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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-Q

|           |  |                                                                                        
|---------- |  | ---------------------------------------------------------------------------------------
|(Mark One)
|[X]        |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003


or

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to


Commission file number: 0-27168




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VIEWPOINT CORPORATION

(Exact name of registrant as specified in its charter)


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

498 Seventh Avenue, Suite 1810, New York, NY 10018
(Address of principal executive offices and zip code)

(212) 201-0800
(Registrants telephone number, including area code)



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes [X] No [  ]

As of May 5, 2003, 45,985,507 shares of $0.001 par value common stock were
outstanding.



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TABLE OF CONTENTS



|                                |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I   FINANCIAL INFORMATION
|                                | Item 1. Consolidated Financial Statements                                                    
|                                |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                                |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION    
|                                | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                     
|CERTIFICATIONS                 
|CERTIFICATION OF CEO           
|CERTIFICATION OF CFO           



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##### Table of Contents



TABLE OF CONTENTS

|        |  |                                                                                       |  |     
|------- |  | ------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                       |  | Page
|        |  |                                                                                       |  |     
|        |  | PART I - FINANCIAL INFORMATION                                                        |  |     
|Item 1. |  | Consolidated Financial Statements                                                     |  |     
|        |  | Consolidated Balance Sheets  March 31, 2003
and December 31, 2002                    |  | 3   
|        |  | Consolidated Statements of Operations  Three months
ended March 31, 2003 and 2002    |  | 4   
|        |  | Consolidated Statements of Cash Flows  Three months ended
March 31, 2003 and 2002    |  | 5   
|        |  | Notes to Consolidated Financial Statements                                            |  | 7   
|Item 2. |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations |  | 15  
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 30  
|Item 4. |  | Controls and Procedures                                                               |  | 30  
|        |  | PART II - OTHER INFORMATION                                                           |  |     
|Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  | 31  
|        |  | Signatures                                                                            |  | 32  
|        |  | Certifications                                                                        |  | 33  

2



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##### Table of Contents






PART I - FINANCIAL INFORMATION




Item 1. Consolidated Financial Statements




VIEWPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(Unaudited)

|                                                                                                                                                                                                           |                                                        |                                            |          |           |        |              |          |        |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ------------------------------------------ | -------- | --------- | ------ | ------------ | -------- | ------ | ------ | 
|                                                                                                                                                                                                           |                                                        |                                            |          | March 31, |        | December 31,
|                                                                                                                                                                                                           |                                                        |                                            |          | 2003      |        | 2002        
|                                                                                                                                                                                                           |                                                        |                                            |          |           |        |             
|ASSETS                                                                                                                                                                                                     |                                                        |                                            |          |           |        |              |          |       
|Current assets:                                                                                                                                                                                            |                                                        |                                            |          |           |        |              |          |       
|                                                                                                                                                                                                           | Cash and cash equivalents                              |                                            | $        | 5,501     |        |              | $        | 10,678 |       
|                                                                                                                                                                                                           | Marketable securities                                  |                                            |          | 1,382     |        |              |          | 890    |       
|                                                                                                                                                                                                           | Accounts receivable, net                               |                                            |          | 3,077     |        |              |          | 2,925  |       
|                                                                                                                                                                                                           | Related party accounts receivable, net                 |                                            |          | 784       |        |              |          | 838    |       
|                                                                                                                                                                                                           | Notes receivable, net                                  |                                            |          | 750       |        |              |          | 750    |       
|                                                                                                                                                                                                           | Prepaid expenses and other current assets              |                                            |          | 780       |        |              |          | 599    |       
|                                                                                                                                                                                                           |                                                        |                                            |          |           |        |              |          |       
|                                                                                                                                                                                                           |                                                        | Total current assets                       |          |           | 12,274 |              |          |        | 16,680 | 
|Restricted cash                                                                                                                                                                                            |                                                        |                                            | 563      |           |        |              | 987      |       
|Property and equipment, net                                                                                                                                                                                |                                                        |                                            | 3,022    |           |        |              | 3,591    |       
|Goodwill, net                                                                                                                                                                                              |                                                        |                                            | 31,276   |           |        |              | 31,276   |       
|Intangible assets, net                                                                                                                                                                                     |                                                        |                                            | 175      |           |        |              | 165      |       
|Other assets                                                                                                                                                                                               |                                                        |                                            | 268      |           |        |              | 653      |       
|                                                                                                                                                                                                           |                                                        |                                            |          |           |        |              |          |       
|                                                                                                                                                                                                           |                                                        | Total assets                               |          | $         | 47,578 |              |          | $      | 53,352 | 
|                                                                                                                                                                                                           |                                                        |                                            |          |           |        |              |          |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                       |                                                        |                                            |          |           |        |              |          |       
|Current liabilities:                                                                                                                                                                                       |                                                        |                                            |          |           |        |              |          |       
|                                                                                                                                                                                                           | Accounts payable                                       |                                            | $        | 2,227     |        |              | $        | 2,962  |       
|                                                                                                                                                                                                           | Accrued expenses                                       |                                            |          | 1,363     |        |              |          | 759    |       
|                                                                                                                                                                                                           | Due to related parties, net                            |                                            |          | 2,992     |        |              |          | 2,920  |       
|                                                                                                                                                                                                           | Deferred revenues                                      |                                            |          | 383       |        |              |          | 334    |       
|                                                                                                                                                                                                           | Related party deferred revenues                        |                                            |          | 119       |        |              |          | 249    |       
|                                                                                                                                                                                                           | Accrued incentive compensation                         |                                            |          | 545       |        |              |          | 545    |       
|                                                                                                                                                                                                           | Current liabilities related to discontinued operations |                                            |          | 231       |        |              |          | 231    |       
|                                                                                                                                                                                                           |                                                        |                                            |          |           |        |              |          |       
|                                                                                                                                                                                                           |                                                        | Total current liabilities                  |          |           | 7,860  |              |          |        | 8,000  | 
|Convertible notes                                                                                                                                                                                          |                                                        |                                            | 2,640    |           |        |              | 6,712    |       
|Warrants to purchase common stock                                                                                                                                                                          |                                                        |                                            | 47       |           |        |              | 288      |       
|Subordinated notes                                                                                                                                                                                         |                                                        |                                            | 1,482    |           |        |              |         |       
|                                                                                                                                                                                                          
|Stockholders equity:                                                                                                                                                                                      |                                                        |                                            |          |           |        |              |          |       
|Preferred stock, $.001 par value; 5,000 shares authorized  no shares
issued and outstanding at March 31, 2003 and December 31, 2002                                                                       |                                                        |                                            |         |           |        |              |         |       
|Common stock, $.001 par value; 75,000 shares authorized -
46,146 shares issued and 45,986 shares outstanding at
March 31, 2003 and 41,479 shares issued and 41,019 shares
outstanding at December 31, 2002 |                                                        |                                            | 46       |           |        |              | 41       |       
|Paid-in capital                                                                                                                                                                                            |                                                        |                                            | 269,347  |           |        |              | 267,569  |       
|Deferred compensation                                                                                                                                                                                      |                                                        |                                            | (2,203   | )         |        |              | (4,130   | )     
|Treasury stock at cost; 160 shares at March 31, 2003 and
December 31, 2002                                                                                                                                 |                                                        |                                            | (1,015   | )         |        |              | (1,015   | )     
|Accumulated other comprehensive loss                                                                                                                                                                       |                                                        |                                            | (43      | )         |        |              | (36      | )     
|Accumulated deficit                                                                                                                                                                                        |                                                        |                                            | (230,583 | )         |        |              | (224,077 | )     
|                                                                                                                                                                                                           |                                                        |                                            |          |           |        |              |          |       
|                                                                                                                                                                                                           |                                                        | Total stockholders equity                 |          |           | 35,549 |              |          |        | 38,352 | 
|                                                                                                                                                                                                           |                                                        |                                            |          |           |        |              |          |       
|                                                                                                                                                                                                           |                                                        | Total liabilities and stockholders equity |          | $         | 47,578 |              |          | $      | 53,352 | 
|                                                                                                                                                                                                           |                                                        |                                            |          |           |        |              |          |        |       

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

3



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VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)

|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |       |  
|----------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------------ | ------ | ---- | - | ------- | ----- | -
|                                                                  |                                                                                                                                                                          |   | Three Months Ended
|                                                                  |                                                                                                                                                                          |   | March 31,         
|                                                                  |                                                                                                                                                                          |   |                   
|                                                                  |                                                                                                                                                                          |   | 2003               |        | 2002
|                                                                  |                                                                                                                                                                          |   |                    |        |     
|Revenues:                                                         |                                                                                                                                                                          |   |                    |        |      |   |         |      
|                                                                  | Licenses                                                                                                                                                                 |   | $                  | 1,632  |      |   | $       | 1,204 |  
|                                                                  | Related party licenses                                                                                                                                                   |   |                    | 50     |      |   |         | 2,335 |  
|                                                                  | Services                                                                                                                                                                 |   |                    | 1,355  |      |   |         | 1,032 |  
|                                                                  | Related party services                                                                                                                                                   |   |                    | 988    |      |   |         | 287   |  
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Total revenues                                                    |                                                                                                                                                                          |   | 4,025              |        |      |   | 4,858   |      
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Cost of revenues:                                                 |                                                                                                                                                                          |   |                    |        |      |   |         |      
|                                                                  | Licenses                                                                                                                                                                 |   |                    | 47     |      |   |         | 109   |  
|                                                                  | Services                                                                                                                                                                 |   |                    | 1,176  |      |   |         | 908   |  
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Total cost of revenues                                            |                                                                                                                                                                          |   | 1,223              |        |      |   | 1,017   |      
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Gross profit                                                      |                                                                                                                                                                          |   | 2,802              |        |      |   | 3,841   |      
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Operating expenses:                                               |                                                                                                                                                                          |   |                    |        |      |   |         |      
|                                                                  | Sales and marketing (including non-cash stock-based
compensation charges totaling $439 and
$1,044 for the three months ended March 31, 2003 and
2002, respectively)      |   |                    | 3,821  |      |   |         | 3,841 |  
|                                                                  | Research and development (including non-cash
stock-based compensation charges totaling
$159 and $195 for the three months ended March 31,
2003 and 2002, respectively)   |   |                    | 1,473  |      |   |         | 1,386 |  
|                                                                  | General and administrative (including non-cash
stock-based compensation charges totaling
$412 and $414 for the three months ended March 31,
2003 and 2002, respectively) |   |                    | 2,016  |      |   |         | 2,205 |  
|                                                                  | Depreciation                                                                                                                                                             |   |                    | 478    |      |   |         | 498   |  
|                                                                  | Amortization of intangible assets                                                                                                                                        |   |                    | 1      |      |   |         | 661   |  
|                                                                  | Restructuring
and impairment charges related to office closure                                                                                                           |   |                    | 1,211  |      |   |         |      |  
|                                                                  | Impairment
of goodwill and other intangible assets                                                                                                                       |   |                    |       |      |   |         | 6,275 |  
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Total operating expenses                                          |                                                                                                                                                                          |   | 9,000              |        |      |   | 14,866  |      
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Loss from operations                                              |                                                                                                                                                                          |   | (6,198             | )      |      |   | (11,025 | )    
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Other income (expense):                                           |                                                                                                                                                                          |   |                    |        |      |   |         |      
|                                                                  | Interest and other income, net                                                                                                                                           |   |                    | 23     |      |   |         | 41    |  
|                                                                  | Interest expense                                                                                                                                                         |   |                    | (163   | )    |   |         |      |  
|                                                                  | Loss on early extinguishment of debt                                                                                                                                     |   |                    | (1,682 | )    |   |         |      |  
|                                                                  | Changes in fair values of warrants to purchase common
stock and conversion options of convertible notes                                                                  |   |                    | 1,424  |      |   |         |      |  
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Total other income (expense)                                      |                                                                                                                                                                          |   | (398               | )      |      |   | 41      |      
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Net loss from continuing operations                               |                                                                                                                                                                          |   | (6,596             | )      |      |   | (10,984 | )    
|Adjustment to net loss on disposal of discontinued
operations     |                                                                                                                                                                          |   | 90                 |        |      |   |        |      
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Net loss                                                          |                                                                                                                                                                          | $ | (6,506             | )      |      | $ | (10,984 | )    
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |       |  
|Basic and diluted net loss per common share:                      |                                                                                                                                                                          |   |                    |        |      |   |         |      
|                                                                  | Net loss per common share from continuing operations                                                                                                                     |   | $                  | (0.16  | )    |   | $       | (0.27 | )
|                                                                  | Net income per common share from discontinued
operations                                                                                                                 |   |                    |       |      |   |         |      |  
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      
|Net loss per common share                                         |                                                                                                                                                                          | $ | (0.16              | )      |      | $ | (0.27   | )    
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |       |  
|Weighted average number of shares outstanding  basic
and diluted |                                                                                                                                                                          |   | 41,365             |        |      |   | 40,330  |      
|                                                                  |                                                                                                                                                                          |   |                    |        |      |   |         |      

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

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VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        |                    |         |        |        |      |        |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------------------------------------- | --------------------------------------------------- | ------ | ------------------ | ------- | ------ | ------ | ---- | ------ | -
|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        | Three Months Ended
|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        | March 31,         
|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        |                   
|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        | 2003               |         | 2002  
|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        |                    |         |       
|Cash flows from operating activities:                                       |                                                                                                         |                                                               |                                              |                                                     |        |                    |         |       
|Net loss                                                                    |                                                                                                         | $                                                             | (6,506                                       | )                                                   |        | $                  | (10,984 | )     
|Adjustments to reconcile net loss to net cash used
in operating activities: |                                                                                                         |                                                               |                                              |                                                     |        |                    |         |       
|                                                                            | Non-cash stock-based compensation charges                                                               |                                                               |                                              | 1,010                                               |        |                    |         | 1,653  |       
|                                                                            | Restructuring
and impairment charges related to office closure                                          |                                                               |                                              | 1,211                                               |        |                    |         |       |       
|                                                                            | Depreciation and amortization                                                                           |                                                               |                                              | 479                                                 |        |                    |         | 1,159  |       
|                                                                            | Provision for bad
debt                                                                                  |                                                               |                                              | (75                                                 | )      |                    |         |       |       
|                                                                            | Impairment
of goodwill and other intangible assets                                                      |                                                               |                                              |                                                    |        |                    |         | 6,275  |       
|                                                                            | Loss on sale or disposal of equipment                                                                   |                                                               |                                              |                                                    |        |                    |         | 45     |       
|                                                                            | Accrued interest income                                                                                 |                                                               |                                              |                                                    |        |                    |         | (7     | )     
|                                                                            | Changes in fair values of warrants to purchase common stock
and conversion options of convertible notes |                                                               |                                              | (1,424                                              | )      |                    |         |       |       
|                                                                            | Loss on early extinguishment of debt                                                                    |                                                               |                                              | 1,682                                               |        |                    |         |       |       
|                                                                            | Amortization of debt discount and issuance costs                                                        |                                                               |                                              | 79                                                  |        |                    |         |       |       
|                                                                            | Changes in operating assets and liabilities, net of acquisitions:                                       |                                                               |                                              |                                                     |        |                    |         |        |       
|                                                                            |                                                                                                         |                                                               | Accounts receivable                          |                                                     |        | (77                | )       |        |        | (583 | )     
|                                                                            |                                                                                                         |                                                               | Related party accounts receivable            |                                                     |        | 54                 |         |        |        | (104 | )     
|                                                                            |                                                                                                         |                                                               | Prepaid expenses and other assets            |                                                     |        | (183               | )       |        |        | 293  |       
|                                                                            |                                                                                                         |                                                               | Accounts payable                             |                                                     |        | (598               | )       |        |        | (146 | )     
|                                                                            |                                                                                                         |                                                               | Accrued expenses                             |                                                     |        | (246               | )       |        |        | (292 | )     
|                                                                            |                                                                                                         |                                                               | Due
to related parties, net                  |                                                     |        | 72                 |         |        |        | 44   |       
|                                                                            |                                                                                                         |                                                               | Deferred revenues                            |                                                     |        | 49                 |         |        |        | (797 | )     
|                                                                            |                                                                                                         |                                                               | Related party deferred revenues              |                                                     |        | (130               | )       |        |        | 385  |       
|                                                                            |                                                                                                         |                                                               | Net cash provided by discontinued operations |                                                     |        |                   |         |        |        | 143  |       
|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        |                    |         |       
|                                                                            |                                                                                                         |                                                               |                                              | Net cash used in operating activities               |        |                    | (4,603  | )      |        |      | (2,916 | )
|                                                                            | Cash flows from investing activities:                                                                   |                                                               |                                              |                                                     |        |                    |         |        |       
|                                                                            |                                                                                                         | Proceeds from sales and maturities of marketable securities   |                                              |                                                     | 875    |                    |         |        | 4,000  |     
|                                                                            |                                                                                                         | Purchases of marketable securities                            |                                              |                                                     | (1,366 | )                  |         |        | (2,727 | )   
|                                                                            |                                                                                                         | Net decrease in restricted cash                               |                                              |                                                     | 424    |                    |         |        |       |     
|                                                                            |                                                                                                         | Purchases of property and equipment                           |                                              |                                                     | (277   | )                  |         |        | (216   | )   
|                                                                            |                                                                                                         | Proceeds from sale of property and equipment                  |                                              |                                                     | 7      |                    |         |        |       |     
|                                                                            |                                                                                                         | Purchases of patents and trademarks                           |                                              |                                                     | (11    | )                  |         |        | (24    | )   
|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        |                    |         |       
|                                                                            |                                                                                                         |                                                               |                                              | Net cash provided by (used in) investing activities |        |                    | (348    | )      |        |      | 1,033  |  
|                                                                            | Cash flows from financing activities:                                                                   |                                                               |                                              |                                                     |        |                    |         |        |       
|                                                                            |                                                                                                         | Payment of issuance costs on convertible notes                |                                              |                                                     | (418   | )                  |         |        |       |     
|                                                                            |                                                                                                         | Proceeds from issuance of subordinated notes and common
stock |                                              |                                                     | 3,500  |                    |         |        |       |     
|                                                                            |                                                                                                         | Repayment of convertible notes                                |                                              |                                                     | (3,300 | )                  |         |        |       |     
|                                                                            |                                                                                                         | Proceeds from exercise of stock options                       |                                              |                                                     |       |                    |         |        | 566    |     
|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        |                    |         |       
|                                                                            |                                                                                                         |                                                               |                                              | Net cash provided by (used in) financing activities |        |                    | (218    | )      |        |      | 566    |  
|                                                                            | Effect of exchange rate changes on cash and cash equivalents                                            |                                                               |                                              | (8                                                  | )      |                    |         | (8     | )     
|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        |                    |         |       
|                                                                            | Net decrease in cash and cash equivalents                                                               |                                                               |                                              | (5,177                                              | )      |                    |         | (1,325 | )     
|                                                                            | Cash and cash equivalents at beginning of period                                                        |                                                               |                                              | 10,678                                              |        |                    |         | 8,054  |       
|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        |                    |         |       
|                                                                            | Cash and cash equivalents at end of period                                                              |                                                               | $                                            | 5,501                                               |        |                    | $       | 6,729  |       
|                                                                            |                                                                                                         |                                                               |                                              |                                                     |        |                    |         |       

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

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##### Table of Contents



VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

|                                                 |                                                                                                 |  |                   |       |      |  |   |       |  
|------------------------------------------------ | ----------------------------------------------------------------------------------------------- |  | ----------------- | ----- | ---- |  | - | ----- | -
|                                                 |                                                                                                 |  | Three Month Ended
|                                                 |                                                                                                 |  | March 31,        
|                                                 |                                                                                                 |  | 2003              |       | 2002
|                                                 |                                                                                                 |  |                   |       |     
|Supplemental disclosure of cash flow activities: |                                                                                                 |  |                   |       |      |  |   |      
|                                                 | Cash paid during the quarter for income taxes                                                   |  | $                 | 13    |      |  | $ | 73    |  
|                                                 | Supplemental disclosure of non-cash investing
and financing activities:                         |  |                   |       |      |  |   |       |  
|                                                 | Unrealized gains (losses) on marketable securities                                              |  | $                 | 1     |      |  | $ | (47   | )
|                                                 | Issuance costs on convertible notes and subordinated notes
accrued and not yet paid             |  |                   | 281   |      |  |   |      |  
|                                                 | Issuance of 1,351,351 shares of common stock as partial
repayment of convertible notes          |  |                   | 1,000 |      |  |   |      |  
|                                                 | Contingent consideration not yet issued in connection
with the
acquisition of Viewpoint Digital |  |                   |      |      |  |   | 2,928 |  

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

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America, consistent in all material respects with those
applied in our Annual Report on Form 10-K for the year ended December 31, 2002.
The interim financial information is unaudited, but reflects all adjustments
which are, in the opinion of management, necessary for a fair presentation of
Viewpoint Corporations (Viewpoint or the Company) financial position and
operating results for the interim periods.

These unaudited consolidated financial statements have been prepared in
accordance with the instructions to Rule 10-01 of Regulations S-X and,
therefore, do not include all of the information and footnotes normally
provided in annual financial statements. As a result, these unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with managements
discussion and analysis of financial condition and results of operations,
contained in Viewpoints Annual Report on Form 10-K for the year ended December
31, 2002. The results of operations for the three months ended March 31, 2003
are not necessarily indicative of the results to be expected for the year
ending December 31, 2003.

Certain reclassifications have been made to the 2002 consolidated
financial statements to conform to the 2003 presentation.

Revenue Recognition

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 licenses
and (b) services. 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
revenues from customers include sales of perpetual and term based
licenses for broadcasting digital content in the Viewpoint format. License
revenues are recognized over the term of the license in a term-based broadcast
license model when the term is less then 15 months, and up-front in a perpetual
broadcast license model and a term-based broadcast license model when the term
is 15 months or longer, providing that no significant vendor obligations remain
and the resulting receivable is deemed collectible by management. License
revenues from VARs require either (i) an up-front, non-refundable payment or
(ii) a percentage royalty based on sell through, or both as consideration for
the right to resell our technology. Up-front, non-refundable payments are
recognized when the license right begins and the technology has been delivered
to the VAR, which is upon contract signing, provided all other revenue
recognition criteria are met and no further obligations exist. For
arrangements that do not call for an up-front, non-refundable payment, revenue
is recognized as the royalties are earned, which is upon notification of sell
through, provided all other revenue recognition criteria are met and no further
obligations exist.

Fee-based professional services for customized software development are
performed on a time-and-material or fixed-fee basis, under separate service
arrangements. Revenues for fixed-fee arrangements 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 and SAB No. 101. Percentage-of-completion for service contracts is
measured principally by the percentage of costs incurred and accrued to date
for each contract, which principally consist of direct labor costs and
overhead, 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.

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

For arrangements involving multiple elements, we defer revenue for the
undelivered elements based on their relative fair value and recognize the
difference between the total arrangement fee and the amount deferred for the
undelivered elements as revenue. The determination of fair value of each
undelivered element in multiple element arrangements is based on the price
charged when the same element is sold separately. For maintenance and
technical support elements, we use renewal rates to determine the price when
sold separately.

Standard terms for license and service 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 and/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. 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 customers.
Nonmonetary revenues are recognized at the estimated fair value of the services
received. Generally, nonmonetary revenues equal nonmonetary expenses, however,
due to timing, nonmonetary accounts receivable and accounts payable may result.

Stock-Based Compensation

The Company accounts for stock option grants in accordance with Accounting
Principals Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees and complies with the disclosure provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148 Accounting for Stock-Based
CompensationTransition and Disclosure. 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 Emerging
Issues Task Force (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.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, as amended by SFAS No. 148, and has been determined
as if the Company has accounted for its stock option grants under the fair
value method of SFAS No. 123. The fair value of options issued was estimated at
the date of grant using a Black-Scholes option-pricing model. 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
non-cash stock-based compensation charges, net loss and net loss per common
share would approximate the following (in thousands, except per share amounts):

|                              |                                             |  |             |         |           |  |   |         |  
|----------------------------- | ------------------------------------------- |  | ----------- | ------- | --------- |  | - | ------- | -
|                              |                                             |  | As Reported |         | Pro Forma
|                              |                                             |  |             |         |          
|Quarter Ended March 31, 2003: |                                             |  |             |         |           |  |   |        
|                              | Non-cash stock-based compensation charges   |  | $           | 1,010   |           |  | $ | 1,953   |  
|                              | Net loss                                    |  |             | (6,506  | )         |  |   | (7,449  | )
|                              | Basic and diluted net loss per common share |  |             | (0.16   | )         |  |   | (0.18   | )
|Quarter Ended March 31, 2002: |                                             |  |             |         |           |  |   |        
|                              | Non-cash stock-based compensation charges   |  | $           | 1,653   |           |  | $ | 3,165   |  
|                              | Net loss                                    |  |             | (10,984 | )         |  |   | (12,496 | )
|                              | Basic and diluted net loss per common share |  |             | (0.27   | )         |  |   | (0.31   | )

The effects of applying SFAS No. 123, as amended by SFAS No. 148, in this
pro forma disclosure are not indicative of future amounts. The Company
anticipates grants of additional awards in the future.

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basic and Diluted Net Loss Per Common Share

Basic net loss per common share is computed using the weighted average
number of common shares outstanding and diluted net loss per common share is
computed using the weighted average number of common shares and common
equivalent shares outstanding. Common equivalent shares related to stock
options and warrants totaling 2,127,866 and 9,698,416 for the three months
ended March 31, 2003 and 2002, respectively, are excluded from the computation
of diluted net loss per common share because their effect was antidilutive.

Derivatives

The
Company accounts for the fair values of the warrants to purchase
common stock and conversion options of its convertible notes in
accordance with SFAS No. 133, which requires the Company to
bifurcate and separately account for its embedded derivatives
contained in the Companys convertible notes. The Company is
required to carry these embedded derivatives on its balance sheet at
fair value and the unrealized changes in the value of these embedded
derivatives are reflected in net income as changes in fair values of
warrants to purchase common stock and conversion options of
convertible notes.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation (FIN) No. 46, Consolidation of Variable Interest
Entities which requires the consolidation by primary beneficiaries of variable
interest entities (VIEs), as defined. The Company is subject to its
provisions effective after January 31, 2003 for newly-acquired VIEs and the
first fiscal or interim period beginning after June 15, 2003 for VIE holdings
acquired prior to February 1, 2003. The adoption of FIN No. 46 is not expected
to have a material effect on the Companys financial statements.

2. Goodwill and Intangible Assets

Effective January 1, 2002, the Company completed the adoption of SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method of accounting. As
required by SFAS No. 142, the Company discontinued amortizing the remaining
balances of goodwill as of January 1, 2002. All remaining and future acquired
goodwill will be subject to impairment tests annually, or earlier if indicators
of potential impairment exist, using a fair-value-based approach. When
evaluating goodwill for potential impairment, the Company first compares the
fair value of the reporting unit, based on market values of the reporting unit
or on the present value of estimated future cash flows, with its carrying
amount. If the estimated fair value of the reporting unit is less than its
carrying amount, an impairment loss calculation is prepared. The impairment
loss calculation compares the implied fair value of the reporting unit goodwill
with the carrying amount of that goodwill. If the carrying amount of the
reporting unit goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess. All other
intangible assets will continue to be amortized over their estimated useful
lives and assessed for impairment under SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.

In conjunction with the implementation of SFAS No. 142, the Company
completed a goodwill impairment review as of January 1, 2002 and found no
impairment on that date.

The Company recorded $2,928,000 of additional goodwill during the first
quarter of 2002 in connection with a contingent promissory note due Computer
Associates on April 30, 2002 for the acquisition of Viewpoint Digital. As of
March 31, 2002, due to the persistence of unfavorable economic conditions along
with lower-than-expected revenues generated to date and reduced estimates of
future performance of the Viewpoint Digital assets, the Company performed an
additional impairment analysis on the goodwill and other intangible asset
balances recorded upon the acquisition of Viewpoint Digital. In accordance
with the provisions of SFAS No. 142 and SFAS No. 144, the Company recorded
impairment charges totaling $6,275,000 for the three months ended March 31,
2002. The fair value of the Viewpoint Digital assets was estimated using the
expected present value of future cash flows. The assumptions supporting the
cash flows, including the discount rate of 20%, were determined using the
Companys best estimates as of the date the impairment was recorded.

In accordance with the provisions of SFAS No. 142, the Company completed a
goodwill impairment review as of January 1, 2003 and found no impairment on
that date.

During the three months ended March 31, 2003, the market value of the
Companys equity securities declined below the Companys carrying value
indicating the existence of a potential goodwill impairment. In accordance
with SFAS No. 142, the Company performed the first step of the goodwill
impairment test as of March 31, 2003. The fair value of the Company was
determined to exceed its carrying value based on an independent appraisal using
a market-based approach with selected multiples ranging from 1.5 to 2.0 times
revenues and 1.8 to 2.5 times gross

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

profit. In accordance with SFAS No. 142, the second step of the
impairment test was unnecessary, and no goodwill impairment charges were
recorded.

The changes in the carrying amounts of goodwill and intangible assets
during the three months ended March 31, 2002 and 2003, are as follows (in
thousands):

|                              |                         |   |          |        |                   |   |       |        |   |   |        |        |  
|----------------------------- | ----------------------- | - | -------- | ------ | ----------------- | - | ----- | ------ | - | - | ------ | ------ | -
|                              |                         |   | Goodwill |        | Intangible Assets |   | Total
|                              |                         |   |          |        |                   |   |      
|Balance as of January 1, 2002 |                         | $ | 33,042   |        |                   | $ | 2,361 |        |   | $ | 35,403 |       
|                              | Additions during period |   |          | 2,928  |                   |   |       | 24     |   |   |        | 2,952  |  
|                              | Impairment losses       |   |          | (4,694 | )                 |   |       | (1,581 | ) |   |        | (6,275 | )
|                              | Amortization            |   |          |       |                   |   |       | (661   | ) |   |        | (661   | )
|                              |                         |   |          |        |                   |   |       |        |   |   |        |       
|Balance as of March 31, 2002  |                         | $ | 31,276   |        |                   | $ | 143   |        |   | $ | 31,419 |       
|                              |                         |   |          |        |                   |   |       |        |   |   |        |       
|Balance as of January 1, 2003 |                         | $ | 31,276   |        |                   | $ | 165   |        |   | $ | 31,441 |       
|                              | Additions during period |   |          |       |                   |   |       | 11     |   |   |        | 11     |  
|                              | Impairment losses       |   |          |       |                   |   |       |       |   |   |        |       |  
|                              | Amortization            |   |          |       |                   |   |       | (1     | ) |   |        | (1     | )
|                              |                         |   |          |        |                   |   |       |        |   |   |        |       
|Balance as of March 31, 2003  |                         | $ | 31,276   |        |                   | $ | 175   |        |   | $ | 31,451 |       
|                              |                         |   |          |        |                   |   |       |        |   |   |        |       

As of March 31, 2003 and December 31, 2002, the Companys intangible
assets and related accumulated amortization consisted of the following (in
thousands):

|                        |  |                |     |                   |  |     |    |       |  |              |     |     |  |   |     |  |  |   |    |   |  |   |     | 
|----------------------- |  | -------------- | --- | ----------------- |  | --- | -- | ----- |  | ------------ | --- | --- |  | - | --- |  |  | - | -- | - |  | - | --- | 
|                        |  | March 31, 2003 |     | December 31, 2002
|                        |  |                |     |                  
|                        |  | Accumulated    |     | Accumulated      
|                        |  | Gross          |     | Amortization      |  | Net |    | Gross |  | Amortization |     | Net
|                        |  |                |     |                   |  |     |    |       |  |              |     |    
|Patents and Trademarks  |  | $              | 179 |                   |  | $   | (4 | )     |  | $            | 175 |     |  | $ | 168 |  |  | $ | (3 | ) |  | $ | 165 | 
|                        |  |                |     |                   |  |     |    |       |  |              |     |     |  |   |     |  |  |   |    |   |  |   |     | 
|Total Intangible Assets |  | $              | 179 |                   |  | $   | (4 | )     |  | $            | 175 |     |  | $ | 168 |  |  | $ | (3 | ) |  | $ | 165 | 
|                        |  |                |     |                   |  |     |    |       |  |              |     |     |  |   |     |  |  |   |    |   |  |   |     | 

Amortization of patents and trademarks is estimated to be $2,000 a year
for the next five years.

3. Long Term Debt

On December 31, 2002, the Company completed a private placement of
convertible notes and warrants in which it issued to three institutional
investors, 4.95% convertible notes having an aggregate principal amount of
$7,000,000, and warrants to purchase 726,330 shares of Company common stock.
Interest on the convertible notes was payable quarterly in arrears in cash or,
at the option of the Company, in shares of Company common stock, provided the
Company satisfied certain financial and other conditions. The convertible
notes were to mature on December 31, 2007, unless earlier converted into shares
of Company common stock at a price of $2.26 per share. The warrants expire on
December 31, 2006, and are exercisable at a price of $2.26 per share.

The Company was required to provide registration rights under the
Securities Act of 1933 for shares of Company common stock covering (i) the
conversion of $7,000,000 in principal, (ii) 726,330 warrants, and (iii) any
potential payment of interest in the form of common stock.

The convertible notes defined several events of default, including but not
limited to: (i) failure of the Companys registration statement to be declared
effective by the Securities and Exchange Commission
(SEC), (ii) delisting from
The Nasdaq National Market or other national exchange, (iii) change in control,
(iv) event of conversion default such as lack of authorized capital, (v) event of
bankruptcy, (vi) failure to pay principal and interest on the convertible notes
when payments become due, (vii) judgments against the Company in excess of
$1,000,000 and (viii) material breach of any representation, warranty, covenant
or other term. Upon an event of default, the convertible notes would
immediately become due and payable, after a grace period to cure the default
lapsed.

Pursuant to SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities, the Company bifurcated the fair value of the conversion
options from the convertible notes since the conversion options were determined
to not be clearly and closely related to the debt host. In addition, since the
effective registration of the securities underlying the conversion options and
warrants was an event outside of the control of the Company,

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

pursuant to EITF Issue No. 00-19
Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock, the Company recorded the fair value of
conversion options and warrants as long-term liabilities, as it is assumed that
the Company will be required to net-cash settle the underlying securities. The
fair values of the convertible notes, conversion options, and warrants of
$5,535,000, $1,177,000, and $288,000, respectively, were determined based on an
independent appraisal using the following assumptions: a 20% discount on the
Companys common stock price at December 31, 2002, a credit spread of 20% over
LIBOR rates at December 31, 2002, and an annualized stock volatility of 46%.
The aggregate value of the convertible notes and conversion options of
$6,712,000, and the warrants of $288,000 are recorded as long-term liabilities
in the Companys consolidated balance sheets at December 31, 2002. Debt issue
costs accrued and paid, which amounted to $622,000, were recorded as other
assets in the Companys consolidated balance sheets as of December 31, 2002, in
accordance with APB Opinion No. 21 Interest on Receivables and Payables.
During the three months ended March 31, 2003, the Company accrued an additional
$46,000 in loan costs related to these convertible notes. The amortization of
discount on the convertible notes and debt issue costs totaling $72,000 was
accounted for in accordance with the provisions of APB Opinion No. 21, which
requires amortization of the discount and debt issue costs using the interest
method.

On February 28, 2003, the Company received notices of default from two of
the three investors. The notices alleged that the Company was in default of
the notes because it had breached certain representations and warranties in the
Securities Purchase Agreement.

On March 25, 2003, the Company entered into Redemption, Amendment and
Exchange Agreements with the three institutional investors with whom it had
completed the private placement of convertible notes and warrants on December
31, 2002. Pursuant to these agreements, the notice of default was withdrawn
and Viewpoint redeemed an aggregate of $3,300,000 principal amount of the
outstanding convertible notes, exchanged an aggregate of $1,000,000 principal
amount of the outstanding convertible notes for shares of Viewpoint common
stock at $0.74 per share, and exchanged the remaining $2,700,000 principal
amount of outstanding convertible notes for $2,700,000 principal amount of new
convertible notes. The convertible notes were issued in three tranches of
$900,000 each. The warrants to purchase 726,330 shares of Company common
stock, which were issued to these investors on December 31, 2002, remain
outstanding.

Based on the provisions of SFAS No. 133 and EITF Issue No. 00-19, the
Company recorded income based on the change in the fair value of the conversion
options of the original convertible notes as of March 24, 2003, which amounted
to $1,122,000, in the Companys consolidated statements of operations.

In accordance with the provisions of APB Opinion No. 26 Early
Extinguishment of Debt, and EITF Issue No. 96-19 Debtors Accounting for a
Modification or Exchange of Debt Instruments, the Company recorded a loss on
the early extinguishment of the original convertible notes in the amount of
$1,682,000 of which $650,000 related to the write-off of deferred loan costs.
The carrying value of the convertible notes at the time of the exchange was
$5,643,000, inclusive of $55,000, which represented the fair value of the
conversion options. In conjunction with the extinguishment, the Company paid

$3,300,000, issued new convertible notes in the principal amount of $2,700,000
and issued 1,351,351 shares of its common stock with a market value of
$675,000. The difference between (i) the carrying value of the outstanding
convertible notes exchanged and (ii) cash paid and the fair value of the common
stock and convertible notes issued, amounted to $1,032,000 and was included in the loss on early
extinguishment of debt.

The Company charged the loss on early extinguishment of debt to operations
as such loss did not qualify for classification as extraordinary based on the
provisions of SFAS No. 145 Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections, and APB 30
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions.

Interest on the new convertible notes is payable quarterly in arrears in
cash or, at the option of the Company, in shares of Company common stock,
provided the Company satisfies certain financial and other conditions. If
interest is paid in shares of Company common stock, the number of shares to be
issued shall be calculated by dividing the interest payable by 95% of the
arithmetic average of the dollar volume-weighted average price of Company
common stock on each of the five consecutive trading days immediately preceding
the interest payment date. The new convertible notes mature on December 31,
2007, unless earlier converted into shares of Company common

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

stock. The new convertible notes are initially convertible into Company
common stock at a price of $2.26 per share. However, the conversion price may
be adjusted as follows: (i) the conversion price of the first tranche will be
equal to the arithmetic average of the dollar volume-weighted average price of
Company common stock for the ten trading days following May 16, 2003, (ii) the
conversion price of the second tranche will be equal to such average for the
ten trading days following August 16, 2003, and (iii) the conversion price of
the third tranche will be equal to such average for the ten trading days
following November 16, 2003, provided, that the conversion price for each
tranche of the notes shall not be less than $1.00 nor more than $2.26.

If the Company raises capital after March 31, 2003, up to 20% of the net
proceeds will be used, at the investors option, to redeem outstanding notes at
par plus accrued interest.

Each tranche of the notes is redeemable by the investors at any time after
June 30, 2004 in cash at par plus accrued and unpaid interest if the dollar
volume-weighted average price of Company common stock is less than the
conversion price applicable to the notes for any 25 consecutive trading days.
If the investors redeem their convertible notes, up to 20% of the amount to be
redeemed may, at the Companys option, be paid in shares of Company common
stock, and said payment would be at 95% of the dollar volume-weighted average
price of Company common stock for the 20 consecutive trading days immediately
preceding payment. Each tranche of the notes is redeemable by the
investors at any time after December 31, 2005
in cash at 83% of par plus accrued and unpaid interest if the dollar
volume-weighted average price of Company common stock is less than the
conversion price applicable to the notes for any 25 consecutive
trading days following December 31, 2005.

The Company has the right at any time to redeem up to all of the
outstanding notes at par plus accrued and unpaid interest. If the redemption
is after April 30, 2003, concurrently with any such redemption, the Company is
required to deliver to the investors warrants, with an exercise price of $1.00
and a term equal to the remaining term of the notes being redeemed, to
subscribe for a number of shares of common stock equal to X% of the principal
amount being redeemed divided by the conversion price of the notes then in
effect. X% means (i) before May 31, 2003, 50% and (ii) after May 31, 2003,
100%.

Each tranche of the notes is convertible at the Companys election at any
time after April 15, 2004 if the dollar volume-weighted average price of
Company common stock exceeds 150% of the conversion price applicable to the
notes for any 25 consecutive trading days following April 15, 2004.

The Company was required to file a registration statement by April 14,
2003, covering the resale of the shares of common stock issued to the investors
in exchange for the $1,000,000 principal of convertible notes, the shares of
common stock issuable to the investors upon the conversion of the notes, the shares of common stock underlying the warrants issued
and to be issued, and any shares of common stock that may be issued as payment
of interest on the notes. The Company is required to pay cash
penalties if the registration statement is not declared effective by June 30,
2003.

The investors may require the Company to sell additional 4.95% convertible
notes having an aggregate principal amount of up to $2,800,000, and warrants to
purchase up to 290,533 shares of Company common stock prior to December 31,
2003 or later if the registration statement is not effective by a certain date.

The Company has the right to sell additional 4.95% convertible notes
having an aggregate principal amount of up to $7,000,000 and warrants to
purchase up to 726,330 shares of Company common stock prior to June 30, 2003,
if the dollar volume-weighted average price of Company common stock exceeds
$3.25 on each of not less than 15 trading days in any 20 consecutive
trading-day period.

Under the terms of the amended agreement, certain covenants and events of
default were restructured as follows: the failure to have its registration
statement declared effective by the SEC and the requirement to remain listed on
The Nasdaq National Market or other national exchange, both of which were
waived through March 2004, unless the Company receives a going concern or
qualified opinion from its auditors. If such a report is received from the
Companys auditors through March 2004, the original events of default remain
effective.

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to SFAS No. 133, the Company bifurcated the fair value of the
conversion options from the new convertible notes since the conversion options
were determined to not be clearly and closely related to the debt host. In
addition, since the effective registration of the securities underlying the
conversion options is an event outside of the control of the Company, pursuant
to EITF Issue No. 00-19, the Company recorded the fair value of the conversion
options as long-term liabilities, as it is assumed that the Company will be
required to net-cash settle the underlying securities. The fair value of the
new convertible notes and conversion options of $2,361,000 and $339,000,
respectively, was determined based on an independent appraisal using the
following assumptions: the Companys Common stock price at March 25, 2003, a
credit spread of 30% over LIBOR rates at March 25, 2003, and an annualized
stock volatility of 65%. The value of the new convertible notes and conversion
options of $2,361,000 and $339,000, respectively are recorded as long-term
liabilities in the Companys consolidated balance sheets at March 31, 2003.
Debt issue costs accrued, which amounted to $119,000, were recorded as other
assets in the Companys consolidated balance sheets as of March 31, 2003, in
accordance with APB Opinion No. 21.

Based on the provisions of SFAS No. 133 and EITF Issue No. 00-19, the
Company recorded income based on the changes in the fair values of the new conversion options and
original warrants of $61,000 and $241,000, respectively, in the Companys
consolidated statement of operations. The amortization of discount on the new
convertible notes and debt issue costs totaling $1,000 were accounted for using
the interest method, in accordance with the provisions of APB Opinion No. 21.

On March 26, 2003, Viewpoint Corporation entered into a Securities
Purchase Agreement with three other accredited investors, pursuant to which
it received $3,500,000 in exchange for an aggregate of $3,500,000 principal
amount of 4.95% subordinated notes and 3,614,756 shares of Viewpoint common
stock.

Interest on these notes is payable quarterly in arrears in cash. The
notes contain certain events of default, including, but not limited to: i)
failure to pay principal and interest on the notes when payments become due,
ii) judgments against the Company in excess of $1,000,000, iii) event of
bankruptcy, and iv) material breach of representations, covenant or other term.
Upon an event of default, the notes will become immediately due and payable.

The Company was required under the agreement to file a registration
statement by May 9, 2003, covering the resale of the issued shares. The
Company is required to pay cash penalties if the registration statement is not
declared effective by July 24, 2003.

The Company has the right at any time to redeem up to all of the
outstanding notes at par plus accrued and unpaid interest.

The $3,500,000 of proceeds was allocated to subordinated notes, common
stock, and equity based on the market value of the Companys common stock on
March 26, 2003. In accordance with the provisions of APB Opinion No. 21, the Company
recorded a debt discount of $2,024,000. Debt issue costs accrued, which
amounted to $116,000, were recorded as other assets in the Companys
consolidated balance sheets as of March 31, 2003 in accordance
with APB Opinion No. 21.
The amortization of the discount on the subordinated notes and debt issue
costs totaling $6,000 were accounted for using the interest method, in
accordance with the provisions of APB Opinion No. 21.

4. Related Party Transactions

During the three months ended March 31, 2003, the Company recorded
revenues totaling $1,038,000 related to agreements with America Online, Inc.
(AOL). As of
March 31, 2003, the Company has $784,000 in accounts receivable and $119,000 in
deferred revenues relating to transactions entered into with AOL and Computer
Associates, Inc. (Computer Associates), both of whom have representatives on
the Companys Board of Directors. During the three months ended March 31,
2002, the Company recorded revenues totaling $2,622,000 related to agreements,
including reseller arrangements, with AOL and Computer Associates.

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Restructuring and Impairment Charges

In February 2003, the Company implemented a restructuring plan in order to
reduce operating expenses by closing the Companys Utah office and terminating
28 employees in that office who were primarily engaged in sales and marketing
activities. In accordance with SFAS No. 146 Accounting for Costs Associated
with Exit or Disposal Activities, the Company recorded restructuring charges
of $1,211,000. The restructuring charges represent the fair value of remaining
lease commitments reduced by estimated sublease rentals, employee
severance and termination benefits, the write-off of the net book
value of certain fixed assets used in the Utah office, and other miscellaneous
charges. The restructuring plan was completed by March 31, 2003.

The restructuring reserve activity under the 2003 restructuring plan for
the period ended March 31, 2003 was as follows (in thousands):

|                       |                                             |   |                |     |           |   |         |     |                |   |          |     |            |   |     |     | 
|---------------------- | ------------------------------------------- | - | -------------- | --- | --------- | - | ------- | --- | -------------- | - | -------- | --- | ---------- | - | --- | --- | 
|                       |                                             |   |                |     |           |   |         |     |                |   | Non-Cash |     | Balance at
|                       |                                             |   | Initial Charge |     | Cash Paid |   | Charges |     | March 31, 2003
|                       |                                             |   |                |     |           |   |         |     |               
|Restructuring charges: |                                             |   |                |     |           |   |         |     |                |   |          |     |            |   |     |    
|                       | Lease costs                                 |   | $              | 459 |           |   | $       | 36  |                |   | $        |    |            |   | $   | 423 | 
|                       | Employee severance and termination
benefits |   |                | 367 |           |   |         | 350 |                |   |          |    |            |   |     | 17  | 
|                       | Asset
write-offs                            |   |                | 361 |           |   |         |    |                |   |          | 361 |            |   |     |    | 
|                       | Miscellaneous charges                       |   |                | 24  |           |   |         | 24  |                |   |          |    |            |   |     |    | 
|                       |                                             |   |                |     |           |   |         |     |                |   |          |     |            |   |     |    
|Restructuring accrual  |                                             | $ | 1,211          |     |           | $ | 410     |     |                | $ | 361      |     |            | $ | 440 |    
|                       |                                             |   |                |     |           |   |         |     |                |   |          |     |            |   |     |     | 

6. Comprehensive Loss

Total comprehensive loss for the three months ended March 31, 2003 and
2002 consisted of the following (in thousands):

|                                                |  |              |        |      |  |   |         |  
|----------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------- | -
|                                                |  | THREE MONTHS
|                                                |  | ENDED       
|                                                |  | March 31,   
|                                                |  |             
|                                                |  | 2003         |        | 2002
|                                                |  |              |        |     
|Net loss                                        |  | $            | (6,506 | )    |  | $ | (10,984 | )
|Foreign currency translation adjustment         |  |              | (8     | )    |  |   | (8      | )
|Unrealized gain (loss) on marketable securities |  |              | 1      |      |  |   | (47     | )
|                                                |  |              |        |      |  |   |         |  
|Comprehensive loss                              |  | $            | (6,513 | )    |  | $ | (11,039 | )
|                                                |  |              |        |      |  |   |         |  

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##### Table of Contents






Item 2. 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 Quarterly Report on Form 10-Q
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from the results implied by the
forward looking statements. 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 any future reports
to be filed in 2003 and our Annual Report on Form 10-K for 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 these forward-looking statements, which speak only as
of the date of this Quarterly Report on Form 10-Q. 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 (Viewpoint or the Company) provides interactive
media technologies and digital content creation services for website marketing,
online advertising, and embedded applications. Our graphics operating system
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s primary initiatives include:



| |  |  | Licensing technology for specific marketing and e-commerce
visualization solutions;                                                                                                                                  
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Providing a full range of fee-based digital content creation
and engineering professional services for implementing visualization
solutions and creating new and enhancing existing
enterprise software applications;
|
| |  |  | Proliferating the Viewpoint format into digital advertisements on
various digital media, primarily the Web;                                                                                                          
|
| |  |  | 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, Viewpoint Media Player.                                                  

Viewpoint believes that its success will depend largely on its ability to
improve and enhance its interactive media technologies. Accordingly, Viewpoint
has invested 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.

Viewpoint has a limited operating history upon which an evaluation of the
Company and its prospects can be based. Viewpoint has had significant quarterly
and annual operating losses since its inception, and as of March 31, 2003, had
an accumulated deficit of $230,583,000. 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.

15



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##### Table of Contents



RESULTS OF OPERATIONS

The following table sets forth for the three months ended March 31, 2003
and 2002, the Companys consolidated statements of operations expressed as a
percentage of total revenues for the periods indicated:

|                                                              |                                                                                                         |  |              |     |      |  |      |     |  
|------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  | ------------ | --- | ---- |  | ---- | --- | -
|                                                              |                                                                                                         |  | Three Months
|                                                              |                                                                                                         |  | Ended       
|                                                              |                                                                                                         |  | March 31,   
|                                                              |                                                                                                         |  |             
|                                                              |                                                                                                         |  | 2003         |     | 2002
|                                                              |                                                                                                         |  |              |     |     
|Statements of Operations Data                                 |                                                                                                         |  |              |     |      |  |      |    
|Revenues:                                                     |                                                                                                         |  |              |     |      |  |      |    
|                                                              | Licenses                                                                                                |  |              | 41  | %    |  |      | 25  | %
|                                                              | Related party licenses                                                                                  |  |              | 1   |      |  |      | 48  |  
|                                                              | Services                                                                                                |  |              | 34  |      |  |      | 21  |  
|                                                              | Related party services                                                                                  |  |              | 24  |      |  |      | 6   |  
|                                                              |                                                                                                         |  |              |     |      |  |      |    
|Total revenues                                                |                                                                                                         |  | 100          |     |      |  | 100  |    
|                                                              |                                                                                                         |  |              |     |      |  |      |    
|Cost of revenues:                                             |                                                                                                         |  |              |     |      |  |      |    
|                                                              | Licenses                                                                                                |  |              | 1   |      |  |      | 2   |  
|                                                              | Services                                                                                                |  |              | 29  |      |  |      | 19  |  
|                                                              |                                                                                                         |  |              |     |      |  |      |    
|Total cost of revenues                                        |                                                                                                         |  | 30           |     |      |  | 21   |    
|                                                              |                                                                                                         |  |              |     |      |  |      |    
|Gross profit                                                  |                                                                                                         |  | 70           |     |      |  | 79   |    
|                                                              |                                                                                                         |  |              |     |      |  |      |    
|Operating expenses:                                           |                                                                                                         |  |              |     |      |  |      |    
|                                                              | Sales and marketing (including non-cash stock-based
compensation charges)                               |  |              | 95  |      |  |      | 79  |  
|                                                              | Research and development (including non-cash
stock-based compensation charges)                          |  |              | 37  |      |  |      | 29  |  
|                                                              | General and administrative (including non-cash
stock-based compensation charges)                        |  |              | 51  |      |  |      | 45  |  
|                                                              | Depreciation                                                                                            |  |              | 12  |      |  |      | 10  |  
|                                                              | Amortization of intangible assets                                                                       |  |              |    |      |  |      | 14  |  
|                                                              | Restructuring
and impairment charges related to office closure                                          |  |              | 30  |      |  |      |    |  
|                                                              | Impairment
of goodwill and other intangible assets                                                      |  |              |    |      |  |      | 129 |  
|                                                              |                                                                                                         |  |              |     |      |  |      |    
|Total operating expenses                                      |                                                                                                         |  | 225          |     |      |  | 306  |    
|                                                              |                                                                                                         |  |              |     |      |  |      |    
|Loss from operations                                          |                                                                                                         |  | (155         | )   |      |  | (227 | )  
|                                                              |                                                                                                         |  |              |     |      |  |      |    
|Other income (expense):                                       |                                                                                                         |  |              |     |      |  |      |    
|                                                              | Interest and other income, net                                                                          |  |              | 1   |      |  |      | 1   |  
|                                                              | Interest expense                                                                                        |  |              | (4  | )    |  |      |    |  
|                                                              | Loss on early extinguishment of debt                                                                    |  |              | (41 | )    |  |      |    |  
|                                                              | Changes in fair values of warrants to purchase
common stock and conversion
options of convertible notes |  |              | 35  |      |  |      |    |  
|                                                              |                                                                                                         |  |              |     |      |  |      |    
|Total other income (expenses)                                 |                                                                                                         |  | (9           | )   |      |  | 1    |    
|                                                              |                                                                                                         |  |              |     |      |  |      |    
|Net loss from continuing operations                           |                                                                                                         |  | (164         | )   |      |  | (226 | )  
|Adjustment to net loss on disposal of
discontinued operations |                                                                                                         |  | 2            |     |      |  |     |    
|                                                              |                                                                                                         |  |              |     |      |  |      |    
|Net loss                                                      |                                                                                                         |  | (162         | )%  |      |  | (226 | )% 
|                                                              |                                                                                                         |  |              |     |      |  |      |    

Revenues

|                    |                        |                |   |                        |       |           |   |        |       |  |  |     |     |   
|------------------- | ---------------------- | -------------- | - | ---------------------- | ----- | --------- | - | ------ | ----- |  |  | --- | --- | --
|                    |                        |                |   | March 31,              |       | March 31, |   | %     
|                    |                        |                |   | 2003                   |       | 2002      |   | Change
|                    |                        |                |   |                        |       |           |   |       
|                    |                        |                |   | (dollars in thousands) |       |           |   |       
|Three months ended: |                        |                |   |                        |       |           |   |        |       |  |  |    
|                    | Licenses               |                | $ | 1,632                  |       |           | $ | 1,204  |       |  |  | 36  | %  
|                    | Related party licenses |                |   | 50                     |       |           |   | 2,335  |       |  |  | (98 | )% 
|                    | Services               |                |   | 1,355                  |       |           |   | 1,032  |       |  |  | 31  | %  
|                    | Related party services |                |   | 988                    |       |           |   | 287    |       |  |  | 244 | %  
|                    |                        |                |   |                        |       |           |   |        |       |  |  |    
|                    |                        | Total revenues |   | $                      | 4,025 |           |   | $      | 4,858 |  |  |     | (17 | )%

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.

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Viewpoint generates revenues through two sources: (a) software licenses
and (b) services. 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
revenues from customers include sales of perpetual and term based
licenses for broadcasting digital content in the Viewpoint format. License
revenues are recognized over the term of the license in a term-based broadcast
license model when the term is less then 15 months, and up-front in a perpetual
broadcast license model and a term-based broadcast license model when the term
is 15 months or longer, providing that no significant vendor obligations remain
and the resulting receivable is deemed collectible by management. License
revenues from VARs require either (i) an up-front, non-refundable payment or
(ii) a percentage royalty based on sell through, or both as consideration for
the right to resell our technology. Up-front, non-refundable payments are
recognized when the license right begins and the technology has been delivered
to the VAR, which is upon contract signing, provided all other revenue
recognition criteria are met and no further obligations exist. For
arrangements that do not call for an up-front, non-refundable payment, revenue
is recognized as the royalties are earned, which is upon notification of sell
through, provided all other revenue recognition criteria are met and no further
obligations exist.

Fee-based professional services for customized software development are
performed on a time-and-material or fixed-fee basis, under separate service
arrangements. Revenues for fixed-fee arrangements 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 and SAB No. 101. Percentage-of-completion for service contracts is
measured principally by the percentage of costs incurred and accrued to date
for each contract, which principally consist of direct labor costs and
overhead, 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.

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.

For arrangements involving multiple elements, we defer revenue for the
undelivered elements based on their relative fair value and recognize the
difference between the total arrangement fee and the amount deferred for the
undelivered elements as revenue. The determination of fair value of each
undelivered element in multiple element arrangements is based on the price
charged when the same element is sold separately. For maintenance and
technical support elements, we use renewal rates to determine the price when
sold separately.

License revenues increased approximately $428,000 or 36% for the three
months ended March 31, 2003 compared to the same period last year. Service
revenues increased approximately $323,000 or 31% for the three months ended
March 31, 2003 compared to the same period last year.

Throughout 2001 and the first three quarters of 2002, the Companys sales
and marketing efforts were directed at the broad spectrum of businesses with a
presence on the internet. Beginning in the third quarter of 2002, the Company
narrowed the focus of its direct sales and marketing efforts to companies in
the automotive and consumer electronics industries and introduced its
online advertising product. The Company believes that by narrowing its
focus, it is better able to tailor its offerings to meet the specific desires
of customers in fewer sectors which, in turn, increases the likelihood of sale.
The Company further believes that the increase in license and service
revenues from unrelated parties for the three months ended March 31, 2003
compared to the same period last year is primarily due to this increased focus.

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Related party license revenues decreased approximately $2,285,000 or
98% for the three months ended March 31, 2003 compared to the same period last
year. The decrease in related party license revenues stems from the
Companys contract with America Online, Inc. (AOL), under which the Company
recognizes license revenues when payments are due. No payments were due from
AOL in accordance with the contract during the three months ended March 31,
2003.

Related party service revenues increased approximately $701,000 or 244%
for the three months ended March 31, 2003 compared to the same period last
year, due to an $826,000 increase in the volume of content creation and
engineering professional services performed for AOL which was partially offset
by a $125,000 decrease in engineering professional services work related to Computer
Associates, Inc. (Computer Associates).

Cost of revenues

|                    |          |                              |   |                        |       |           |   |        |       |   |  |     |    |  
|------------------- | -------- | ---------------------------- | - | ---------------------- | ----- | --------- | - | ------ | ----- | - |  | --- | -- | -
|                    |          |                              |   | March 31,              |       | March 31, |   | %     
|                    |          |                              |   | 2003                   |       | 2002      |   | Change
|                    |          |                              |   |                        |       |           |   |       
|                    |          |                              |   | (dollars in thousands) |       |           |   |       
|Three months ended: |          |                              |   |                        |       |           |   |        |       |   |  |    
|                    | Licenses |                              | $ | 47                     |       |           | $ | 109    |       |   |  | (57 | )%
|                    | Services |                              |   | 1,176                  |       |           |   | 908    |       |   |  | 30  | % 
|                    |          |                              |   |                        |       |           |   |        |       |   |  |    
|                    |          | Total cost of revenues       |   | $                      | 1,223 |           |   | $      | 1,017 |   |  |     | 20 | %
|                    |          | Percentage of total revenues |   |                        | 30    | %         |   |        | 21    | % |  |     |    |  

Costs of revenues consist primarily of salaries and consulting fees for
those who provide fee-based content creation and engineering professional
services. The increase in cost of revenues is primarily related to an increase
in fee-based professional services, which was partially offset by higher
margins related to engineering professional services.

Sales and marketing (including non-cash stock-based compensation charges
totaling $439 and $1,044 for the three months ended March 31, 2003 and 2002,
respectively)

|                    |                              |  |                        |       |           |  |        |       |   |  |  |    |   
|------------------- | ---------------------------- |  | ---------------------- | ----- | --------- |  | ------ | ----- | - |  |  | -- | --
|                    |                              |  | March 31,              |       | March 31, |  | %     
|                    |                              |  | 2003                   |       | 2002      |  | Change
|                    |                              |  |                        |       |           |  |       
|                    |                              |  | (dollars in thousands) |       |           |  |       
|Three months ended: |                              |  |                        |       |           |  |        |       |   |  |  |   
|                    | Sales and marketing          |  | $                      | 3,821 |           |  | $      | 3,841 |   |  |  | (1 | )%
|                    | Percentage of total revenues |  |                        | 95    | %         |  |        | 79    | % |  |  |    |   

Sales and marketing expenses include salaries and benefits, sales
commissions, non-cash stock-based compensation charges, consulting
fees, and
travel and entertainment 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 by $20,000 or 1% for the three
months ended March 31, 2003 compared to the same period last year due to a
decrease in non-cash stock-based compensation charges of $605,000 partially
offset by an increase in consulting expenses of $470,000 and travel and
entertainment expenses of $108,000. Non-cash stock-based compensation charges
decreased due to headcount reductions in marketing and creative service
personnel who had received option grants in the past where the exercise price
was lower than the market value of the Companys common stock on the date of
grant. Currently the Company issues stock options to new personnel with an
exercise price equal to the market value of the common stock on the date of
grant. Consulting expenses increased due to training related costs associated
with the Companys plan to outsource certain content creation services to
international partners, which the Company expects will increase its fee-based
professional service margins over time. Travel and entertainment expenses
increased due to an increased number of direct sales personnel during the three
months ended March 31, 2003 compared to the same period last year.

Quarterly savings of approximately $600,000 in sales and marketing
expenses are expected to be realized in the second quarter of 2003, resulting
from the Companys office consolidation and accompanying workforce reductions

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in Utah, as well as workforce reductions in New York and California, which
occurred during the first quarter of 2003.

Research and development (including non-cash stock-based compensation charges
totaling $159 and $195 for the three months ended March 31, 2003 and 2002,
respectively)

|                    |                              |  |                        |       |           |  |        |       |   |  |  |   |  
|------------------- | ---------------------------- |  | ---------------------- | ----- | --------- |  | ------ | ----- | - |  |  | - | -
|                    |                              |  | March 31,              |       | March 31, |  | %     
|                    |                              |  | 2003                   |       | 2002      |  | Change
|                    |                              |  |                        |       |           |  |       
|                    |                              |  | (dollars in thousands) |       |           |  |       
|Three months ended: |                              |  |                        |       |           |  |        |       |   |  |  |  
|                    | Research and development     |  | $                      | 1,473 |           |  | $      | 1,386 |   |  |  | 6 | %
|                    | Percentage of total revenues |  |                        | 37    | %         |  |        | 29    | % |  |  |   |  

Research and development expenses consist primarily of salaries and
benefits for software developers, contracted development efforts, and non-cash
stock-based compensation charges 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 has
substantially coincided. As a result, the Company has not capitalized any
internal software development costs since costs qualifying for such
capitalization have not been significant. Additionally, the Company capitalizes
costs of software, consulting services, hardware and payroll-related costs
incurred to purchase or develop internal-use software, when technological
feasibility has been established, it is probable that the project will be
completed and the software will be used as intended. The Company expenses costs
incurred during preliminary project assessment, research and development,
re-engineering, training and application maintenance.

The Companys research and development efforts are primarily directed at
improving the overall quality of the Viewpoint Media Player and its proprietary
software tools for creating digital content. In 2002, the Company: developed a
color swapping feature of its graphics operating system that permits end
users to change the colors of textures on static two-dimensional
images; developed audio features for its graphics operating system;
improved the quality of its ability to play back vector graphics animation
files; and built an infrastructure for the delivery of online advertising
products. Since December 2002, the Company has been developing a significant
enhancement to the video playback functionality of the Viewpoint Media Player
which the Company expects to make available in June 2003.

Research and development expenses increased by $87,000 or 6% for the three
months ended March 31, 2003 compared to the same period last year. The
expenses within research and development remained relatively constant for the
three months ended March 31, 2003 compared to the same period last year, with
minor increases contributing to the overall increase in research and development
expenses.

Quarterly savings of approximately $200,000 in research and development
expenses are expected to be realized in the second quarter of 2003, resulting
from the Companys office consolidation and accompanying workforce reductions
in Utah, as well as workforce reductions in New York and California, which
occurred in the first quarter of 2003.

General and administrative (including non-cash stock-based compensation charges
totaling $412 and $414 for the three months ended March 31, 2003 and 2002,
respectively.

|                    |                              |  |                        |       |           |  |        |       |   |  |  |    |   
|------------------- | ---------------------------- |  | ---------------------- | ----- | --------- |  | ------ | ----- | - |  |  | -- | --
|                    |                              |  | March 31,              |       | March 31, |  | %     
|                    |                              |  | 2003                   |       | 2002      |  | Change
|                    |                              |  |                        |       |           |  |       
|                    |                              |  | (dollars in thousands) |       |           |  |       
|Three months ended: |                              |  |                        |       |           |  |        |       |   |  |  |   
|                    | General and administrative   |  | $                      | 2,016 |           |  | $      | 2,205 |   |  |  | (9 | )%
|                    | Percentage of total revenues |  |                        | 51    | %         |  |        | 45    | % |  |  |    |   

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

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General and administrative expenses decreased by $189,000 or 9% for the
three months ended March 31, 2003 compared to the same period last year. The
expenses within general and administrative remained relatively constant for the
three months ended March 31, 2003 compared to the same period last year, with
minor decreases causing the overall decrease in general and administrative
expenses.

Quarterly savings of approximately $100,000 in general and administrative
expenses are expected to be realized in the second quarter of 2003, resulting
from the Companys office consolidation and accompanying workforce reductions
as well as workforce reductions in New York and California, which occurred
during the first quarter of 2003.

Depreciation

|                    |                              |  |                        |     |           |  |        |     |   |  |  |    |   
|------------------- | ---------------------------- |  | ---------------------- | --- | --------- |  | ------ | --- | - |  |  | -- | --
|                    |                              |  | March 31,              |     | March 31, |  | %     
|                    |                              |  | 2003                   |     | 2002      |  | Change
|                    |                              |  |                        |     |           |  |       
|                    |                              |  | (dollars in thousands) |     |           |  |       
|Three months ended: |                              |  |                        |     |           |  |        |     |   |  |  |   
|                    | Depreciation                 |  | $                      | 478 |           |  | $      | 498 |   |  |  | (4 | )%
|                    | Percentage of total revenues |  |                        | 12  | %         |  |        | 10  | % |  |  |    |   

Depreciation expense decreased $20,000, or 4%, for the three months ended
March 31, 2003, compared to the same period last year due to the write-off of
certain fixed assets related to the closure of the Companys Utah office.

Amortization of intangible assets

|                    |                                   |  |                        |   |           |  |        |     |   |  |  |      |   
|------------------- | --------------------------------- |  | ---------------------- | - | --------- |  | ------ | --- | - |  |  | ---- | --
|                    |                                   |  | March 31,              |   | March 31, |  | %     
|                    |                                   |  | 2003                   |   | 2002      |  | Change
|                    |                                   |  |                        |   |           |  |       
|                    |                                   |  | (dollars in thousands) |   |           |  |       
|Three months ended: |                                   |  |                        |   |           |  |        |     |   |  |  |     
|                    | Amortization of intangible assets |  | $                      | 1 |           |  | $      | 661 |   |  |  | (100 | )%
|                    | Percentage of total revenues      |  |                        |  | %         |  |        | 14  | % |  |  |      |   

Amortization of intangible assets decreased $660,000 for the three months
ended March 31, 2003 compared to the same period last year as all intangible
assets acquired in the Viewpoint Digital transaction were either fully
amortized or written off in accordance with the Financial Accounting Standards
Boards (FASB) Statement of Financial Accounting Standards (SFAS) No. 144
Accounting for the Impairment or Disposal of Long-Lived Assets during the
three months ended March 31, 2002.

Restructuring and impairment charges related to office closure

|                    |                                                                |  |                        |       |           |  |        |   |   |  |  |     | 
|------------------- | -------------------------------------------------------------- |  | ---------------------- | ----- | --------- |  | ------ | - | - |  |  | --- | 
|                    |                                                                |  | March 31,              |       | March 31, |  | %     
|                    |                                                                |  | 2003                   |       | 2002      |  | Change
|                    |                                                                |  |                        |       |           |  |       
|                    |                                                                |  | (dollars in thousands) |       |           |  |       
|Three months ended: |                                                                |  |                        |       |           |  |        |   |   |  |  |    
|                    | Restructuring
and impairment charges related to office closure |  | $                      | 1,211 |           |  | $      |  |   |  |  | N/A | 
|                    | Percentage of total revenues                                   |  |                        | 30    | %         |  |        |  | % |  |  |     | 

In February 2003, the Company implemented a restructuring plan in order to
reduce operating expenses by closing the Companys Utah office and terminating
28 employees in that office who were primarily engaged in sales and marketing
activities. In accordance with SFAS No. 146 Accounting for Costs Associated
with Exit or Disposal Activities, the Company incurred restructuring charges
of $1,211,000. The restructuring charges are comprised of $459,000 related to the
fair value of remaining lease commitments reduced by estimated sublease
rentals, $367,000 for employee severance and termination benefits,
$361,000 for the write-off of the net book value of certain fixed
assets used in the Utah office, and $24,000
in other miscellaneous charges. The restructuring plan was completed by March
31, 2003.

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Impairment of goodwill and other
intangible assets

|                    |                                                    |  |                        |   |           |  |        |       |   |  |  |      |   
|------------------- | -------------------------------------------------- |  | ---------------------- | - | --------- |  | ------ | ----- | - |  |  | ---- | --
|                    |                                                    |  | March 31,              |   | March 31, |  | %     
|                    |                                                    |  | 2003                   |   | 2002      |  | Change
|                    |                                                    |  |                        |   |           |  |       
|                    |                                                    |  | (dollars in thousands) |   |           |  |       
|Three months ended: |                                                    |  |                        |   |           |  |        |       |   |  |  |     
|                    | Impairment of goodwill and other intangible assets |  | $                      |  |           |  | $      | 6,275 |   |  |  | (100 | )%
|                    | Percentage of total revenues                       |  |                        |  | %         |  |        | 129   | % |  |  |      |   

In conjunction with the implementation of SFAS No. 142 Goodwill and Other
Intangible Assets, the Company completed a goodwill impairment review as of
January 1, 2002 and found no impairment on that date. As of March 31, 2002,
due to the persistence of unfavorable economic conditions along with
lower-than-expected revenues generated to date and reduced estimates of future
performance of the Viewpoint Digital assets, the Company performed an
additional impairment analysis on the goodwill and other intangible asset
balances recorded upon the acquisition of Viewpoint Digital. In accordance
with the provisions of SFAS No. 142 and SFAS No. 144, the Company recorded
impairment charges totaling $6,275,000 during the three months ended
March 31, 2002. The
fair value of the Viewpoint Digital assets was estimated using the expected
present value of future cash flows. The assumptions supporting the cash flows,
including a discount rate of 20%, were determined using the Companys best
estimates as of the date the impairment was recorded.

In accordance with the provisions of SFAS No. 142, the Company completed a
goodwill impairment review as of January 1, 2003 and found no impairment on
that date.

During the three months ended March 31, 2003, the market value of the
Companys equity securities declined below the Companys carrying value
indicating the existence of a potential goodwill impairment. In accordance
with SFAS No. 142, the Company performed the first step of the goodwill
impairment test as of March 31, 2003. The fair value of the Company was
determined to exceed its carrying value based on an independent appraisal using
a market-based approach with selected multiples ranging from 1.5 to 2.0 times
revenues and 1.8 to 2.5 times gross profit. In accordance with SFAS No. 142,
the second step of the impairment test was unnecessary, and no goodwill
impairment charges were recorded.

Interest and other income, net

|                               |  |                        |    |           |  |        |    |   |  |  |     |   
|------------------------------ |  | ---------------------- | -- | --------- |  | ------ | -- | - |  |  | --- | --
|                               |  | March 31,              |    | March 31, |  | %     
|                               |  | 2003                   |    | 2002      |  | Change
|                               |  |                        |    |           |  |       
|                               |  | (dollars in thousands) |    |           |  |       
|Interest and other income, net |  | $                      | 23 |           |  | $      | 41 |   |  |  | (44 | )%
|Percentage of total revenues   |  |                        | 1  | %         |  |        | 1  | % |  |  |     |   

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

Interest and other income, net, decreased $18,000 or 44% for the three
months ended March 31, 2003 compared to the same period last year due to a
decrease in average cash, cash equivalents, and marketable securities balances
as well as a decline in market interest rates.

Interest expense

|                             |  |                        |      |           |  |        |   |   |  |  |     | 
|---------------------------- |  | ---------------------- | ---- | --------- |  | ------ | - | - |  |  | --- | 
|                             |  | March 31,              |      | March 31, |  | %     
|                             |  | 2003                   |      | 2002      |  | Change
|                             |  |                        |      |           |  |       
|                             |  | (dollars in thousands) |      |           |  |       
|Interest expense             |  | $                      | (163 | )         |  | $      |  |   |  |  | N/A | 
|Percentage of total revenues |  |                        | (4   | )%        |  |        |  | % |  |  |     | 

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Interest expense consists of interest paid and accrued, and amortization of
debt discount and debt issue costs on
the Companys outstanding convertible and subordinated notes.

Loss on early extinguishment of debt

| |                                      |  |                        |        |           |  |        |   |   |  |  |     | 
| | ------------------------------------ |  | ---------------------- | ------ | --------- |  | ------ | - | - |  |  | --- | 
| |                                      |  | March 31,              |        | March 31, |  | %     
| |                                      |  | 2003                   |        | 2002      |  | Change
| |                                      |  |                        |        |           |  |       
| |                                      |  | (dollars in thousands) |        |           |  |       
| | Loss on early extinguishment of debt |  | $                      | (1,682 | )         |  | $      |  |   |  |  | N/A | 
| | Percentage of total revenues         |  |                        | (41    | )%        |  |        |  | % |  |  |     | 

On December 31, 2002, the Company completed a private placement of
convertible notes and warrants in which it issued to three institutional
investors, 4.95% convertible notes having an aggregate principal amount of
$7,000,000, and warrants to purchase 726,330 shares of Company common stock.
Interest on the convertible notes was payable quarterly in arrears in cash or,
at the option of the Company, in shares of Company common stock, provided the
Company satisfied certain financial and other conditions. The convertible
notes were to mature on December 31, 2007, unless earlier converted into shares
of Company common stock at a price of $2.26 per share. The warrants expire on
December 31, 2006, and are exercisable at a price of $2.26 per share.

On February 28, 2003, the Company received notices of default from two of
the three investors. The notices alleged that the Company was in default of
the notes because it had breached certain representations and warranties in the
Securities Purchase Agreement.

On March 25, 2003, the Company entered into Redemption, Amendment and
Exchange Agreements with the three institutional investors with whom it had
completed the private placement of convertible notes and warrants on December
31, 2002. Pursuant to these agreements, the notice of default was withdrawn
and Viewpoint redeemed an aggregate of $3,300,000 principal amount of the
outstanding convertible notes, exchanged an aggregate of $1,000,000 principal
amount of the outstanding convertible notes for shares of Viewpoint common
stock at $0.74 per share, and exchanged the remaining $2,700,000 principal
amount of outstanding convertible notes for $2,700,000 principal amount of new
convertible notes. The convertible notes were issued in three tranches of
$900,000 each. The warrants to purchase 726,330 shares of Company common
stock, which were issued to these investors on December 31, 2002, remain
outstanding.

In accordance with the provisions of Accounting Principals Board (APB)
Opinion No. 26 Early Extinguishment of Debt, and Emerging Issues Task Force
(EITF) Issue No. 96-19 Debtors Accounting for a Modification or Exchange of
Debt Instruments, the Company recorded a loss on the early extinguishment of
the original convertible notes in the amount of $1,682,000 of which $650,000
related to the write-off of deferred loan costs. The carrying value of the
convertible notes at the time of the exchange was $5,643,000, inclusive of
$55,000, which represented the fair value of the conversion options. In
conjunction with the extinguishment, the Company paid $3,300,000, issued new
convertible notes in the principal amount of $2,700,000 and issued 1,351,351
shares of its common stock with a market value of $675,000. The difference
between (i) the carrying value of the outstanding convertible notes exchanged
and (ii) cash paid and the fair value of the common stock and
new convertible notes issued, amounted to
$1,032,000 and was included in the loss on early extinguishment of debt.

The Company charged the loss on early extinguishment of debt to operations
as such loss did not qualify for classification as extraordinary based on the
provisions of SFAS No. 145 Rescission of FASB Statements No. 4, 44, and 64,
Amendment of , and Technical Corrections, and APB 30 Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.

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Changes in fair value of warrants to purchase common stock and conversion
options of convertible notes

| |                                                                                                        |  |                        |       |           |  |        |   |   |  |  |     | 
| | ------------------------------------------------------------------------------------------------------ |  | ---------------------- | ----- | --------- |  | ------ | - | - |  |  | --- | 
| |                                                                                                        |  | March 31,              |       | March 31, |  | %     
| |                                                                                                        |  | 2003                   |       | 2002      |  | Change
| |                                                                                                        |  |                        |       |           |  |       
| |                                                                                                        |  | (dollars in thousands) |       |           |  |       
| | Changes in fair value of
warrants to purchase common
stock and conversion
options of convertible
notes |  | $                      | 1,424 |           |  | $      |  |   |  |  | N/A | 
| | Percentage of total revenues                                                                           |  |                        | 35    | %         |  |        |  | % |  |  |     | 

Based on the provisions of SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, and EITF Issue No. 00-19 Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock, the Company recorded income based on the decrease in fair
values of the conversion options of its convertible notes of $1,183,000 and
warrants of $241,000.

Adjustment to net loss on disposal of discontinued operations

| |                                                           |  |                        |    |           |  |        |   |   |  |  |     | 
| | --------------------------------------------------------- |  | ---------------------- | -- | --------- |  | ------ | - | - |  |  | --- | 
| |                                                           |  | March 31,              |    | March 31, |  | %     
| |                                                           |  | 2003                   |    | 2002      |  | Change
| |                                                           |  |                        |    |           |  |       
| |                                                           |  | (dollars in thousands) |    |           |  |       
| | Adjust to net loss on disposal of discontinued operations |  | $                      | 90 |           |  | $      |  |   |  |  | N/A | 
| | Percentage of total revenues                              |  |                        | 2  | %         |  |        |  | % |  |  |     | 

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

Adjustment to net loss on disposal of discontinued operations increased by
$90,000 for the three months ended March 31, 2003 compared to the same period
last year due to royalty payments received related to certain prepackaged
software.

Factors That May Affect Future Results of Operations

We believe that in the future our results of operations could be affected
by various factors including:



| |  |  | We have a history of losses and expect to incur losses in the
future, which may cause our share price to decline;                                                     
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our future revenues may be unpredictable and may cause our
quarterly results to fall below market expectations;                                                       
|
| |  |  | We may have to obtain financing on less favorable terms, which
could dilute current stockholders ownership interests in the Company;                                 
|
| |  |  | We have limited cash resources which could limit our ability to fund operations;                                                                                      
|
| |  |  | Our stock price is volatile, which could subject us to class action litigation;                                                                                       
|
| |  |  | We may be delisted from Nasdaq, which would adversely impact our
stock price and the ability of our stockholders to purchase and sell
our shares in an orderly manner;
|
| |  |  | We may effect a reverse stock split and if we do so, our stock
price may decline after the reverse stock split;                                                       

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| |  |  | If the Internet does not become a more widespread commerce medium,
demand for our products and technologies may decline significantly;                                                                          
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our market is characterized by rapidly changing technology, and if
we do not respond in a timely manner, our products and technologies may
not succeed in the marketplace;                                      
|
| |  |  | Security risks could limit the growth of e-commerce which would
adversely impact our ability to increase sales of graphics technology;                                                                          
|
| |  |  | We may be unable to protect our intellectual property rights;                                                                                                                                                   
|
| |  |  | We may be liable for infringing the intellectual property rights of others;                                                                                                                                     
|
| |  |  | We may need to enter into business combinations and strategic
alliances, which could be difficult to integrate and may disrupt our
business;                                                                    
|
| |  |  | The loss of our key engineering or management employees would harm
our business;                                                                                                                                
|
| |  |  | If we fail to establish, maintain, or expand our strategic
relationships for the integration of our technology with the services
and products of third parties, the growth of our business may cease or
decline;
|
| |  |  | Clients that account for large portions of our revenues in one
period may not generate similar amounts of revenue in subsequent
periods;                                                                        
|
| |  |  | Our charter documents could make it more difficult for an
unsolicited third party to acquire us.                                                                                                                

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 principals 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 goodwill and other intangible 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 our 2002 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

The Company recognizes revenue in accordance with SOP 97-2, as amended,
and SAB No. 101.

Viewpoint generates revenues through two sources: (a) software licenses
and (b) services. 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
revenues from customers include sales of perpetual and term based
licenses for broadcasting digital content in the Viewpoint format. License
revenues are recognized over the term of the license in a term-based

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broadcast license model when the term is less than 15 months, and up-front
in a perpetual broadcast license model and a term-based broadcast license model
when the term is 15 months or longer, providing that no significant vendor
obligations remain and the resulting receivable is deemed collectible by
management. License revenues from VARs require either (i) an up-front,
non-refundable payment or (ii) a percentage royalty based on sell through, or
both, as consideration for the right to resell our technology. Up-front,
non-refundable payments are recognized when the license right begins and the
technology has been delivered to the VAR, which is upon contract signing,
provided all other revenue recognition criteria are met and no further
obligations exist. For arrangements that do not call for an up-front,
non-refundable payment, revenue is recognized as the royalties are earned,
which is upon notification of sell through, provided all other revenue
recognition criteria are met and no further obligations exist.

Fee-based professional services for customized software development are
performed on a time-and-material or fixed-fee basis, under separate service
arrangements. Revenues for fixed-fee arrangements are recognized on a
percentage-of-completion basis in accordance with the provisions of SOP 81-1
and SAB No. 101. Percentage-of-completion for service contracts is measured
principally by the percentage of costs incurred and accrued to date for each
contract, which principally consist of direct labor costs and overhead, 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.

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.

For arrangements involving multiple elements, we defer revenue for the
undelivered elements based on their relative fair value and recognize the
difference between the total arrangement fee and the amount deferred for the
undelivered elements as revenue. The determination of fair value of each
undelivered element in multiple element arrangements is based on the price
charged when the same element is sold separately. For maintenance and
technical support elements, we use renewal rates to determine the price when
sold separately.

Standard terms for license and service 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 and/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. 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 customers.
Nonmonetary revenues are recognized at the estimated fair value of the services
received. Generally, nonmonetary revenues equal nonmonetary expenses, however,
due to timing, nonmonetary accounts receivable and accounts payable may result.

Goodwill and Intangible Assets

Effective January 1, 2002, the Company completed the adoption of SFAS No.
141, Business Combinations, and SFAS No. 142. SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting. As required by SFAS No. 142, the Company
discontinued amortizing the remaining balances of goodwill as of January 1,
2002. All remaining and future acquired goodwill will be subject to impairment
tests annually, or earlier if indicators of potential impairment exist, using a
fair-value-based approach. When evaluating goodwill for potential impairment,
the Company first compares the fair value of the

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reporting unit, based on market values of the reporting unit or on the
present value of estimated future cash flows, with its carrying amount. If the
estimated fair value of the reporting unit is less than its carrying amount, an
impairment loss calculation is prepared. The impairment loss calculation
compares the implied fair value of the reporting unit goodwill with the
carrying amount of that goodwill. If the carrying amount of the reporting unit
goodwill exceeds the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess. All other intangible assets will
continue to be amortized over their estimated useful lives and assessed for
impairment under SFAS No. 144.

Derivatives

The Company accounts for the fair values of the warrants to purchase
common stock and conversion options of its convertible notes in accordance with
SFAS No. 133, which requires the Company to bifurcate and separately account
for its embedded derivatives contained in the Companys convertible notes. The
Company is required to carry these embedded derivatives on its balance sheet at
fair value and the unrealized changes in the value of these embedded
derivatives are reflected in net income as changes in fair values of warrants
to purchase common stock and conversion options of convertible notes.

Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities which requires the consolidation
by primary beneficiaries of variable interest entities (VIEs), as defined.
The Company is subject to its provisions effective after January 31, 2003 for
newly-acquired VIEs and the first fiscal or interim period beginning after June
15, 2003 for VIE holdings acquired prior to February 1, 2003. The adoption of
FIN No. 46 is not expected to have a material effect on the Companys financial
statements.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents, and marketable securities totaled $6,883,000 at
March 31, 2003, down from $11,568,000 at December 31, 2002.

Net cash used in operating activities of the Company totaled $4,603,000
and $2,916,000 for the three months ended March 31, 2003 and 2002,
respectively. Net cash used in operating activities for the three months ended
March 31, 2003 primarily resulted from a $6,506,000 net loss and $1,424,000 in
income from changes in fair values of warrants to purchase common stock and
conversion options of convertible notes, partially offset by $1,682,000 of a
loss on early extinguishment of debt, $1,211,000 in restructuring and
impairment charges related to an office closure, and $1,010,000 in non-cash stock-based
compensation charges. Net cash used in operating activities for the three months
ended March 31, 2002 primarily resulted from a $10,984,000 net loss, partially
offset by $6,275,000 of impairment of goodwill and other intangible assets,
$1,653,000 in non-cash stock-based compensation charges and $1,159,000 in
depreciation and amortization.

Net cash used in investing activities totaled $348,000 for the three
months ended March 31, 2003, compared to net cash provided by investing
activities of $1,033,000 for the three months ended March 31, 2002. Net cash
used in investing activities for the three months ended March 31, 2003
primarily resulted from $491,000 in net purchases of marketable securities and
$277,000 for the purchase of property and equipment, which was partially offset
by a $424,000 net decrease in restricted cash. Net cash provided by investing
activities for the three months ended March 31, 2002 primarily resulted from
$1,273,000 in net proceeds from sales and maturities of marketable securities,
partially offset by $216,000 for the purchase of property and equipment.

Net cash used in financing activities totaled $218,000 for the three
months ended March 31, 2003, compared to net cash provided by financing
activities of $566,000 for the three months ended March 31, 2002. Net cash
used in financing activities for the three months ended March 31, 2003
primarily resulted from $3,300,000 used for the repayment of convertible notes
and $418,000 used for the payment of debt issue costs, which was partially
offset by $3,500,000 in proceeds from the issuance of subordinated notes and
common stock. Net cash provided by financing

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activities for the three months ended March 31, 2002 was the result of
proceeds received from the exercise of stock options by the Companys
employees.

On December 31, 2002, the Company completed a private placement of
convertible notes and warrants in which it issued to three institutional
investors 4.95% convertible notes having an aggregate principal amount of
$7,000,000, and warrants to purchase 726,330 shares of Company common stock.
Interest on the convertible notes was payable quarterly in arrears in cash or,
at the option of the Company, in shares of Company common stock, provided the
Company satisfied certain financial and other conditions. The convertible
notes were to mature on December 31, 2007, unless earlier converted into shares
of Company common stock at a price of $2.26 per share. The warrants expire on
December 31, 2006, and are exercisable at a price of $2.26 per share.

The Company was required to provide registration rights under the
Securities Act of 1933 for shares of Company common stock covering (i) the
conversion of $7,000,000 in principal, (ii) 726,330 warrants, and (iii) any
potential payment of interest in the form of common stock.

The convertible notes defined several events of default, including but not
limited to: i) failure of the Companys registration statement to be declared
effective by the Securities and Exchange Commission (SEC), ii) delisting from
The Nasdaq National Market or other national exchange, iii) change in control,
iv) event of conversion default such as lack of authorized capital, v) event of
bankruptcy, vi) failure to pay principal and interest on the convertible notes
when payments become due, vii) judgments against the Company in excess of
$1,000,000 and viii) material breach of any representation, warranty, covenant
or other term. Upon an event of default, the convertible notes would become
immediately due and payable, after a grace period to cure the default lapsed.

On February 28, 2003, the Company received notices of default from two of
the three investors. The notices alleged that the Company was in default of
the notes because it had breached certain representations and warranties in the
Securities Purchase Agreement.

On March 25, 2003, the Company entered into Redemption, Amendment and
Exchange Agreements with the three institutional investors with whom it had
completed the private placement of convertible notes and warrants on December
31, 2002. Pursuant to these agreements, the notice of default was withdrawn
and Viewpoint redeemed an aggregate of $3,300,000 principal amount of the
outstanding convertible notes, exchanged an aggregate of $1,000,000 principal
amount of the outstanding convertible notes for shares of Viewpoint common
stock at $0.74 per share, and exchanged the remaining $2,700,000 principal
amount of outstanding convertible notes for $2,700,000 principal amount of new
convertible notes. The convertible notes were issued in three tranches of
$900,000 each. The warrants to purchase 726,330 shares of Company common
stock, which were issued to these investors on December 31, 2002, remain
outstanding.

Interest on the new convertible notes is payable quarterly in arrears in
cash or, at the option of the Company, in shares of Company common stock,
provided the Company satisfies certain financial and other conditions. If
interest is paid in shares of Company common stock, the number of shares to be
issued shall be calculated by dividing the interest payable by 95% of the
arithmetic average of the dollar volume-weighted average price of Company
common stock on each of the five consecutive trading days immediately preceding
the interest payment date. The new convertible notes mature on December 31,
2007, unless earlier converted into shares of Company common stock. The new
convertible notes are initially convertible into Company common stock at a
price of $2.26 per share. However, the conversion price may be adjusted as
follows: (i) the conversion price of the first tranche will be equal to the
arithmetic average of the dollar volume-weighted average price of Company
common stock for the ten trading days following May 16, 2003, (ii) the
conversion price of the second tranche will be equal to such average for the
ten trading days following August 16, 2003, and (iii) the conversion price of
the third tranche will be equal to such average for the ten trading days
following November 16, 2003, provided, that the conversion price for each
tranche of the notes shall not be less than $1.00 nor more than $2.26.

If the Company raises capital after March 31, 2003, up to 20% of the net
proceeds will be used, at the investors option, to redeem outstanding notes at
par plus accrued interest.

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Each tranche of the notes is redeemable by the investors at any time after
June 30, 2004 in cash at par plus accrued and unpaid interest if the dollar
volume-weighted average price of Company common stock is less than the
conversion price applicable to the notes for any 25 consecutive trading days.
If the investors redeem their convertible notes, up to 20% of the amount to be
redeemed may, at the Companys option, be paid in shares of Company common
stock, and said payment would be at 95% of the dollar volume-weighted average
price of Company common stock for the 20 consecutive trading days immediately
preceding payment. Each tranche of the notes is redeemable by the
investors at any time after December 31, 2005, in cash at 83% of par plus accrued and unpaid interest if the dollar
volume-weighted average price of Company common stock is less than the
conversion price applicable to the notes for any 25 consecutive
trading days following December 31, 2005.

The Company has the right at any time to redeem up to all of the
outstanding notes at par plus accrued and unpaid interest. If the redemption
is after April 30, 2003, concurrently with any such redemption, the Company is
required to deliver to the investors warrants, with an exercise price of $1.00
and a term equal to the remaining term of the notes being redeemed, to
subscribe for a number of shares of common stock equal to X% of the principal
amount being redeemed divided by the conversion price of the notes then in
effect. X% means (i) before May 31, 2003, 50% and (ii) after May 31, 2003,
100%.

Each tranche of the notes is convertible at the Companys election at any
time after April 15, 2004 if the dollar volume-weighted average price of
Company common stock exceeds 150% of the conversion price applicable to the
notes for any 25 consecutive trading days following April 15, 2004.

The Company was required to file a registration statement by April 14,
2003, covering the resale of the shares of common stock issued to the investors
in exchange for the $1,000,000 principal of convertible notes, the shares of
common stock issuable to the investors upon the conversion of the notes, the shares of common stock underlying the warrants issued
and to be issued, and any shares of common stock that may be issued as payment
of interest on the notes. The Company is required to pay cash
penalties if the registration statement is not declared effective by June 30,
2003.

The investors may require the Company to sell additional 4.95% convertible
notes having an aggregate principal amount of up to $2,800,000, and warrants to
purchase up to 290,533 shares of Company common stock prior to December 31,
2003 or later if the registration statement is not effective by a certain date.

The Company has the right to sell additional 4.95% convertible notes
having an aggregate principal amount of up to $7,000,000 and warrants to
purchase up to 726,330 shares of Company common stock prior to June 30, 2003,
if the dollar volume-weighted average price of Company common stock exceeds
$3.25 on each of not less than 15 trading days in any 20 consecutive
trading-day period.

Under the terms of the amended agreement, certain covenants and events of
default were restructured as follows: the failure to have its registration
statement declared effective by the SEC and the requirement to remain listed on
The Nasdaq National Market or other national exchange, both of which were
waived through March 2004, unless the Company receives a going concern or
qualified opinion from its auditors. If such a report is received from the
Companys auditors through March 2004, the original events of default remain
effective.

On March 26, 2003, Viewpoint Corporation entered into a Securities
Purchase Agreement with three other accredited investors, pursuant to which
it received $3,500,000 in exchange for an aggregate of $3,500,000 principal
amount of 4.95% subordinated notes and 3,614,756 shares of Viewpoint common
stock.

Interest on these notes is payable quarterly in arrears in cash. The
notes contain certain events of default, including, but not limited to: i)
failure to pay principal and interest on the notes when payments become due,
ii) judgments against the Company in excess of $1,000,000, iii) event of
bankruptcy, and iv) material breach of

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representations, covenant or other term. Upon an event of default, the
notes will become immediately due and payable.

The Company was required under the agreement to file a registration
statement by May 9, 2003, covering the resale of the issued shares. The
Company is required to pay cash penalties if the registration statement is not
declared effective by July 24, 2003.

The Company has the right at any time to redeem up to all of the
outstanding notes at par plus accrued and unpaid interest.

In February 2003, the Company implemented a restructuring plan in order to
reduce operating expenses by closing the Companys Utah office and terminating
28 employees in that office who were primarily engaged in sales and marketing
activities. The Company recorded restructuring charges of $1,211,000. The
restructuring charges represent the fair value of remaining lease commitments
reduced by estimated sublease rentals, employee
severance and termination benefits, the write-off of the net book
value of certain fixed assets used in the Utah office, and other miscellaneous charges. The
restructuring plan was completed by March 31, 2003. The Company anticipates
quarterly savings of approximately $900,000 to be realized in the second
quarter of 2003 related to the restructuring plan.

The Company has contingency plans for 2003 if expected revenue targets are
not achieved. These plans include further workforce reductions as well as
reductions in overhead and capital expenditures.

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.

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Item 3. Quantitative and Qualitative Disclosures About Market 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 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 comprised 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.




Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Within 90 days prior to the date of this report (the Evaluation Date), the
Companys President and Chief Executive Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of the Companys disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934
Rules 13a-14(c) and 15d-14(c)). Based on that evaluation, these officers have
concluded that as of the Evaluation Date, the Companys disclosure controls and
procedures were adequate and designed to ensure that material information
relating to the Company and the Companys consolidated subsidiaries would be
made known to them by others within those entities.

Changes in internal controls

There were no significant changes in the Companys internal controls, or
to the Companys knowledge, in other factors that could significantly affect
the Companys disclosure controls and procedures subsequent to the Evaluation
Date.

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PART II - OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

|               |  |                                                                                                                        
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit Title                                                                                                          
|               |  |                                                                                                                        
|99.1           |  | Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|               |  |                                                                                                                        
|99.2           |  | Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.

(b)  Reports on Form 8-K

On January 2, 2003, the Registrant filed a report on Form 8-K reporting
the private placement of convertible notes and warrants with three
institutional investors on December 31, 2002.

On March 26, 2003, the Registrant filed a report on Form 8-K reporting
that it had entered into Redemption, Amendment and Exchange Agreements with the
three institutional investors that had participated in the private placement on
December 31, 2002.

On March 27, 2003, the Registrant filed a report on Form 8-K reporting
that it closed a private placement of subordinated notes and common stock with
three accredited investors on March 26, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

VIEWPOINT
CORPORATION


|                     |  |     |  |                                                                                       
|-------------------- |  | --- |  | --------------------------------------------------------------------------------------
|                     |  |     |  |                                                                                       
|Dated:  May 15, 2003 |  | By: |  | /s/ ROBERT E. RICE

Robert E. Rice
President and Chief Executive Officer              
|                     |  |     |  |                                                                                       
|Dated:  May 15, 2003 |  | By: |  | /s/ ANTHONY L. PANE

Anthony L. Pane
Senior Vice President and
Chief Financial Officer

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CERTIFICATIONS

I, Robert E. Rice, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Viewpoint
Corporation;

2.    Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.    Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.    The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |  |  | a)  designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | b)  evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  |  | c)  presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.    The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |  |  | a)  all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | b)  any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.    The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                     |  |     |  |                                                                         
|-------------------- |  | --- |  | ------------------------------------------------------------------------
|Dated:  May 15, 2003 |  | By: |  | /s/ ROBERT E. RICE

Robert E. Rice
President and Chief Executive Officer

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I, Anthony L. Pane, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Viewpoint
Corporation;

2.    Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.    Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.    The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |  |  | a)  designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | b)  evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  |  | c)  presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.    The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |  |  | a)  all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | b)  any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.    The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                     |  |     |  |                                                                                       
|-------------------- |  | --- |  | --------------------------------------------------------------------------------------
|Dated:  May 15, 2003 |  | By: |  | /s/ ANTHONY L. PANE

Anthony L. Pane
Senior Vice President and
Chief Financial Officer

34