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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|           |                                                                                           
|---------- | ------------------------------------------------------------------------------------------
|(Mark One)
|x          | QUARTERLY
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|           |                                                                                           
|           | For
  the quarterly period ended March 31, 2006                                           
|           |                                                                                           
|or        
|           |                                                                                           
|o          | TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For
the transition period from ____________ to
____________

Commission file number: 0-27168

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|                                                        
|--------------------------------------------------------
|VIEWPOINT CORPORATION                                   
|(Exact
  name of registrant as specified in its charter)

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check One):  Large accelerated fileroAccelerated filerxNon-accelerated filero





As
  of May 2, 2006, 66,320,000 shares of $0.001 par value common stock were outstanding.



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TABLE OF CONTENTS

|         |                                                                                                                |     
|-------- | -------------------------------------------------------------------------------------------------------------- | ----
|         |                                                                                                                | Page
|         |                                                                                                                |     
|         | PART
        I - FINANCIAL INFORMATION                                                                         |     
|         |                                                                                                                |     
|Item 1.  | Consolidated
        Financial Statements                                                                      | 3   
|         |                                                                                                                |     
|         | Consolidated
        Balance Sheets  March 31, 2006
        and December 31, 2005 (unaudited)                 | 3   
|         | Consolidated
        Statements of Operations  Three months
        ended March 31, 2006 and 2005 (unaudited) | 4   
|         | Consolidated
        Statements of Cash Flows  Three months ended
        March 31, 2006 and 2005 (unaudited) | 5   
|         | Notes
        to Consolidated Financial Statements (unaudited)                                                 | 7   
|         |                                                                                                                |     
|Item 2.  | Managements
        Discussion and Analysis of Financial
        Condition and Results of Operations          | 27  
|         |                                                                                                                |     
|Item 3.  | Quantitative
        and Qualitative Disclosures About Market Risk                                             | 45  
|         |                                                                                                                |     
|Item 4.  | Controls
        and Procedures                                                                                | 46  
|         |                                                                                                                |     
|         | PART
        II  OTHER INFORMATION                                                                            |     
|         |                                                                                                                |     
|Item 1.  | Legal
        Proceedings                                                                                      | 47  
|Item 1A. | Risk
        Factors                                                                                           | 47  
|Item 2.  | Unregistered
        Sales of Equity Securities and Use of Proceeds                                            | 47  
|Item 3.  | Defaults
        Upon Senior Securities                                                                        | 47  
|Item 4.  | Submission
        of Matters to a Vote of Security Holders                                                    | 47  
|Item 5.  | Other
        Information                                                                                      | 47  
|Item 6.  | Exhibits                                                                                                       | 47  
|         |                                                                                                                |     
|         | Signatures                                                                                                     | 48  

2

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PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

|                                                                                                                                                                                                                                     |  |                        |          |                           |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------- | -------- | ------------------------- | - | -------- | -
|                                                                                                                                                                                                                                     |  | March 31,
        2006 |          | December 31,
        2005 |  
|                                                                                                                                                                                                                                     |  |                        |          |                           |  
|ASSETS                                                                                                                                                                                                                               |  |                        |          |                           |   |          |  
|Current assets:                                                                                                                                                                                                                      |  |                        |          |                           |   |          |  
|Cash
        and cash equivalents                                                                                                                                                                                                    |  | $                      | 3,779    |                           | $ | 6,437    |  
|Marketable
        securities                                                                                                                                                                                                        |  |                        | 3,818    |                           |   | 2,674    |  
|Accounts
        receivable, net of reserve of $420 and $419, respectively                                                                                                                                                           |  |                        | 2,583    |                           |   | 4,342    |  
|Prepaid
        expenses and other current assets                                                                                                                                                                                    |  |                        | 1,341    |                           |   | 510      |  
|                                                                                                                                                                                                                                     |  |                        |          |                           |   |          |  
|Total
        current assets                                                                                                                                                                                                         |  |                        | 11,521   |                           |   | 13,963   |  
|                                                                                                                                                                                                                                    
|Restricted cash                                                                                                                                                                                                                      |  |                        | 184      |                           |   | 182      |  
|Property and equipment,
        net                                                                                                                                                                                                  |  |                        | 1,126    |                           |   | 1,218    |  
|Goodwill                                                                                                                                                                                                                             |  |                        | 25,537   |                           |   | 25,537   |  
|Intangible assets, net                                                                                                                                                                                                               |  |                        | 4,009    |                           |   | 4,131    |  
|Other assets                                                                                                                                                                                                                         |  |                        | 97       |                           |   | 105      |  
|                                                                                                                                                                                                                                     |  |                        |          |                           |   |          |  
|Total
        assets                                                                                                                                                                                                                 |  | $                      | 42,474   |                           | $ | 45,136   |  
|                                                                                                                                                                                                                                     |  |                        |          |                           |   |          |  
|                                                                                                                                                                                                                                     |  |                        |          |                           |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                 |  |                        |          |                           |   |          |  
|Current liabilities:                                                                                                                                                                                                                 |  |                        |          |                           |   |          |  
|Accounts
        payable                                                                                                                                                                                                             |  | $                      | 2,341    |                           | $ | 2,834    |  
|Accrued
        expenses                                                                                                                                                                                                             |  |                        | 663      |                           |   | 635      |  
|Deferred
        revenues                                                                                                                                                                                                            |  |                        | 181      |                           |   | 207      |  
|Current
        portion of warrants to purchase common stock                                                                                                                                                                         |  |                        | 264      |                           |   |         |  
|Current
        portion of notes payable                                                                                                                                                                                             |  |                        | 476      |                           |   | 814      |  
|Accrued
        incentive compensation                                                                                                                                                                                               |  |                        | 545      |                           |   | 545      |  
|Current
        liabilities related to discontinued operations                                                                                                                                                                       |  |                        | 231      |                           |   | 231      |  
|                                                                                                                                                                                                                                     |  |                        |          |                           |   |          |  
|Total
        current liabilities                                                                                                                                                                                                    |  |                        | 4,701    |                           |   | 5,266    |  
|                                                                                                                                                                                                                                    
|Deferred rent                                                                                                                                                                                                                        |  |                        | 310      |                           |   | 334      |  
|Warrants to purchase common stock                                                                                                                                                                                                    |  |                        | 1,347    |                           |   | 982      |  
|Subordinated notes                                                                                                                                                                                                                   |  |                        | 2,174    |                           |   | 2,090    |  
|Unicast notes                                                                                                                                                                                                                        |  |                        | 1,581    |                           |   | 1,582    |  
|                                                                                                                                                                                                                                     |  |                        |          |                           |   |          |  
|Total
        liabilities                                                                                                                                                                                                            |  |                        | 10,113   |                           |   | 10,254   |  
|                                                                                                                                                                                                                                     |  |                        |          |                           |   |          |  
|Stockholders equity:                                                                                                                                                                                                                |  |                        |          |                           |   |          |  
|Preferred
        stock, $.001 par value; 5,000 shares authorized - no shares issued and
        outstanding at March 31, 2006 and December 31, 2005                                                                                 |  |                        |         |                           |   |         |  
|Common
        stock, $.001 par value; 100,000 shares authorized - 65,804 shares issued
        and 65,644 shares outstanding at March 31, 2006, and 64,849 shares issued
        and 64,689 shares outstanding at December 31, 2005 |  |                        | 66       |                           |   | 65       |  
|Paid-in
        capital                                                                                                                                                                                                              |  |                        | 303,195  |                           |   | 301,766  |  
|Treasury
        stock at cost; 160 at March 31, 2006 and December 31, 2005                                                                                                                                                          |  |                        | (1,015   | )                         |   | (1,015   | )
|Accumulated
        other comprehensive loss                                                                                                                                                                                         |  |                        | (65      | )                         |   | (63      | )
|Accumulated
        deficit                                                                                                                                                                                                          |  |                        | (269,820 | )                         |   | (265,871 | )
|                                                                                                                                                                                                                                     |  |                        |          |                           |   |          |  
|Total
        stockholders equity                                                                                                                                                                                                   |  |                        | 32,361   |                           |   | 34,882   |  
|                                                                                                                                                                                                                                     |  |                        |          |                           |   |          |  
|Total
        liabilities and stockholders equity                                                                                                                                                                                   |  | $                      | 42,474   |                           | $ | 45,136   |  
|                                                                                                                                                                                                                                     |  |                        |          |                           |   |          |  

3

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

|                                                                                                           |  |                                |        |      |   |        |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | ---- | - | ------ | -
|                                                                                                           |  | Three Months Ended
  March 31, |       
|                                                                                                           |  |                                |       
|                                                                                                           |  | 2006                           |        | 2005 |  
|                                                                                                           |  |                                |        |      |  
|Revenues:                                                                                                  |  |                                |        |      |   |        |  
|Search                                                                                                     |  | $                              | 1,789  |      | $ | 2,180  |  
|Advertising systems                                                                                        |  |                                | 1,595  |      |   | 732    |  
|Services                                                                                                   |  |                                | 553    |      |   | 1,243  |  
|Related party services                                                                                     |  |                                |       |      |   | 395    |  
|Licenses                                                                                                   |  |                                | 46     |      |   | 155    |  
|Related party licenses                                                                                     |  |                                |       |      |   | 873    |  
|                                                                                                           |  |                                |        |      |   |        |  
|Total revenues                                                                                             |  |                                | 3,983  |      |   | 5,578  |  
|                                                                                                           |  |                                |        |      |   |        |  
|                                                                                                           |  |                                |        |      |   |        |  
|Cost of revenues:                                                                                          |  |                                |        |      |   |        |  
|Search                                                                                                     |  |                                | 36     |      |   | 46     |  
|Advertising systems                                                                                        |  |                                | 1,005  |      |   | 518    |  
|Services                                                                                                   |  |                                | 642    |      |   | 810    |  
|Licenses                                                                                                   |  |                                | 6      |      |   | 2      |  
|                                                                                                           |  |                                |        |      |   |        |  
|Total
        cost of revenues (exclusive of depreciation and amortization shown seperately
        below) |  |                                | 1,689  |      |   | 1,376  |  
|                                                                                                           |  |                                |        |      |   |        |  
|Gross profit                                                                                               |  |                                | 2,294  |      |   | 4,202  |  
|                                                                                                           |  |                                |        |      |   |        |  
|                                                                                                           |  |                                |        |      |   |        |  
|Operating expenses:                                                                                        |  |                                |        |      |   |        |  
|Sales and marketing                                                                                        |  |                                | 1,578  |      |   | 1,275  |  
|Research and development                                                                                   |  |                                | 1,088  |      |   | 1,206  |  
|General and administrative                                                                                 |  |                                | 2,359  |      |   | 2,087  |  
|Depreciation                                                                                               |  |                                | 145    |      |   | 233    |  
|Amortization of intangible assets                                                                          |  |                                | 138    |      |   | 178    |  
|Restructuring charges                                                                                      |  |                                | 92     |      |   |       |  
|                                                                                                           |  |                                |        |      |   |        |  
|Total operating expenses                                                                                   |  |                                | 5,400  |      |   | 4,979  |  
|                                                                                                           |  |                                |        |      |   |        |  
|                                                                                                           |  |                                |        |      |   |        |  
|Loss from operations                                                                                       |  |                                | (3,106 | )    |   | (777   | )
|                                                                                                           |  |                                |        |      |   |        |  
|                                                                                                           |  |                                |        |      |   |        |  
|Other income (expense),
  net:                                                                             |  |                                |        |      |   |        |  
|Interest and other income; net                                                                             |  |                                | 79     |      |   | 24     |  
|Interest expense                                                                                           |  |                                | (287   | )    |   | (316   | )
|Changes in fair values of warrants to purchase
common stock                                                |  |                                | (628   | )    |   | 182    |  
|                                                                                                           |  |                                |        |      |   |        |  
|Total other income
  (expense)                                                                             |  |                                | (836   | )    |   | (110   | )
|                                                                                                           |  |                                |        |      |   |        |  
|Loss before provision for
  income taxes                                                                   |  |                                | (3,942 | )    |   | (887   | )
|Provision for income taxes                                                                                 |  |                                | 7      |      |   | 3      |  
|                                                                                                           |  |                                |        |      |   |        |  
|                                                                                                           |  |                                |        |      |   |        |  
|Net loss from continuing
  operations                                                                      |  |                                | (3,949 | )    |   | (890   | )
|Adjustment to net loss on
  disposal of discontinued operations, net of tax                                |  |                                |       |      |   | 145    |  
|                                                                                                           |  |                                |        |      |   |        |  
|                                                                                                           |  |                                |        |      |   |        |  
|Net loss                                                                                                   |  | $                              | (3,949 | )    | $ | (745   | )
|                                                                                                           |  |                                |        |      |   |        |  
|                                                                                                           |  |                                |        |      |   |        |  
|Basic and diluted net loss
  per common share:                                                             |  |                                |        |      |   |        |  
|Net loss per common share from continuing
operations                                                       |  | $                              | (0.06  | )    | $ | (0.01  | )
|                                                                                                           |  |                                |        |      |   |        |  
|Net loss per common share                                                                                  |  | $                              | (0.06  | )    | $ | (0.01  | )
|                                                                                                           |  |                                |        |      |   |        |  
|                                                                                                          
|Weighted average number of
  shares outstanding  basic and diluted                                        |  |                                | 64,864 |      |   | 57,655 |  
|                                                                                                           |  |                                |        |      |   |        |  

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

4

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VIEWPOINT CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)(Unaudited)

|                                                                                    |  |                                              |        |      |   |        |  
|----------------------------------------------------------------------------------- |  | -------------------------------------------- | ------ | ---- | - | ------ | -
|                                                                                    |  | Three Months
        Ended
        March 31, |       
|                                                                                    |  |                                              |       
|                                                                                    |  | 2006                                         |        | 2005 |  
|                                                                                    |  |                                              |        |      |  
|Cash
        flows from operating activities:                                       |  |                                              |        |      |   |        |  
|Net
        loss                                                                    |  | $                                            | (3,949 | )    | $ | (745   | )
|Adjustments
        to reconcile net loss to net cash used in operating activities: |  |                                              |        |      |   |        |  
|Stock-based
        compensation charges                                            |  |                                              | 668    |      |   | 14     |  
|Depreciation
        and amortization                                               |  |                                              | 283    |      |   | 411    |  
|Provision
        for bad debt                                                      |  |                                              | 1      |      |   | 3      |  
|Changes
        in fair values of warrants to purchase common stock                 |  |                                              | 628    |      |   | (182   | )
|Amortization
        of debt discount and issuance costs                            |  |                                              | 236    |      |   | 271    |  
|Changes
        in operating assets and liabilities, net of acquisitions:           |  |                                              |        |      |   |        |  
|Accounts
        receivable                                                         |  |                                              | 1,758  |      |   | 219    |  
|Prepaid
        expenses                                                            |  |                                              | (831   | )    |   | (198   | )
|Accounts
        payable                                                            |  |                                              | (491   | )    |   | (2,277 | )
|Accrued
        expenses                                                            |  |                                              | 4      |      |   | 299    |  
|Deferred
        revenues                                                           |  |                                              | (26    | )    |   | 100    |  
|Related
        party deferred revenues                                             |  |                                              |       |      |   | (1,226 | )
|Other                                                                               |  |                                              | (1     | )    |   |       |  
|                                                                                    |  |                                              |        |      |   |        |  
|Net
        cash used in operating activities                                       |  |                                              | (1,720 | )    |   | (3,311 | )
|                                                                                    |  |                                              |        |      |   |        |  
|Cash
        flows from investing activities:                                       |  |                                              |        |      |   |        |  
|Proceeds
        from sales and maturities of marketable securities                 |  |                                              | 3,645  |      |   | 3,250  |  
|Purchases
        of marketable securities                                          |  |                                              | (4,790 | )    |   | (3,088 | )
|Decrease
        (Increase) in restricted cash                                      |  |                                              | (2     | )    |   | 101    |  
|Purchases
        of property and equipment                                         |  |                                              | (53    | )    |   | (160   | )
|Acquisition
        of Unicast, net of cash acquired                                |  |                                              |       |      |   | (512   | )
|Purchases
        of patents and trademarks                                         |  |                                              | (16    | )    |   | (9     | )
|                                                                                    |  |                                              |        |      |   |        |  
|Net
        cash used in investing activities                                       |  |                                              | (1,216 | )    |   | (418   | )
|                                                                                    |  |                                              |        |      |   |        |  
|Cash
        flows from financing activities:                                       |  |                                              |        |      |   |        |  
|Repayment
        of Subordinate Notes                                              |  |                                              | (450   | )    |   |       |  
|Monthly
        repayment of Unicast Debt                                           |  |                                              | (33    | )    |   |       |  
|Proceeds
        from exercise of stock options                                     |  |                                              | 761    |      |   | 147    |  
|                                                                                    |  |                                              |        |      |   |        |  
|Net
        cash provided by financing activities                                   |  |                                              | 278    |      |   | 147    |  
|                                                                                    |  |                                              |        |      |   |        |  
|Net
        decrease in cash and cash equivalents                                   |  |                                              | (2,658 | )    |   | (3,582 | )
|Cash
        and cash equivalents at beginning of year                              |  |                                              | 6,437  |      |   | 5,804  |  
|                                                                                    |  |                                              |        |      |   |        |  
|Cash
        and cash equivalents at end of year                                    |  | $                                            | 3,779  |      | $ | 2,222  |  
|                                                                                    |  |                                              |        |      |   |        |  

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

5

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

|                                                                          |  |                                |    |      |   |        |  
|------------------------------------------------------------------------- |  | ------------------------------ | -- | ---- | - | ------ | -
|                                                                          |  | Three Monthe Ended
  March, 31 |   
|                                                                          |  |                                |   
|                                                                          |  | 2006                           |    | 2005 |  
|                                                                          |  |                                |    |      |  
|Supplemental disclosure of
  cash flow activities:                        |  |                                |    |      |   |        |  
|Cash paid during the year for income
taxes                                |  | $                              | 7  |      | $ | 3      |  
|Cash paid during the year for interest                                    |  |                                | 53 |      |   | 89     |  
|Net assets acquired in Unicast acquisition
:                              |  |                                |    |      |   |        |  
|Accounts receivable, net                                                  |  |                                |   |      |   | 2,056  |  
|Prepaids                                                                  |  |                                |   |      |   | 7      |  
|Other assets                                                              |  |                                |   |      |   | 22     |  
|Fixed assets                                                              |  |                                |   |      |   | 128    |  
|Goodwill and Intangible assets                                            |  |                                |   |      |   | 6,547  |  
|Accounts payable and accrued expenses                                     |  |                                |   |      |   | (3,578 | )
|Unicast Debt                                                              |  |                                |   |      |   | (1,702 | )
|Supplemental disclosure of non-cash investing and
financing
  activities: |  |                                |    |      |   |        |  
|Non-cash cost of Unicast acquisition                                      |  |                                |    |      |   |        |  
|Common stock                                                              |  |                                |   |      |   | (1     | )
|APIC                                                                      |  |                                |   |      |   | (2,967 | )
|Unrealized (loss) on marketable
securities                                |  |                                | (1 | )    |   | (8     | )

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

6

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VIEWPOINT
CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.
Summary of Significant Accounting Policies

Basis of
Presentation

The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America, consistent in all material respects with those applied in the
Companys Annual Report on Form 10-K for the year ended December 31, 2005. The
interim financial information is unaudited, but reflects all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results of Viewpoint Corporation (Viewpoint
or the Company) for the interim periods.

These
unaudited consolidated financial statements have been prepared in accordance
with the instructions to Rule 10-01 of Regulation S-X and, therefore, do not
include all of the information and footnotes normally provided in annual
financial statements. As a result, these unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with managements discussion and
analysis of financial condition and results of operations, contained in
Viewpoints Annual Report on Form 10-K for the year ended December 31, 2005.
The results of operations for the three months ended March 31, 2006 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2006 or other future periods.

Certain
reclassifications have been made to the 2005 consolidated financial statements
to conform to the 2006 presentation.

Liquidity

The
Company had cash, cash equivalents and marketable securities of $7.6 million at
March 31, 2006. During the quarter ended March 31, 2006, net cash used in
operations amounted to $1.7 million. In July 2005, the Company extended the
maturity date of $3.1 million in subordinated debt to March 2008, however, it
has had significant quarterly and annual operating losses since its inception,
and as of March 31, 2006, had an accumulated deficit of $269.8 million. There
can be no assurance that Viewpoint will achieve or sustain positive cash flows
from operations or profitability.

The
Company believes that its current cash, cash equivalents, and marketable
securities balances and cash flows from operations are sufficient to meet its
operating cash flow needs and anticipated capital expenditure and financing
activity requirements at least through March 31, 2007. In the event that the
Company is unable to reach profitable operations or raise additional capital in
the future, operations will need to be scaled back or discontinued.

If
the Companys expected revenue targets are not achieved management would
consider implementing cost reduction measures including workforce reductions as
well as reductions in overhead and capital expenditures. The Company may seek
additional funds when necessary through public or private equity financing or
from other sources to fund operations and pursue growth, although there are no
assurances that the Company can obtain such financing with reasonable terms.

The
Company currently has no commitment for additional financing and may experience
difficulty in obtaining additional financing on favorable terms, if at all. Any
financing the Company obtains may contain covenants that restrict the Companys
freedom to operate the business or may have rights, preferences or privileges
senior to the Companys common stock and may dilute the Companys current
shareholders ownership interest in Viewpoint.

Use of
Estimates

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

7

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VIEWPOINT
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

significant estimates include fair value of stock
compensation, revenue, receivables, liabilities, warrants, goodwill, and
intangible and fixed asset useful lives.

Cash
Equivalents and Marketable Securities

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

The
  Company considers its marketable securities portfolio available-for-sale as
  defined in Statement of Financial Accounting Standards (FAS) No. 115 Accounting
  for Certain Investments in Debt and Equity Securities. These available-for-sale
  securities are accounted for at their fair value, and unrealized gains and losses
  on these securities are reported as a separate component of stockholders
  equity. The cost of an investment is determined based on specific identification.
  Realized gains or losses on marketable securities were not material for all
  periods presented.

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

8

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VIEWPOINT
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Restricted
Cash

The
balance of $0.2 in restricted cash at March 31, 2006 and December 31, 2005
represents funds which were pledged as collateral to secure a letter of credit
used for a security deposit on the Companys New York facility.

Goodwill
and Intangible Assets

Goodwill
is subject to impairment tests annually, or earlier, if indicators of potential
impairment exist, using a fair-value-based approach in order to estimate the
reporting units enterprise value. When evaluating goodwill for potential
impairment, the Company first compares the fair value of each reporting unit,
based on market comparables or discounted cash flow using a discount rate of
18%, with its carrying amount. If the estimated fair value of the reporting
unit is less than its carrying amount, an impairment loss calculation is
prepared. The impairment loss calculation compares the implied fair value of
the reporting unit goodwill with the carrying amount of that goodwill. An
impairment loss is recognized in an amount equal to the excess of the carrying
amount of the reporting unit goodwill over the implied fair value of that
goodwill. In determining fair value of the reportable units and the impairment
amount, we consider estimates and judgments that affect the future cash flow
projections as well as comparable companies. Actual results may differ from
these estimates under different assumptions or conditions. See Note 3 for more
information regarding goodwill and goodwill impairment.

All
  other intangible assets continue to be amortized over their estimated useful
  lives and are assessed for impairment under FAS No.144, Accounting for
  the Impairment or Disposal of Long-Lived Assets.

Property
and Equipment

Property
and equipment are stated at cost less accumulated depreciation. Assets are
depreciated on the straight-line method over their estimated useful lives,
which range from 3 to 5 years. Computer hardware and software is depreciated
over 3 years, while furniture is depreciated over 5 years. Leasehold
improvements are amortized over the shorter of the life of the lease or the
life of the asset. Upon sale, any gain or loss is included in the consolidated
statements of operations. Maintenance and minor replacements are expensed as
incurred.

Software
Development Costs

In
  accordance with FAS No. 86, Accounting for the Costs of Computer Software
  to be Sold, Leased or Otherwise Marketed, the Company provides for capitalization
  of certain software development costs once technological feasibility is established.
  To date, the establishment of technological feasibility of the Companys
  products and general release have substantially coincided. As a result, the
  Company has not capitalized any internal software development costs since costs
  qualifying for such capitalization have not been significant.

9

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VIEWPOINT
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Software
Developed for Internal Use

In
accordance with Statement of Position (SOP) No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, and Emerging
Issues Task Force (EITF) 00-02 Accounting for Web Site Development Costs, the
Company capitalizes certain costs for software, consulting services, hardware
and payroll-related costs incurred to purchase or develop internal-use software
or website development, during the application development stage. The Company
expenses costs incurred during preliminary project assessment, research and
development, re-engineering, training, and application maintenance.

Stock-Based
Compensation

The
  Company has adopted the provisions of FAS No. 123R, Share-Based Payment
  which replaced FAS 123, Accounting for Stock-Based Compensation
  and supersedes APB Opinion No. 25 (APB 25), Accounting
  for Stock Issued to Employees, as of January 1, 2006. The provisions
  of FAS 123R require a company to measure the cost of employee services received
  in exchange for an award of equity instruments based on the grant-date fair
  value of the award. That cost is recognized in the statement of operations over
  the period during which an employee is required to provide service in exchange
  for the award. The determination of the fair value of stock-based payment awards
  on the date of grant using an option-pricing model is affected by the Companys
  stock price as well as assumptions regarding a number of complex and subjective
  variables. These variables include the Companys expected stock price volatility
  over the term of the awards of 135%, actual and projected employee stock option
  exercise behaviors resulting in an estimated term of 4.58 years, risk-free interest
  rate of 4.72%, and expected dividends of zero. FAS 123R also amends FASB Statement
  No. 95, Statement of Cash Flows, to require that excess tax
  benefits, as defined, realized from the exercise of stock options be reported
  as a financing cash inflow rather than as a reduction of taxes paid in cash
  flow from operations. As the result of the uncertainty regarding the Companys
  ability to utilize its deferred tax assets, the impact of wind fall
  tax benefits on the accompanying financial statements was immaterial.

The
  Company elected the modified-prospective method, under which prior periods are
  not revised for comparative purposes. The valuation provisions of SFAS 123R
  apply to new grants and to grants that were outstanding as of the effective
  date and are subsequently modified. Estimated compensation for grants that were
  outstanding as of the effective date will be recognized over the remaining service
  period using the compensation cost estimated for the FAS 123 pro forma disclosures.

The
  adoption of FAS 123R had a material impact on our consolidated financial position,
  results of operations and cash flows. See Note 6 for further information regarding
  our stock-based compensation assumptions and expenses, including pro forma disclosures
  for prior periods as if we had recorded stock-based compensation expense.

10

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VIEWPOINT
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Revenue
Recognition

The
Company recognizes revenue in accordance with Statement of Position (SOP)
97-2, Software Revenue Recognition, as amended, and Staff Accounting Bulletin
(SAB) No. 101 Revenue Recognition in Financial Statements as amended by SAB
No. 104 Revenue Recognition. Per SOP 97-2 and SAB No. 101, as amended by SAB
No. 104, the Company recognizes revenue when the following criteria are met:
(a) persuasive evidence of an arrangement exists, (b) delivery has occurred or
services have been rendered, (c) the Companys fee is fixed or determinable,
and (d) collectibility is reasonably assured.

Viewpoint
generates revenues through four sources: (a) search advertising, (b)
advertising systems, (c) services, and (d) software licenses. Search
Advertising revenue is an extension of the Companys licensing revenue, and is
derived from a share of the fees charged by Yahoo! to advertisers who pay for
sponsored links when a customer clicks on the paid link on the results provided
by the Viewpoint Toolbar. Advertising systems revenue is generated by charging
customers to host and/or deliver advertising campaigns based on a cost per
thousand (CPM) impressions. Service revenues are generated from fee-based
professional services, customer support services (maintenance arrangements),
and training services performed for customers that license the Companys
products. License revenues are generated from licensing the rights to use
products directly to customers.

The
Company executed a search advertising agreement in 2004, and amended it in
2006, with Yahoo!. The agreement provides that Yahoo! is the exclusive provider
of search results for the Viewpoint Toolbar through March 2008. Yahoo! pays a
variable fee per month for the access to the Companys distribution and the
ability to display search results to the Viewpoint Toolbar. This variable fee
is based on users clicks on sponsored advertisements included in the search
results provided by Yahoo!, through the Viewpoint Toolbar. The Viewpoint
Toolbars search results are provided by Yahoo!, who collects a fee from the
advertiser and remits a percentage of the fee to Viewpoint. Revenue generated
is a function of the number of Viewpoint Toolbars performing searches, the
number of searches that are sponsored by advertisers, the number of
advertisements that are clicked on by Viewpoint Toolbar searchers, the rate
advertisers pay for those advertisements, and the percentage retained by Yahoo!
for providing the results.

In
addition, Viewpoint also offers an online advertising system campaign
management and deployment product. This system permits publishers, advertisers,
and their agencies to manage the process of deploying online advertising
campaigns. The Company charges customers on a cost per thousand (CPM)
impression basis, and recognizes revenue when the impressions are served, so
long as all other revenue recognition criteria are satisfied. The Company also
purchases media space from web-site publishers and re-sells that space to its
advertising customers. The Company acts as a principal party in the
transaction, assumes the title to the media space purchased, and assumes the
risks of collection and therefore recognizes the entire amount billed to the
customer as revenue, and the cost of the media space as cost of sales.

Viewpoint
has a creative services group that builds content in the Viewpoint format for
customers. Viewpoint charges customers fees for these services based on time
and materials to complete a project for the customer. Revenue is recognized on
a percentage-of-completion basis if all other revenue recognition criteria are
satisfied. Those estimates are reviewed quarterly, and differences are adjusted
in the period they are found. If the actual cost to complete is not consistent
with the original estimates, revenues may be materially different than
initially recorded. Historically, the Companys estimates have been consistent
with actual costs.

On
June 14, 2005, Viewpoint announced that for all non-special purpose licenses,
it was discontinuing the practice of charging customers a license fee for the
use of the Viewpoint Media Player and related technologies. The

11

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VIEWPOINT
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Viewpoint
Media Player will no longer require a broadcast key to display content, thereby
giving all developers free access to the Viewpoint Distribution Network.
However, Viewpoint will still charge for certain licenses requiring
customization. Software license revenues from direct customers included sales
of perpetual and term-based licenses for broadcasting digital content in the
Viewpoint format. Fees from licenses sold together with fee-based professional
services were generally recognized as revenue upon delivery of the software,
provided that the payment of the license fees were not dependent upon the
performance of the services, and the services were not essential to the
functionality of the licensed software. If the services were essential to the
functionality of the software, or payment of the license fees were dependent
upon the performance of the services, both the software license and service
fees were recognized in accordance with SOP 81-1 Accounting for Performance of
Construction-Type and Certain Production-Type Contracts. The percentage of
completion method were used for those arrangements in which reasonably
dependable estimates were available. If reasonably dependable estimates were
not available due to the complexity of the services to be performed, the
Company deferred recognition of any revenues for the project until the project
was completed, delivered and accepted by the customer, provided all other
revenue recognition criteria were met and no further significant obligations
exist. For arrangements involving multiple elements, the Company defers revenue
for the undelivered elements based on vendor specific objective evidence
(VSOE) of the fair value of the undelivered elements and recognizes the
difference between the total arrangement fee and the amount deferred for the
undelivered elements as revenue. The determination of VSOE in multiple element
arrangements is based on the price charged when the same element is sold
separately. For maintenance and technical support elements, the Company uses
renewal rates to determine the price when sold separately.

Standard
terms for service arrangements, which are typically billed and collected on an
installment basis, require final payment within 90 days of completion of the
services. Standard terms for license arrangements required payment within 90
days of the contract date, which typically coincided with delivery. Probability
of collection is based upon the assessment of the customers financial
condition through the review of their current financial statements and/or
credit reports. For follow-on sales to existing customers, prior payment
history is also used to evaluate probability of collection. The Companys
arrangements with customers do not contain product return rights. If the fee is
not fixed or determinable, revenue is recognized as payments become due or as
cash is received from the customer assuming all other revenue recognition
requirements have been met. If a nonstandard acceptance period is required,
revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.

12

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VIEWPOINT
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Income
Taxes

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

Concentration
of Risk

The
Company is subject to concentration of credit risk and interest rate risk
related to cash, cash equivalents, marketable securities, accounts receivable,
and restricted cash. Credit risk is managed by limiting the amount of
marketable securities placed with any one issuer, investing in high-quality
marketable securities and securities of the U.S. government and limiting the
average maturity of the overall portfolio. At March 31, 2006, the Company has
maintained balances with various financial institutions in excess of the
federally insured limits.

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

Net Loss
Per Common Share

Basic
  net loss per common share is computed using the weighted average number of shares
  of outstanding and diluted net loss per common share is computed using the weighted
  average number of shares of common and common equivalent shares outstanding.
  Common equivalent shares related to stock options and warrants totaling 5.5
  million and 8.3 million, for the three months ended March 31, 2006 and 2005,
  respectively, are excluded from the computation of diluted net loss per common
  share because their effect was anti-dilutive.

Common Stock Issuance

In November
  2003, the Company sold 3.1 million shares of common stock in a private placement
  to an institutional investor for $2.5 million or $.80 per share.

In March
  2004, the Company sold 1.5 million shares of common stock, in a private placement
  to an institutional investor for $3.7 million or $2.45 per share. The institutional
  investor was one of the holders of convertible notes. Prior to the closing of
  the March 2004 private placement the institutional investor converted $0.9 million
  of outstanding notes and received 0.9 million shares of Company common stock
  in exchange.

In June
  2004, the Company exercised its right to convert the remaining outstanding convertible
  notes of $1.8 million and the related outstanding interest into 1.7 million
  shares of Viewpoint common stock.

In July
  2005, the Company sold 1.3 million shares of common stock in a private placement
  to a holder of the Companys subordinated debt for aggregate gross proceeds
  of $2.0 million.

In December
  2005 the Company sold 5.1 million shares of common stock and warrants in a private
  placement to several investors for $5.1 million. The warrants were to purchase
  an additional 1.0 million shares of common stock at an exercise price of $1.20
  per share with a term of three years. In addition, pursuant to this private
  placement the Company issued warrants to purchase 0.2 million shares of common
  stock at an exercise price of $1.20 per share with a term of five years, and
  paid $0.3 million in issuance costs. As of March 31, 2006 the aggregate value
  of warrants to purchase the 1.2 million shares of common stock amounted to $1.3
  million. During the quarter ended March 31, 2006, the fair value of the warrants
  increased by $0.4 million which is included as an expense within the statement
  of operations.

Derivatives

In
2002 and 2003, the Company issued convertible notes and warrants which would
require Viewpoint to issue shares of common stock upon conversion of these
securities. The Company accounts for the fair values of the outstanding
warrants to purchase common stock and the conversion options of its convertible
notes in accordance with SFAS No. 133 Accounting for Derivative Instruments
and Hedging Activities, and EITF Issue No. 00-19 Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Companys Own
Stock, which requires the Company to bifurcate and separately account for the
conversion option and warrants as derivatives. The convertible notes and warrants
are accounted for as derivatives as under certain situations the Company could
be forced to net cash settle. The Company is required to carry these
derivatives on its balance sheet at fair value and the unrealized changes in
the value of these derivatives are reflected in net loss as changes in fair
values of warrants to purchase common stock and conversion options of
convertible notes. Such changes in fair value are recorded as an adjustment to
reconcile net loss to net cash used in operating activities in the consolidated
statement of cash flows. In 2004, the convertible notes were converted into
common stock.

The
Company was also required to carry the warrants associated with the December
2005 private placement on its balance sheet at fair value. The unrealized
changes in the value of these warrants are reflected in the net loss as changes
in fair values of warrants to purchase common stock. Such changes in fair value
are recorded as an adjustment to reconcile net loss to net cash used in
operating activities in the consolidated statement of cash flows.

The Company determines the value of the warrants by using the Black Scholes
Method using the actual term of the warrants, and assumptions that are
consistent with the Black-Scholes option-pricing model.

Comprehensive
Loss

All
components of comprehensive income (loss), including net income (loss), are
reported in the financial statements in the period in which they are
recognized. Comprehensive income (loss) is defined as the change in equity
during a period from transactions and other events and circumstances from
non-owner sources. Net income

13

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(loss) and other comprehensive income (loss), are reported net
  of their related tax effect, to arrive at comprehensive income (loss).

Recent Accounting Pronouncements

In February
  2006, the FASB issued Statement of Financial Accounting Standards No. 155 (SFAS
  155), Accounting for Certain Hybrid Financial Instruments
  which amends Statement of Financial Accounting Standards No. 133 (SFAS
  133), Accounting for Derivative Instruments and Hedging Activities
  and Statement of Financial Accounting Standards No. 140 (SFAS 140),
  Accounting for Transfers and Servicing of Financial Assets and Extinguishments
  of Liabilities. SFAS 155 simplifies the accounting for certain derivatives
  embedded in other financial instruments by allowing them to be accounted for
  as a whole if the holder elects to account for the whole instrument on a fair
  value basis. SFAS 155 also clarifies and amends certain other provisions of
  SFAS 133 and SFAS 140. SFAS 155 is effective for all financial instruments acquired,
  issued or subject to a remeasurement event occuring in fiscal years beginning
  after September 15, 2006. Earlier adoption is permitted, provided the Company
  has not yet issued financial statements, including for interim periods, for
  that fiscal year. We do not expect the adoption of SFAS 155 to have a material
  impact on our consolidated financial position, results of operations or cash
  flows.

2.
Unicast Acquisition

On
December 1, 2004, Viewpoint Corporation 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 Viewpoint assumed
ownership of Unicast as a wholly owned subsidiary at that date. The aggregate
purchase price for the acquisition was $3.5 million.

Under
the terms of the agreement, Viewpoint issued an aggregate of 1.1 million shares
of Viewpoint common stock, with a fair value of $3.0 million to the selling
stockholders of Unicast and paid $0.4 million in cash and acquisition costs of
$0.1 million. Viewpoint also assumed negative net working capital from Unicast
of $1.8 million. Based upon the working capital calculation during the period
following the acquisition Viewpoint has no additional obligation to issue
shares or pay cash to the seller.

Additionally,
  long-term debt issued by Unicast (Unicast notes) remains outstanding
  at the Unicast subsidiary level following the closing. This debt is comprised
  primarily of two notes. Unicast issued an unsecured promissory note dated February
  27, 2004 in the principal amount of $1.0 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. In addition,
  Unicast issued an amended and restated secured promissory note dated February
  27, 2004 in the principal amount of $2.0 million. This promissory note bears
  interest of 5% per annum and is collateralized by substantially all of the Unicast
  subsidiarys assets. Concurrently with the closing of the Unicast acquisition,
  Viewpoint made a payment of $0.3 million to the secured note holder which was
  applied towards reducing the amount outstanding under the promissory note. Viewpoint
  will become an additional obligor under the promissory note and Viewpoints
  assets will 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. As of March 31, 2006 no contingencies
  had occurred. All unpaid principal and interest is payable in 60 equal monthly
  installments from March 2006 through March 2011 amounting to $2.2 million. In
  March 2006, the Company made the first installment under the secured promissory
  note.

Viewpoint
recorded all working capital assets and liabilities at their fair market value
on the date of the acquisition.

Tangible
equipment value was determined based on fair market value at the date of
acquisition. The remaining useful life of this equipment was predominantly
determined to be one year. Intangible values acquired 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 5-10 years. Unicast had no
in-process research and development.

Goodwill
was determined based upon the residual value based upon fair value of the
common stock issued, the cash paid plus the liabilities assumed less the
identifiable asset values. None of the goodwill will be tax deductible.
Consideration paid for the acquisition amounted to $3.5 million, made up of
cash consideration of $0.4 million, acquisition costs of $0.1 million and the
issuance of 1.1 million shares of common stock valued at $3.0 million. The
following table summarizes amounts recorded associated with the Unicast
transaction, based upon the consideration paid.

14

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VIEWPOINT
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|                            |  |   |                  |  
|--------------------------- |  | - | ---------------- | -
|                            |  |   | (in
  thousands) |  
|                            |  |   |                  |  
|Current assets              |  | $ | 2,097            |  
|Property and
  equipment    |  |   | 128              |  
|Intangible
  assets         |  |   | 4,508            |  
|Goodwill                    |  |   | 2,039            |  
|                            |  |   |                  |  
|Total assets
  acquired     |  |   | 8,772            |  
|Less:
  liabilities assumed |  |   | (5,280           | )
|                            |  |   |                  |  
|Total purchase
  price      |  | $ | 3,492            |  
|                            |  |   |                  |  

The
results of operations of Unicast are included in the Companys Consolidated
Statement of Operations beginning January 3, 2005.

15

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VIEWPOINT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

3. Goodwill and Intangible Assets

Goodwill
  is subject to impairment tests annually, or earlier if indicators of potential
  impairment exist, using a fair-value-based approach. All other intangible assets
  are amortized over their estimated useful lives and are assessed for impairment
  under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
  Assets.

A
  summary of changes in the Companys goodwill by reporting unit and intangible
  assets during the quarter ended March 31, 2006 by aggregated segment are as
  follows (amounts in thousands):

| |                                   |  |          |        |                     |   |       |   |   |        |   | 
| | --------------------------------- |  | -------- | ------ | ------------------- | - | ----- | - | - | ------ | - | 
| |                                   |  | Goodwill |        | Intangible
  Assets |   | Total |   |  
| |                                   |  |          |        |                    
| | Balance as of December 31,
  2005 |  | $        | 25,537 |                     | $ | 4,131 |   | $ | 29,668 |   | 
| | Additions during period           |  |          |       |                     |   | 16    |   |   | 16     |   | 
| | Amortization                      |  |          |       |                     |   | (138  | ) |   | (138   | ) | 
| |                                   |  |          |        |                     |   |       |   |   |        |   | 
| | Balance as of March 31,
  2006    |  | $        | 25,537 |                     | $ | 4,009 |   | $ | 29,546 |   | 
| |                                   |  |          |        |                     |   |       |   |   |        |   | 

The
changes in the carrying amounts of goodwill by reporting unit, and intangible
assets for the quarter ended March 31, 2005, are as follows (in thousands):

| |                                                        |  |          |        |                     |   |       |   |   |        |   | 
| | ------------------------------------------------------ |  | -------- | ------ | ------------------- | - | ----- | - | - | ------ | - | 
| |                                                        |  | Goodwill |        | Intangible
  Assets |   | Total |   |  
| |                                                        |  |          |        |                    
| | Balance as of December 31,
  2004                      |  | $        | 31,276 |                     | $ | 230   |   | $ | 31,506 |   | 
| | Additions during period                                |  |          |       |                     |   | 9     |   |   | 9      |   | 
| | Additions during period related to Unicast
acquisition |  |          | 2,101  |                     |   | 5,170 |   |   | 7,271  |   | 
| | Amortization                                           |  |          |       |                     |   | (1    | ) |   | (1     | ) | 
| | Amortization related to Unicast
acquisition            |  |          |       |                     |   | (177  | ) |   | (177   | ) | 
| |                                                        |  |          |        |                     |   |       |   |   |        |   | 
| | Balance as of March 31,
  2005                         |  | $        | 33,377 |                     | $ | 5,231 |   | $ | 38,608 |   | 
| |                                                        |  |          |        |                     |   |       |   |   |        |   | 

As
of March 31, 2006 and December 31, 2005, the Companys intangible assets and
related accumulated amortization consisted of the following (in thousands):

16

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VIEWPOINT CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

| |                                           |  |                  |       |                            |   |      |   |       |       |                            |   |       |  |   |      |   |   |       | 
| | ----------------------------------------- |  | ---------------- | ----- | -------------------------- | - | ---- | - | ----- | ----- | -------------------------- | - | ----- |  | - | ---- | - | - | ----- | 
| |                                           |  | March 31,
  2006 |       | December
  31, 2005        |  
| |                                           |  |                  |       |                            |  
| |                                           |  | Gross            |       | Accumulated
  Amortization |   | Net  |   | Gross |       | Accumulated
  Amortization |   | Net   | 
| |                                           |  |                  |       |                            |  
| | Website Partner
  Relationships - Unicast |  | $                | 3,772 |                            | $ | (497 | ) | $     | 3,275 |                            | $ | 3,772 |  | $ | (404 | ) | $ | 3,368 | 
| | Acquired Technology -
  Unicast           |  |                  | 410   |                            |   | (215 | ) |       | 195   |                            |   | 410   |  |   | (187 | ) |   | 223   | 
| | Patents and Trademarks -
  Unicast        |  |                  | 326   |                            |   | (95  | ) |       | 231   |                            |   | 326   |  |   | (80  | ) |   | 246   | 
| | Patents and Trademarks                    |  |                  | 348   |                            |   | (40  | ) |       | 308   |                            |   | 332   |  |   | (38  | ) |   | 294   | 
| |                                           |  |                  |       |                            |   |      |   |       |       |                            |   |       |  |   |      |   |   |       | 
| | Total Intangible Assets                   |  | $                | 4,856 |                            | $ | (847 | ) | $     | 4,009 |                            | $ | 4,840 |  | $ | (709 | ) | $ | 4,131 | 
| |                                           |  |                  |       |                            |   |      |   |       |       |                            |   |       |  |   |      |   |   |       | 

Amortization
  of intangible assets is estimated to be $0.6 million a year for the next five
  years.

4. Related Party Transactions

In
2003, the Company entered into an amended license agreement with AOL which
provided for payments by AOL of $10.0 million which were all received during
the fourth quarter of 2003. The agreement contains multiple elements consisting
of a perpetual broadcast license, a perpetual source code license, quarterly
updates to the source code through December 2005, and maintenance and
consulting services. The Company recognized $1.2 million in related party
revenue for the three months ended March 31, 2005. The contract relating to
this agreement expired on December 31, 2005.

In
July 2005, the Company and a related party debt holder amended a note in the
principal amount of $3.1 million (see Note 5).

5. Long Term Debt

Convertible Notes

On
  December 31, 2002, the Company completed a private placement of convertible
  notes and warrants in which it issued to three institutional investors, 4.95%
  convertible notes having an aggregate principal amount of $7.0 million, and
  warrants to purchase 0.7 million shares of Company common stock. The warrants
  expire on December 31, 2006, and were initially issued at an exercise price
  of $2.26 per share. The number of warrants and the exercise price are subject
  to adjustment if the Company sells or issues securities under a dilutive issuance
  (as defined in the warrant to purchase common stock agreement) subject to certain
  conditions. As of March 31, 2006, 0.8 million warrants were outstanding related
  to this placement.



17

---



VIEWPOINT CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

On
March 25, 2003, the Company entered into Redemption, Amendment and Exchange
Agreements with the three institutional investors with whom it had completed
the private placement of convertible notes and warrants on December 31, 2002,
extinguishing the original convertible notes. In conjunction with the
extinguishment, the Company paid $3.3 million, issued new convertible notes in
the principal amount of $2.7 million and issued 1.4 million shares of its
common stock with a market value of $0.9 million. The original convertible
notes and new convertible notes are collectively referred to as the Notes.

Pursuant
to SFAS No. 133, the Company was required to bifurcate the fair value of the
conversion options from the new convertible notes. In addition, pursuant to
EITF Issue No. 00-19, the Company was required to record the fair value of the
conversion options as long-term liabilities.

The
Company recorded income or loss based on the decrease or increase,
respectively, in the fair values of the new conversion feature of the notes and
original warrants in the Companys consolidated statements of operations. The
amortization of discount on the new convertible notes and debt issue costs were
accounted for using the effective interest method.

On
March 17, 2004, one of the institutional investors holding the new convertible
notes converted $0.9 million of outstanding notes for 0.9 million shares of the
Companys common stock. In addition, on the same day as the conversion, the
Company sold 1.5 million shares of common stock in a private placement to the
institutional investor, for $3.7 million or $2.45 per share. The Company
recorded a loss on conversion of debt in the amount of $0.6 million, which
represented the write-off of unamortized loan discount and debt issuance costs
of $0.1 million and the difference between the proceeds received from the private
placement and the fair value of the common stock issued based upon the closing
price of the Companys stock on the day of the sale of $0.5 million.

On
June 18, 2004, the Company completed the conversion of the remaining
outstanding convertible notes of $1.8 million and the related outstanding
interest into 1.7 million shares of Viewpoint common stock. The Company
recognized $0.2 million related to the loss on conversion of the notes.

As
a result of the conversion of the outstanding notes into 2.6 million shares
during 2004, the Company recorded additional paid in capital of $6.1 million
which was comprised of 2.7 million of cash paid upon the conversion and $3.4
million of the carrying value of the outstanding convertible notes upon conversion.

For
the quarter ended March 31, 2006, the Company recognized a loss from the change
in the fair value of the outstanding warrants of $0.2 million, resulting from
an increase in the fair market value of the Companys common stock. For the quarter
ended March 31, 2005, the Company recognized a gain related to the change in
valuation of the outstanding warrants of $0.2 million, resulting from the
decrease in the fair market value of the Companys common stock.

Subordinated
Notes

On
March 26, 2003, Viewpoint Corporation entered into a Securities Purchase
Agreement with three accredited investors, pursuant to which it received $3.5
million in exchange for an aggregate of $3.5 million principal amount of 4.95%
subordinated notes and 3.6 million shares of Viewpoint common stock. Prior to
the amendment discussed below (see Amended Notes), the subordinated notes
were scheduled to mature on March 31, 2006. Interest on these notes is payable
quarterly in arrears in cash. The Company has the right at any time to redeem
up to all of the outstanding notes at par plus accrued and unpaid interest.

The
$3.5 million of proceeds was allocated to subordinated notes in the amount of
$1.7 million, common stock for the par value of $0.001 for the shares issued,
and additional paid in capital of $1.8 million based on the market value of the
Companys common stock on March 26, 2003. Debt issuance costs, which amounted
to $0.2 million, were recorded as other assets in the Companys consolidated
balance sheet.

18

---



VIEWPOINT CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

On
March 31, 2006, the Company redeemed notes with a principal amount of $0.4
million pursuant to the agreement. The maturity date was extended for the
remaining notes with a principal amount of $3.1 million (see Amended Notes).

Amended
Notes

On
July 27, 2005, the Company and a holder of the subordinated debt amended the
4.95% subordinated note in the principal amount of $3.1 million (referred to
herein as the Holder) to extend the maturity date from March 31, 2006 to
March 31, 2008 in exchange for the payment by Viewpoint of $0.1 million to the
Holder of the subordinated note. As discussed in more detail below, the $0.1
million was accounted for as a reduction in the carrying value of the
subordinated debt.

The
Company accounted for the amended and restated note as a nontroubled debt
transaction in accordance with EITF Issue No. 96-19 Debtors Accounting for a
Modification or Exchange of Debt Instruments. Pursuant to EITF 96-19, the
Company is required to account for the modification as a debt extinguishment if
it is determined that the terms have changed substantially. Per EITF 96-19, an
indication of the existence of substantially different terms is whether the
cash flows have changed by more than 10%. In calculating the present value of
the cash flows, the Company used its current effective interest rate of 23%
(incremental borrowing rate) and determined that the cash flows changed by more
than 10% as a result of the extension of the maturity date on the note. Since
the terms of the old and new notes were determined to be substantially
different, the new debt instrument was recorded at fair value.

In
addition to the amendment of the note, the Company and the Holder entered into
a Stock Purchase Agreement, dated as of July 27, 2005, under which the Company
issued 1.3 million shares of Company common stock in a private placement to the
Holder at a purchase price of $1.55 per share resulting in aggregate gross
proceeds of $2.0 million. The closing price of the Companys common stock on
the date of the share purchase was $1.59.

Since
the Holder of the subordinated note owned 13% of Viewpoints outstanding common
stock and also had a position on the Companys Board of Directors, the Holder
of the note is considered a related party, therefore, the underlying amendment
of the note was accounted for as a capital transaction. The Company recognized
the difference between the carrying value of the subordinated note and the fair
value of the amended and restated substituted note in the amount of $0.6
million offset by the modification fee paid of $0.1 million as an increase to
the stockholders equity.

Unicast
Notes

On
January 3, 2005, as disclosed in Note 2, Viewpoint purchased Unicast and, as a
result, assumed debt which included an unsecured note with a principal amount
of $1.0 million due in December 2011 at an interest rate of 5% per annum and a
collateralized note with a principal balance of $1.8 million which matures in
March 2011 and interest rate of 5% per annum. This note is collateralized by
the assets of Unicast. The debt was discounted to its fair 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. Viewpoint will accrete the notes based upon the interest-method,
including interest payment requirements through maturity.

19

---



VIEWPOINT CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

As
  of January 3, 2005, the date of acquisition, the fair value of the collateralized
  and non-collateralized notes amounted to $1.4 million and $0.3 million, respectively.
  The Company recorded interest expense on these notes of $0.1 million for each
  of the three months ended March 31, 2006 and 2005, which increased the aggregate
  carrying value of these notes to $2.1 million as of March 31, 2006, of which
  $1.6 million is long-term.

The
Companys total carrying value by note at March 31, 2006 and December 31, 2005
is as follows (amounts in thousands):

| |                                          |  |          |       |             |   |       | 
| | ---------------------------------------- |  | -------- | ----- | ----------- | - | ----- | 
| |                                          |  | March 31 |       | December 31 |   |      
| |                                          |  |          |      
| |                                          |  |          | 2006  |             |   | 2005  | 
| |                                          |  |          |       |             |  
| |                                          |  |          |       |             |   |       | 
| | Subordinated notes                       |  | $        | 2,174 |             | $ | 2,505 | 
| | Unicast notes                            |  |          | 2,057 |             |   | 1,981 | 
| |                                          |  |          |       |             |   |       | 
| | Total long-term debt                     |  |          | 4,231 |             |   | 4,486 | 
| |                                          |  |          |       |             |   |       | 
| | Less current portion                     |  |          | 476   |             |   | 814   | 
| |                                          |  |          |       |             |   |       | 
| | Long-term debt, net of
  current portion |  | $        | 3,755 |             | $ | 3,672 | 
| |                                          |  |          |       |             |   |       | 

The
  reconciliation of the carrying value to the face value of each note as of March
  31, 2006, is as follows (amounts in thousands):

| |                                    |  |                   |       |               |   |       |  |   |       | 
| | ---------------------------------- |  | ----------------- | ----- | ------------- | - | ----- |  | - | ----- | 
| |                                    |  | SubordinatedNotes |       | Unicast Notes |   | Total | 
| |                                    |  |                   |       |               |   |       | 
| |                                    |  |                   |       |               |   |       |  |   |       | 
| | Book value of long-term
  debt     |  |                   | 2,174 |               |   | 2,057 |  |   | 4,231 | 
| | Discount on long-term debt         |  |                   | 876   |               |   | 661   |  |   | 1,537 | 
| |                                    |  |                   |       |               |   |       |  |   |       | 
| | Face value of the
  long-term debt |  | $                 | 3,050 |               | $ | 2,718 |  | $ | 5,768 | 
| |                                    |  |                   |       |               |   |       |  |   |       | 

The
  maturity schedule for the Companys debt subsequent to March 31, 2006 is
  as follows (amounts in thousands):

|                    |  |   |       |  | 
|------------------- |  | - | ----- |  | 
|Maturity            |  |   |       |  | 
|                    |  |   |       |  | 
|                    |  |   |       | 
|2006                |  | $ | 260   | 
|2007                |  |   | 350   | 
|2008                |  |   | 3,400 | 
|2009                |  |   | 350   | 
|2010 and thereafter |  |   | 1,408 | 
|                    |  |   |       | 
|                    |  | $ | 5,768 | 
|                    |  |   |       | 

6. Stock-Based Compensation

Beginning
with the first quarter of 2006, the Company adopted FAS 123R. See Note 1 for a
description of the adoption of FAS 123R. The Company currently uses the
Black-Scholes option pricing model to determine the fair value of stock
options. The determination of the fair value of stock-based payment awards on
the date of grant using an option-pricing model is affected by the Companys
stock price as well as assumptions regarding a number of complex and subjective
variables. These variables include the Companys expected stock price
volatility over the term of the awards, actual and projected employee stock
option exercise behaviors, risk-free interest rate and expected dividends.

Prior
  to the adoption of FAS No. 123(R) the Company accounted for share-based awards
  to employees and directors using the intrinsic value method in accordance with
  APB No. 25 as allowed under FAS No. 123, Accounting for Stock-Based Compensation.
  Under the intrinsic value method, share-based compensation expense was recognized
  by the Company if the exercise price of the grant was less than the fair market
  value of the underlying stock at the date of grant.

Prior
  to January 1, 2006, the Company disclosed compensation cost in accordance with
  FAS No. 123. The provisions of FAS No. 123 required the Company to disclose
  the assumptions used in calculating the fair value pro

20

---



forma expense. Had compensation expense for the plans been determined
  based on the fair value of the options at the grant dates for awards under the
  plans consistent with FAS No. 123, the Companys net loss for the three
  months ended March 31, 2005 would have been as follows (amounts in thousands,
  except per share data):

|                                                                                                                                                 |  |      |                                |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------------------------------ | -
|                                                                                                                                                 |  |      | Three Months Ended
  March, 31 |  
|                                                                                                                                                 |  |      |                               
|                                                                                                                                                 |  | 2005 |                               
|                                                                                                                                                 |  |      |                               
|Net loss, as reported                                                                                                                            |  | $    | (745                           | )
|Add: Non-cash stock-based employee compensation charges included in
  reported net loss, net of related tax effects                              |  |      | 14                             |  
|Deduct: Non-cash stock-based employee compensation charges determined
  under fair value based method for all awards, net of related tax effects |  |      | (1,051                         | )
|                                                                                                                                                 |  |      |                                |  
|Pro forma net loss                                                                                                                               |  | $    | (1,782                         | )
|                                                                                                                                                 |  |      |                                |  
|Net loss per share:                                                                                                                              |  |      |                                |  
|Basic and diluted as reported                                                                                                                    |  | $    | (0.01                          | )
|                                                                                                                                                 |  |      |                                |  
|Basic and diluted pro forma                                                                                                                      |  | $    | (0.03                          | )
|                                                                                                                                                 |  |      |                                |  

Pro
  forma disclosures for the three months ended March 31, 2006 are not presented
  because the amounts are recognized in the unaudited Consolidated Statement of
  Operations.

The
  Company estimated the expected term of options granted in accordance with the
  Staff Accounting Bulletin (“SAB”) 107. The Company estimated the
  volatility of the Companys common stock by using the historical volatility
  of the Companys common stock over the expected term. The Company based
  the risk-free interest rate used in the option valuation model on U.S. Treasury
  zero-coupon issues with remaining terms similar to the expected term on the
  options. The Company does not anticipate paying cash dividends in the foreseeable
  future and therefore uses an expected dividend yield of zero in the option valuation
  model. The Company is required to estimate forfeitures at the time of grant
  and revise those estimates in subsequent periods if actual forfeitures differ
  from those estimates. As the result of the uncertainty regarding the Companys
  ability to utilize its deferred tax assets, the impact of wind fall
  tax benefits on the accompanying financial statements was immaterial. All stock-based
  payment awards are amortized on a straight-line basis over the requisite service
  periods of the awards, which are the vesting periods.

To
  estimate compensation expense which would have been recognized under FAS No.
  123 for the three months ended March 31, 2005 and the compensation cost that
  was recognized under FAS No. 123(R) for the three months ended March 31, 2006,
  the Company uses the Black-Scholes option-pricing model with the following weighted-average
  assumptions for equity awards granted:

|                                          |  |                      |      |   |  |      |  
|----------------------------------------- |  | -------------------- | ---- | - |  | ---- | -
|                                          |  | Three
  Months Ended |     
|                                          |  |                      |     
|                                          |  | March 31,            |     
|                                          |  |                      |      |   | 
|                                          |  |                      | 2006 |   |  | 2005 |  
|                                          |  |                      |      |   | 
|Risk-free interest rate                   |  |                      | 4.72 | % |  | 4.04 | %
|Dividend yield                            |  |                      |     |   |  |     |  
|Volatility factor                         |  |                      | 1.35 |   |  | 1.00 |  
|Weighted average expected
  life in years |  |                      | 4.58 |   |  | 3.75 |  

The
  Company will recognize the estimated compensation cost of performance awards,
  net of estimated forfeitures, when it becomes probable that the performance
  criteria will be met. The Company currently has outstanding performance awards
  with a fair value of $0.2 million which will vest if certain operating performance
  is achieved. As of March 31, 2006, managements current estimate is that
  these awards will not vest and accordingly no provision has been made in the
  accompanying financial statements.

As
  of March 31, 2006, total unrecognized share-based compensation cost related
  to unvested stock options was $4.4 million (excluding performance based awards
  noted above), which is expected to be recognized over a weighted average period
  of approximately 2.7 years. The Company has included the following amounts for
  share-based compensation cost, in the accompanying unaudited Consolidated Statement
  of Operations for the three months ended March 31, 2006 (amounts in thousands):

21

---



|                           |  |   |                      | 
|-------------------------- |  | - | -------------------- | 
|                           |  |   | Three
  Months Ended | 
|                           |  |   | March 31,
  2006     | 
|                           |  |   |                     
|Cost of revenues:          |  |   |                      | 
|Advertising systems        |  | $ | 55                   | 
|Services                   |  |   | 3                    | 
|Operating expenses:        |  |   |                      | 
|Sales and marketing        |  |   | 172                  | 
|Research and development   |  |   | 109                  | 
|General and administrative |  |   | 329                  | 
|                           |  |   |                      | 
|Total                      |  | $ | 668                  | 
|                           |  |   |                      | 

Share-based
  compensation expense recognized during the three months ended March 31, 2006
  included (1) compensation expense for awards granted prior to, but not yet fully
  vested as of January 1, 2006, and (2) compensation expense for the share-based
  payment awards granted subsequent to December 31, 2005, based on the grant date
  fair values estimated in accordance with the provisions of SFAS No. 123.

Stock Option Plans

1995 Stock Plan

The
  Companys 1995 Stock Plan (the 1995 Plan) provides for the
  grant to employees (including officers and employee directors) of incentive
  stock options and for the grant to employees (including officers and employee
  directors), non-employee directors and consultants of nonstatutory stock options
  and stock purchase rights. As of March 31, 2006, options to purchase an aggregate
  of 5.4 million shares of common stock were outstanding under the 1995 Plan,
  with vesting provisions ranging up to four years. Options granted under the
  1995 Plan are exercisable for a period of ten years. The ability to issue options
  out of this plan expired in 2005, however, options currently outstanding will
  remain outstanding until exercised, forfeited, or expire.

1995 Director Option Plan

The
  Companys 1995 Director Option Plan (the Director Plan) provides
  for an automatic grant of options to purchase shares of common stock to each
  non-employee director of the Company. Options granted under the 1995 Director
  Plan vest over one and a half to four and a half years and are exercisable for
  a period of ten years. As of March 31, 2006, 0.1 million options were outstanding
  under the 1995 Director Plan. The ability to issue options out of this plan
  expired in 2005, however, options currently outstanding will remain outstanding
  until exercised, forfeited, or expire.

1996 Nonstatutory Stock Option Plan

The
Companys 1996 Nonstatutory Stock Option Plan (the 1996 Nonstatutory Plan)
provides for the grant to employees (including officers and employee directors)
and consultants of nonstatutory stock options and stock purchase rights. As of
March 31, 2006, options to purchase an aggregate of 1.8 million shares of
common stock were outstanding under the 1996 Nonstatutory Plan, with vesting
provisions ranging up to four years. Options granted under the 1996
Nonstatutory Plan are exercisable for a period of ten years. At March 31, 2006,
an aggregate of 0.1 million shares of common stock were reserved for future
issuance under the 1996 Nonstatutory Plan.

The
1995 Plan, the Director Plan, and the 1996 Nonstatutory Plan are collectively
referred to as Option Plans.

Options Issued Outside the Option Plan

For
  the three months ended March 31, 2006, the Company issued 0.1 million non-qualified
  stock options outside the Option Plans in connection with the hiring of certain
  personnel. All options were issued with exercise prices equal to the fair value
  of the Companys common stock on the grant date, which was the employees
  first date of employment. The terms and conditions of these grants are similar
  to the terms and conditions of options granted under the 1996 Nonstatutory Plan.
  There are 4.2 million shares outstanding outside the Option Plans.

Summary of All Outstanding Options

22

---



Activity
and pricing information regarding all options to purchase shares of common
stock are summarized as follows, (in thousands, except per share data):

| |                                              |  |  |                                 |   |                       |                    |   |   |                                     | 
| | -------------------------------------------- |  |  | ------------------------------- | - | --------------------- | ------------------ | - | - | ----------------------------------- | 
| |                                              |  |  |                                 |   | Options
  Outstanding |                   
| |                                              |  |  |                                 |   |                       |                   
| |                                              |  |  | Options
  Available
  for Grant |   |                       | Number of
  Shares |   |   | Weighted
  Average
  Exercise Price | 
| |                                              |  |  |                                
| | Options outstanding at
  December 31, 2005   |  |  | 363                             |   |                       | 12,556             |   | $ | 1.79                                | 
| | Granted  exercise price equal to fair
value |  |  | (345                            | ) |                       | 345                |   |   | 1.07                                | 
| | Granted
         non-plan options           |  |  |                                |   |                       | 105                |   |   | 1.04                                | 
| | Exercised                                    |  |  |                                |   |                       | (955               | ) |   | 0.80                                | 
| | Canceled                                     |  |  | 110                             |   |                       | (345               | ) |   | 1.81                                | 
| | Cancelled  expired plan                     |  |  |                                |   |                       | (252               | ) |   | 4.06                                | 
| | Cancelled
         non-plan options         |  |  |                                |   |                       | (38                | ) |   | 3.15                                | 
| |                                              |  |  |                                 |   |                       |                    |   |   |                                     | 
| | Options outstanding at March 31, 2006        |  |  | 128                             |   |                       | 11,416             |   | $ | 1.79                                | 
| |                                              |  |  |                                 |   |                       |                    |   |   |                                     | 

During
the three months ended March 31, 2006, the total intrinsic value of options
exercised to purchase common stock was $0.3 million and the weighted average
fair value of options to purchase common stock that were granted was $1.07 per
share.

During
  the three months ended March 31, 2006, financing cash generated from share-based
  compensation arrangements amounted to $0.8 million for the purchase of shares
  upon exercise of options. The Company issues new shares upon exercise of options
  to purchase common stock.

Additional
  information regarding options outstanding for all plans as of March 31, 2006,
  is as follows (in thousands except per share data):

| |                                                     |  |             |        |             |  |                                          |  |   |                                                         |  |   |                                          |  |   |                                                         | 
| | --------------------------------------------------- |  | ----------- | ------ | ----------- |  | ---------------------------------------- |  | - | ------------------------------------------------------- |  | - | ---------------------------------------- |  | - | ------------------------------------------------------- | 
| |                                                     |  | Outstanding |        | Exercisable | 
| |                                                     |  |             |        |             | 
| | Exercise Price Range                                |  |             | Shares |             |  | Average
        Life (a)                 |  |   | Weighted
        Average
        Exercise
        Price |  |   | Shares                                   |  |   | Weighted
        Average
        Exercise
        Price | 
| | $ 0.46    $  0.77                                  |  |             | 2,494  |             |  | 7.41                                     |  | $ | 0.74                                                    |  |   | 2,486                                    |  | $ | 0.74                                                    | 
| | $ 0.78    $  0.87                                  |  |             | 2,411  |             |  | 5.88                                     |  |   | 0.84                                                    |  |   | 2,400                                    |  |   | 0.84                                                    | 
| | $ 0.93    $  1.36                                  |  |             | 3,122  |             |  | 8.15                                     |  |   | 1.27                                                    |  |   | 849                                      |  |   | 1.78                                                    | 
| | $ 1.40    $  4.35                                  |  |             | 2,516  |             |  | 7.13                                     |  |   | 3.02                                                    |  |   | 1,826                                    |  |   | 3.28                                                    | 
| | $ 4.40    $ 25.13                                  |  |             | 873    |             |  | 3.11                                     |  |   | 5.73                                                    |  |   | 872                                      |  |   | 5.74                                                    | 
| |                                                     |  |             |        |             |  |                                          |  |   |                                                         |  |   |                                          |  |   |                                                         | 
| | Total                                               |  |             | 11,416 |             |  | 6.90                                     |  |   | 1.79                                                    |  |   | 8,433                                    |  |   | 1.89                                                    | 
| |                                                     |  |             |        |             |  |                                          |  |   |                                                         |  |   |                                          |  |   |                                                         | 
| | Aggregate intrinsic value
        (in thousands)    |  | $           | 3,254  |             |  |                                          |  |   |                                                         |  | $ | 2,986                                    |  |   |                                                         | 
| |                                                     |  |             |        |             |  |                                          |  |   |                                                         |  |   |                                          |  |   |                                                         | 
| |                                                     |  |             |        |             |  | Outstanding
        Average
        Life |  |   |                                                         |  |   | Exercisable
        Average
        Life |  |   |                                                         | 
| |                                                     |  |             |        |             |  |                                          |  |   |                                                         |  |   |                                          |  |   |                                                         | 
| | Weighted average remaining contractual
        life |  |             |        |             |  | 6.90                                     |  |   |                                                         |  |   | 6.46                                     |  |   |                                                         | 
| |                                                     |  |             |        |             |  |                                          |  |   |                                                         |  |   |                                          |  |   |                                                         | 
| |                                                     |  |             |        |             |  |                                          |  |   |                                                         |  |   |                                          |  |   |                                                         | 
| |                                                     |  |             |        |             |  |                                          |  |   |                                                         |  |   |                                          |  |   |                                                         | 

The
aggregate intrinsic value in the table above is based on the Companys closing
stock price of $1.38 per share as of the last business day of the three months
ended March 31, 2006, which amount would have been received by the optionees
had all options been exercised on that date. The total fair value of options to
purchase common stock that vested during the three months ended March 31, 2006
was $0.7 million.

23

---



VIEWPOINT CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

7. Restructuring Charges

In
  March of 2006, the Company implemented a restructuring plan designed to streamline
  the services business. Under this plan the Company eliminated 10 positions in
  the services group and relocated the management of the group from its New York
  office to its existing Los Angeles office. The Company incurred a restructuring
  charge of $0.1 million related to severance arrangements which has been recorded
  separately on the statement of operations. This restructuring plan was completed
  by March 31, 2006. The remaining accrual will be paid out by June 30, 2006.

| |                                   |  |                                                                     |     |                               |   |     |  
| | --------------------------------- |  | ------------------------------------------------------------------- | --- | ----------------------------- | - | --- | -
| |                                   |  | Employee
        Severance and
        Termination
        Benefits |     | Restructuring
        Accrual |  
| |                                   |  | (amounts
        in thousands)                                      |    
| |                                   |  |                                                                     |     |                               |  
| | Restructuring
        charge      |  | $                                                                   | 92  |                               | $ | 92  |  
| | Cash
        paid                 |  |                                                                     | (60 | )                             |   | (60 | )
| |                                   |  |                                                                     |     |                               |   |     |  
| | Balance
        at March 31, 2006 |  | $                                                                   | 32  |                               | $ | 32  |  
| |                                   |  |                                                                     |     |                               |   |     |  

8. Commitments and Contingencies

Commitments

The
Company leases its primary office space in New York City pursuant to various
lease agreements with terms through February of 2010. The Company also leases
office space in Los Angeles, California, with a lease term through December of
2009.

The
Company leased a vehicle for a former executive of the Company with lease terms
of less than one year. Rent expense for office space, equipment, and the
executives vehicle totaled approximately $0.2 million, and $0.3 million, for
the three months ended March 31, 2006 and 2005, respectively. The lease was terminated
in the first quarter of 2006.

Future
  minimum lease payments under non-cancelable operating leases for each year subsequent
  to March 31, 2006 are as follows (amounts in thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2006 |  | $ | 763   | 
|2007 |  |   | 1,022 | 
|2008 |  |   | 855   | 
|2009 |  |   | 799   | 
|2010 |  |   | 90    | 
|     |  |   |       | 
|     |  | $ | 3,529 | 
|     |  |   |       | 

Legal Proceedings

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

24

---



VIEWPOINT CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

9. Segment Information and Enterprise-Wide Disclosures

As
discussed in more detail in Notes 1 and 2 to these financial statements, the
Company has four revenue streams which are analyzed under three segments
consisting of the technology-based segment, which includes two revenue streams
licensing and search, the services segment and the advertising systems
segment. In determining reportable segments, management considered the nature
of the business activity whose operations are regularly reviewed by the
Companys chief operating decision maker and for which there is discrete
financial information. Licensing revenue and search revenue are aggregated
within the Technology-based segment as both revenue streams give customers the
same access to the Viewpoint Media Player and the distributed network and have
similar economic characteristics. Upon the
acquisition of Unicast in 2005 it was determined that Unicast goodwill solely
benefited Advertising Systems, and accordingly all of the acquired goodwill was
allocated to that reporting unit.

The
Company does not allocate costs below costs of revenue. During 2004 the Company
commenced operations within the advertising systems segment. There are no
inter-segment sales.

Revenues
in the Technology segment are generated based upon providing customers access
to the Companys distributed network of Viewpoint Media Players. Advertising
systems revenue is generated by charging customers to host advertising
campaigns based on a cost per thousand (CPM) impressions. The Services
segment provides creative and support services to customers who generally have
purchased or received licenses to use the Viewpoint software platform. The
accounting policies for the segments are the same as the consolidated
accounting policies disclosed in Note 1.

25

---



VIEWPOINT CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|                               |  |                                      |        |                   |   |        |  
|------------------------------ |  | ------------------------------------ | ------ | ----------------- | - | ------ | -
|                               |  | Three Months Ended
        March 31, |       
|                               |  |                                      |       
|                               |  | 2006                                 |        | 2005              |  
|                               |  |                                      |        |                   |  
|Revenues:                      |  |                                      |        |                   |   |        |  
|Search                         |  | $                                    | 1,789  |                   | $ | 2,180  |  
|Advertising
        systems    |  |                                      | 1,595  |                   |   | 732    |  
|Services                       |  |                                      | 553    |                   |   | 1,243  |  
|Related
        party services |  |                                      |       |                   |   | 395    |  
|Licenses                       |  |                                      | 46     |                   |   | 155    |  
|Related
        party licenses |  |                                      |       |                   |   | 873    |  
|                               |  |                                      |        |                   |   |        |  
|Total
        revenues         |  |                                      | 3,983  |                   |   | 5,578  |  
|                               |  |                                      |        |                   |   |        |  
|Cost
        of Revenues:      |  |                                      |        |                   |   |        |  
|Search                         |  |                                      | 36     |                   |   | 46     |  
|Advertising
        systems    |  |                                      | 1,005  |                   |   | 518    |  
|Services                       |  |                                      | 642    |                   |   | 810    |  
|Licenses                       |  |                                      | 6      |                   |   | 2      |  
|                               |  |                                      |        |                   |   |        |  
|Total
        cost of revenues |  |                                      | 1,689  |                   |   | 1,376  |  
|                               |  |                                      |        |                   |   |        |  
|                              
|Gross
        profit           |  |                                      | 2,294  |                   |   | 4,202  |  
|                               |  |                                      |        |                   |   |        |  
|Search                         |  |                                      | 1,753  |                   |   | 2,134  |  
|Advertising
        systems    |  |                                      | 590    |                   |   | 214    |  
|Services                       |  |                                      | (89    | )                 |   | 828    |  
|Licenses                       |  |                                      | 40     |                   |   | 1,026  |  
|                               |  |                                      |        |                   |   |        |  
|Total
        gross profit     |  | $                                    | 2,294  |                   | $ | 4,202  |  
|                               |  |                                      |        |                   |   |        |  
|Gross
        profit margin    |  |                                      |        |                   |   |        |  
|Search                         |  |                                      | 98     | %                 |   | 98     | %
|Advertising
        systems    |  |                                      | 37     |                   |   | 29     |  
|Services                       |  |                                      | (16    | )                 |   | 51     |  
|Licenses                       |  |                                      | 87     |                   |   | 100    |  
|                               |  |                                      |        |                   |   |        |  
|Total
        gross profit     |  |                                      | 58     | %                 |   | 75     | %
|                               |  |                                      |        |                   |   |        |  
|                               |  |                                      |        |                   |   |        |  
|                               |  |                                      |       
|                               |  | March 31,
2006                       |        | December 31,
2005 |  
|                               |  |                                      |        |                   |  
|Total
        assets:          |  |                                      |        |                   |   |        |  
|Technology                     |  | $                                    | 12,624 |                   | $ | 13,369 |  
|Advertising
        systems    |  |                                      | 6,785  |                   |   | 8,086  |  
|Services                       |  |                                      | 15,284 |                   |   | 14,388 |  
|Corporate(*)                   |  |                                      | 7,781  |                   |   | 9,293  |  
|                               |  |                                      |        |                   |   |        |  
|Total
        assets           |  | $                                    | 42,474 |                   | $ | 45,136 |  
|                               |  |                                      |        |                   |   |        |  

* Corporate assets consists
solely of cash, cash equivalents, marketable securities and restricted cash as
the Company does not allocate such amounts to the individual reporting units.

26

---



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

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

In
addition to historical information, this Quarterly Report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from the results implied by the
forward looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in the section
entitled Factors That May Affect Future Results of Operations. You should
carefully review the risks described in other documents we file from time to
time with the Securities and Exchange Commission, including any future reports
to be filed in 2006 and our Annual Report on Form 10-K for 2005. When used in
this report, the words will, expects, anticipates, intends, plans,
believes, seeks, targets, estimates, and similar expressions are
generally intended to identify forward-looking statements. You should not place
undue reliance on these forward-looking statements, which speak only as of the
date of this Quarterly Report on Form 10-Q. We undertake no obligation to
publicly release any revisions to the forwardlooking statements or reflect
events or circumstances after the date of this document.

Overview

Viewpoint
Corporation (Viewpoint or the Company) is an internet marketing technology
company that focuses on using its technical capabilities to help marketers
effectively promote their products online. Viewpoint provides a full suite of
digital products, services and consulting for internet marketers. Viewpoint
employs its visualization technology to drive powerful customer-facing
marketing tools that enable marketers to showcase complex products in a simple
way, and allows for user interaction. Since 2003 the Company has extended the
historical imaging capabilities of its proprietary graphics technology to
develop a search business that provides internet consumers a flexible graphical
searching experience and an advertising delivery system that specializes in
deploying video and rich media advertising. The company supplements its
revenues in these product segments by using its in-house services team to build
sophisticated content that is used by customers in each product segment.
Finally, the Company previously licensed its platform to internet publishers
enabling them to deploy graphical sophisticated content at their websites.
However in June 2005, the Company began offering free use of its platform to
facilitate growth in its search and advertising systems segments.

On
March 17, 2004, Viewpoint entered the internet search business by launching a
toolbar search product which the Company calls the Viewpoint Toolbar. The
Viewpoint Toolbar attaches to the Internet Explorer browser, enabling web
surfers to conduct internet searches without leaving the web page they are
viewing. When a user enters a term or phrase in the search field of the Viewpoint
Toolbar, search results appear not only as text links listed on a search
results page but also as thumbnail icons of the web pages themselves in a
tray that descends from the Viewpoint Toolbar. Additionally, if a user visits
certain internet search engine sites the Viewpoint Toolbar will simultaneously
receive a users search request and provide the user comparative thumbnail
search results in the Viewpoint Toolbar search results tray.

The
Company executed a search advertising agreement in 2004, and amended it in
2006, with Yahoo!. The agreement provides that Yahoo! is the exclusive provider
of search results for the Viewpoint Toolbar through March 2008. Yahoo! pays a
variable fee per month for the access to the Companys distribution and the
exclusive right to display search results to the Viewpoint Toolbar. This
variable fee is based on users clicks on sponsored advertisements included in
the search results provided by Yahoo! through the Viewpoint Toolbar. The
Viewpoint Toolbars search results are provided by Yahoo!, who collects a fee
from the advertiser and remits a percentage of the fee to Viewpoint. Revenue
generated is a function of the number of Viewpoint Toolbars performing
searches, the number of searches that are sponsored by advertisers, the number
of advertisements that are clicked on by Viewpoint Toolbar searchers, the rate
advertisers pay for those advertisements, and the percentage retained by Yahoo!
for providing the results. The agreement also provides the Company the ability to create, distribute and market private label toolbars for third parties.

In
July 2005, the Company launched version 3.0 of the Viewpoint Toolbar which
includes the capability to manage digital photograph files on the users
computer and provides the ability to share the photographs at a website or get
printed copies of the photographs for a fee. During October 2005, the Company
released version 3.5 of the Viewpoint Toolbar and re-named it the Fotomat
Toolbar. The Company has licensed the trademark and internet url

27

---



Fotomat.com for its
exclusive use in connection with the internet website for photograph and printing
services and computer software for organization, editing, managing, sharing,
and processing images and related data through the end of December 2006, with
the ability to renew such license. Its new Fotomat Toolbar provides enhanced
photograph editing capabilities and an efficient method of creating albums of
photographs, which the Company believes will enhance the utility of the
toolbars for users, while simultaneously allowing users to use the Toolbar to
search the internet.

Prior
to launching the Search product the Company principally leveraged its
distributed base of VMPs by licensing access to use the Viewpoint Platform for
display of content on a website. Viewpoint initiated internet activities with
the release of a beta version of the Viewpoint Media Player in 1999.
Simultaneously, Viewpoint released a suite of free content authoring tools
specifically designed to enable customers who published digital content on
their websites to create material that can be read or played back by the
VMP. With the VMP residing on the web consumers computer and interpreting
instructions delivered by its customers web sites, web sites can transmit
relatively small files that can yield rich media on the end users computer.
In this way, website owners can deploy digital content representing
three-dimensional views of their products, include pre-set animations, and
provide high-resolution two-dimensional views, video, audio, text, and other
media types. For example, the Company has licensing customers who are auto
manufacturers that deploy from their websites 3D representations of their
vehicles which viewers can interact with by opening doors, zooming in on
features, configuring accessories, or swapping colors. Its licensees helped
facilitate the growth of its distributed base of VMPs that the Company used to
launch its Search Toolbar business.

In
addition, Viewpoint also offers an online advertising campaign management and
deployment product. In July 2005, the Company redesigned this product,
incorporating the Viewpoint Creative Innovator product with the Unicasts UCP
ad delivery system into one system. This system, known as the Unicast Ad
Platform (UAP), permits publishers, advertisers, and their agencies to
manage the process of deploying online advertising campaigns. The Company
charges customers on a cost per thousand (CPM) impression basis, and
recognizes revenue when the impressions are served, so long as all other
revenue recognition criteria are satisfied. The Company also provides another
advertising services product whereby the Company purchases media space from
web-site publishers and resells that space to advertisers. The Company acts as
a principal party in the transaction, assumes the title to the media space
purchased, and assumes the risks of collection and therefore recognizes the
entire amount billed to the customer as revenue, and the cost of the media
space as cost of sales.

On
  January 3, 2005 Viewpoint purchased all the outstanding stock of Unicast Corporation
  (Unicast), a leader in the delivery of interstitial and superstitial
  video internet advertisements. Unicast delivered video advertisements for its
  customers using a format that complemented Viewpoints in-page and in-stream
  video advertising provided by AirTime. Additionally, Unicast generated monthly
  revenues from dozens of advertisers who purchased advertising on some of the
  internets most active websites including America Online, Microsofts
  MSN, and Yahoo!. The addition of Unicast significantly accelerated the Companys
  growth in its advertising systems segment.

The
Company provides fee-based professional services for creating content and
implementing visualization systems. Clients include both content-related
licensees and advertisers who use UAP as well as internal services provided to
its marketing team. Its professional services group uses the Viewpoint
platform, as well as a spectrum of tools and other technologies to create
enhanced rich media solutions for a clients particular purpose, whether over
the web, intranet systems or offline media and applications. The Company
provides the support its clients need to implement the rich media content, to
fully utilize the enhanced software, or to maximize the branding potential of
the advertising opportunity. Clients supported during 2005 include America
Online, Toyota Motor Services, General Electric and Honda.

Viewpoint
has a limited operating history upon which an evaluation of the Company and its
prospects can be based. Viewpoint has had significant quarterly and annual
operating losses since its inception, and, as of March 31, 2006, had an
accumulated deficit of $269.8 million. Viewpoints prospects must be considered
in light of the risks and difficulties frequently encountered by early stage
technology companies. There can be no assurance that Viewpoint will achieve or
sustain profitability.

28

---



RESULTS OF OPERATIONS

The
following table sets forth for the three months ended March 31, 2006 and 2005,
the Companys consolidated statements of operations expressed as a percentage
of total revenues for the periods indicated:

|                                                              |  |                                |     |      |  |     |   
|------------------------------------------------------------- |  | ------------------------------ | --- | ---- |  | --- | --
|                                                              |  | Three Months Ended
  March 31, |    
|                                                              |  |                                |     |      | 
|                                                              |  | 2006                           |     | 2005 | 
|                                                              |  |                                |     |      | 
|Statements of Operations Data                                 |  |                                |     |      |  |     |   
|Revenues:                                                     |  |                                |     |      |  |     |   
|Search                                                        |  |                                | 45  | %    |  | 39  | % 
|Advertising Systems                                           |  |                                | 40  |      |  | 13  |   
|Services                                                      |  |                                | 14  |      |  | 22  |   
|Related party services                                        |  |                                |    |      |  | 7   |   
|Licenses                                                      |  |                                | 1   |      |  | 3   |   
|Related party licenses                                        |  |                                |    |      |  | 16  |   
|                                                              |  |                                |     |      |  |     |   
|Total revenues                                                |  |                                | 100 |      |  | 100 |   
|                                                              |  |                                |     |      |  |     |   
|                                                              |  |                                |     |      |  |     |   
|Cost of revenues:                                             |  |                                |     |      |  |     |   
|Search                                                        |  |                                | 1   |      |  | 1   |   
|Advertising Systems                                           |  |                                | 25  |      |  | 9   |   
|Services                                                      |  |                                | 16  |      |  | 15  |   
|Licenses                                                      |  |                                | 0   |      |  |    |   
|                                                              |  |                                |     |      |  |     |   
|Total cost of revenues                                        |  |                                | 42  |      |  | 25  |   
|                                                              |  |                                |     |      |  |     |   
|Gross profit                                                  |  |                                | 58  |      |  | 75  |   
|                                                              |  |                                |     |      |  |     |   
|                                                              |  |                                |     |      |  |     |   
|Operating expenses:                                           |  |                                |     |      |  |     |   
|Sales and marketing                                           |  |                                | 39  |      |  | 23  |   
|Research and development                                      |  |                                | 28  |      |  | 22  |   
|General and administrative                                    |  |                                | 59  |      |  | 37  |   
|Depreciation                                                  |  |                                | 4   |      |  | 4   |   
|Amortization of intangible assets                             |  |                                | 3   |      |  | 3   |   
|Restructuring charges (release)                               |  |                                | 2   |      |  |    |   
|                                                              |  |                                |     |      |  |     |   
|Total operating expenses                                      |  |                                | 136 |      |  | 89  |   
|                                                              |  |                                |     |      |  |     |   
|                                                              |  |                                |     |      |  |     |   
|Loss from operations                                          |  |                                | (78 | )    |  | (14 | ) 
|                                                              |  |                                |     |      |  |     |   
|Other income (expense):                                       |  |                                |     |      |  |     |   
|Interest and other income, net                                |  |                                | 2   |      |  |    |   
|Interest expense                                              |  |                                | (7  | )    |  | (6  | ) 
|Changes in fair values of warrants to purchase
common stock   |  |                                | (16 | )    |  | 3   |   
|Loss on early extinguishment                                  |  |                                |    |      |  |    |   
|Loss on conversion                                            |  |                                |    |      |  |    |   
|                                                              |  |                                |     |      |  |     |   
|Other income                                                  |  |                                | (21 | )    |  | (3  | ) 
|                                                              |  |                                |     |      |  |     |   
|                                                              |  |                                |     |      |  |     |   
|Loss before provision for income taxes                        |  |                                | (99 | )    |  | (17 | ) 
|Provision for income taxes                                    |  |                                | 0   |      |  |    |   
|                                                              |  |                                |     |      |  |     |   
|                                                              |  |                                |     |      |  |     |   
|Net loss from continuing operations                           |  |                                | (99 | )    |  | (17 | ) 
|Adjustment to net loss on disposal of discontinued
operations |  |                                |    |      |  | 3   |   
|                                                              |  |                                |     |      |  |     |   
|                                                              |  |                                |     |      |  |     |   
|Net loss                                                      |  |                                | (99 | )%   |  | (14 | )%
|                                                              |  |                                |     |      |  |     |   

29

---



Critical Accounting Policies and Estimates

Viewpoints
discussion and analysis of its financial condition and results of operations
are based upon its consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. The Company bases its estimates on
historical experience and on various other assumptions that the Company
believes to be reasonable under the circumstances though actual results may
differ from these estimates under different assumptions or conditions. For a
complete description of the Companys accounting policies, see Note 2 to the
consolidated financial statements included herein.

Described
below are the areas where the Company believes that the estimates, judgments or
assumptions that the Company has made, if different, would have yielded the
most significant differences in its financial statements:

Revenue Recognition

The
Company recognizes revenue in accordance with Statement of Position (SOP)
97-2, Software Revenue Recognition, as amended, and Staff Accounting Bulletin
(SAB) No. 101 Revenue Recognition in Financial Statements as amended by SAB
No. 104 Revenue Recognition. The Company recognizes revenue when the
following criteria are met: (a) persuasive evidence of an arrangement exists,
(b) delivery has occurred or services have been rendered, (c) the Companys fee
is fixed or determinable, and (d) collectibility is reasonably assured.

Viewpoint
generates revenues through four sources: (a) search advertising, (b)
advertising systems, (c) services, and (d) software licenses. The Search
toolbar is an extension of the Companys licensing revenue, and is derived from
a share of the fees charged by Yahoo! to advertisers who pay for sponsored
links when a customer clicks on the paid link on the results provided by the
Viewpoint Toolbar. Advertising systems revenue is generated by charging
customers to host and/or deliver advertising campaigns based on a cost per
thousand (CPM) impressions. Service revenues are generated from fee-based
professional services, customer support services (maintenance arrangements),
and training services performed for customers that license the Companys
products. License revenues are generated from licensing the rights to use
products directly to customers. In June 2005, the Company discontinued charging
customers a license fee (except for special purpose licenses requiring
customization), as the Company believes that distribution of Viewpoint content
and the VMP will increase Search revenue.

The
Company executed a search advertising agreement in 2004, and amended it in
2006, with Yahoo!. The agreement provides that Yahoo! is the exclusive provider
of search results for the Viewpoint Toolbar through March 2008. Yahoo! pays a
variable fee per month for the access to the Companys distribution and the
ability to display search results to the Viewpoint Toolbar. This variable fee
is based on users clicks on sponsored advertisements included in the search
results provided by Yahoo! through the Viewpoint Toolbar. The Viewpoint
Toolbars search results are provided by Yahoo!, who collects a fee from the advertiser
and remits a percentage of the fee to Viewpoint. Revenue generated is a
function of the number of Viewpoint Toolbars performing searches, the number of
searches that are sponsored by advertisers, the number of advertisements that
are clicked on by Viewpoint Toolbar searchers, the rate advertisers pay for
those advertisements, and the percentage retained by Yahoo! for providing the
results.

In
addition, Viewpoint also offers an online advertising campaign management and
deployment product. In July 2005, the Company redesigned this product,
incorporating the Viewpoint Creative Innovator product with the Unicasts UCP
ad delivery system into one system. This system, known as the Unicast Ad
Platform (UAP), permits publishers, advertisers, and their agencies to
manage the process of deploying online advertising campaigns. The Company
charges customers on a cost per thousand (CPM) impression basis, and
recognizes revenue when the impressions are served, so long as all other
revenue recognition criteria are satisfied. The Company also provides another
advertising services product whereby the Company purchases media space from
web-site publishers and resells that space to advertisers. The Company acts as
a principal party in the transaction, assumes the title to the media space
purchased, and assumes the risks of collection and therefore recognizes the
entire amount billed to the customer as revenue, and the cost of the media
space as cost of sales.

On
June 14, 2005, Viewpoint announced that for all non-special purpose licenses,
it was discontinuing the practice of charging customers a license fee for the
use of the Viewpoint Media Player and related technologies. The

30

---



Viewpoint Media Player will
no longer require a broadcast key to display content, thereby giving all
developers free access to the Viewpoint Distribution Network. However,
Viewpoint will still charge for certain licenses requiring customization. By
providing the standard license for free, the Company plans to extend the
Viewpoint Media Players reach into new channels of distribution beyond the
estimated 120 million computers it currently resides within. Viewpoint believes
that this strategy supports the advertising businessby potentially making the
player more pervasiveas well as providing strong backing to the search and
photo management distribution strategies.

License
revenues from direct customers included sales of perpetual and term-based
licenses for broadcasting digital content in the Viewpoint format that were
entered into prior to June 14, 2005, or that required customization. License
revenues were recognized up-front provided no further significant obligations
exist and the resulting receivable was deemed collectible by management.

Fees
from licenses sold together with fee-based professional services were generally
recognized upon delivery of the software, provided that the payment of the
license fees were not dependent upon the performance of the services, and the
services were not essential to the functionality of the licensed software. If
the services were essential to the functionality of the software, or payment of
the license fees were dependent upon the performance of the services, both the
software license and service fees were recognized in accordance with SOP 81-1
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts. The percentage of completion method was used for those arrangements
in which reasonably dependable estimates were available. If reasonably
dependable estimates were not available due to the complexity of the services
to be performed, the Company deferred recognition of any revenues for the
project until the project was completed, delivered and accepted by the
customer, provided all other revenue recognition criteria were met and no
further significant obligations exist.

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

Standard
terms for service arrangements, which are typically billed and collected on an
installment basis, require final payment within 90 days of completion of the
services. Standard terms for license arrangements required payment within 90
days of the contract date, which typically coincided with delivery. Probability
of collection is based upon the assessment of the customers financial
condition through the review of their current financial statements and/or
credit reports. For follow-on sales to existing customers, prior payment
history is also used to evaluate probability of collection. The Companys arrangements
with customers do not contain product return rights. If the fee is not fixed or
determinable, revenue is recognized as payments become due or as cash is
received from the customer. If a nonstandard acceptance period is required,
revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.

Percentage of Completion

Fee-based
professional services for customized software development are performed on a
fixed-fee or time-and-materials basis under separate service arrangements.
Revenues for fixed-fee arrangements are recognized over the pattern of
performance in accordance with the provisions of SAB No. 101. The pattern of
performance for service arrangements is measured by the percentage of costs
incurred and accrued to date for each contract, which primarily consist of
direct labor costs, cost of outsourcing, and overhead, to the estimated total
cost for each contract at completion. The percentage approximates the
percentage of a customers contract that has been completed and would be
available for the customer to use at that point in time. Use of this method is
based on the availability of reasonably dependable estimates. If reasonably
dependable estimates are not available due to the complexity of the services to
be performed, the Company defers recognition of any revenues for the project
until the project is completed, delivered and accepted by the customer,
provided all other revenue recognition criteria are met and no

31

---



further significant
obligations exist. If actual results differ from estimates made, revenue
recognized would be adjusted in the period that the differences became known
and the difference could be material.

Reserve for Bad Debt

The
Company performs ongoing credit evaluations of its customers and adjust credit
limits based upon payment history and the customers current credit worthiness,
as determined by a review of their current credit information. The Company
regularly monitors collections and payments from its customers and maintains a
provision for estimated credit losses based upon historical experience and any
specific customer collection issues that have been identified. If actual
results differ from estimates made, expense recognized would be adjusted in the
period that the differences became known and the difference could be material.

Valuation of Goodwill and Intangible Assets

The
Company assesses goodwill for impairment annually unless events occur that
require more frequent reviews. Long-lived assets, including amortizable
intangibles, are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Estimated fair market values of each reporting unit, based on
public company comparables or discounted cash flows, using a discount rate of
18%, are used to assess non-amortizable intangible impairment while
undiscounted cash flow analyses are used to assess long-lived asset impairment.
If an assessment indicates impairment, the impaired asset is written down to
its fair market value based on the best information available. Estimated fair
market value is generally measured with comparable public companies.
Considerable management judgment is necessary in order to establish the value
of the individual units. Assumptions used for these valuations are consistent
with internal forecasts.

On
an on-going basis, management reviews the value of long-lived assets including Goodwill
and other intangibles. Management also reviews the period of amortization or
depreciation of long-lived assets, including other intangible assets. During
this review, the Company re-evaluates the significant assumptions used in
determining the original cost of long-lived assets. Although the assumptions
may vary from transaction to transaction, they generally include revenue
growth, operating results, cash flows and other indicators of value. Management
then determines whether there has been an impairment of the value of long-lived
assets based upon events or circumstances that have occurred since acquisition.
The impairment policy is consistently applied in evaluating impairment for each
of its wholly owned subsidiaries and investments. The Company may incur charges
for the impairment of goodwill or intangible assets in the future if a
reporting unit fails to achieve its assumed revenue growth rates or operating
margin results.

Investments

The
Company records an impairment charge when the Company believes an investment
asset has experienced a decline in value that is other than temporary. Future
adverse changes in market conditions or poor operating results of underlying
investments could result in losses or an inability to recover the carrying
value of the investments that may not be reflected in an investments current
carrying value, thereby possibly requiring an impairment charge in the future.

Derivatives

In
2002 and 2003, the Company issued convertible notes and warrants which would
require Viewpoint to issue shares of common stock upon conversion of these
securities. The Company accounts for the fair values of the outstanding
warrants to purchase common stock and the conversion options of its convertible
notes in accordance with SFAS No. 133 Accounting for Derivative Instruments
and Hedging Activities, and EITF Issue No. 00-19 Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Companys Own
Stock, which requires the Company to bifurcate and separately account for the
conversion option and warrants as derivatives contained in the Companys
convertible notes. The Company is required to carry these derivatives on its
balance sheet at fair value and the unrealized changes in the value of these
derivatives are reflected in net income as changes in fair values of warrants
to purchase common stock and conversion options of convertible notes. Such

32

---



changes in fair value are
recorded as an adjustment to reconcile net loss to net cash used in operating
activities in the consolidated statement of cash flows. In 2004, the
convertible notes were converted into common stock.

In
December 2005, the Company issued 1.2 million warrants to purchase common stock
to several investors and as issuance costs, in connection with a private
placement. The Company was required to carry these warrants on its balance
sheet at fair value and the unrealized changes in the value of these warrants
are reflected in net loss as changes in fair values of warrants to purchase
common stock. Such changes in fair value are recorded as an adjustment to
reconcile net loss to net cash used in operating activities in the consolidated
statement of cash flows.

Contingencies and Litigation

The
Company evaluates contingent liabilities including threatened or pending
litigation in accordance with SFAS No. 5, Accounting for Contingencies and
record accruals when the outcome of these matters is deemed probable and the
liability is reasonably estimable. The Company makes these assessments based on
the facts and circumstances and in some instances based in part on the advice
of outside legal counsel. If actual results differ from estimates made, expense
recognized would be adjusted in the period that the differences became known
and the difference could be material.

Restructuring Activities

Restructuring
activities include the recognition of severance expenses upon management
approval of the restructuring plan, the determination of the employees to be
terminated, communication of benefit arrangements to employees and, with
respect to costs associated with lease terminations, an estimation of sublease
payments.

Stock-Based Compensation

The
  Company has adopted the provisions of FAS No. 123R (FAS 123R), Share-Based
  Payment which replaced Statement of Financial Accounting Standards No.
  123 (FAS 123), Accounting for Stock-Based Compensation
  and supersedes APB Opinion No. 25 (APB 25), Accounting for
  Stock Issued to Employees, as of January 1, 2006. The provisions of FAS
  123R require a company to measure the cost of employee services received in
  exchange for an award of equity instruments based on the grant-date fair value
  of the award. That cost is recognized in the statement of operations over the
  period during which an employee is required to provide service in exchange for
  the award. The determination of the fair value of stock-based payment awards
  on the date of grant using an option-pricing model is affected by the Company’s
  stock price as well as assumptions regarding a number of complex and subjective
  variables. These variables include the Company’s expected stock price
  volatility over the terms of the awards of 135%, actual and projected employee
  stock option exercise behaviors resulting in an estimated term of 4.58 years,
  risk-free interest rate of 4.72%, and expected dividends of zero. FAS 123R also
  amends FASB Statement No. 95, Statement of Cash Flows, to require
  that excess tax benefits, as defined, realized from the exercise of stock options
  be reported as a financing cash inflow rather than as a reduction of taxes paid
  in cash flow from operations. As the result of the uncertainty regarding the
  Company's ability to utilize its deferred tax assets, the impact of “wind
  fall” tax benefits on the accompanying financial statements was immaterial.

The
Company elected the modified-prospective method, under which prior periods are
not revised for comparative purposes. The valuation provisions of SFAS 123R
apply to new grants and to grants that were outstanding as of the effective
date and are subsequently modified. Estimated compensation for grants that were
outstanding as of the effective date will be recognized over the remaining
service period using the compensation cost estimated for the SFAS 123 pro forma
disclosures.

The
adoption of SFAS 123R had a material impact on our consolidated financial
position, results of operations and cash flows. See Note 6 for further
information regarding our stock-based compensation assumptions and expenses,
including pro forma disclosures for prior periods as if we had recorded
stock-based compensation expense.

Financial Results

Viewpoint
  reported total revenue of $4.0 million for the first quarter 2006 compared to
  $5.6 million for the first quarter 2005. Operating loss for the first quarter
  of 2006 was $3.1 million compared to $0.8 million in the first quarter of 2005.
  The increase in operating loss compared to the first quarter 2005 resulted principally
  from lower revenues associated with a license and services revenue arrangement
  with AOL stemming from a contract executed in 2003 which expired in December
  2005. The Company experienced a decline in revenue in its search business,
  however its ad systems business experienced growth of 118% in the first quarter
  of 2006 as compared to

33

---



the first quarter in 2005. The Companys services group continued
  to experience a decline in sales and therefore announced a restructuring of
  this group in March. This restructuring streamlined the business by terminating
  29% of the services employees and relocating the principal services office from
  New York to Los Angeles. The Company also recorded $0.7 million of non-cash
  stock-based compensation expense associated with the adoption of Statement of
  Financial Accounting Standards (SFAS) No. 123R Share-Based Payment
  on January 1, 2006. Net loss for the first quarter 2006 was $3.9 million, or
  a loss of $0.06 per share, compared to a net loss of $0.7 million, or a loss
  of $0.01 per share, in the first quarter of 2005. The net loss in the first
  quarter of 2006 included a non-cash charge of $0.6 million to recognize the
  impact of the Companys increased stock price on its outstanding warrants.
  The net loss in the first quarter of 2005 included a non-cash gain of $0.2 million
  to recognize the impact of the Companys decreased stock price on outstanding
  warrants.

Viewpoints
cash, cash equivalents, and marketable securities as of March 31, 2006 were $7.6
million. This can be compared to cash, cash equivalents, and marketable
securities of $9.1 million at December 31, 2005. The decrease in cash, cash
equivalents, and marketable securities can be principally attributed to the
loss from operations during the quarter.

34

---



Revenues

Three
  Months Ended
  March 31,

%2006

2005

ChangeRevenues:Search

$
1,789

$
2,180


(18
)%Advertising Systems


1,595


732


118Services


553


1,243


(56
)Related party
services





395


(100
)Licenses


46


155


(70
)Related party
licenses





873


(100
)Total revenues

$
3,983

$
5,578


(29
)%


On
March 17, 2004 Viewpoint entered the internet search business, by launching the
Viewpoint Toolbar on a test basis. In April 2004, the Company ended the test
phase, and began delivering the Viewpoint Toolbar Version 1.0. Search revenue
is generated when a customer uses the Viewpoint Toolbar to search the internet,
and clicks on a sponsored advertisement included in the search results. The
Viewpoint Toolbars search results are provided by Yahoo!, who collects a fee
from the advertiser and remits a percentage of the fee to Viewpoint. Revenue
generated is a function of the number of Viewpoint Toolbars performing
searches, the number of searches that are sponsored by advertisers, the number
of advertisements that are clicked on by Viewpoint Toolbar searchers, the rate
advertisers pay for those advertisements, and the percentage retained by Yahoo!
for providing the results.

Additionally,
Viewpoint offers an online advertising campaign management and deployment
product. In July 2005, the Company deployed a new product, incorporating the
Viewpoint Creative Innovator product and Unicasts UCP ad delivery system into
one system. This system, known as the Unicast Ad Platform (UAP), permits
publishers, advertisers, and their agencies to manage the process of deploying
online advertising campaigns. The Company charges customers on a cost per
thousand (CPM) impression basis, and recognizes revenue when the impressions
are served, so long as all other revenue recognition criteria are satisfied.
The Company expects revenues from advertising systems to grow in future
quarters. The Company also provides another advertising services product
whereby the Company purchases media space from web-site publishers and re-sells
that space to advertisers. The Company acts as a principal party in the
transaction, assumes the title to the media space purchased, and assumes the
risks of collection and therefore recognizes the entire amount billed to the
customer as revenue, and the cost of the media space as cost of sales.

Viewpoint
has a creative services group that builds content in the Viewpoint format for
customers. Viewpoint charges customers fees for these services based on the
estimated time and materials to complete a creative project for the customer
including an acceptable profit margin. Revenue is recognized on a
percentage-of-completion basis if all other revenue recognition criteria are
satisfied. During 2005, the Company continued its strategy of concentrating on
executing larger creative projects.

The
Company also generated revenues by selling licenses to the Viewpoint graphical
platform principally to internet content publishers. On June 14, 2005,
Viewpoint announced that for all non-special-purpose-licenses, it was
discontinuing the practice of charging customers a license fee for the use of the
Viewpoint Media Player and related technologies. The Viewpoint Media Player
will no longer require a broadcast key to display content, thereby giving all
developers a free license to the Viewpoint Distribution Network. However,
Viewpoint will still charge for certain licenses requiring customization. By
providing the standard license for free, the Company plans to extend the
Viewpoint Media Players reach into new channels of distribution beyond the
estimated 120 million computers it currently resides within. Viewpoint believes
that this strategy supports the advertising businessby potentially making the
player more pervasiveas well as providing stronger distribution for the search
and photo management businesses.

Prior
to 2004, licenses were generally 15 months in duration. Revenues were
recognized upon the completion of the sales and delivery process so long as all
other revenue recognition criteria were satisfied. The Company supplemented its
license revenue by providing content development services to licensees. The
service revenues were recognized on a percentage of completion basis as
computed by comparing the incurred costs of the project to the total estimated
project cost and applying this percentage against the total contracted revenue.

35

---



During
the first five months of 2005, prior to the discontinuation of standard
broadcast license fees, the Company recognized license sales upon delivery so
long as all other revenue recognition criteria were satisfied. Since January
2004, licenses had generally been sold for a 12 month term. The Company also
adopted a new licensing price structure in 2004 whereby larger license sales,
that are made less frequently, contain product upgrades when and if available
for a period of 12 months. These license sales are amortized over the license
periods, due to the significance of the post contract customer support which
include when and if available upgrades.

During
October 2003, the Company entered into an amended license agreement with
America Online, Inc. (AOL) which provided for payments by AOL of $10.0
million which were received in the fourth quarter of 2003. The agreement
contains multiple elements consisting of a perpetual broadcast license, a
perpetual source code license, quarterly updates to the source code through
December 2005, and maintenance and consulting services. The Company recognized
revenue from this agreement ratably as license and services revenue through
December 2005 which represents the duration of the Companys obligation for
post-contract support of the source code element, including quarterly upgrades
and maintenance requirements. Approximately $0.9 million was recognized each
quarter from October 2003 to December 2005 as related party license revenue and
$0.2 million as related party services revenue.  There will be no future revenue earned subsequent to December 31, 2005 related to this
License.

During
2004, the Company began to focus more resources on its Search and Advertising
systems products. License revenue was relatively constant through 2005, as
twelve month licenses that contained upgrades when and if available that were
entered into prior to the change in license fee structure in June 2005 were
recognized. The Company believes that, consistent with the new business model,
license revenue will be minimal in 2006.

Search
  revenues amounted to of $1.8 million for the three months ended March 31, 2006
  as compared to $2.2 million in the three months ended March 31, 2005. Search
  revenues are generated when users of the Viewpoint Toolbar are provided search
  results from advertisers that they click on to view. These advertisers then
  pay a fee to Yahoo!, who remits a percentage of the fee to Viewpoint. The Company
  had installed 8.7 million Viewpoint Toolbars through December 31, 2004, 12.4
  million through March 2005, 21.4 million through December 31, 2005 and 22.6
  million through March 31, 2006. Internet users can uninstall the Viewpoint Toolbar,
  and through December 31, 2004, 3.3 million users who had accepted the installation
  of the Toolbar had later uninstalled it during 2004. The total of cumulative
  uninstalled toolbars had increased to 9.9 million by December 31, 2005 and 11.0
  million by March 31, 2006. The Company believes that search revenues can increase
  in 2006 as compared to 2005 if it is able to more significantly increase the
  number of Viewpoint Toolbars that are distributed and remain installed. The
  ability of the Company to obtain distribution from private label toolbars in
  2006 will be critical to this growth.

The
Company recognized $1.6 million in advertising systems revenue during the three
months ended March 31, 2006 compared to $0.7 million for the same period in
2005. This revenue was generated by delivering advertising impressions to
websites in several different formats including video. The revenue increase is
attributable to the Company continuing to increase its customers and types of
advertising formats it is delivering for its customers during the past year.
The Company expects revenue growth to continue during 2006.

Service
  revenues amounted to $0.6 million for the three months ended March 31, 2006
  as compared to $1.2 million for the same period in 2005. The Company experienced
  a decline in the number of clients during the quarter. During March 2006, in
  recognition of the continued decline in revenues for this group, the Company
  announced a restructuring which resulted in the relocation of its principal
  operational headquarters for this business to its Los Angeles office. The Company
  believes that it will be able to increase revenues in this segment if licensees
  continue to seek the Companys assistance in building more content using
  the Viewpoint Platform to be used at their websites and more clients contract
  for private label toolbars.

There
  was no related party service or license revenue for the three months ended March
  31, 2006, as the October 2003 AOL contract expired on October 31, 2005.

License
  revenues amounted to less than $0.1 million, decreasing approximately $1.0 million
  for the three months ended March 31, 2006, compared to the same period last
  year. License revenues for the first quarter of 2005 represent four licenses
  the Company sold during 2004, which provided upgrade rights, and were therefore
  being recognized ratably over 12 months. The Company essentially eliminated
  the sale of all but special-purposes licenses in June 2005 and believes that
  revenues in this segment will continue to decrease in 2006.

36

---



Cost of revenues

Three
  Months Ended
  March 31,

%2006

2005

ChangeCost of Revenues:Search

$
36

$
46


(22
)%Percentage of Search
Revenues


2
%

2
%Advertising Systems

$
1,005

$
518


94
%Percentage of Advertising
Sstems Revenues


63
%

71
%Services

$
642

$
810


(21
)%Percentage of Services
Revenues


116
%

49
%Licenses

$
6

$
2


200
%Percentage of Licenses
Revenues


13
%

0
%


The
Company incurs cost of revenues related to Search revenue for the hosting
services associated with providing search results. Bandwidth costs utilized in
providing results has been minimal. The Company believes that as Search revenue
increases, the hosting services associated with this revenue will increase.
Additionally, as the Company is able to obtain private label distribution
agreements there may be costs associated with that distribution. This may lead
to an increase in the costs as a percentage of revenues.

Cost
of revenues from advertising systems was $1.0 million for the three months
ended March 31, 2006 compared to $0.5 million for the same period last year.
These costs consist of the web-hosting and employee fees associated with
serving advertising content, costs for media space at websites when the Company
packages the media space with delivery, and costs of developing certain
advertisements in contracts that include a combined price for developing
creative material and delivering that material. Cost of media space at websites
increased $0.6 million in 2006 due to more contracts which required the Company
to both purchase media and deliver ads for the advertiser.

Cost
of revenues for services consists primarily of salaries, consulting fees and
overhead for those who provide fee-based content creation and engineering
professional services. Cost of revenues for services of $0.6 million for the
three months ended March 31, 2006 decreased by $0.2 million compared to the
same period last year. The decrease in cost of revenues for services is
attributable to the decrease in service revenues in the first quarter of 2006
compared to the prior year. The Company believes that the costs for services as
a percentage of revenue will improve during the remainder of 2006.

Sales and marketing

March
  31,2006

2005

%
  Change(dollars
  in thousands)Sales and Marketing

$
1,578

$
1,275


24
%Percentage of total
  revenues


39
%

23
%


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

Sales
and marketing expenses of $1.6 million for the three months ended March 31,
2006 increased by $0.3 million compared to the same period last year. The
increase was principally due to recording $0.2 million in non-cash stock-based
compensation in 2006 due to the adoption of FAS 123R.

37

---



Research and
development

March
  31,2006

2005

%
  Change(dollars
  in thousands)Research and development

$
1,088

$
1,206


(10
)%Percentage of total
  revenues


28
%

22
%


Research
and development expenses consist primarily of salaries and benefits for
software developers, contracted development efforts, and non-cash stock-based
compensation charges related to the Companys product development efforts. The
Company expenses as incurred research and development costs necessary to
establish the technological feasibility of its internally developed software
products and technologies. To date, the establishment of technological
feasibility of the Companys products and general release has substantially
coincided. As a result, the Company has not capitalized any 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, if technological feasibility has been
established, it is probable that the project will be completed and the software
will be used as intended. The Company expenses costs incurred during
preliminary project assessment, research and development, re-engineering,
training and application maintenance.

Beginning
  in 2004, the Company expanded its research and development efforts beyond changes
  in the overall quality of the Viewpoint Media Player to efforts to build the
  Viewpoint Toolbar for searching. During 2005, efforts in this area focused on
  the development of a more flexible frame for the Toolbar which would facilitate
  adding different software tools to its capabilities and the development of a
  photosharing capability. In addition, during 2004 the Company expanded its efforts
  to build its advertising system product by expanding the creative assembly capability
  of its product. During 2005, efforts have been focused on building an ad delivery
  system that combines the capabilities of Unicasts and Viewpoints
  products. During 2006 the Company has been working on a new type of toolbar
  which can be easily branded for a customer. Additionally the Company has been
  developing a personalization tool that can be used in the toolbar or ad systems
  business and a new reporting module that will more effectively determine returns
  on types of advertising formats for its ad systems platform.

Research
and development expenses decreased by $0.1 million for the three months ended
March 31, 2006 compared to the same period last year. The most significant
change resulted from salaries which decreased by $0.2 million associated with a
decrease of employees in this group during the past year, offset by $0.1
million in non-cash stock-based compensation due to the adoption of FAS 123R.

General and
administrative

March
  31,2006

2005

%
  Change(dollars
  in thousands)General and Administsrative

$
2,359

$
2,087


13
%Percentage of total revenues


59
%

37
%


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

General
and administrative expenses increased by $0.3 million for the three months
ended March 31, 2006 compared to the same period last year. The Company
recorded $0.3 million in non-cash stock-based compensation due to the adoption
of FAS 123R. Salary and fringe benefit costs decreased by $0.1 million due
primarily to an overall reduction of employees in this department during the
year.

38

---



Depreciation expense

|                             |  |                          |     |      |   |          |   |  |     |   
|---------------------------- |  | ------------------------ | --- | ---- | - | -------- | - |  | --- | --
|                             |  | March
  31,              |     |      |   |         
|                             |  | 2006                     |     | 2005 |   | % Change |  
|                             |  |                          |     |      |  
|                             |  | (dollars
  in thousands) |     |      |   |         
|Depreciation                 |  | $                        | 145 |      | $ | 233      |   |  | (38 | )%
|Percentage of total revenues |  |                          | 4   | %    |   | 4        | % |  |     |   

Depreciation
expense decreased by less than $0.1 million for the three months ended March
31, 2006, compared to the same period last year primarily due to the Unicast
assets acquired on January 3, 2005. Most of the assets acquired were
depreciated over a one year life.

Amortization of
intangible assets

|                                  |  |                          |     |      |   |          |   |  |     |   
|--------------------------------- |  | ------------------------ | --- | ---- | - | -------- | - |  | --- | --
|                                  |  | March 31,                |     |      |   |         
|                                  |  | 2006                     |     | 2005 |   | % Change |  
|                                  |  |                          |     |      |  
|                                  |  | (dollars
  in thousands) |     |      |   |         
|Amortization of intangible assets |  | $                        | 138 |      | $ | 178      |   |  | (22 | )%
|Percentage of total revenues      |  |                          | 3   | %    |   | 3        | % |  |     |   

Amortization
of intangible assets relates to the amortization of patents, trademarks and
other intangible assets acquired in the Unicast acquisition. Intangible assets,
excluding Goodwill, determined to have been acquired included trademarks,
acquired technology and website partner relationships. Viewpoint will be
amortizing these values over an effective 7.5 year life principally due to the
longer life estimated for the more valuable website partner relationships.

39

---



Restructuring
charges

|                             |  |                          |    |      |   |          |   |  |     |  
|---------------------------- |  | ------------------------ | -- | ---- | - | -------- | - |  | --- | -
|                             |  | March 31,                |    |      |   |         
|                             |  | 2006                     |    | 2005 |   | % Change |  
|                             |  |                          |    |      |  
|                             |  | (dollars
  in thousands) |    |      |  
|Restructuring charges        |  | $                        | 92 |      | $ |         |   |  | N/A | %
|Percentage of total revenues |  |                          | 2  | %    |   |         | % |  |     |  

The
  Company implemented a restructuring plan in March 2006 designed to streamline
  the services business. Under this plan the Company eliminated 10 positions in
  the services group and relocated the management of the group from its New York
  office to its existing Los Angeles office. The Company incurred a restructuring
  charge of $0.1 million related to severance arrangements which has been recorded
  separately on the income statement. This restructuring plan was completed by
  March 31, 2006. The remaining accrual will be paid out by June 30, 2006.

Interest and other
income, net

|                               |  |                        |    |   |      |    |          |  |     |  
|------------------------------ |  | ---------------------- | -- | - | ---- | -- | -------- |  | --- | -
|                               |  | March 31,              |    |   |     
|                               |  | 2006                   |    |   | 2005 |    | % Change | 
|                               |  |                        |    |   |     
|                               |  | (dollars in thousands) |    |   |     
|Interest and other income, net |  | $                      | 79 |   | $    | 24 |          |  | 229 | %
|Percentage of total revenues   |  |                        | 2  | % |      |   | %        |  |     |  

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

Interest
and other income, net, increased 229% for the three months ended March 31, 2006
compared to the same period last year due to an increase in average cash, cash
equivalents, and marketable securities balances as well as an increase in
market interest rates.

Interest expense

|                             |  |                        |      |      |   |          |    |  |    |   
|---------------------------- |  | ---------------------- | ---- | ---- | - | -------- | -- |  | -- | --
|                             |  | March 31,              |      |      |   |         
|                             |  | 2006                   |      | 2005 |   | % Change |   
|                             |  |                        |      |      |  
|                             |  | (dollars in thousands) |      |      |  
|Interest expense             |  | $                      | (287 | )    | $ | (316     | )  |  | (9 | )%
|Percentage of total revenues |  |                        | (7   | )%   |   | (6       | )% |  |    |   

Interest
expense consists of interest paid and accrued, and amortization of debt
discount and debt issue costs on the Companys outstanding subordinated notes
and the debt assumed based upon the Unicast acquisition on January 3, 2005. The
decrease is primarily the result of an extension of the maturity period of a
note from March 2006 to March 2008, resulting in lower monthly interest expense
for that note.

Changes in fair
value of warrants to purchase common stock

|                                                           |  |                          |      |      |   |          |   |  |      |   
|---------------------------------------------------------- |  | ------------------------ | ---- | ---- | - | -------- | - |  | ---- | --
|                                                           |  | March 31,                |      |      |   |         
|                                                           |  | 2006                     |      | 2005 |   | % Change |  
|                                                           |  |                          |      |      |  
|                                                           |  | (dollars
  in thousands) |      |      |  
|                                                           |  |                          |      |      |   |          |   |  |      |   
|Changes in fair value of warrants to purchase common stock |  | $                        | (628 | )    | $ | 182      |   |  | (445 | )%
|Percentage of total revenues                               |  |                          | (16  | )%   |   | 3        | % |  |      |   

40

---



Based
on the provisions of SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities, and EITF Issue No. 00-19 Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Companys Own
Stock, the Company records gains and losses based upon changes in the
Companys common stock value and the number of common stock equivalents that
the associated financial instruments may be settled in.

For
  the three months ended March 31, 2006, the Company recorded an expense of $0.6 million based
  on the change in the fair value of warrants. For the three months
  ended March 31, 2005, the Company recorded income of $0.2 million in the Companys consolidated
  statements of operations based on the change in the
  fair values of warrants.

Provision for income
taxes

|                             |  |                          |   |      |   |          |   |  |     |  
|---------------------------- |  | ------------------------ | - | ---- | - | -------- | - |  | --- | -
|                             |  | March 31,                |   |      |  
|                             |  | 2006                     |   | 2005 |   | % Change |  
|                             |  |                          |   |      |  
|                             |  | (dollars
  in thousands) |   |      |  
|Provision for income taxes   |  | $                        | 7 |      | $ | 3        |   |  | 133 | %
|Percentage of total revenues |  |                          | 0 | %    |   |         | % |  |     |  

Provision
for income taxes consists primarily of certain minimum state income taxes as
well as foreign tax withholdings.

41

---



Adjustment to net
loss on disposal of discontinued operations

|                                                                            |  |                          |   |      |   |          |   |  |      |   
|--------------------------------------------------------------------------- |  | ------------------------ | - | ---- | - | -------- | - |  | ---- | --
|                                                                            |  | March 31,                |   |      |  
|                                                                            |  | 2006                     |   | 2005 |   | % Change |  
|                                                                            |  |                          |   |      |  
|                                                                            |  | (dollars
  in thousands) |   |      |  
|Adjustment to net loss on disposal of discontinued operations, net of
  tax |  | $                        |  |      | $ | 145      |   |  | (100 | )%
|Percentage of total revenues                                                |  |                          |  | %    |   | 3        | % |  |      |   

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

There
were no adjustments to net loss on disposal of discontinued operations for the
three months ended March 31, 2006. The adjustment to net loss on disposal of
discontinued operations for the three months ended March 31, 2005 represents a
settlement of a lawsuit in the Companys favor related to discontinued
operations.

Factors That May Affect Future Results of
Operations

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

| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have a
  history of losses and expect to incur losses in the future, which may cause
  our share price to decline.                                                                                                                   
| |   |                                                                                                                                                                                                                                         
| |  | Our business
  is difficult to evaluate because we have a limited operating history and have
  only relatively recently launched our search toolbar and creative innovator
  products.                                                  
| |   |                                                                                                                                                                                                                                         
| |  | Our
  competitors in the search business include much larger companies such as
  Google, Microsoft, Yahoo! and others that have significantly greater
  resources than we do to build a business.                                       
| |   |                                                                                                                                                                                                                                         
| |  | Our efforts
  to distribute our graphically enhanced search toolbar may experience setbacks
  limiting or reducing our search revenue.                                                                                                  
| |   |                                                                                                                                                                                                                                         
| |  | The success
  of our graphically enhanced search operations depends on users satisfaction
  with search results supplied by Yahoo!.                                                                                                    
| |   |                                                                                                                                                                                                                                         
| |  | We may be
  unable to successfully replace our search results vendor when our
  distribution contract with Yahoo! expires in March 2008.                                                                                                
| |   |                                                                                                                                                                                                                                         
| |  | Our software
  products may be wrongly labeled as spyware or adware which might lead to its
  uninstallation causing a decrease in our revenues.                                                                                        
| |   |                                                                                                                                                                                                                                         
| |  | Our business
  may not grow if the internet advertising market does not continue to develop
  or if we are unable to successfully implement our business model.                                                                         
| |   |                                                                                                                                                                                                                                         
| |  | Our failure
  to successfully compete may hinder our growth.                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                         
| |  | Our revenues
  will be subject to seasonal fluctuations.                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                         
| |  | We may enter
  into business combinations and strategic alliances which could be difficult
  to integrate and may disrupt our business.                                                                                                 
| |   |                                                                                                                                                                                                                                         
| |  | We may need
  to develop new products or other untested methods of increasing sales with
  our existing products or distribution network to generate sales and if we are
  unsuccessful the growth of our business may cease or decline.
| |   |                                                                                                                                                                                                                                         
| |  | We will need
  to keep pace with rapid technological change in the internet search and
  advertising industries.                                                                                                                        
| |   |                                                                                                                                                                                                                                         
| |  | Our ad
  campaign management and deployment solution may not be successful and may
  cause business disruption.                                                                                                                         

42

---



| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We might
  experience significant defects in our products.                                                                                                                                                          
| |   |                                                                                                                                                                                                                     
| |  | Our
  technical systems are vulnerable to interruption and damage.                                                                                                                                                  
| |   |                                                                                                                                                                                                                     
| |  | Our
  management team has only recently started working together.                                                                                                                                                   
| |   |                                                                                                                                                                                                                     
| |  | We may have
  to obtain financing on less favorable terms, which could dilute current
  stockholders ownership interests in the company.                                                                           
| |   |                                                                                                                                                                                                                     
| |  | Our stock
  price is volatile, which could subject us to class action litigation.                                                                                                                                   
| |   |                                                                                                                                                                                                                     
| |  | Our charter
  documents could make it more difficult for an unsolicited third party to
  acquire us.                                                                                                                
| |   |                                                                                                                                                                                                                     
| |  | The market
  for digital visualization solutions 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.
| |   |                                                                                                                                                                                                                     
| |  | We may be
  unable to protect our intellectual property rights.                                                                                                                                                     
| |   |                                                                                                                                                                                                                     
| |  | We may be
  liable for infringing the intellectual property rights of others.                                                                                                                                       
| |   |                                                                                                                                                                                                                     
| |  | Regulatory
  and legal uncertainties could harm our business.                                                                                                                                                       
| |   |                                                                                                                                                                                                                     
| |  | Changes in regulations or user concerns regarding privacy and
        protection of user data could adversely affect our business.                                                                                  
| |   |                                                                                                                                                                                                                     
| |  | Internet
  security poses risks to our entire business.                                                                                                                                                             

Recent Accounting Pronouncements

In
February 2006, the FASB issued Statement of Financial Accounting Standards No.
155 (SFAS 155), Accounting for Certain Hybrid Financial Instruments which
amends Statement of Financial Accounting Standards No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging Activities and Statement of
Financial Accounting Standards No. 140 (SFAS 140), Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 155
simplifies the accounting for certain derivatives embedded in other financial
instruments by allowing them to be accounted for as a whole if the holder
elects to account for the whole instrument on a fair value basis. SFAS 155 also
clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS
155 is effective for all financial instruments acquired, issued or subject to a
remeasurement event occurring in fiscal years beginning after September 15,
2006. Earlier adoption is permitted, provided the Company has not yet issued
financial statements, including for interim periods, for that fiscal year. We
do not expect the adoption of SFAS 155 to have a material impact on our
consolidated financial position, results of operations or cash flows.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and
Capital Resources

Cash,
cash equivalents, and marketable securities totaled $7.6 million at March 31,
2006, down from $9.1 million at December 31, 2005.

|                                        |  |                       |      |      |   |      |  
|--------------------------------------- |  | --------------------- | ---- | ---- | - | ---- | -
|                                        |  | March 31,             |     
|                                        |  | 2006                  |      | 2005 |  
|                                        |  |                       |     
|                                        |  | (dollars in millions) |     
|Cash used in operating
  activities     |  | $                     | (1.7 | )    | $ | (3.3 | )
|Cash used in investing
  activities     |  |                       | (1.2 | )    |   | (0.4 | )
|Cash provided by financing
  activities |  |                       | 0.3  |      |   | 0.1  |  

43

---



Operating activities

In
the three months ended March 31, 2006, cash used in operating activities was
$1.7 million, a decrease of $1.6 million compared to the three months ended
March 31, 2005. The decrease in cash is primarily due to a decrease in accounts
payable and accrued expenses of  $0.6
million, an increase in prepaid expenses of $0.8 million  as well as an overall increase in net loss.
These were offset by a decrease in accounts receivable of $1.8 million.
Attributing to the high net loss are non-cash stock-based compensation charges
of $0.7 million, restructuring charges of $0.1 and a charge for the three
months ended March 31, 2006 related to the change in fair value of warrants to
purchase common stock of $0.6 million.

Investing activities

In
the three months ended March 31, 2006, cash used in investing activities was
$1.2 million, primarily as a result of net purchases of marketable securities
of $1.1 million.

In
the three months ended March 31, 2005, cash used in investing activities was
$0.4 million, primarily due to the cash used in the acquisition of Unicast.

Financing activities

In
the three months ended March 31, 2006, net cash provided by financing
activities was $0.3 million, resulting from the exercise of stock options of
$0.8 million which was offset by cash used for the repayment of debt totaling
$0.5 million.

In
the three months ended March 31, 2005, net cash provided by financing
activities was $0.1 million resulting solely from the exercise of stock
options.

As
of March 31, 2006, the Company had cash commitments totaling approximately
$11.5 million through 2011, related mainly long-term notes and future minimum
lease payments for office space, and equipment.

|                                                  |  |                          |        |                  |   |           |  |           |       |                       |   |       |  |   |   | 
|------------------------------------------------- |  | ------------------------ | ------ | ---------------- | - | --------- |  | --------- | ----- | --------------------- | - | ----- |  | - | - | 
|                                                  |  | Payments
  Due By Period |       
|                                                  |  |                          |       
|                                                  |  | (dollars
  in thousands) |       
|                                                  |  | Total                    |        | 1 Year or
  Less |   | 2-3 Years |  | 4-5 Years |       | More than
  5
  Years |  
|                                                  |  |                          |        |                  |   |           |  |           |       |                       |  
|Long-Term
  Debt Obligations                      |  | $                        | 3,050  |                  | $ |          |  | $         | 3,050 |                       | $ |      |  | $ |  | 
|Operating
  Lease Obligations                     |  |                          | 3,529  |                  |   | 763       |  |           | 1,877 |                       |   | 889   |  |   |  | 
|Interest
  Payments on Long-Term Debt Obligations |  |                          | 608    |                  |   | 180       |  |           | 314   |                       |   | 114   |  |   |  | 
|Employee
  Agreement                              |  |                          | 65     |                  |   | 65        |  |           |      |                       |   |      |  |   |  | 
|Unicast Debt
  Obligations                        |  |                          | 3,253  |                  |   | 292       |  |           | 778   |                       |   | 2,183 |  |   |  | 
|Purchase
  Obligations                            |  |                          | 982    |                  |   | 982       |  |           |      |                       |   |      |  |   |  | 
|                                                  |  |                          |        |                  |   |           |  |           |       |                       |   |       |  |   |   | 
|Total                                             |  | $                        | 11,487 |                  | $ | 2,282     |  | $         | 6,019 |                       | $ | 3,186 |  | $ |  | 
|                                                  |  |                          |        |                  |   |           |  |           |       |                       |   |       |  |   |   | 

Unicast Acquisition

On
December 1, 2004, Viewpoint Corporation 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 Viewpoint assumed
ownership of Unicast as a wholly owned subsidiary at that date.

Long-term
debt issued by Unicast (Unicast notes) remain outstanding at the Unicast
subsidiary level following the closing. This debt is comprised primarily of two
notes. Unicast issued an unsecured promissory note 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. In addition, Unicast
issued an amended and restated secured promissory note dated 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
made a payment of $0.3 million to the secured note holder which was applied
towards reducing the amount outstanding under the promissory note.
Viewpoint will become an additional obligor under the promissory

44

---



note and
Viewpoints assets will 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. All unpaid principal and
interest is payable in 60 equal monthly installments from March 2006 through
March 2011. In March 2006, the Company made the first installment under the
secured promissory note.

Convertible Notes

On December 31, 2002, the Company completed a private placement of convertible notes and warrants in which it issued to three institutional investors, 4.95% convertible notes having an aggregate principal amount of $7.0 million, and warrants to purchase 0.7 million shares of Company common stock. The warrants expire on December 31, 2006, and were initially issued at an exercise price of $2.26 per share. The number of warrants and the exercise price are subject to adjustment if the Company sells or issues securities under a dilutive issuance (as defined in the warrant to purchase common stock agreement) subject to certain conditions.  As of March 31, 2006, 0.8 million warrants were outstanding related to this placement.

Subordinated Notes

On
March 26, 2003, Viewpoint Corporation entered into a Securities Purchase
Agreement with three other accredited investors, pursuant to which it received
$3.5 million in exchange for an aggregate of $3.5 million principal amount of
4.95% subordinated notes and 3.6 million shares of Viewpoint common stock. The
subordinated notes are scheduled to mature on March 31, 2006. Interest on these
notes is payable quarterly in arrears in cash. The Company has the right at any
time to redeem up to all of the outstanding notes at par plus accrued and
unpaid interest.

On
March 31, 2006, the Company redeemed notes with a principal amount of $450,000
pursuant to the agreement. The maturity date was extended to March 31, 2008 for the remaining
notes with a principal amount of $3.1 million (see Amended Notes).

Other
Transactions

In
March of 2006, the Company implemented a restructuring plan designed to
streamline the services business. Under this plan the Company eliminated 10
positions in the services group and relocated the management of the group from
its New York office to its existing Los Angeles office. The Company incurred a
restructuring charge of $0.1 million related to severance arrangements which
has been recorded separately on the statement of operations.

The
Company had cash, cash equivalents and marketable securities of $3.8 million at
March 31, 2006. During the quarter ended March 31, 2006, net cash used in
operations amounted to $1.7 million. As of March 31, 2006, the Company had an
accumulated deficit of $269.8 million. There can be no assurance that Viewpoint
will achieve or sustain positive cash flows from operations or profitability.

The
  Company believes that its current cash, cash equivalents, and marketable securities
  balances and cash provided by expected future operations are sufficient to meet
  its operating cash flow needs and anticipated capital expenditure requirements
  through March 31, 2007.

The
Company has contingency plans for 2006 if expected revenue targets are not
achieved. These plans include further workforce reductions as well as
reductions in overhead and capital expenditures. The Company may seek
additional funds when necessary through public or private equity financing or
from other sources to fund operations and pursue growth, although there are no
assurances that the Company can obtain such financing with reasonable terms.

The
Company currently has no commitment for additional financing and may experience
difficulty in obtaining additional financing on favorable terms, if at all. Any
financing the Company obtains may contain covenants that restrict the Companys
freedom to operate the business or may have rights, preferences or privileges
senior to the Companys common stock and may dilute the Companys current
shareholders ownership interest in Viewpoint. If the Company is unable to
achieve profitable operations and/or raise additional capital, future
operations will need to be scaled back further or discontinued.

Item 3. Quantitative and Qualitative
Disclosures About Market Risk

The Company is
subject to concentration of credit risk and interest rate risk related to cash,
cash equivalents and marketable securities. Credit risk is managed by limiting
the amount of securities placed with any one issuer, investing in high-quality
marketable securities and securities of the U.S. government and limiting the
average maturity of the overall portfolio. The majority of the Companys
portfolio, which is classified as available-for-sale, is comprised of fixed
income securities that are subject to the risk of market interest rate
fluctuations, and all of the Companys securities are subject to risks
associated with the ability of the issuers to perform their obligations under

45

---



the
instruments. The Company may suffer losses in principal if forced to sell
securities, which have declined in market value due to changes in interest
rates.

Item 4. Controls and Procedures

As required by
Rule 13a-15(b), Viewpoint management, including the Chief Executive Officer and
Chief Financial Officer, conducted an evaluation as of the end of the period
covered by this report, of the effectiveness of the Companys disclosure
controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures were effective
as of the end of the period covered by this report. As required by Rule
13a-15(d), Viewpoint management, including the Chief Executive Officer and
Chief Financial Officer, also conducted an evaluation of the Companys internal
control over financial reporting to determine whether any changes occurred
during the quarter covered by this report, including changes created by the
Unicast Acquisition, that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
Based on that evaluation, there has been no such change during the quarter
covered by this report.

46

---



PART II -
OTHER INFORMATION

Item 1.Legal Proceedings

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



Item 2. Risk Factors



We have previously disclosed the risk factors in Part I Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005, which was filed with the Securities and Exchange Commission on March 20, 2006.  A listing of which is provided in Item 2 of Part 1.



Item 2.Unregistered Sales of Equity Securities and Use of Proceeds



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

(a) Exhibits

|               |  |                                                                                                                            
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit Title                                                                                                              
|               |  |                                                                                                                            
|31.1           |  | Certification
  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                 
|               |  |                                                                                                                            
|31.2           |  | Certification
  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                 
|               |  |                                                                                                                            
|32.1           |  | Certification
  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002.

47

---



SIGNATURES

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

|                      |  |                         |                                                     
|--------------------- |  | ----------------------- | ----------------------------------------------------
|                      |  | VIEWPOINT
  CORPORATION
|                      |  |                        
|Dated: May
  10, 2006 |  | By:                     | /s/ PATRICK
  VOGT                                  
|                      |  |                         |                                                     
|                      |  |                         | Patrick Vogt
  President and Chief Executive Officer
|                      |  |                        
|Dated: May
  10, 2006 |  | By:                     | /s/ WILLIAM
  H. MITCHELL                           
|                      |  |                         |                                                     
|                      |  |                         | William H.
  Mitchell
  Chief Financial Officer     
|                      |  |                        
|Dated: May
  10, 2006 |  | By:                     | /s/
  CHRISTOPHER C. DUIGNAN                        
|                      |  |                         |                                                     
|                      |  |                         | Christopher
  C. Duignan
  Chief Accounting Officer 

48

---