EX-99 4 ex99-3.htm EXHIBIT 99.3

ITEM 9 (b). Pro forma Consolidated Financial Information of Viewpoint Corporation (Unaudited)

As previously reported, on December 1, 2004, Viewpoint Corporation (“Viewpoint” or the “Company”) entered into an agreement to acquire all of the outstanding capital stock of Unicast Communications Corp. (“Unicast”). The transaction closed on January 3, 2005 and Unicast became a wholly-owned subsidiary of Viewpoint.

Under the terms of the Stock Purchase Agreement (the “Agreement”), Viewpoint issued an aggregate of 1.1 million shares of Viewpoint common stock to the selling stockholders of Unicast and paid approximately $0.2 million in cash at the closing. Within one hundred ninety (190) days following the closing, Viewpoint will be obligated to issue up to an additional 0.4 million shares of Viewpoint common stock and to make an additional cash payment of up to $0.2 million. The number of shares issuable and the amount of cash payable within 190 days following closing will be subject to adjustments based on net working capital assumed by Viewpoint in accordance with terms set forth in the Agreement.

Long-term debt issued by Unicast will remain outstanding at the Unicast subsidiary level following the closing. This debt is comprised mainly of the following:

- An unsecured promissory note issued by Unicast dated February 27, 2004 in the principal amount of $1 million. This promissory note bears interest at 5% per annum, compounding annually, and matures in February 2011. No payments of principal or interest are due until the maturity date.

- A secured promissory note issued by Unicast amended and restated February 27, 2004 in the principal amount of $2 million. This promissory note bears interest of 5% per annum and is secured by substantially all of the Unicast subsidiary’s assets. Concurrently with the closing of the Unicast acquisition, Viewpoint paid approximately $0.3 million to the secured note holder which was applied towards reducing the amount outstanding under the promissory note. Viewpoint would become an additional obligor under the promissory note and Viewpoint’s assets would become additional collateral to secure the obligations if certain contingencies occur, such as Viewpoint’s failure to operate the Unicast ad-serving business through the Unicast subsidiary or the ad-serving business fails to achieve certain revenue targets. No payments under the secured promissory note are due until March 2006. At that time, all unpaid principal and interest will be fully amortized and payable in 60 monthly installments through March 2011.

Viewpoint assumed an obligation to make certain payments on behalf of the selling stockholders in the maximum amount of $0.4 million, payable in equal bi-monthly installments over the one-year period following the closing. If the obligation ceases over the course of the year or is ultimately determined to be less than $0.4 million, Viewpoint will pay to the selling stockholders the difference between $0.4 million and the amount payable under the obligation.

Viewpoint has prepared pro forma financial information for the Unicast acquisition to combine the financial results of the Company with Unicast for the year ended December 31, 2004 as if the transaction had closed on January 1, 2004. Additionally, the following information presents pro forma Balance Sheet information as if the acquisition occurred on December 31, 2004.

The pro forma financial information is based on the historical consolidated financial statements of Viewpoint and the historical financial statements of Unicast and should be read in conjunction with such financial statements and accompanying notes. The purchase method of accounting was used to prepare the pro forma financial statements using estimated fair values of the assets and liabilities of Unicast at the date of the acquisition. The purchase accounting adjustments to reflect the assets and liabilities of Unicast were based upon management’s preliminary evaluation as of this filing and are subject to change pending final evaluation of fair values of the assets and liabilities and such change could be materially different from amounts disclosed herein.

The pro forma financial information does not purport to be indicative of either a) the results of operations which would have actually been obtained if the acquisition had occurred on the dates indicated, or b) the results of operations that will be reported in the future.

 


 

VIEWPOINT CORPORATION AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED BALANCE SHEET

YEAR ENDED DECEMBER 31, 2004

(UNAUDITED)

 

 

 

Viewpoint
Corp.

 

Unicast
Communications
Corp.

 

Pro Forma
Adjustments

 

    

Pro Forma
Combined

 

 

 

 

 

 

    

 

ASSETS

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Cash and cash equivalents

 

$

5,955

 

$

15

 

$

(454

)

 (1)  

$

5,516

 

Marketable securities

 

 

2,707

 

 

–

 

 

–

 

    

 

2,707

 

Accounts receivable

 

 

2,583

 

 

2,053

 

 

–

 

    

 

4,636

 

Related party accounts receivable

 

 

26

 

 

–

 

 

–

 

    

 

26

 

Prepaid expenses

 

 

421

 

 

7

 

 

–

 

    

 

428

 

 

 

 

 

 

    

 

Total current assets

 

 

11,692

 

 

2,075

 

 

(454

)

    

 

13,313

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Restricted cash

 

 

320

 

 

–

 

 

–

 

    

 

320

 

Property and equipment, net

 

 

1,485

 

 

28

 

 

100

 

(1, 2)

  

 

1,613

 

Goodwill, net

 

 

31,276

 

 

–

 

 

2,142

  

(1, 2)

  

 

33,418

 

Intangible assets, net

 

 

230

 

 

42

 

 

5,128

 

(1, 2)

  

 

5,400

 

Other assets, net

 

 

270

 

 

22

 

 

–

 

    

 

292

 

 

 

 

 

 

    

 

Total assets

 

$

45,273

 

$

2,167

 

$

6,916

 

    

$

54,356

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Accounts payable

 

$

1,218

 

$

3,380

 

$

675

  

(1)

  

$

5,273

 

Accrued expenses

 

 

244

 

 

–

 

 

 

 

    

 

244

 

Related party accounts payable

 

 

–

 

 

221

 

 

(179

)

 (3)  

 

42

 

Deferred revenues

 

 

431

 

 

–

 

 

–

 

    

 

431

 

Related party deferred revenues

 

 

4,607

 

 

–

 

 

–

 

    

 

4,607

 

Accrued incentive compensation

 

 

545

 

 

–

 

 

–

 

    

 

545

 

Current liabilities related to discontinued operations

 

 

231

 

 

–

 

 

–

 

    

 

231

 

Note payable, current portion

 

 

–

 

 

80

 

 

–

 

    

 

80

 

Note payable, related party

 

 

–

 

 

87

 

 

–

 

    

 

87

 

 

 

 

 

 

    

 

Total current liabilities

 

 

7,276

 

 

3,768

 

 

496

 

    

 

11,540

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Deferred rent

 

 

365

 

 

–

 

 

–

 

    

 

365

 

Related party deferred revenue

 

 

–

 

 

–

 

 

–

 

    

 

–

 

Convertible notes

 

 

–

 

 

–

 

 

–

 

    

 

–

 

Warrants to purchase common stock

 

 

1,286

 

 

–

 

 

–

 

    

 

1,286

 

Subordinated notes

 

 

2,388

 

 

–

 

 

–

 

    

 

2,388

 

Note payable

 

 

–

 

 

150

 

 

–

 

    

 

150

 

Note payable- related party

 

 

–

 

 

3,905

 

 

(2,203

)

 (4)  

 

1,702

 

 

 

 

 

 
 

 

Total liabilities

 

 

11,315

 

 

7,823

 

 

(1,707

)

    

 

17,431

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Preferred stock

 

 

–

 

 

–

 

 

–

 

    

 

–

 

Common stock

 

 

57

 

 

7

 

 

(6

)

 (5)  

 

58

 

Paid-in capital

 

 

290,260

 

 

58,964

 

 

(55,998

)

 (5)  

 

293,226

 

Deferred compensation

 

 

(5

)

 

–

 

 

–

 

    

 

(5

)

Treasury stock at cost

 

 

(1,015

)

 

–

 

 

–

 

    

 

(1,015

)

Accumulated other comprehensive income (loss)

 

 

(60

)

 

–

 

 

–

 

    

 

(60

)

Accumulated deficit

 

 

(255,279

)

 

(64,627

)

 

64,627

 

 (5)  

 

(255,279

)

 

 

 

 

 
 

 

Total stockholders’ equity

 

 

33,958

 

 

(5,656

)

 

8,623

 

    

 

36,925

 

 

 

 

 

 

    

 

Total liabilities and stockholders’ equity

 

$

45,273

 

$

2,167

 

$

6,916

 

    

$

54,356

 

 

 

 

 

 

    

 

 


 

 

VIEWPOINT CORPORATION AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2004

(UNAUDITED)

 

 

 

Viewpoint
Corp.

 

Unicast
Communications
Corp.

 

Pro Forma
Adjustments

  

 

Pro Forma
Combined

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Search

 

$

2,698

 

$

–

 

$

–

 

 

$

2,698

 

Advertising systems

 

 

305

 

 

6,053

 

 

–

 

 

 

6,358

 

Services

 

 

4,822

 

 

–

 

 

–

 

 

 

4,822

 

Related party services

 

 

2,468

 

 

–

 

 

–

 

 

 

2,468

 

Licenses

 

 

704

 

 

–

 

 

–

 

 

 

704

 

Related party licenses

 

 

3,535

 

 

–

 

 

–

 

 

 

3,535

 

 

 

 

 

 

 

 

Total revenues

 

 

14,532

 

 

6,053

 

 

–

 

 

 

20,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Cost of Revenues:

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Search

 

 

45

 

 

–

 

 

–

 

 

 

45

 

Advertising systems

 

 

132

 

 

3,337

 

 

–

 

 

 

3,469

 

Services

 

 

3,074

 

 

–

 

 

–

 

 

 

3,074

 

Licenses

 

 

6

 

 

–

 

 

–

 

 

 

6

 

 

 

 

 

 

 

 

Total cost of revenues

 

 

3,257

 

 

3,337

 

 

–

 

 

 

6,594

 

 

 

 

 

 

 

 

Gross profit

 

 

11,275

 

 

2,716

 

 

–

 

 

 

13,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Sales and marketing

 

 

3,732

 

 

2,352

 

 

–

 

 

 

6,084

 

Research and development

 

 

3,432

 

 

1,461

 

 

–

 

 

 

4,893

 

General and administrative

 

 

7,220

 

 

1,443

 

 

177

 

 (1)

 

8,840

 

Depreciation

 

 

853

 

 

130

 

 

88

 

 (2)

 

1,071

 

Amortization of intangible assets

 

 

17

 

 

–

 

 

708

 

 (3)

 

725

 

Restructuring charges

 

 

(106

)

 

–

 

 

–

 

 

 

(106

)

 

 

 

 

 

 

 

Total operating expenses

 

 

15,148

 

 

5,386

 

 

973

 

 

 

21,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Loss from operations

 

 

(3,873

)

 

(2,670

)

 

(973

 )

 

 

(7,516

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Other income (expense), net

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Interest and other income; net

 

 

60

 

 

–

 

 

–

 

 

 

60

 

Interest expense

 

 

(936

)

 

(110

)

 

(155

 )

(4)

 

(1,201

)

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

 

 

(4,180

)

 

–

 

 

–

 

 

 

(4,180

)

Loss on conversion of debt

 

 

(810

)

 

–

 

 

–

 

 

 

(810

)
   

 

 

 

  

 

Total other income (expense)

 

 

(5,866

)

 

(110

)

 

(155

)

  

 

(6,131

)

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

Loss before provision for income taxes

 

 

(9,739

)

 

(2,780

)

 

(1,128

)

  

 

(13,647

)

Provision for income taxes

 

 

90

 

 

–

 

 

–

 

  

 

90

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

Net loss from continuing operations

 

 

(9,829

)

 

(2,780

)

 

(1,128

)

  

 

(13,737

)

Adjustment to net loss on disposal of discontinued operations, net of tax

 

 

129

 

 

–

 

 

–

 

  

 

129

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

Net loss applicable to common shareholders

 

$

(9,700

)

$

(2,780

)

$

(1,128

)

  

$

(13,608

)

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Basic and diluted net loss per common share:

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Net loss per common share from continuing operations

 

$

(0.18

)

 

 

 

 

 

  

 

$

(0.25

)

Net income (loss) per common share from discontinued operations

 

 

–

 

 

 

 

 

 

  

 

 

–

 

 

 

 

 

 

 

 

 

  

 

 

Net loss per common share

 

$

(0.18

)

 

 

 

 

 

  

 

$

(0.25

)

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

Weighted average number of shares outstanding — basic and diluted

 

 

52,955

 

 

 

 

 

1,085

 

 

 

54,040

 

 

 

 

 

 

 

 

 

 

 


 

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(UNAUDITED)

Balance Sheet

The pro forma adjustments to the consolidated balance sheet reflect the following:

 

(1)

Allocation of Purchase Price of Unicast

 

Cash

 

$

438,000

 

Common stock issued

 

 

3,319,215

 

Transaction costs

 

 

100,000

 

Debt assumed

 

 

1,702,239

 

Net working capital liabilities assumed

 

 

2,233,499

 

 

 

 

Total purchase price

 

 

7,792,953

 

Fair value of tangible assets acquired

 

 

128,000

 

Fair value of intangible assets acquired

 

 

5,170,000

 

 

 

 

Excess purchase price to be allocated to goodwill

 

$

2,494,953

 

 

 

 

The purchase accounting adjustments to reflect fair value of assets and liabilities was based on management’s evaluation as of this filing date and are subject to change pending final evaluation of the assets and liabilities. At this time, the net book value of tangible assets is estimated to approximate fair value. It is not expected that the final allocation of purchase price to tangible or intangible assets acquired will produce materially different results from those presented herein.         

 

(2)

To record the elimination of existing Unicast book values for tangible assets and record fair values for tangible and intangible assets. Intangible assets acquired included trademarks, website partner relationships and acquired technology including in-process research and development for advertising systems technology which Viewpoint will be able to use in its advertising systems segment.

 

(3)

To eliminate deferred rent benefit for terminated lease.

 

(4)

To eliminate the existing related party debt balance for Unicast and restate it to an appropriately discounted fair-market value for a non-related party in accordance with APB 21, “Interest on Receivables and Payables.”

 

(5)

To reflect the elimination of Unicast equity and the issuance of Viewpoint's common stock (at a market price of $2.735 reflecting the average of the closing price the two days before and after the announcement of the transaction on December 2, 2004)

      Common stock   Paid-in capital   Accumulated
deficit		  
                 
  Eliminate Unicast equity   (7)   (58,964)   –  
  Issue Viewpoint equity   1   2,966   –  
  Eliminate Unicast deficit   –   –   64,627  
  Total   (6)   (55,998)   64,627  

 

Statement of Operations

Income statement adjustments include:

 

1.

General and administrative expense: Unicast rented its facility in New York from a related party that forgave outstanding lease obligations during the February 2004 re-capitalization. During 2004 Unicast recorded no rent expense because rent payments were offset against a portion of the forgiveness in accordance with the terms of SFAS 13 “Accounting for Leases” and SFAS 15 “Accounting by Debtors and Creditors for Trouble Debt Restructurings.” This adjustment records rental expense in accordance with the terms of the rental agreements in place during the period ignoring credits attributable to the recapitalization in February 2002 and the forgiveness of rent from prior periods that was an incentive to execute the new lease in February 2003.

 

2.

Depreciation: Unicast depreciation was based on historical values and useful lives. Viewpoint has engaged an independent valuation company to estimate the fair market value and remaining useful life of the assets acquired on January 3, 2005. The pro forma financial information eliminates Unicast’s depreciation and records depreciation based upon what Viewpoint will expect to record as depreciation expense during the first year of combined operations. The majority of assets acquired were assigned a one year useful life.

 

3.

Amortization: Unicast had no amortization expense. Viewpoint engaged an independent valuation company to assist Viewpoint management in determining estimated intangible asset values, including goodwill, acquired in the acquisition. These intangible values included trademarks, acquired technology, website partner relationships and

 


 

 

goodwill. Acquired technology was determined to have a life of three years while the other intangible values were determined to have a life of five and ten years.

 

4.

Interest Expense: Unicast depreciation was based on the debt associated with its 2002 and 2004 recapitalizations that resulted in a Troubled Debt Restructuring in accordance with the provisions of SFAS 15 “Accounting by Debtors and Creditors for Troubled Debt Restructurings”. This interest expense was reversed. Viewpoint assumed the outstanding debt as described above. In accordance with APB 21, the debt was discounted to its fair market value based upon the prevailing interest rates at the date of the acquisition, the term of the debt, the interest provisions of the debt and the credit risk associated with repayment. Based upon these criteria Viewpoint discounted the debt to $ 1.4 million for the secured note and $ 0.3 million for the unsecured note. Viewpoint will accrete the notes based upon the interest-method, including interest payment requirements, through maturity. Interest expense for the pro forma statements reflect the first 12 months of calculated interest expense. The Company is not required to make any interest payments during this period.

 

5.

There were no transactions between Unicast and Viewpoint during 2004 so there are no intercompany transactions to eliminate.