996)
                                     --------    --------
     Net deferred taxes ..........   $     --    $     --
                                     ========    ========
</TABLE>

         The valuation allowance for deferred taxes increased by approximately
$18,549,000 and $18,433,000 during 2001 and 2000, 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, 2001, the Company has net operating loss and tax credit
carryforwards of approximately $147,302,000 and $3,247,000, respectively, for
federal income tax purposes, which begin to expire 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, 2001, 2000, 1999 and 1998. The Company also has net operating
loss and tax credit carryforwards for state income tax purposes, which begin to
expire in 2011. The Company's state net operating loss carryforward primarily
relates to the net losses incurred by the Company during the years ended
December 31, 2001, 2000, 1999 and 1998. Additionally, the Company has net
operating loss carryforwards of approximately $1,225,000 for foreign income tax
purposes, which begin to expire in 2006. 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.

15.      NET LOSS PER COMMON 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, 2001, 2000 and 1999 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                     LOSS        SHARES      PER-SHARE
                                                  (NUMERATOR) (DENOMINATOR)    AMOUNT
                                                   ---------   -----------    --------
<S>                                                <C>         <C>           <C>
Year Ended December 31, 2001:
  Basic EPS ....................................   $(52,370)      39,077      $  (1.34)
  Effect of dilutive securities -- stock options         --           --            --
                                                   --------     --------      --------
  Diluted EPS ..................................   $(52,370)      39,077      $  (1.34)
                                                   ========     ========      ========
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)
                                                   ========     ========      ========
</TABLE>

         Basic net loss per common share is computed using the weighted average
number of shares of common stock and diluted net loss per common share is
computed using the weighted average number of shares of common stock and common
equivalent shares outstanding. Common equivalent shares related to stock options
and warrants totaling 8,601,000, 9,814,000 and 5,355,000 for the years ended
December 31, 2001, 2000, and 1999 respectively, are excluded from the
computation of diluted net loss per common share because their effect was
antidilutive.


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

         Basic and diluted net loss per common share for the year ended December
31, 2001 include the effect of the 744,740 shares to be issued to Computer
Associates, as if the shares were issued and outstanding on June 8, 2001.

16.      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 in 2000, the Company also leases
office space in Salt Lake City, Utah and Los Angeles, California, with lease
terms through April of 2010 and December of 2004, respectively.

         The Company also leases certain equipment and a vehicle for an
executive of the Company with lease terms of up to three years. Rent expense for
office space, equipment, and the executive's vehicle totaled approximately
$2,202,000, $2,259,000 and $2,028,000 for the years ended December 31, 2001,
2000 and 1999, respectively. Sublease income totaled approximately $177,000 and
$382,000 for the years ended December 31, 2000, and 1999, respectively. The
Company did not have any sublease income for the year ended December 31, 2001.

         Future minimum lease payments relating to continuing operations under
non-cancelable operating leases for each twelve-month period subsequent to
December 31, 2001 are as follows (in thousands):

<TABLE>
<S>            <C>
2002......     $1,061
2003......      1,032
2004......      1,046
2005......        848
2006......        891
Thereafter      2,511
              --------
               $7,389
</TABLE>

17.      CONTINGENCIES

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

18.      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 primarily located 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, 2001, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
              YEARS ENDED DECEMBER 31,
              ------------------------
              2001      2000     1999
              ----      ----     ----
<S>            <C>      <C>      <C>
Customer A     11%       --%      --%
Customer B     --%       14%      39%
Customer C     --%       26%      --%
Customer D     --%       --%      49%
</TABLE>


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

         Customers whose accounts receivable represent greater than 10 percent
of the Company's consolidated net accounts receivable from continuing operations
at December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                  DECEMBER 31,
                 --------------
                 2001      2000
                 ----      ----
<S>              <C>       <C>
Customer B..      28%       12%
Customer C..      --%       13%
Customer E..      --%       14%
</TABLE>

19.      QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

         Summarized quarterly financial information for the years 2001 and 2000,
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 2001:
  Net revenues .................................   $  2,791    $  2,751    $  3,967    $  4,499
  Net loss from continuing operations ..........    (12,049)    (12,532)    (11,539)    (17,372)
  Net income from discontinued operations ......         --         730          --         392
  Net loss applicable to common shareholders ...    (12,049)    (11,802)    (11,539)    (16,980)
  Net loss per share (diluted) .................      (0.32)      (0.31)      (0.29)      (0.42)
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)
</TABLE>


                                       57
<PAGE>
                              VIEWPOINT CORPORATION
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                       BALANCE AT  CHARGED TO                            BALANCE AT
                                       BEGINNING   COSTS AND    CHARGED TO                 END OF
DESCRIPTION                            OF PERIOD   EXPENSES       OTHER      DEDUCTIONS    PERIOD
-----------                            ---------   --------       -----      ----------    ------
<S>                                    <C>         <C>         <C>           <C>         <C>
ALLOWANCE FOR ACCOUNTS RECEIVABLE:
  Year Ended December 31, 2001 .....   $    796    $    544    $    126(1)   $    480    $    986
  Year Ended December 31, 2000 .....         --          40         756(1)         --         796
  Year Ended December 31, 1999 .....         --          --          --            --          --
ALLOWANCE FOR NOTES RECEIVABLE:
  Year Ended December 31, 2001 .....   $  2,192    $   (665)   $     --      $    777    $    750
  Year Ended December 31, 2000 .....         --       2,192          --            --       2,192
  Year Ended December 31, 1999 .....         --          --          --            --          --
ALLOWANCES RELATED TO DISCONTINUED
  OPERATIONS:
  Year Ended December 31, 2001 .....   $  2,416    $     --    $     --      $  1,821    $    595
  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
VALUATION ALLOWANCE FOR DEFERRED TAX
  ASSETS FROM CONTINUING OPERATIONS:
  Year Ended December 31, 2001 .....   $ 42,044    $ 18,549    $     --      $     --    $ 60,593
  Year Ended December 31, 2000 .....     23,611      18,433          --            --      42,044
  Year Ended December 31, 1999 .....      6,102      17,509          --            --      23,611
</TABLE>

----------
(1) Reserves established in connection with the acquisition of Viewpoint
Digital.

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

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

         Not applicable.


                                       58
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         For information regarding our Directors and compliance with Section
16(a) of the Securities Exchange Act of 1934, we direct you to the sections
entitled "Proposal 1 - Election of Directors," and "Section 16(a) Beneficial
Ownership Reporting Compliance," respectively, in the Proxy Statement we will
deliver to our stockholders in connection with our 2002 Annual Meeting of
Stockholders. Information regarding our Executive Officers is contained in Item
1 - Business of this report.

         We are incorporating the information contained in those sections of our
Proxy Statement here by reference.

ITEM 11. EXECUTIVE COMPENSATION

         For information regarding our Executive Compensation, we direct you to
the section entitled "Executive Compensation" in the Proxy Statement we will
deliver to our stockholders in connection with our 2002 Annual Meeting of
Stockholders.

         We are incorporating the information contained in that section of our
Proxy Statement here by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         You will find this information in the section captioned "Security
Ownership of Certain Beneficial Owners and Management," which will appear in the
Proxy Statement we will deliver to our stockholders in connection with our 2002
Annual Meeting of Stockholders.

         We are incorporating the information contained in that section of our
Proxy Statement here by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         You will find this information in the section captioned " Certain
Relationships and Related Transactions," which will appear in the Proxy
Statement we will deliver to our stockholders in connection with our 2002 Annual
Meeting of Stockholders.

         We are incorporating the information contained in that section of our
Proxy Statement here by reference.


                                       59
<PAGE>
                                     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. See Index to Financial Statements at
                  Item 8 on page 31 of this Report.

         2.       Financial Statement Schedule. See Index to Financial
                  Statements at Item 8 on page 31 of this Report.

         3.       Exhibits.

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

                           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))

         Exhibit No. 3: Articles of Incorporation and Bylaws

                           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))

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

                           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))

                           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


                                       60
<PAGE>
                                    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))

         Exhibit No. 10: Material Contracts

         Executive Compensation Plans and Agreements

                           10.1     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))

                           10.2     1995 Stock Plan, as amended on November 28,
                                    2000 (incorporated by reference from
                                    Exhibit 10.2 to the Registrant's Annual
                                    Report on Form 10-K for the year ended
                                    December 31, 2000 filed on March 30, 2001
                                    (File No. 000-27168)

                           10.3     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))

                           10.4     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))

                           10.5     Letter Agreement between the Registrant and
                                    Christopher Gentile, dated June 25, 1999
                                    (incorporated by reference from Exhibit
                                    10.19 to the Registrant's Annual Report on
                                    Form 10-K for the year ended December 31,
                                    2000 filed on March 30, 2001 (File No.
                                    000-27168))

                           10.6     Letter Agreement between the Registrant and
                                    Paul J. Kadin, dated February 17, 2000
                                    (incorporated by reference from Exhibit
                                    10.18 to the Registrant's Annual Report on
                                    Form 10-K for the year ended December 31,
                                    2000 filed on March 30, 2001 (File No.
                                    000-27168))

                           10.7     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))

                           10.8     Letter Agreement between the Registrant and
                                    Jeffrey J. Kaplan, dated January 29, 2001
                                    (incorporated by reference from Exhibit
                                    10.17 to the Registrant's Annual Report on
                                    Form 10-K for the year ended December 31,
                                    2000 filed on March 30, 2001 (File No.
                                    000-27168))

                           10.9     Employment Agreement between the Registrant
                                    and Robert E. Rice dated December 17, 2001

         Other Material Contracts

                           10.10    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))

                           10.11    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))

                           10.12    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))

                           10.13    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


                                       61
<PAGE>
                                    (File No. 000-27168))

                           10.14    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))

         Exhibit No. 21: Subsidiaries of the Registrant

                           21.1     Listing of Registrant's Subsidiaries
                                    (incorporated by reference from Exhibit 21.1
                                    to the Registrant's Annual Report on Form
                                    10-K for the year ended December 31, 2000,
                                    filed on March 30, 2001 (File No.
                                    000-27168))

         Exhibit No. 23: Consents of Experts and Counsel

                           23.1     Consent of PricewaterhouseCoopers LLP,
                                    Independent Accountants

         Exhibit No. 24: Power of Attorney

                           24.1     Power of Attorney (included on the signature
                                    pages of this Annual Report on Form 10-K)

            (b) Reports on Form 8-K

            None.

            (c) Exhibits

            See Item 14(a)(3) above.


                                       62
<PAGE>
                                   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 28th day of March, 2002.

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 Anthony Pane 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.

         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
               -------------------------------------    ------------------------    --------------
               <S>                                      <C>                         <C>

                         /s/ ROBERT E. RICE             Director, President and     March 28, 2002
               -------------------------------------    Chief Executive Officer
                             Robert E. Rice             (Principal Executive
                                                        Officer)

                         /s/ ANTHONY L. PANE            Senior Vice President and   March 28, 2002
               -------------------------------------    Chief Financial Officer
                             Anthony L. Pane            (Principal Financial and
                                                        Accounting Officer)

                         /s/ THOMAS BENNETT             Director                    March 28, 2002
               -------------------------------------
                           Thomas Bennett

                         /s/ BRUCE R. CHIZEN            Director                    March 28, 2002
               -------------------------------------
                           Bruce R. Chizen

                      /s/ SAMUEL H. JONES, JR.          Director                    March 28, 2002
               -------------------------------------
                        Samuel H. Jones, Jr.

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


                                       63