<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]  Quarterly Report pursuant to Section 13 or 15(d) of the Securities and
     Exchange Act of 1934 For the quarterly period ended September 30, 2000 or

[ ]  Transition Report pursuant to Section 13 or 15(d) of the Securities and
     Exchange Act of 1934 For the transition period from __________ to _________

                         Commission file number 0-27168

                            METACREATIONS CORPORATION
             (Exact name of registrant as specified in its charter)

            Delaware                                  95-4102687
    (State of incorporation)            (I.R.S. Employer Identification Number)

                498 Seventh Ave., Suite 1810, New York, NY 10018
                    (Address of principal executive offices)

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

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

As of November 8, 2000, there were outstanding 28,837,418 shares of the
registrant's Common Stock, $0.001 par value per share, which is the only
outstanding class of common or voting stock of the registrant.


                                       1

<PAGE>   2

                            METACREATIONS CORPORATION

                                    FORM 10-Q

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>          <C>                                                                          <C>
PART I.      FINANCIAL INFORMATION

Item 1.      Financial Statements.....................................................      3

             Consolidated Balance Sheets - September 30, 2000 and
                 December 31, 1999 (unaudited and restated)
             Consolidated Statements of Operations - Three and Nine
                 month periods ended September 30, 2000 and 1999
                 (unaudited and restated)
             Consolidated Statements of Cash Flows - Nine month
                 periods ended September 30, 2000 and 1999 (unaudited and
                 restated)
             Notes to Consolidated Financial Statements (unaudited)

Item 2.      Management's Discussion and Analysis of Financial Condition and Results
                 of Operations........................................................     13

PART II.     OTHER INFORMATION

Item 6.      Exhibits and Reports on Form 8-K.........................................     24

SIGNATURES   .........................................................................     25
</TABLE>


                                       2
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                            METACREATIONS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 SEPTEMBER 30,   DECEMBER 31,
                                                                                    2000             1999
                                                                                -----------------------------
                                                                                  (UNAUDITED)     (RESTATED)
<S>                                                                               <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents ..............................................       $  15,790        $   4,480
   Short-term investments .................................................          16,085           32,836
   Accounts receivable, net ...............................................           2,658              123
   Notes receivable from related parties ..................................              --            1,000
   Prepaid expenses and other current assets...............................           3,074            1,139
   Current assets of discontinued operations ..............................           7,068            4,702
                                                                                  ---------        ---------
        Total current assets ..............................................          44,675           44,280

Property and equipment, net ...............................................           6,163              614
Goodwill and other intangibles ............................................          15,162               --
Other assets ..............................................................             182              308
Non-current assets of discontinued operations .............................              73            1,974
                                                                                  ---------        ---------
       Total assets .......................................................       $  66,255        $  47,176
                                                                                  =========        =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable .......................................................       $   2,036        $     224
   Accrued expenses .......................................................           2,171            1,985
   Current liabilities of discontinued operations .........................             291            9,178
   Provision for loss on disposal of discontinued operations ..............              --            2,653
                                                                                  ---------        ---------
       Total current liabilities ..........................................           4,498           14,040

Mandatorily redeemable preferred stock of subsidiary ......................          20,114               --
Minority interest .........................................................          13,556            6,633

Stockholders' equity:
   Preferred stock, $.001 par value, 5,000 shares authorized - no shares
     issued and outstanding at September 30, 2000 and
     December 31, 1999, respectively.......................................              --               --
   Common stock, $.001 par value; 75,000 shares authorized - 29,029
     and 25,496 shares issued and outstanding at
     September 30, 2000 and December 31, 1999, respectively ...............              29               25
   Paid-in capital ........................................................         163,731          119,940
   Notes receivable from related parties ..................................          (4,967)          (3,467)
   Deferred compensation ..................................................          (1,439)              --
   Accumulated other comprehensive loss ...................................              --             (137)
   Accumulated deficit ....................................................        (129,267)         (89,858)
                                                                                  ---------        ---------
       Total stockholders' equity .........................................          28,087           26,503
                                                                                  ---------        ---------
       Total liabilities and stockholders' equity .........................       $  66,255        $  47,176
                                                                                  =========        =========
</TABLE>

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


                                       3
<PAGE>   4



                            METACREATIONS CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                       THREE MONTHS ENDED               NINE MONTHS ENDED
                                                                          SEPTEMBER 30,                   SEPTEMBER 30,
                                                                  ------------------------------   -----------------------------
                                                                      2000            1999            2000            1999
                                                                  ------------   ---------------   -----------   ---------------
                                                                   (UNAUDITED)   (UNAUDITED AND    (UNAUDITED)   (UNAUDITED AND
                                                                                    RESTATED)                       RESTATED)
<S>                                                                 <C>             <C>             <C>             <C>
Revenues ....................................................       $  1,139        $    646        $  1,456        $  2,924
Cost of revenues ............................................            442              --             442              --
                                                                    --------        --------        --------        --------
   Gross profit .............................................            697             646           1,014           2,924
                                                                    --------        --------        --------        --------
Operating expenses:
   Sales and marketing (excluding non-cash stock-based
     compensation and sales and marketing charges totaling
     $15,218 for three months ended September 30, 2000
     and $24,615 for nine months ended
     September 30, 2000) ....................................          3,548             782           7,913           1,540
   Research and development (excluding non-cash stock-
     based compensation totaling $1,876 for three months
     ended September 30, 2000 and $3,449 for nine months
     ended September 30, 2000) ..............................          1,154             646           3,105           1,875
   General and administrative (excluding non-cash stock-
     based compensation totaling $1,443 for three months
     ended September 30, 2000 and $3,225 for nine months
     ended September 30, 2000) ..............................            939             877           3,022           2,963
   Non-cash stock-based compensation and sales
     and marketing charges ..................................         18,537              --          31,289              --
   Amortization of goodwill and other intangibles ...........            521              38             597              38
   Acquired in-process research and development costs .......            963              --             963              --
                                                                    --------        --------        --------        --------
Total operating expenses ....................................         25,662           2,343          46,889           6,416
                                                                    --------        --------        --------        --------

Loss from operations ........................................        (24,965)         (1,697)        (45,875)         (3,492)
Other income ................................................            607             652           1,594           1,737
                                                                    --------        --------        --------        --------

Loss before provision for income taxes ......................        (24,358)         (1,045)        (44,281)         (1,755)
Provision for income taxes ..................................             --              --              --              --
                                                                    --------        --------        --------        --------

Loss before minority interest in (income) loss of
  subsidiary ................................................        (24,358)         (1,045)        (44,281)         (1,755)
Minority interest in (income) loss of subsidiary ............            873             (87)          4,200             (87)
                                                                    ---------       ---------       --------        ---------

Net loss from continuing operations .........................        (23,485)         (1,132)        (40,081)         (1,842)

Discontinued operations (Note 3):
   Loss from discontinued operations ........................             --          (2,543)             --          (5,786)
   Adjustment to income (loss) on disposal of
     discontinued operations ................................           (593)             --             672              --
                                                                    ---------       --------        --------        ---------
       Net income (loss) from discontinued operations .......           (593)         (2,543)            672          (5,786)
                                                                    ---------       ---------       --------        --------

Net loss ....................................................        (24,078)         (3,675)        (39,409)         (7,628)

Accretion of mandatorily redeemable preferred stock
      of subsidiary .........................................           (275)             --            (275)             --
                                                                    ---------       ---------       ---------       ---------

Net loss applicable to common stockholders ..................       $(24,353)       $ (3,675)       $(39,684)       $ (7,628)
                                                                    =========       =========       =========       =========

Basic and diluted net loss per common share:
   Net loss per common share from continuing
     operations .............................................       $  (0.84)       $  (0.05)       $  (1.47)       $  (0.07)
   Net income (loss) per common share from
     discontinued operations ................................          (0.02)          (0.10)           0.03           (0.24)
                                                                    ---------       ---------       ---------       ---------
       Net loss per common share ............................       $  (0.86)       $  (0.15)       $  (1.44)       $  (0.31)
                                                                    =========       =========       =========       =========

Weighted average number of shares outstanding -
   basic and diluted ........................................         28,170          24,663          27,536          24,480
                                                                    =========       =========       =========       =========
</TABLE>

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


                                       4
<PAGE>   5

                            METACREATIONS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   NINE MONTHS ENDED
                                                                                      SEPTEMBER 30,
                                                                                ------------------------
                                                                                  2000            1999
                                                                                --------        --------
                                                                               (UNAUDITED)    (UNAUDITED AND
                                                                                                 RESTATED)
<S>                                                                             <C>             <C>
Cash flows from operating activities:
   Net loss .............................................................       $(39,409)       $ (7,628)
   Adjustments to reconcile net loss to net cash used in operating
     activities:
       Net (income) loss of discontinued operations .....................           (672)          5,786
       Amortization of deferred compensation ............................         11,291              --
       Depreciation and amortization ....................................          2,130             476
       Minority interest in income (loss) of subsidiary .................         (4,200)             87
       Non-cash sales and marketing expense .............................         19,998              --
       Accrued interest income ..........................................             --            (130)
       Changes in operating assets and liabilities:
         Accounts receivable ............................................         (1,204)            699
         Prepaid expenses and other assets ..............................         (1,989)            317
         Accounts payable and accrued expenses ..........................          1,862             144
         Net cash used for discontinued operations ......................        (11,120)         (4,782)
                                                                                ---------       ---------
           Net cash used in operating activities ........................        (23,313)         (5,031)

Cash flows from investing activities:
   Purchases of short-term investments ..................................        (37,754)        (66,370)
   Proceeds from sales and maturities of short-term investments .........         54,505          63,852
   Acquisition of Viewpoint Digital,  net of cash acquired ..............        (10,207)             --
   Issuance of notes receivable from related parties ....................             --            (125)
   Repayment of notes receivable from related parties ...................          1,000             154
   Purchases of property and equipment ..................................         (4,405)            (79)
   Net cash used for discontinued operations ............................            (84)         (3,952)
                                                                                ---------       ---------
           Net cash provided by (used in) investing activities ..........          3,055          (6,520)

Cash flows from financing activities:
   Issuance of notes receivable from related parties ....................         (1,500)           (100)
   Repayment of notes receivable from related parties ...................             --             100
   Issuance of preferred stock in subsidiary, net of issuance costs of
     $161 ...............................................................         19,839              --
   Collection of subscription receivable related to common stock of
     subsidiary .........................................................          1,000           3,000
   Proceeds from exercise of stock options ..............................         12,221             535
                                                                                ---------       ---------
           Net cash provided by financing activities ....................         31,560           3,535

Effect of exchange rates changes on cash ................................              8              (7)
                                                                                ---------       ---------

Net increase (decrease) in cash and cash equivalents ....................         11,310          (8,023)
Cash and cash equivalents at beginning of period ........................          4,480          16,297
                                                                                ---------       ---------
Cash and cash equivalents at end of period ..............................       $ 15,790        $  8,274
                                                                                =========       =========
</TABLE>

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


                                       5
<PAGE>   6

                            METACREATIONS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements include the
accounts of MetaCreations Corporation and its subsidiaries (collectively
"MetaCreations" or the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statement presentation. In the opinion of management, the accompanying
consolidated balance sheets and related interim consolidated statements of
operations and cash flows include all adjustments (consisting only of normal
recurring items) considered necessary for their fair presentation. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates. The consolidated results of
operations for the period ended September 30, 2000 are not necessarily
indicative of results to be expected for the year ending December 31, 2000. The
information included in this Form 10-Q should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto as of
December 31, 1999 and 1998, and for the three years in the period ended December
31, 1999, as filed on Form 10-K/A.

Concentration of Risk

In connection with the sale of the MetaCreations' Painter, Kai's Power Tools,
KPT Vector Effects and Bryce product lines (see Note 3), the Company has an
outstanding note receivable from Corel Corporation ("Corel") in the amount of
$6,000,000 at September 30, 2000. This note receivable, which is payable within
one year, has been classified as a current asset of discontinued operations in
the accompanying balance sheets. As of November 8, 2000, the Company has
collected $6,000,000 of the original $10,000,000 promissory note, which is in
accordance with the payment schedule.

Deferred Compensation

In connection with the issuance of 200,000 shares of restricted common stock of
MetaCreations Corporation to an officer of the Company, the Company recorded
deferred compensation of approximately $1,625,000 during the nine months ended
September 30, 2000. This deferred compensation, which is being amortized over
four years, represented the fair value of the common stock at the date of
issuance. Stock-based compensation expense of $101,000 and $186,000, was
recognized during the three and nine months ended September 30, 2000.

                                       6
<PAGE>   7


Minority Interest

For financial reporting purposes, the assets, liabilities and earnings of
Viewpoint Corporation are included in the Company's consolidated financial
statements. Computer Associates International Inc.'s ("Computer Associates") 20%
interest in Viewpoint Corporation has been recorded as minority interest in the
Company's consolidated balance sheets, and the losses attributed to their 20%
interest have been reported as minority interest in the Company's consolidated
statements of operations.

In connection with the grant of stock options of Viewpoint Corporation to
certain employees and non-employee directors, Viewpoint Corporation recorded
deferred compensation of $5,911,000 and $27,729,000 for the three and nine month
periods ended September 30, 2000. Minority interest in the Company's
consolidated balance sheets is credited with its proportionate interest in
stock-based compensation that is recognized. Stock-based compensation expense of
$4,187,000 and $11,105,000 was recognized during the three and nine month
periods ended September 30, 2000.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. To
date, we have not engaged in derivative and hedging activities.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which
gives additional guidance in applying generally accepted accounting principles
to revenue recognition in the financial statements. SAB No. 101 is applicable
beginning in the fourth quarter of fiscal 2000. Management does not believe the
compliance with the provisions of SAB No. 101 will have a material effect on the
accompanying consolidated financial statements.


                                       7
<PAGE>   8
In March 2000, the Financial Accounting Standards Board issued Financial
Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving
Stock Compensation," which is an interpretation of Accounting Principal Board
Opinion ("APB") No. 25. This interpretation clarifies:

-   The definition of employee for purposes of applying APB No. 25, which deals
    with stock compensation issues;

-   The criteria for determining whether a plan qualifies as a noncompensatory
    plan;

-   The accounting consequence of various modifications to the terms of a
    previously fixed stock option or award; and

-   The accounting for an exchange of stock compensation awards in a business
    combination.

The interpretation was effective July 1, 2000. The adoption of FIN No.
44 did not have a material impact on our financial statements.

In March 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on EITF Issue 00-02, "Accounting
for Web Site Development Costs". This consensus provides guidance on what types
of costs incurred to develop Web sites should be capitalizied or expensed. The
Company adopted this consensus on July 1, 2000. During the three months ended
September 30, 2000, the Company capitalizied $671,000 of Web site development
costs. Such capitalizied costs are included in "Property and equipment, net" and
will be depreciated over a period of three years.

2. RESTATEMENT OF FINANCIAL STATEMENTS

On August 8, 2000, the Company announced that it would restate its consolidated
financial statements for the three months ended March 31, 2000 and for the year
ended December 31, 1999. As discussed in Note 2 to the consolidated financial
statements in the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1999, the principal reason for the revisions to the December 31,
1999 financial statements was to reallocate the entire $7,000,000 monetary
consideration committed by Computer Associates as part of license agreements,
and recorded as license revenue in 1999, to minority interest and "change in
interest gain" (pursuant to SAB No. 51, "Accounting for Sales of Stock of a
Subsidiary") relating to Computer Associates simultaneous agreement to obtain a
20% equity interest in the Company's subsidiary, Viewpoint Corporation. The
"change in interest gain" has been recorded as paid-in capital in the Company's
consolidated balance sheets.

As part of the restatement of financial statements during the nine months ended
September 30, 1999, the Company also reclassified $1,920,000 to gain on sale of
assets within loss from discontinued operations. This gain was comprised of
$2,000,000 previously recorded as license revenue relating to discontinued
operations, net of $80,000 previously recorded as other income relating to
continuing operations.

Additionally, based upon a revised estimate of the valuation of Viewpoint
Corporation at various dates during the year ended December 31, 1999 and during
the three months ended March 31, 2000, the Company adjusted its estimate of the
fair value of Viewpoint Corporation at the time of stock option issuances to
employees and non-employees resulting in an additional charge of $4,000,000 and
$1,841,000 during the three months ended December 31, 1999 and March 31, 2000,
respectively, for stock-based compensation associated with stock option grants
at exercise prices which were below the fair value of Viewpoint Corporation
stock on the date of grant.

The restated financial information and related disclosures have been included in
the amended Form 10-K/A filing for the year ended December 31, 1999 and the
amended Form 10-Q/A filing for the quarter ended March 31, 2000, which were
filed with the Securities and Exchange Commission on August 21, 2000.


                                       8
<PAGE>   9


Accordingly, the unaudited financial statements for the three and nine months
ended September 30, 1999 presented in this Form 10-Q have been restated as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                 SEPTEMBER 30, 1999            SEPTEMBER 30, 1999
                                                               -----------------------       -----------------------
                                                                  AS                            AS
                                                               REPORTED       RESTATED       REPORTED       RESTATED
                                                               --------       --------       --------       --------
<S>                                                            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
Revenues ...............................................       $ 4,714        $   646        $ 9,992        $ 2,924
Income (loss) from operations ..........................         2,371         (1,697)         3,576         (3,492)
Income (loss) before provision for income taxes ........         3,023         (1,045)         5,233         (1,755)
Income (loss) before minority interest .................         3,023         (1,045)         5,233         (1,755)
Net income (loss) from continuing operations ...........         2,936         (1,132)         5,146         (1,842)
Net income (loss) ......................................           393         (3,675)          (560)        (7,628)
                                                               =======        ========       ========       ========

Basic and diluted net income (loss) per common share:
     Net income (loss) per common share from
       continuing operations ...........................       $  0.12        $ (0.05)       $  0.22        $ (0.07)
     Net loss per common share from discontinued
       operations ......................................         (0.10)         (0.10)         (0.24)         (0.24)
                                                               --------       --------       --------       --------
       Net income (loss) per common share ..............       $  0.02        $ (0.15)       $ (0.02)       $ (0.31)
                                                               ========       ========       ========       ========
</TABLE>

3. DISCONTINUED OPERATIONS

In December 1999, the Board of Directors approved a plan to focus exclusively on
its industry-leading, patented marketing visualization solution, Metastream, and
to correspondingly divest itself of its prepackaged graphics software business.
Accordingly, these operations are reflected as discontinued operations for all
periods presented in the accompanying consolidated statements of operations.

The loss on disposal of discontinued operations, which totaled approximately
$21,260,000 for the year ended December 31, 1999, consisted of the estimated
future results of operations of the discontinued business through the estimated
date of divestiture, the amounts expected to be realized upon the sale of the
discontinued business, severance and related benefits, and asset write-downs
(see table below). The Company recorded an adjustment to net loss on disposal of
discontinued operations of $672,000 during the nine months ended September 30,
2000 as a result of better than expected net revenues during the year from the
discontinued business which was partially offset by additional expenses that
were not accrued for. During April 2000, the Company completed the sale of a
substantial portion of the Company's graphics software product lines.
Specifically, Corel Corporation acquired the MetaCreations' Painter, Kai's Power
Tools, KPT Vector Effects and Bryce product lines; egi.sys AG acquired the Poser
product line; and fractal.com Corporation acquired the Headline Studio product
line for total consideration of $11,250,000, consisting of cash and promissory
notes, plus future royalties. At September 30, 2000, $6,000,000 was still
outstanding and is classified as a current asset of discontinued operations in
the accompanying consolidated balance sheets. The provision for loss on disposal
of discontinued operations is an estimate and subject to change. Changes in
estimates will be accounted for prospectively and included in income (loss) from
discontinued operations.

The following table depicts the loss on disposal of discontinued operations
activity through September 30, 2000 (in thousands):

<TABLE>
<CAPTION>
                                     LOSS ON
                                    DISPOSAL OF                    PROVISION AT
                                   DISCONTINUED                     DECEMBER 31,    CHARGED TO                      PROVISION AT
                                    OPERATIONS      DEDUCTIONS         1999          EXPENSE       DEDUCTIONS    SEPTEMBER 30, 2000
                                   ------------     ----------     -------------    ----------     ----------    ------------------
<S>                                  <C>             <C>             <C>             <C>            <C>              <C>
Write-down of operating
  assets .....................       $ 18,445        $ 18,103        $    342        $  1,859       $  2,201         $     --
Severance and benefits .......          8,415             504           7,911              26          7,937               --
Estimated loss of
  discontinued operations
  through divesture date .....          5,400              --           5,400          (2,072)         3,328               --
Estimated net proceeds from
  divestiture ................        (11,000)             --         (11,000)           (485)       (11,485)              --
                                     --------        --------        --------        --------       --------         --------
                                     $ 21,260        $ 18,607        $  2,653        $   (672)      $  1,981         $     --
                                     --------        --------        --------        --------       --------         --------
</TABLE>



                                       9
<PAGE>   10

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

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED               NINE MONTHS ENDED
                                                     SEPTEMBER 30,                   SEPTEMBER 30,
                                                -----------------------        ------------------------
                                                  2000           1999            2000            1999
                                                --------       --------        --------        --------
                                                              (RESTATED)                      (RESTATED)
<S>                                             <C>            <C>             <C>             <C>
Net revenues ............................       $     --       $ 10,044        $  5,275        $ 29,214
Cost of revenues ........................             --          1,628           1,066           5,021
                                                --------       --------        --------        --------
Gross profit ............................             --          8,416           4,209          24,193

Operating expenses:
   Sales and marketing ..................             --          6,209           3,045          18,841
   Research and development .............             --          3,737           3,743          10,558
   General and administrative ...........             --          1,013             749           2,500
                                                --------       --------        --------        --------
     Total operating expenses ...........             --         10,959           7,537          31,899
                                                --------       --------        --------        --------

Loss before gain on sale of assets ......             --         (2,543)         (3,328)         (7,706)
Gain on sale of assets ..................             --             --              --           1,920
                                                --------       --------        --------        --------

Loss before provision for income taxes ..             --         (2,543)         (3,328)         (5,786)
Provision for income taxes ..............             --             --              --              --
                                                --------       --------        --------        --------

Loss from discontinued operations .......       $     --       $ (2,543)       $ (3,328)       $ (5,786)
                                                ========       ========        ========        ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                             SEPTEMBER 30,  DECEMBER 31,
                                                                2000           1999
                                                             -------------  ------------
                                                                             (RESTATED)
<S>                                                            <C>           <C>
Current assets of discontinued operations:
   Notes receivable ..................................         $6,100        $    --
   Accounts receivable, net ..........................            918          1,800
   Inventories, net ..................................             --             92
   Prepaid expenses ..................................             50          2,810
                                                               ------         ------
     Current assets of discontinued operations .......         $7,068         $4,702
                                                               ======         ======

Non-current assets of discontinued operations:
   Property and equipment, net ......................          $   --         $1,574
   Other assets ......................................             73            400
                                                               ------         ------
     Non-current assets of discontinued operations ...         $   73         $1,974
                                                               ======         ======

Current liabilities of discontinued operations:
   Accounts payable ..................................         $   97         $5,631
   Accrued expenses ..................................            133          2,824
   Royalties payable .................................             61            723
                                                               ------         ------
     Current liabilities of discontinued operations ..         $  291         $9,178
                                                               ======         ======
</TABLE>

4. INCOME TAXES

The Company did not provide any current or deferred income tax provision or
benefit for any of the periods presented because of its historical operating
losses. The Company has provided a full valuation allowance on the deferred tax
assets, consisting primarily of net operating loss carryforwards, because of
uncertainty regarding its realizability. Utilization of the Company's net
operating loss carryforwards, which begin to expire in 2011 for federal purposes
and 2001 for state purposes, may be subject to certain limitations under Section
382 of the Internal Revenue Code of 1986, as amended.


                                       10
<PAGE>   11

5. LOSS PER SHARE

The following table provides a reconciliation of the numerators and denominators
of the basic and diluted per-share computations for the three and nine month
periods ended September 30, 2000 and 1999, in accordance with SFAS No. 128,
"Earnings per Share" (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                 LOSS             SHARES          PER-SHARE
                                             (NUMERATOR)       (DENOMINATOR)        AMOUNT
                                             ----------------------------------------------
<S>                                            <C>                 <C>            <C>
Three Months Ended September 30, 2000:
     Basic EPS ..........................      $(24,353)           28,170         $  (0.86)
     Effect of dilutive securities ......            --                --
                                               --------          --------
     Diluted EPS ........................      $(24,353)           28,170         $  (0.86)
                                               ========          ========

Three Months Ended September 30, 1999
   (Restated):
     Basic EPS ..........................      $ (3,675)           24,663         $  (0.15)
     Effect of dilutive securities ......            --                --
                                               --------          --------
     Diluted EPS ........................      $ (3,675)           24,663         $  (0.15)
                                               ========          ========

Nine Months Ended September 30, 2000:
     Basic EPS ..........................      $(39,684)           27,536         $  (1.44)
     Effect of dilutive securities ......            --                --
                                               --------          --------
     Diluted EPS ........................      $(39,684)           27,536         $  (1.44)
                                               ========          ========

Nine Months Ended September 30, 1999
   (Restated):
     Basic EPS ..........................      $ (7,628)           24,480         $  (0.31)
     Effect of dilutive securities ......            --                --
                                               --------          --------
     Diluted EPS ........................      $ (7,628)           24,480         $  (0.31)
                                               ========          ========
</TABLE>

Unexercised stock options and unvested restricted common stock that were not
included in the computation of diluted EPS, because to do so would have been
anti-dilutive for the periods presented, are as follows (in thousands).

<TABLE>
                        <S>                                    <C>
                        Three Months Ended September 30,:
                                2000......................     2,306
                                1999......................     8,089

                        Nine Months Ended September 30,:
                               2000.......................     2,306
                               1999.......................     8,089
</TABLE>

6. ACQUISITION OF VIEWPOINT DIGITAL, INC.

On September 8, 2000, the Company purchased all the outstanding capital stock of
Viewpoint Digital, Inc. ("Viewpoint Digital"), a wholly-owned subsidiary of
Computer Associates. Viewpoint Digital publishes the worlds largest library of
3D digital content and provides creative 3D services for entertainment,
advertising, visual stimulation, computer based training and corporate
communications applications. The purchase price of $19,151,000, excluding
contingent consideration of $30,000,000 in notes payable, consists of 715,000
shares valued at $8,938,000, cash consideration of $10,000,000 and $213,000 in
direct acquisition costs. The contingent consideration consists of two
promissory notes each in the amount of $15,000,000. Both notes are contingent
upon the achievement of certain levels of future operating results and employee
retention through 2002. The purchase price in excess of the value of tangible
assets and liabilities assumed of $2,597,000, has been allocated as follows:
$3,253,000 to a covenant not to compete, $3,180,000 to work force, $1,558,000 to
technology, $1,203,000 to customer list, $963,000 to in-process research and
development, $643,000 to tradename and $5,754,000 to goodwill. Goodwill and
other intangibles, excluding in-process research and development, will be
amortized over their expected periods of benefit, which ranges from one and a
half to four years. In-process research and development was written off during
the month of September 2000. The acquisition was accounted for as a purchase
business combination for accounting purposes.

The following unaudited pro forma consolidated amounts give affect to the
Viewpoint Digital acquisition as if it had occurred at the beginning of the
respective period by consolidating the results of operations of Viewpoint
Digital for the nine months ended September 30, 2000 and 1999.


                                       11
<PAGE>   12

The unaudited pro forma consolidated statements of operations are not
necessarily indicative of the operating results that would have been achieved
had the acquisition taken effect as of the beginning of the periods presented
and should not be construed as being representative of future operating results.

<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED
                                                                                              SEPTEMBER 30,
                                                                                        ------------------------
                                                                                          2000            1999
                                                                                        --------        --------
                                                                               (In thousands, except per share amounts)

<S>                                                                                     <C>             <C>
Revenues ...................................................................            $  6,270        $  8,985
Net loss from continuing operations applicable to common stockholders.......            $(48,131)       $ (9,007)
Basic and diluted net loss per common share from continuing operations ......           $  (1.71)       $  (0.36)

Weighted average common shares used in net loss per share calculation (1) ..              28,194          25,195
</TABLE>

(1) The weighted average common shares used to compute pro forma basic and
    diluted net loss per common share for the period ended September 30, 2000
    includes the 715,000 common shares issued in connection with the acquisition
    of Viewpoint Digital, as if the shares were issued on January 1, 2000. The
    weighted average common shares used to compute pro forma basic and diluted
    net loss per common share for the period ended September 30, 1999 includes
    the actual weighted average common shares outstanding for the historical
    period ended September 30, 1999, plus the 715,000 common shares issued in
    connection with the acquisition of Viewpoint Digital, as if the acquisition
    occurred on January 1, 1999.

7. MANDATORILY REDEEMABLE PREFERRED STOCK OF SUBSIDIARY

In June 2000, Viewpoint Corporation (formerly known as Metastream Corporation)
issued 1,500,000 shares of Series A Convertible Preferred Stock to America
Online, Inc. ("AOL") for cash consideration totaling $10,000,000. Each share of
Series A Convertible Preferred Stock may be exchanged, at AOL's option, into the
number of shares of MetaCreations' common stock as is equal to $6.67 divided by
the exchange price in effect at the time of exchange (the "Exchange Price"). The
Exchange Price is calculated as 87% of the lesser of (a) $6.67 or (b) the
average closing price of MetaCreations common stock over the 15 day period prior
to the date that AOL submits notice of its exercise of the option. In the event
of a merger of Viewpoint Corporation into MetaCreations, each share of Series A
Convertible Preferred Stock may be exchanged by MetaCreations, at MetaCreations'
option, into the number of shares of MetaCreations common stock as is equal to
the greater of (a) $6.67 divided by the exchange price in effect at the time of
exchange (the "Merger Exchange Price") or (b) the number of shares that AOL
would have received if it continued to hold the preferred shares but exercised
its rights to convert the preferred shares immediately prior to the merger. The
Merger Exchange Price is calculated as 87% of the lesser of (a) $6.67 or (b) the
average closing price of MetaCreations common stock over the 15 day period prior
to the date that  MetaCreations enters into arrangements for the combination of
the two companies. In connection with the issuance of the shares of Series A
Convertible Preferred Stock to AOL and the simultaneous execution of a licensing
and distribution arrangement, the Company recorded a one-time non-cash sales and
marketing charge of $5,740,000 related to the difference between the fair value
of the MetaCreations common shares into which AOL could have converted the
Viewpoint Corporation preferred shares on the date of issuance and the
$10,000,000 cash consideration paid by AOL.

The Series A Convertible Preferred Stock held by AOL also contains a put right
(the "Put Right") whereby AOL may require the Company to purchase the preferred
shares at a price equal to the original purchase price paid by AOL, plus
interest. The Put Right expires on June 12, 2002. The Series A Convertible
Preferred Stock has been classified as mandatorily redeemable preferred stock of
subsidiary in the Company's consolidated balance sheets.

In July 2000, Viewpoint Corporation issued 1,500,000 shares of Series B
Convertible Preferred Stock to Adobe Systems Incorporated ("Adobe") for cash
consideration totaling $10,000,000. Each share of Series B Convertible Preferred
Stock may be exchanged, at Adobe's option, into the number of shares of
MetaCreations' common stock as is equal to $6.67 divided by the exchange price
in effect at the time of exchange (the "Exchange Price"). The Exchange Price is
calculated as 87% of the lesser of (a) $6.67 or (b) the average closing price of
MetaCreations common stock over the 15 day period prior to the date that Adobe
submits notice of its exercise of the option. In the event of a merger of
Viewpoint Corporation into MetaCreations, each share of Series B Convertible
Preferred Stock may be exchanged by MetaCreations, at MetaCreations' option,
into the number of shares of MetaCreations common stock as is equal to the
greater of (a) $6.67 divided by the exchange price in effect at the time of
exchange (the "Merger Exchange Price") or (b) the number of shares that Adobe
would have received if it continued to hold the preferred shares but exercised
its rights to convert the preferred shares immediately prior to the merger. The
Merger Exchange Price is calculated as 87% of the lesser of (a) $6.67 or (b) the
average closing price of MetaCreations common stock over the 15 day period prior
to the date that MetaCreations enters into arrangements for the combination of
the two companies. In connection with the issuance of the shares of Series B
Convertible Preferred Stock to Adobe and the simultaneous execution of a
licensing and distribution arrangement, the Company recorded a one-time non-cash
sales and marketing charge of $14,258,000 related to the difference between the
fair value of the MetaCreations common shares into which Adobe could have
converted the Viewpoint Corporation preferred shares on the date of issuance and
the $10,000,000 cash consideration paid by Adobe.


                                       12
<PAGE>   13
The Series B Convertible Preferred Stock held by Adobe also contains a put right
(the "Put Right") whereby Adobe may require the Company to purchase the
preferred shares at a price equal to the original purchase price paid by Adobe,
plus interest. The Put Right expires on July 18, 2002. The Series B Convertible
Preferred Stock has been classified as mandatorily redeemable preferred stock of
subsidiary in the Company's consolidated balance sheets.

Accretion for these mandatorily redeemable securities totaled $275,000 for the
three and nine month periods ended September 30, 2000.






Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

The discussion and analysis below contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," and variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual results could differ materially from those expressed
or forecasted in any such forward-looking statements as a result of certain
factors, including those set forth in "Factors That May Affect Future Operating
Results," as well as those discussed elsewhere in the Company's SEC reports,
including without limitation, the Company's audited consolidated financial
statements and notes thereto as of December 31, 1999 and 1998, and for the three
years in the period ended December 31, 1999, as filed on Form 10-K/A.

OVERVIEW

MetaCreations provides marketing visualization solutions for the World Wide Web.
MetaCreations' strategy is centered on the Company's Viewpoint Experience
Technology and creative services designed to make the interactive use of
photo-realistic 3D on the Web practical and pervasive.

Viewpoint Corporation (formerly known as Metastream Corporation) was initially
formed as a joint initiative between MetaCreations and Computer Associates in
June 1999. In June 2000, Viewpoint Corporation issued 1,500,000 shares of
Series A Mandatorily Redeemable Convertible Preferred Stock to AOL for
consideration totaling $10,000,000. In July 2000, Viewpoint Corporation issued
1,500,000 shares of Series B Mandatorily Redeemable Convertible Preferred Stock
to Adobe for consideration totaling $10,000,000. In



                                      13
<PAGE>   14
September 2000, Viewpoint Corporation  acquired Viewpoint Digital, Inc., a
wholly-owned subsidiary of Computer Associates. Viewpoint Digital publishes the
world's largest library of 3D digital content and provides creative 3D services
to thousands of customers in entertainment, advertising, visual simulation,
computer-based training and corporate communications. Also in September 2000,
Viewpoint Corporation changed its name from Metastream Corporation to Viewpoint
Corporation.

Viewpoint Corporation is focused on providing complete end-to-end solutions for
creating and deploying virtual products centered on the Company's Viewpoint
Experience Technology for e-commerce and the Web environment. Viewpoint
Corporation's primary initiatives include:

-   Licensing technology for specific marketing visualization solutions;

-   Providing a full range of fee-based professional services for implementing
    marketing visualization solutions;

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

-   Maximizing market penetration and name recognition.

In December 1999, the Board of Directors of MetaCreations approved a plan to
focus exclusively on the Company's Viewpoint technologies, and to
correspondingly divest itself of its prepackaged graphics software business.
Accordingly, the continuing operations of MetaCreations are focused exclusively
on Viewpoint Corporation.

In light of this change in strategic focus, MetaCreations has a limited
operating history upon which an evaluation of the Company and its prospects can
be based. MetaCreations' prospects must be considered in light of the risks and
difficulties frequently encountered by early stage technology companies. There
can be no assurance that MetaCreations will achieve or sustain profitability.
MetaCreations has had significant quarterly and annual operating losses since
its inception, and as of September 30, 2000, had an accumulated deficit of
approximately $129,267,000.

MetaCreations believes that its success will depend largely on its ability to
extend its technology and market leadership in e-commerce visualization.
Accordingly, MetaCreations intends to invest heavily in research and development
and sales and marketing. Revenues from continuing operations primarily have been
from one-time technology licenses and fee based professional services. In
connection with its decision to focus exclusively on e-commerce visualization,
the Company has decided to no longer focus on one-time technology licenses, in
favor of implementing a recurring broadcast licensing model.

OPERATING RESULTS

Revenues

The Company recognizes broadcast licence revenue in accordance with Statement of
Position ("SOP") 97-2, "Software Revenue Recognition." Accordingly, revenue from
software arrangements involving multiple elements (e.g., software products,
upgrades/enhancements, postcontract customer support, etc.) is allocated to each
element based on the relative fair value of the elements. The determination of
fair value is based on objective evidence, which is specific to the Company.

Service revenue, which consists of fees for professional services, is recognized
as the services are performed or, if no pattern of performance is discernable,
on a straight-line basis over the period during which the services are
performed.

<TABLE>
<CAPTION>
                          THREE MONTHS ENDED SEPTEMBER 30,
                     ---------------------------------------
                                                    1999
                        2000       % CHANGE      (RESTATED)
                     ----------   ----------   -------------
                              (DOLLARS IN THOUSANDS)
     <S>               <C>         <C>          <C>
     Revenues          $1,139           76%       $  646
</TABLE>

Revenues of $1,139,000 for the three months ended September 30, 2000 were
related to broadcast licenses, fee-based professional services, and 3D digital
content sales. Fee-based professional services and 3D digital content sales of
$854,000 were the result of the acquisition of Viewpoint Digital. Historically,
revenues primarily consisted of one-time licenses for Viewpoint technologies
from a limited number of strategic partners. In connection with its decision to
focus exclusively on e-commerce visualization, the Company decided to no longer
focus on these one-time technology licenses, in favor of implementing a
recurring broadcast licensing model.


                                       14
<PAGE>   15

<TABLE>
<CAPTION>
                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                      ----------------------------------------------------------
                                                                                     1999
                                          2000               % CHANGE             (RESTATED)
                                      -------------       ---------------       ----------------
                                                      (DOLLARS IN THOUSANDS)
     <S>                              <C>                  <C>                   <C>
     Revenues                           $  1,456                (50)%               $2,924
</TABLE>

Revenues of $1,456,000 for the nine months ended September 30, 2000 were related
to broadcast licenses, fee-based professional services, and 3D digital content
sales. Fee-based professional services and 3D digital content sales of $854,000
were the result of the acquisition of Viewpoint Digital. Historically, revenues
primarily consisted of one-time licenses for Viewpoint technologies from a
limited number of strategic partners. In connection with its decision to focus
exclusively on e-commerce visualization, the Company decided to no longer focus
on these one-time technology licenses, in favor of implementing a recurring
broadcast licensing model.

There can be no assurance that this new recurring broadcast licensing model will
result in the revenue growth rates realized in prior years.

Cost of Revenues

Cost of revenues consist primarily of salaries and consulting fees for those who
provide fee-based professional services.

Sales and Marketing (excluding non-cash stock-based compensation and sales and
marketing charges totaling $15,218 and $24,615 for the three and nine months
ended September 30, 2000)

Sales and marketing expenses consist primarily of salaries, consulting fees,
advertising and facilities costs related to sales, marketing, business
development, Web services and public relations personnel who promote the
Company's products, technologies and services.

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED SEPTEMBER 30,
                                      ----------------------------------------------------------
                                                                                      1999
                                          2000                % CHANGE             (RESTATED)
                                      -------------       ---------------       ----------------
                                                       (DOLLARS IN THOUSANDS)
     <S>                              <C>                  <C>                   <C>
     Sales and marketing                $  3,548                  354%              $    782
       As % of revenues                      312%                                        121%
</TABLE>

The 354% increase in sales and marketing expenses is due to increased salaries,
travel expenses and recruiting fees related to increased headcount; consulting
fees incurred during the preliminary planning of a new corporate Web site; and
public relations agency fees.

<TABLE>
<CAPTION>

                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                      ----------------------------------------------------------
                                                                                     1999
                                          2000               % CHANGE             (RESTATED)
                                      -------------       ---------------       ----------------
                                                      (DOLLARS IN THOUSANDS)
     <S>                              <C>                  <C>                   <C>
     Sales and marketing                $  7,913                 414%               $1,540
       As % of revenues                      543%                                       53%
</TABLE>


The 414% increase in sales and marketing expenses is due to increased salaries,
travel expenses, and recruiting fees related to increased headcount; consulting
fees incurred during the preliminary planning of a new corporate Web site;
public relations agency fees; and other direct expenses related to the launch of
Viewpoint Experience Technology at the end of the first quarter 2000.

The Company is continuing to expand its sales and marketing presence and,
accordingly, expects sales and marketing expenses to continue to increase in
future periods, but such expenses may vary as a percentage of revenues.

Research and Development (excluding non-cash stock-based compensation totaling
$1,876 and $3,449 for the three and nine months ended September 30, 2000).

Research and development expenses consist primarily of salaries, consulting
fees, and required equipment and facilities costs related to the Company's
product development efforts. The Company expenses as incurred research and
development costs necessary to establish the technological feasibility of its
internally-developed software products and technologies. To date, the
establishment of technological


                                       15
<PAGE>   16

feasibility of the Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any internal software
development costs since costs qualifying for such capitalization have not been
significant. Additionally, the Company capitalizes costs of software, consulting
services, hardware and payroll-related costs incurred to purchase or develop
internal-use software. The Company expenses costs incurred during preliminary
project assessment, research and development, re-engineering, training and
application maintenance.

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED SEPTEMBER 30,
                                         -----------------------------------------------------------
                                                                                           1999
                                             2000                 % CHANGE              (RESTATED)
                                         -------------        ---------------       ----------------
                                                          (DOLLARS IN THOUSANDS)
     <S>                                 <C>                  <C>                   <C>
     Research and development              $ 1,154                   79%                 $   646
       As % of revenues                        101%                                          100%
</TABLE>

The 79% increase in research and development expenses is primarily due to
increased salaries, travel and facilities expenses related to increased internal
development personnel, in addition to consulting fees in connection with the
development of Viewpoint Experience Technology.

<TABLE>
<CAPTION>
                                                      NINE MONTHS ENDED SEPTEMBER 30,
                                        ----------------------------------------------------------
                                                                                        1999
                                             2000               % CHANGE             (RESTATED)
                                        -------------        ---------------      ----------------
                                                         (DOLLARS IN THOUSANDS)
     <S>                                 <C>                  <C>                   <C>
     Research and development              $  3,105                66%                $  1,875
       As % of revenues                         213%                                        64%
</TABLE>

The 66% increase in research and development expenses compared to the prior year
is due to increased salaries, travel and facilities expenses related to
increased internal development personnel, in-addition to consulting fees in
connection with the development of Viewpoint Experience Technology.

The Company expects research and development expenses to continue to increase in
future periods, but such expenses may vary as a percentage of revenues.

General and Administrative (excluding non-cash stock-based compensation totaling
$1,443 and $3,225 for the three and nine months ended September 30, 2000)

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

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED SEPTEMBER 30,
                                        -----------------------------------------------------------
                                                                                         1999
                                            2000                % CHANGE              (RESTATED)
                                        -------------        ---------------       ----------------
                                                         (DOLLARS IN THOUSANDS)
     <S>                                <C>                  <C>                   <C>
     General and administrative            $  939                   7%                 $    877
       As % of revenues                        82%                                          136%
</TABLE>

General and administrative expenses have remained relatively consistent compared
to the prior year, however, the Company expects them to increase in future
periods, but such expenses may vary as a percentage of net revenues.


<TABLE>
<CAPTION>

                                                     NINE MONTHS ENDED SEPTEMBER 30,
                                        ---------------------------------------------------------
                                                                                       1999
                                             2000               % CHANGE            (RESTATED)
                                        -------------        ---------------     ----------------
                                                        (DOLLARS IN THOUSANDS)
     <S>                                <C>                  <C>                  <C>
     General and administrative            $  3,022                  2%              $  2,963
       As % of revenues                         208%                                      101%
</TABLE>

General and administrative expenses have remained relatively consistent compared
to the prior year, however, the Company expects them to increase in future
periods, but such expenses may vary as a percentage of net revenues.


                                       16
<PAGE>   17

Non-cash Stock-based Compensation and Sales and Marketing Charges

In connection with the grant of stock options of Viewpoint Corporation to
certain employees and non-employee directors, Viewpoint Corporation recorded
deferred compensation of approximately $5,911,000 and $27,729,000 during the
three and nine months ended September 30, 2000. This deferred compensation
represented the difference between the deemed fair value of Viewpoint
Corporation common stock for accounting purposes and the exercise price of these
options at the date of grant. Stock-based compensation expense of $4,187,000 and
$11,105,000 was recognized during the three and nine months ended September 30,
2000.

In connection with the issuance of 200,000 shares of restricted common stock of
MetaCreations Corporation to an officer of the Company, the Company recorded
deferred compensation of $1,625,000 million during the nine months ended
September 30, 2000. This deferred compensation, which is being amortized over
four years, represented the fair value of the common stock at the date of
issuance. Stock-based compensation expense of $101,000 and $186,000 was
recognized during the three and nine months ended September 30, 2000.

In connection with the issuance of mandatorily redeemable preferred stock to AOL
and Adobe, Viewpoint Corporation recorded one-time non-cash sales and marketing
charges of $14,249,000 and $19,998,000 during the three and nine months ended
September 30, 2000. These one-time non-cash charges represent the difference
between the fair value of the MetaCreations common shares into which AOL and
Adobe could have converted the Viewpoint Corporation preferred shares on the
date of issuance, and the $10,000,000 cash consideration received from both AOL
and Adobe. Both charges  were considered to be sales and marketing because at
the time of the preferred  stock issuances, both AOL and Adobe entered into
licensing and distribution  arrangements with Viewpoint Corporation.

Amortization of Goodwill and Other Intangibles

Amortization of goodwill and other intangibles consists primarily of the
amortization of technology, customer list, workforce, tradename and a covenant
not to compete, all of which were acquired as part of the Viewpoint Digital
acquisition.

Acquired In-Process Research and Development Costs

Acquired in-process research and development costs represents the write-off of
research and development costs acquired as part of the Viewpoint Digital
acquisition.

Other Income

Other income consists of interest and investment income on cash and marketable
securities. As a result, other income fluctuates commensurate with changes in
the Company's cash and marketable securities balances and market interest rates.
The Company expects that its cash and marketable securities balances, as well as
other income, will continue to fluctuate in the future due to the timing of the
receipt of proceeds from the divestiture of the prepackaged graphics software
products and from the exercise of stock options, in addition to cash provided by
or used in the operations of the Company.

Provision for Income Taxes

The Company did not provide any current or deferred income tax provision or
benefit for any of the periods presented because of its historical operating
losses. The Company has provided a full valuation allowance on the deferred tax
assets, consisting primarily of net operating loss carryforwards, because of
uncertainty regarding its realizability. Utilization of the Company's net
operating loss carryforwards, which begin to expire in 2011 for federal purposes
and 2001 for state purposes, may be subject to certain limitations under Section
382 of the Internal Revenues Code of 1986, as amended.

Minority Interest in Loss of Subsidiary

For financial reporting purposes, the assets, liabilities and earnings of
Viewpoint Corporation are included in the Company's consolidated financial
statements. Computer Associates interest in Viewpoint Corporation has been
recorded as minority interest in the Company's consolidated balance sheets, and
the losses attributed to their 20% interest have been reported as minority
interest in the Company's consolidated statements of operations.

Discontinued Operations

In December 1999, the Board of Directors approved a plan to focus exclusively on
its industry-leading, patented marketing visualization solution, Viewpoint
Experience Technology, and to correspondingly divest itself of its prepackaged
graphics software business. Accordingly, these operations are reflected as
discontinued operations for all periods presented in the accompanying
consolidated statements of operations.

The loss on disposal of discontinued operations, which totaled approximately
$21,260,000 for the year ended December 31, 1999, consisted of the estimated
future results of operations of the discontinued business through the estimated
date of divestiture, the amounts


                                       17
<PAGE>   18

expected to be realized upon the sale of the discontinued business, severance
and related benefits, and asset write-downs (see table below). The Company
recorded an adjustment to net loss on disposal of discontinued operations of
$672,000 during the nine months ended September 30, 2000 as a result of better
than expected revenues during the year from the discontinued business which was
partially offset by additional expenses that were not accrued for. During April
2000, the Company completed the sale of a substantial portion of the Company's
graphics software product lines. Specifically, Corel Corporation acquired the
MetaCreations' Painter, Kai's Power Tools, KPT Vector Effects and Bryce product
lines; egi.sys AG acquired the Poser product line; and fractal.com Corporation
acquired the Headline Studio product line for total consideration of
$11,250,000, consisting of cash and promissory notes, plus future royalties. At
September 30, 2000, $6,000,000 was still outstanding and is classified as a
current asset of discontinued operations in the accompanying consolidated
balance sheets. The provision for loss on disposal of discontinued operations is
an estimate and subject to change. Changes in estimates will be accounted for
prospectively and included in income (loss) from discontinued operations.

The following table depicts the loss on disposal of discontinued operations
activity through September 30, 2000 (in thousands):

<TABLE>
<CAPTION>
                                      LOSS ON
                                     DISPOSAL OF                   PROVISION AT
                                    DISCONTINUED                   DECEMBER 31,    CHARGED TO                      PROVISION AT
                                     OPERATIONS     DEDUCTIONS        1999          EXPENSE        DEDUCTIONS   SEPTEMBER 30, 2000
                                    ------------    ----------     ------------    ----------      ----------   ------------------
<S>                                  <C>             <C>            <C>             <C>             <C>              <C>
Write-down of operating
  assets .....................       $ 18,445        $ 18,103       $    342        $  1,859        $  2,201         $    --
Severance and benefits .......          8,415             504          7,911              26           7,937              --
Estimated loss of
  discontinued operations
  through divesture date .....          5,400              --          5,400          (2,072)          3,328              --
Estimated net proceeds from
  divestiture ................        (11,000)             --        (11,000)           (485)        (11,485)             --
                                     --------        --------       --------        --------        --------        --------
                                     $ 21,260        $ 18,607       $  2,653        $   (672)       $  1,981        $     --
                                     ========        ========       ========        ========        ========        ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED              NINE MONTHS ENDED
                                                      SEPTEMBER 30,                   SEPTEMBER 30,
                                                 -----------------------        ------------------------
                                                   2000           1999            2000            1999
                                                 --------       --------        --------        --------
<S>                                              <C>            <C>             <C>             <C>
Revenues .................................       $     --       $ 10,044        $  5,275        $ 29,214
Cost of revenues .........................             --          1,628           1,066           5,021
                                                 --------       --------        --------        --------
Gross profit .............................             --          8,416           4,209          24,193

Operating expenses:
Sales and marketing ......................             --          6,209           3,045          18,841
Research and development .................             --          3,737           3,743          10,558
General and administrative ...............             --          1,013             749           2,500
                                                 --------       --------        --------        --------
    Total operating expenses .............             --         10,959           7,537          31,899
                                                 --------       --------        --------        --------

Loss before gain on sale of assets .......             --         (2,543)         (3,328)         (7,706)
Gain on sale of assets ...................             --             --              --           1,920
                                                 --------       --------        --------        --------

Loss before provision for income taxes ...             --         (2,543)         (3,328)         (5,786)
Provision for income taxes ...............             --             --              --              --
                                                 --------       --------        --------        --------

Loss from discontinued operations ........       $     --       $ (2,543)       $ (3,328)       $ (5,786)
                                                 ========       ========        ========        ========
</TABLE>

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates,"
and variations of such words and similar expressions are intended to identify
such forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict. Therefore, actual results could differ materially from
those expressed or forecasted in any such forward-looking statements as a result
of certain factors, including those listed below.

Shares of MetaCreations' Common Stock are speculative in nature and involve a
high degree of risk. The following risk factors should be considered carefully.
The risks described below are not the only ones facing MetaCreations. Many
factors could cause our results to be different, including the following risk
factors and other risks described in this document, as well as those discussed
elsewhere in the Company's SEC reports, including without limitation, the
Company's audited consolidated financial statements and notes thereto as of
December 31, 1999 and 1998, and for the three years in the period ended December
31, 1999, as filed on Form 10-K/A. If any of the following risks occur, our
business would likely be adversely affected and the trading price of our Common
Stock could decline. This


                                       18
<PAGE>   19

could result in a loss of all or part of your investment.

We Have A Limited Operating History That Makes An Evaluation Of Our Business
Difficult

We have been developing marketing visualization solutions for the Web since our
acquisition of Real Time Geometry Corp. in December 1996. Additionally, the
e-commerce market is relatively new and evolving rapidly. Accordingly, we have a
relatively short operating history in this market upon which you can evaluate
our business and prospects. You should consider our prospects in light of the
risks and difficulties frequently encountered by early stage technology
companies, including, but not limited to:

    -   We have an evolving and unpredictable business model;
    -   We face intense competition;
    -   We must establish and develop broad market acceptance of our products,
        technologies and services;
    -   We must continue to develop new products, technologies and enhancements;
    -   We must respond quickly to rapidly changing market developments,
        customer demands and industry standards;
    -   We must attract, train and retain qualified employees; and
    -   We must effectively manage our growth.

If we are not successful in addressing these risks and challenges, we will not
be able to grow our business, compete effectively or achieve profitability.

We Have A History of Losses And Expect To Incur Losses In The Future

We have had significant quarterly and annual operating losses since our
inception, and as of September 30, 2000, we had an accumulated deficit of
$129,267,000. With the divestiture of our prepackaged graphics software business
substantially complete, we have focused exclusively on our industry-leading,
patented marketing visualization solution, Viewpoint Experience Technology. We
believe that, despite this change in our strategic focus, we will continue to
incur operating losses for the foreseeable future.

Our Future Revenues May Be Unpredictable and May Cause Our Quarterly Results To
Fluctuate

As a result of our limited operating history and the rapidly changing nature of
the markets in which we compete, we may be unable to forecast our quarterly and
annual revenues accurately. If our future quarterly operating results fall below
the expectations of securities analysts or investors, the trading price of our
common stock will likely drop. Our quarterly operating results have fluctuated
significantly in the past and may continue to fluctuate in the future as a
result of many factors, including:

    -   Ability to retain existing customers, attract new customers, and satisfy
        our customers' demands;
    -   Market acceptance of our products, technologies and services;
    -   Introduction or enhancement of new products, technologies or services by
        us or our competitors;
    -   Changes in prices for our products, technologies and services or our
        competitors' products, technologies and services;
    -   Changes in usage of the Internet and online services and consumer
        acceptance of the Internet and e-commerce;
    -   Costs of litigation and intellectual property protection;
    -   Growth in Internet use;
    -   Emergence of new competition;
    -   Varying operating costs and capital expenditures related to the
        expansion of our business operations and infrastructure; and
    -   Technical difficulties with our technologies.

Based on these factors, we believe our revenues, expenses and operating results
could vary significantly in the future and period-to-period comparisons should
not be relied upon as indications of future results.

Additionally, in connection with our decision to focus exclusively on e-commerce
visualization, we decided to no longer focus on one-time technology licenses, in
favor of implementing a recurring broadcast licensing model.

Our staffing and other operating expenses are based in large part on anticipated
revenues. It would be difficult for us to adjust our spending to compensate for
any unexpected shortfall. If we are unable to reduce our spending following any
such shortfall, our business would be harmed.


                                       19
<PAGE>   20

Our Stock Price Is Volatile And May Continue To Fluctuate In The Future

The market price of our common stock has fluctuated significantly in the past.
The price at which our common stock will trade in the future will depend on a
number of factors including:

    -   Our historical and anticipated operating results;
    -   General market and economic conditions;
    -   Our announcement of new products, technologies or services;
    -   Actual or anticipated fluctuations in our operating results; and
    -   Developments regarding our products, technologies or services, or those
        of our competitors.

In addition, the stock market has experienced extreme price and volume
fluctuations in recent months. This volatility has had a substantial effect on
our stock price, as well as the stock prices of other software companies,
particularly Internet companies. These broad market and industry fluctuations
may adversely affect the market price of our common stock. As a result, the
market price of our common stock may continue to fluctuate.

Our Markets Are Highly Competitive

The e-commerce market is new, rapidly evolving and intensely competitive. As a
result, online merchants are looking for ways to differentiate themselves from
their competition. Accordingly, various companies are developing new
technologies, which may give the online merchants this competitive advantage.
Our current competitors include:

    -   Cycore AB (Cult3D);
    -   Flatland Online, Inc. (3DML);
    -   IBM Corporation (Hotmedia);
    -   Hyper Cosm;
    -   Macromedia, Inc. (Flash and Shockwave);
    -   NxView Technologies;
    -   RichFX, Inc. (RichFX Player - in conjunction with RealNetworks, Inc.'s
        G2 media player);
    -   Shells Interactive Ltd. (3D Dreams - in conjunction with Macromedia,
        Inc.'s Shockwave);
    -   Virtue 3D, Inc. (Virtuoso); and
    -   Wild Tangent

Some of our competitors have longer operating histories and significantly
greater financial, management, technology, development, sales, marketing and
other resources than we have. As we compete with larger competitors across a
broader range of products and technologies, we may face increasing competition
from such companies. If these or other competitors develop products,
technologies or solutions that offer significant performance, price or other
advantages over our product, technologies or solutions, our business would be
harmed.

A variety of other possible actions by our competitors could also have a
material adverse effect on our business, including increased promotion or the
introduction of new or enhanced products and technologies. Moreover, new
personal computer platforms and operating systems may provide new entrants with
opportunities to obtain a substantial market share in our markets.

Our competitors may be able to develop products or technologies comparable or
superior to ours, or may be able to develop new products or technologies more
quickly. We also face competition from developers of personal computer operating
systems such as Microsoft and Apple Computer, Inc., as well as from open-source
operating systems such as Linux. These operating systems may incorporate
functions that could be superior to or incompatible with our products and
technologies. Such competition would harm our business.

If The Internet Does Not Continue To Expand As A Widespread Commerce Medium,
Demand For Our Products And Technologies May Decline Significantly

The market for our products, technologies and services is new and evolving
rapidly. Growth in this market depends on increased use of the Internet for
e-commerce. If the Internet is not adopted as a method for e-commerce, or if the
adoption rate slows, the market for our products, technologies and services may
not grow, or may develop more slowly than expected.

We believe that increased Internet use may depend on the availability of greater
bandwidth or data transmission speeds or on other


                                       20
<PAGE>   21

technological improvements, and we are largely dependent on third party
companies to provide or facilitate these improvements. Changes in content
delivery methods and emergence of new Internet access devices such as TV set-top
boxes could dramatically change the market for streaming media products and
services if new delivery methods or devices do not use streaming media or if
they provide a more efficient method for transferring data than streaming media.

The e-commerce market is relatively new and evolving. Licensing of our products
and technologies depends in large part on the development of the Internet as a
viable commercial marketplace. There are now substantially more users and much
more "traffic" over the Internet than ever before, use of the Internet is
growing faster than anticipated, and the technological infrastructure of the
Internet may be unable to support the demands placed on it by continued growth.
Delays in development or adoption of new technological standards and protocols,
or increased government regulation, could also affect Internet use. In addition,
issues related to use of the Internet, such as security, reliability, cost, ease
of use and quality of service, remain unresolved and may affect the amount of
business that is conducted over the Internet.

Our Market Is Characterized By Rapidly Changing Technology, And If We Do Not
Respond In A Timely Manner, Our Products and Technologies May Not Succeed In The
Marketplace

The market for marketing visualization is characterized by rapidly changing
technology. As a result, our success depends substantially upon our ability to
continue to enhance our products and technologies and to develop new products
and technologies that meet customers' increasing expectations. Additionally, we
may not be successful in developing and marketing enhancements to our existing
products and technologies or introducing new products and technologies on a
timely basis. Our new or enhanced products and technologies may not succeed in
the marketplace.

We expect our research and development expenditures will increase in the future.
If our increased research and development spending is not accompanied by
increased revenues, our business would be harmed.

Potential Delays in Product Releases Could Harm Our Business

We also depend upon internal efforts for the development of new products,
technologies and enhancements. In the past, we have had delays in the
development of new products, technologies and enhancements. We may experience
similar delays in the future, which would harm our business.

Undetected Errors In Our Products And Technologies Could Result In Adverse
Publicity, Reduced Market Acceptance Or Lawsuits By Customers

We offer complex software products and technologies, which may contain
undetected errors. If errors are found in our products or technologies after we
have commercially released them, we could likely experience adverse publicity,
reduced market acceptance or lawsuits by customers. This would adversely affect
our business.

We May Be Unable To Protect Our Intellectual Property Rights And We May Be
Liable For Infringing The Intellectual Property Rights of Others

Our success and ability to compete partly depend on the uniqueness or value of
our products and technologies. We rely on a combination of copyright, trademark,
patent, trade secret laws, employee and third-party nondisclosure agreements and
exclusive contracts to protect our intellectual and proprietary rights,
products, and technologies. Policing unauthorized use of our products and
technologies is difficult and the steps we take may not prevent the
misappropriation or infringement of technology or proprietary rights. In
addition, litigation may be necessary to enforce our intellectual property
rights. Such misappropriation or litigation could result in substantial costs
and diversion of resources and the potential loss of intellectual property
rights, any of which would adversely impair our business.

Our products and technologies may be the subject of infringement claims in the
future. This could result in costly litigation and could require us to obtain a
license to the intellectual property of third parties. We may be unable to
obtain licenses from these third parties on favorable terms, if at all. Even if
a license is available, we may have to pay substantial royalties to obtain it.
If we cannot obtain necessary licenses on reasonable terms, our business would
be adversely affected.

Security Risks Could Limit The Growth Of E-Commerce And Expose Us To Litigation
Or Liability

E-commerce depends on the ability to transmit confidential information securely
over public networks. Any compromise of our


                                       21
<PAGE>   22

customers' ability to transmit confidential information securely could harm our
business. Online transmissions are subject to the following risks, among others:

    -   Encryption and authentication technology may be subject to events or
        developments that could compromise or breach the security of customer
        information;
    -   A third party could circumvent security measures and misappropriate
        proprietary information or interrupt operations; - Credit card companies
        could restrict online credit card transactions; or
    -   Security breaches could damage our or our customers' reputation and
        expose us to litigation or liability.

Increasing Government Regulation Could Increase Our Cost Of Doing Business Or
Increase Our Legal Exposure

We are not currently subject to direct regulation by any governmental agency
other than laws and regulations generally applicable to businesses. It is
possible that a number of laws and regulations may be adopted in the U.S. and
abroad with particular applicability to the Internet. Governments have and may
continue to enact legislation applicable to the Internet in areas such as
content distribution, performance and copying, other copyright issues, network
security, encryption, the use of key escrow data, privacy protection, caching of
content by server products, electronic authentication or "digital" signatures,
illegal or obscene content, access charges and retransmission activities. The
applicability to the Internet of existing laws governing issues such as property
ownership, content, taxation, defamation and personal privacy is also uncertain.
Export or import restrictions, new legislation or regulation or governmental
enforcement of existing regulations may limit the growth of the Internet,
increase our cost of doing business or increase our legal exposure.

We Recently Acquired Viewpoint Digital, Inc. And May Need To Enter Into Other
Business Combinations Or Strategic Alliances Which Could Be Difficult To
Integrate And May Disrupt Our Business

On September 8, 2000, we acquired Viewpoint Digital, as described in footnote 6
to the financial statements. In addition, we may continue to expand our
operations or market presence by entering into other business combinations,
investments, joint ventures or strategic alliances with other companies. These
transactions create risks such as:

    -   Difficulty assimilating the operations, technology and personnel of the
        combined companies;
    -   Disruption of our ongoing business;
    -   Problems retaining key technical and managerial personnel;
    -   Expenses associated with amortization of goodwill and other purchased
        intangible assets;
    -   Additional operating losses and expenses of acquired businesses; and
    -   Impairment of relationships with existing employees, customers and
        business partners.

If the Viewpoint Digital acquisition or such other business combinations and
strategic alliances are not successful in addressing these risks, our business
would be adversely affected.

The Loss Of Any Of Our Key Personnel Would Harm Our Business

We depend on the continued employment of our senior executive officers and other
key management personnel. During the nine months ended September 30, 2000, we
entered into long-term employment agreements with our President and Chief
Executive Officer, Robert Rice, as well as our Executive Vice President and
Chief Financial Officer, James Abate. We do not have "key person" life insurance
policies. If any of our senior officers or other key employees leave our company
and are not adequately replaced, our business would be adversely affected.

In December 1999, our previous President and Chief Executive Officer, Gary
Lauer, resigned. Mark Zimmer, previously President of MetaCreations' business
graphics division, was appointed President and Chief Executive Officer from
December 1999 through April 2000. In April 2000, Robert Rice, previously
President and Chief Executive Officer of Viewpoint Corporation, was appointed
President and Chief Executive Officer of MetaCreations Corporation and James
Abate was appointed Executive Vice President and Chief Financial Officer of both
MetaCreations Corporation and Viewpoint Corporation. As a result of the shifting
of our operations to our Viewpoint Corporation subsidiary, Viewpoint Corporation
also hired an Executive Vice President of Technology, as well as an Executive
Vice President of Marketing and Sales. If we do not succeed in attracting and
retaining new officers, our business would be adversely affected.

Our Future Success Depends On Our Ability To Identify, Hire, Train and Retain
Highly Qualified Employees


                                       22
<PAGE>   23

Our future success depends on our continuing ability to identify, hire, train
and retain other highly qualified technical and managerial employees. The
competition for such employees is intense, and we have experienced difficulty in
identifying and hiring qualified engineering personnel. If we do not succeed in
attracting and retaining necessary technical and managerial employees in the
future, our business would be adversely affected.

Additionally, in order to attract and retain employees in the past, we have
granted options to purchase shares of common stock to employees at an exercise
price below the fair value of the common stock on the date of grant. As a
result, we have had to record deferred compensation related to the intrinsic
value of the option. This deferred compensation is amortized over the vesting
period of applicable options, which is generally four years, resulting in a
non-cash charge to earnings over the related vesting period. If we have to issue
additional options at an exercise price below the fair value of the common stock
on the date of grant, our financial condition and results of operations would be
adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

Cash and investments totaled $31,875,000 at September 30, 2000, down from
$37,316,000 at December 31, 1999.

Net cash used in operating activities of the Company totaled $23,313,000 for the
nine months ended September 30, 2000, compared to $5,031,000 for the nine months
ended September 30, 1999. Net cash used in operating activities for the nine
months ended September 30, 2000 primarily related to a $40,081,000 net loss from
continuing operations, $11,120,000 net cash used for discontinued operations
(principally severance and related expenses) and $4,200,000 minority interest in
loss of subsidiary, net of $11,291,000 non-cash stock-based compensation charges
and $19,998,000 non-cash sales and marketing charges related to the issuance of
Viewpoint Corporation preferred stock to AOL and Adobe. Net cash used in
operating activities for the nine months ended September 30, 1999 primarily
related to $4,782,000 net cash used for discontinued operations.

Net cash provided by investing activities totaled $3,055,000 for the nine months
ended September 30, 2000, compared to net cash used in investing activities of
$6,520,000 for the nine months ended September 30, 1999. Net cash provided by
investing activities for the nine months ended September 30, 2000 primarily
resulted from $16,751,000 of net proceeds from sales and maturities of
short-term investments and $1,000,000 of proceeds from the repayment of a note
receivable from an officer of the Company, net of $10,207,000 for the purchase
of Viewpoint Digital and $4,405,000 used for purchases of property and
equipment. Net cash used in investing activities for the nine months ended
September 30, 1999 primarily resulted from $2,518,000 of net purchases of
short-term investments and $3,952,000 of net cash used for discontinued
operations.

Net cash provided by financing activities totaled $31,560,000 and $3,535,000 for
the nine months ended September 30, 2000 and 1999, respectively. Net cash
provided by financing activities for the nine months ended September 30, 2000
resulted from $12,221,000 of proceeds received from the exercise of stock
options by the Company's employees, $19,839,000 of net proceeds from the
issuance of Series A and B Convertible Preferred Stock in Viewpoint Corporation
to AOL and Adobe, respectively, and $1,000,000 collected from Computer
Associates in connection with a subscription receivable related to Viewpoint
Corporation common stock, net of a $1,500,000 note receivable issued to an
officer of the Company. Net cash provided by investing activities for the nine
months ended September 30, 1999 primarily resulted from $3,000,000 collected
from Computer Associates in connection with a subscription receivable related to
Viewpoint Corporation common stock.

The Company expects that its working capital requirements will continue to
increase to the extent the Company continues to grow. The Company believes that
its current cash and investment balances and cash provided by future operations,
if any, are sufficient to meet its working capital needs and anticipated capital
expenditure requirements through at least the next twelve months.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No, 133, "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. To
date, we have not engaged in derivative and hedging activities.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which
gives additional guidance in applying generally accepted accounting principles
to revenue recognition


                                       23
<PAGE>   24
in the financial statements. Management does not believe the compliance with the
provisions of SAB No. 101 will have a material effect on the accompanying
consolidated financial statements.

In March 2000, the Financial Accounting Standards Board issued Financial
Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving
Stock Compensation," which is an interpretation of Accounting Principal Board
Opinion ("APB") No. 25. This interpretation clarifies:

    -   The definition of employee for purposes of applying APB No. 25, which
        deals with stock compensation issues;
    -   The criteria for determining whether a plan qualifies as a
        noncompensatory plan;
    -   The accounting consequence of various modifications to the terms of a
        previously fixed stock option or award; and
    -   The accounting for an exchange of stock compensation awards in a
        business combination.

The interpretation was effective July 1, 2000. The adoption of FIN No. 44 did
not have a material impact on our financial statements.

In March 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on EITF Issue 00-02, "Accounting
for Web Site Development Costs". This consensus provides guidance on what types
of costs incurred to develop Web sites should be capitalizied or expensed. The
Company adopted this consensus on July 1, 2000. During the three months ended
September 30, 2000, the Company capitalizied $671,000 of Web site development
costs. Such capitalizied costs are included in "Property and equipment, net" and
will be depreciated over a period of three years.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is subject to concentration of credit risk and interest rate risk
related to cash equivalents and short-term investments. The Company does not
have any derivative financial instruments as of September 30, 2000. Credit risk
is managed by limiting the amount of investments placed with any one issuer,
investing in high-quality investment securities and securities of the U.S.
government and limiting the average maturity of the overall portfolio. The
majority of the Company's portfolio, which is classified as available-for-sale,
is composed of fixed income investments that are subject to the risk of market
interest rate fluctuations, and all of the Company's investments 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.

                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

    None

Item 2. Changes in Securities

    None

Item 3. Defaults upon Senior Securities

    None

Item 4. Submission of Matters to a Vote of Security Holders

    None

Item 5. Other Information

    None

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

EXHIBIT
NUMBER                                         EXHIBIT TITLE
-------      ----------------------------------------------------------------
10.1         Letter Agreement between the Registrant and Anders Vinberg dated
             September 6, 2000.

10.2         Series B Preferred Stock Purchase Agreement and related Exchange
             Agreement between the Registrant and Adobe Systems Incorporated,
             dated July 18, 2000.

27.1         Financial Data Schedule.

(b)  Reports on Form 8-K

On September 25, 2000, the Registrant filed a report on Form 8-K to report the
acquisition of all the outstanding capital stock of Viewpoint Digital, Inc.

On November 1, 2000, the Registrant filed a Form 8-K/A to amend the Form 8-K
filed on September 25, 2000, by attaching copies of the promissory notes issued
by the Registrant to Computer Associates in partial consideration for the
capital stock of Viewpoint Digital, Inc.

                                       24
<PAGE>   25


                                   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.

                                         METACREATIONS CORPORATION
                                         (Registrant)
    Date:  November 14, 2000             /s/ JAMES A. ABATE
                                         ---------------------------
                                         James A. Abate
                                         Executive Vice President and
                                             Chief Financial Officer


                                       25