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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 June 30,
  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                       
|                                                      
|VIEWPOINT
  CORPORATION                               
|(Exact name of registrant as specified in its charter)

|                                                                  |  |                                       
|----------------------------------------------------------------- |  | --------------------------------------
|Delaware                                                          |  | 95-4102687                            
|(State or other jurisdiction of 
  incorporation 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 filer o Accelerated filer x
Non-accelerated filer o

Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).o
Yes x No

As of August 1, 2006, 67,232,000 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  June 30, 2006 and December 31, 2005
  (unaudited)                         |  | 3    | 
|                                 | Consolidated Statements of Operations 
  Three and six months ended June 30, 2006 and 2005 (unaudited) |  | 4    | 
|                                 | Consolidated Statements of Cash Flows  Six months ended June 30,
  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                 |  | 21   | 
|                                 |                                                                                                         |  |      | 
|Item 3.                          | Quantitative and Qualitative Disclosures About Market Risk                                              |  | 43   | 
|                                 |                                                                                                         |  |      | 
|Item 4.                          | Controls and Procedures                                                                                 |  | 43   | 
|                                 |                                                                                                         |  |      | 
|PART II  OTHER INFORMATION     
|                                 |                                                                                                         |  |      | 
|Item 1.                          | Legal Proceedings                                                                                       |  | 44   | 
|Item 1A.                         | Risk Factors                                                                                            |  | 44   | 
|Item 2.                          | Unregistered Sales of Equity Securities and Use of Proceeds                                             |  | 44   | 
|Item 3.                          | Defaults Upon Senior Securities                                                                         |  | 44   | 
|Item 4.                          | Submission of Matters to a Vote of Security Holders                                                     |  | 44   | 
|Item 5.                          | Other Information                                                                                       |  | 44   | 
|Item 6.                          | Exhibits                                                                                                |  | 44   | 
|                                 |                                                                                                         |  |      | 
|                                 | Signatures                                                                                              |  | 45   | 

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)

|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | -------- | ------------------------- | - | -------- | -
|                                                                                                                                                                                                                                    |  | June 30,
        2006 |          | December 31,
        2005 |  
|                                                                                                                                                                                                                                    |  |                       |          |                           |  
|ASSETS                                                                                                                                                                                                                              |  |                       |          |                           |   |          |  
|Current assets:                                                                                                                                                                                                                     |  |                       |          |                           |   |          |  
|Cash
        and cash equivalents                                                                                                                                                                                                   |  | $                     | 1,802    |                           | $ | 6,437    |  
|Marketable
        securities                                                                                                                                                                                                       |  |                       | 5,718    |                           |   | 2,674    |  
|Accounts
        receivable, net of reserve of $410 and $419, respectively                                                                                                                                                          |  |                       | 2,895    |                           |   | 4,342    |  
|Prepaid
        expenses and other current assets                                                                                                                                                                                   |  |                       | 536      |                           |   | 510      |  
|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  
|Total
        current assets                                                                                                                                                                                                        |  |                       | 10,951   |                           |   | 13,963   |  
|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  
|Restricted cash                                                                                                                                                                                                                     |  |                       | 185      |                           |   | 182      |  
|Property and equipment,
        net                                                                                                                                                                                                 |  |                       | 1,164    |                           |   | 1,218    |  
|Goodwill, net                                                                                                                                                                                                                       |  |                       | 25,537   |                           |   | 25,537   |  
|Intangible assets, net                                                                                                                                                                                                              |  |                       | 3,915    |                           |   | 4,131    |  
|Other assets, net                                                                                                                                                                                                                   |  |                       | 95       |                           |   | 105      |  
|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  
|Total
        assets                                                                                                                                                                                                                |  | $                     | 41,847   |                           | $ | 45,136   |  
|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                |  |                       |          |                           |   |          |  
|Current liabilities:                                                                                                                                                                                                                |  |                       |          |                           |   |          |  
|Accounts
        payable                                                                                                                                                                                                            |  | $                     | 2,177    |                           | $ | 2,834    |  
|Accrued
        expenses                                                                                                                                                                                                            |  |                       | 820      |                           |   | 635      |  
|Deferred
        revenues                                                                                                                                                                                                           |  |                       | 151      |                           |   | 207      |  
|Current
        portion of notes payable                                                                                                                                                                                            |  |                       | 389      |                           |   | 814      |  
|Accrued
        incentive compensation                                                                                                                                                                                              |  |                       | 545      |                           |   | 545      |  
|Current
        liabilities related to discontinued operations                                                                                                                                                                      |  |                       | 231      |                           |   | 231      |  
|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  
|Total
        current liabilities                                                                                                                                                                                                   |  |                       | 4,313    |                           |   | 5,266    |  
|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  
|Deferred rent                                                                                                                                                                                                                       |  |                       | 286      |                           |   | 334      |  
|Warrants to purchase
        common stock                                                                                                                                                                                           |  |                       | 2,154    |                           |   | 982      |  
|Subordinated notes                                                                                                                                                                                                                  |  |                       | 2,263    |                           |   | 2,090    |  
|Unicast notes                                                                                                                                                                                                                       |  |                       | 1,625    |                           |   | 1,582    |  
|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  
|Total
        liabilities                                                                                                                                                                                                           |  |                       | 10,641   |                           |   | 10,254   |  
|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  
|Stockholders equity:                                                                                                                                                                                                               |  |                       |          |                           |   |          |  
|Preferred
        stock, $.001 par value; 5,000 shares authorized - no shares issued and
        outstanding on June 30, 2006 and December 31, 2005                                                                                 |  |                       |         |                           |   |         |  
|Common
        stock, $.001 par value; 100,000 shares authorized - 67,171 shares issued
        and 67,011 shares outstanding at June 30, 2006, and 64,849 shares issued
        and 64,689 shares outstanding at December 31, 2005 |  |                       | 67       |                           |   | 65       |  
|Paid-in
        capital                                                                                                                                                                                                             |  |                       | 304,811  |                           |   | 301,766  |  
|Treasury
        stock at cost; 160 at June 30, 2006 and December 31, 2005                                                                                                                                                          |  |                       | (1,015   | )                         |   | (1,015   | )
|Accumulated
        other comprehensive loss                                                                                                                                                                                        |  |                       | (16      | )                         |   | (63      | )
|Accumulated
        deficit                                                                                                                                                                                                         |  |                       | (272,641 | )                         |   | (265,871 | )
|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  
|Total
        stockholders equity                                                                                                                                                                                                  |  |                       | 31,206   |                           |   | 34,882   |  
|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  
|Total
        liabilities and stockholders equity                                                                                                                                                                                  |  | $                     | 41,847   |                           | $ | 45,136   |  
|                                                                                                                                                                                                                                    |  |                       |          |                           |   |          |  

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

3

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

|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|------------------------------------------------------------------- |  | ------------------------------- | ------ | ----------------------------- | - | ------ | - | ---- | ------ | - | - | ------ | -
|                                                                    |  | Three
  Months Ended
  June 30, |        | Six
  Months Ended
  June 30, |  
|                                                                    |  |                                 |        |                               |  
|                                                                    |  | 2006                            |        | 2005                          |   | 2006   |   | 2005 |       
|                                                                    |  |                                 |        |                               |   |        |   |      |       
|Revenues:                                                           |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Search                                                              |  | $                               | 1,573  |                               | $ | 2,393  |   | $    | 3,362  |   | $ | 4,573  |  
|Advertising systems                                                 |  |                                 | 3,013  |                               |   | 1,163  |   |      | 4,608  |   |   | 1,895  |  
|Services                                                            |  |                                 | 1,091  |                               |   | 1,564  |   |      | 1,644  |   |   | 2,807  |  
|Related party services                                              |  |                                 |       |                               |   | 354    |   |      |       |   |   | 749    |  
|Licenses                                                            |  |                                 | 32     |                               |   | 227    |   |      | 78     |   |   | 382    |  
|Related party licenses                                              |  |                                 |       |                               |   | 872    |   |      |       |   |   | 1,745  |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Total revenues                                                      |  |                                 | 5,709  |                               |   | 6,573  |   |      | 9,692  |   |   | 12,151 |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Cost of revenues:                                                   |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Search                                                              |  |                                 | 38     |                               |   | 49     |   |      | 74     |   |   | 95     |  
|Advertising systems                                                 |  |                                 | 2,199  |                               |   | 909    |   |      | 3,239  |   |   | 1,498  |  
|Services                                                            |  |                                 | 648    |                               |   | 1,055  |   |      | 1,311  |   |   | 1,923  |  
|Licenses                                                            |  |                                 | 2      |                               |   | 1      |   |      | 8      |   |   | 3      |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Total cost of revenues                                              |  |                                 | 2,887  |                               |   | 2,014  |   |      | 4,632  |   |   | 3,519  |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Gross profit                                                        |  |                                 | 2,822  |                               |   | 4,559  |   |      | 5,060  |   |   | 8,632  |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Operating expenses:                                                 |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Sales and marketing                                                 |  |                                 | 1,449  |                               |   | 1,228  |   |      | 3,027  |   |   | 2,503  |  
|Research and development                                            |  |                                 | 1,068  |                               |   | 1,147  |   |      | 2,156  |   |   | 2,353  |  
|General and administrative                                          |  |                                 | 2,226  |                               |   | 2,654  |   |      | 4,585  |   |   | 4,741  |  
|Depreciation                                                        |  |                                 | 107    |                               |   | 182    |   |      | 224    |   |   | 338    |  
|Amortization of intangible assets                                   |  |                                 | 111    |                               |   | 126    |   |      | 221    |   |   | 252    |  
|Restructuring charges                                               |  |                                 |       |                               |   |       |   |      | 92     |   |   |       |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Total operating expenses                                            |  |                                 | 4,961  |                               |   | 5,337  |   |      | 10,305 |   |   | 10,187 |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Loss from operations                                                |  |                                 | (2,139 | )                             |   | (778   | ) |      | (5,245 | ) |   | (1,555 | )
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|                                                                   
|Other income (expense),
  net:                                      |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Interest and other income; net                                      |  |                                 | 90     |                               |   | 32     |   |      | 169    |   |   | 56     |  
|Interest expense                                                    |  |                                 | (209   | )                             |   | (339   | ) |      | (496   | ) |   | (655   | )
|Changes in fair values of warrants to purchase
common stock         |  |                                 | (544   | )                             |   | 648    |   |      | (1,172 | ) |   | 830    |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Total other income
  (expense)                                      |  |                                 | (663   | )                             |   | 341    |   |      | (1,499 | ) |   | 231    |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Loss before provision for
  income taxes                            |  |                                 | (2,802 | )                             |   | (437   | ) |      | (6,744 | ) |   | (1,324 | )
|Provision for income taxes                                          |  |                                 | 19     |                               |   | 9      |   |      | 26     |   |   | 12     |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|                                                                   
|Net loss from continuing
  operations                               |  |                                 | (2,821 | )                             |   | (446   | ) |      | (6,770 | ) |   | (1,336 | )
|Adjustment to net loss on
  disposal of discontinued operations     |  |                                 |       |                               |   |       |   |      |       |   |   | 145    |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Net loss                                                            |  | $                               | (2,821 | )                             | $ | (446   | ) | $    | (6,770 | ) | $ | (1,191 | )
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Basic and diluted net loss
  per common share:                      |  | $                               | (0.04  | )                             | $ | (0.01  | ) | $    | (0.10  | ) | $ | (0.02  | )
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  
|Weighted average number of
  shares outstanding  basic and diluted |  |                                 | 66,505 |                               |   | 58,014 |   |      | 65,689 |   |   | 57,835 |  
|                                                                    |  |                                 |        |                               |   |        |   |      |        |   |   |        |  

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

4

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

|                                                                              |  |                               |        |      |   |        |  
|----------------------------------------------------------------------------- |  | ----------------------------- | ------ | ---- | - | ------ | -
|                                                                              |  | Six
  Months Ended
  June 30, |       
|                                                                              |  |                               |       
|                                                                              |  | 2006                          |        | 2005 |  
|                                                                              |  |                               |        |      |  
|Cash flows from operating
  activities:                                       |  |                               |        |      |   |        |  
|Net loss                                                                      |  | $                             | (6,770 | )    | $ | (1,191 | )
|Adjustments to reconcile
  net loss to net cash used in operating activities: |  |                               |        |      |   |        |  
|Stock-based compensation charges                                              |  |                               | 1,163  |      |   | 595    |  
|Depreciation and amortization                                                 |  |                               | 555    |      |   | 810    |  
|Provision for bad debt                                                        |  |                               | 13     |      |   | 62     |  
|Changes in fair values of warrants to purchase
common stock                   |  |                               | 1,172  |      |   | (830   | )
|Amortization of debt discount and issuance
costs                              |  |                               | 381    |      |   | 563    |  
|Changes in operating assets and liabilities, net of
acquisitions:             |  |                               |        |      |   |        |  
|Accounts receivable                                                           |  |                               | 1,455  |      |   | 527    |  
|Prepaid expenses                                                              |  |                               | (26    | )    |   | (43    | )
|Accounts payable                                                              |  |                               | (665   | )    |   | (1,300 | )
|Accrued expenses                                                              |  |                               | 137    |      |   | (410   | )
|Deferred revenues                                                             |  |                               | (56    | )    |   | (38    | )
|Related party deferred revenues                                               |  |                               |       |      |   | (2,463 | )
|Other                                                                         |  |                               | 34     |      |   |       |  
|                                                                              |  |                               |        |      |   |        |  
|Net cash used in operating activities                                         |  |                               | (2,607 | )    |   | (3,718 | )
|                                                                              |  |                               |        |      |   |        |  
|Cash flows from investing
  activities:                                       |  |                               |        |      |   |        |  
|Proceeds from sales and maturities of marketable
securities                   |  |                               | 5,480  |      |   | 6,980  |  
|Purchases of marketable securities                                            |  |                               | (8,532 | )    |   | (5,307 | )
|Net decrease in restricted cash                                               |  |                               | (3     | )    |   | 100    |  
|Purchases of property and equipment                                           |  |                               | (215   | )    |   | (285   | )
|Acquisition of Unicast, net of cash
acquired                                  |  |                               |       |      |   | (512   | )
|Purchases of patents and trademarks                                           |  |                               | (61    | )    |   | (12    | )
|                                                                              |  |                               |        |      |   |        |  
|Net cash (used in) provided by investing
activities                           |  |                               | (3,331 | )    |   | 964    |  
|                                                                              |  |                               |        |      |   |        |  
|Cash flows from financing
  activities:                                       |  |                               |        |      |   |        |  
|Repayment of Subordinated Notes                                               |  |                               | (450   | )    |   |       |  
|Repayment of Unicast Debt                                                     |  |                               | (130   | )    |   |       |  
|Proceeds from exercise of stock options                                       |  |                               | 1,883  |      |   | 386    |  
|                                                                              |  |                               |        |      |   |        |  
|Net cash provided by financing
activities                                     |  |                               | 1,303  |      |   | 386    |  
|                                                                              |  |                               |        |      |   |        |  
|Effect of exchange rates
  changes on cash                                    |  |                               |       |      |   | 3      |  
|                                                                              |  |                               |        |      |   |        |  
|Net decrease in cash and
  cash equivalents                                   |  |                               | (4,635 | )    |   | (2,365 | )
|Cash and cash equivalents
  at beginning of period                            |  |                               | 6,437  |      |   | 5,804  |  
|                                                                              |  |                               |        |      |   |        |  
|Cash and cash equivalents
  at end of period                                  |  | $                             | 1,802  |      | $ | 3,439  |  
|                                                                              |  |                               |        |      |   |        |  

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

5

---



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

|                                                                          |  |                               |     |      |  |        |  
|------------------------------------------------------------------------- |  | ----------------------------- | --- | ---- |  | ------ | -
|                                                                          |  | Six
  Months Ended
  June 30,
|                                                                          |  |                              
|                                                                          |  | 2006                          |     | 2005
|                                                                          |  |                               |     |     
|                                                                          |  |                               |     |      |  |        |  
|Supplemental disclosure of
  cash flow activities:                        |  |                               |     |      |  |        |  
|Cash paid during the period for income
taxes                              |  |                               | 26  |      |  | 12     |  
|Cash paid during the period for interest                                  |  |                               | 116 |      |  | 136    |  
|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: |  |                               |     |      |  |        |  
|Cost of Unicast acquisition                                               |  |                               |     |      |  |        |  
|Common stock                                                              |  |                               |    |      |  | (1     | )
|APIC                                                                      |  |                               |    |      |  | (2,967 | )
|Unrealized (losses) gains on marketable
securities                        |  |                               | (8  | )    |  | 2      |  
|Purchase of property and equipment accrued and not
yet paid               |  |                               | 9   |      |  |       |  

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 and six month periods ended June 30,
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 $7.5 million at
June 30, 2006. During the six months ended June 30, 2006, net cash used in
operations amounted to $2.6 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 June 30, 2006, had an accumulated deficit of $272.6 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, anticipated capital expenditures and financing
activity requirements at least through June 30, 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

---



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.

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 the Black-Scholes 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 134%, actual and projected employee stock option exercise
behaviors resulting in an estimated term of 4.52 years, risk-free interest rate
of 5.07%, 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 2006 grants and to grants that were unvested as of the effective
date. 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 and results of operations. 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.

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 7.9 million and 6.4 million, for the three and six months ended June
30, 2006, respectively, and 7 million and 7.1 million for the three and six
months ended June 30, 2005, respectively, are excluded from the computation of
diluted net loss per common share because their effect was anti-dilutive.

Common Stock Issuance

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 June 30, 2006 the
aggregate value of warrants to purchase the 1.2 million shares of common stock
amounted to $1.7 million. During the three and six months ended June 30, 2006,
the fair value of the warrants increased by $0.3 million and $0.8 million
respectively, which is included as an expense within the statement of
operations.

Comprehensive Income

Other
  comprehensive income amounted to less than $0.1 million in the three and six
  month period ending June 30, 2006. Other comprehensive income amounted to less
  than $0.1 million in the three and six month period ending June 30, 2005.

8

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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.

In
July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies
the recognition threshold and measurement of a tax position taken on a tax
return. FIN 48 is effective for fiscal years beginning after December 15, 2006.
FIN 48 also requires expanded disclosure with respect to the uncertainty in
income taxes. We are currently evaluating the requirements of FIN 48 and the
impact this interpretation may have on our financial statements.

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 collateralized 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 June 30, 2006 no contingencies had occurred. All unpaid principal and
interest on the collateralized note is payable in 60 equal monthly installments
from March 2006 through March 2011 amounting to $2.2 million. In March 2006,
the Company began making its monthly payments under the secured promissory
note.  Principal and interest on the
unsecured debt in the amount of $1.4 million is due and payable in March 2011.

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

9

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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, excluding goodwill, were determined to have
a life of 5-10 years. Goodwill has an indefinite life. 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.

|                            |  |                  |       
|--------------------------- |  | ---------------- | ------
|                            |  | (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.

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.

At
December 31, 2005 the Company determined that, based upon a decline in operating
performance during the fourth quarter of 2005, the Services reporting unit had
experienced an impairment of its allocated goodwill. At that time, the Company
recorded an impairment expense of $7.8 million.



10

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

As
  stated in Note 1, the Company has reclassified amortization expense amounts
  in the 2005 financial statements to conform to the 2006 presentation. The 2005
  reclassification consisted of the allocation of amortization from operating
  expenses into cost of sales. For the three and six month periods ended June
  30, 2006, amortization amounted to $0.1 million and $0.3 million, respectively,
  of which less than $0.1 million was recorded in cost of sales for the three
  months ended June 30, 2006, and $0.1 million was recorded in cost of sales for
  the six months ended June 30, 2006.

The
changes in the carrying amounts of goodwill by reporting unit, and intangible
assets during the three and six months ended June 30, 2006 and 2005, by aggregated segments
are as follows (amounts in thousands):

|                                        |  | Goodwill   |        |                           |  |         
|--------------------------------------- |  | ---------- | ------ | ------------------------- |  | --------
|                                        |  | Technology |        | Advertising
      Systems |  | Services
|Balance
        as of December 31, 2005 |  | $          | 10,206 |                           |  | $       
|Additions
        during period         |  |            | —      |                           |  |         
|Impairment                              |  |            | —      |                           |  |         
|Adjustments                             |  |            | —      |                           |  |         
|Amortization                            |  |            | —      |                           |  |         
|                                        |  |            |        |                           |  |         
|Balance
        as of March 31, 2006    |  | $          | 10,206 |                           |  | $       
|                                        |  |            |        |                           |  |         
|Additions
        during period         |  |            | —      |                           |  |         
|Impairment                              |  |            | —      |                           |  |         
|Adjustments                             |  |            | —      |                           |  |         
|Amortization                            |  |            | —      |                           |  |         
|                                        |  |            |        |                           |  |         
|Balance
        as of June 30, 2006     |  | $          | 10,206 |                           |  | $       
|                                        |  |            |        |                           |  |         
|                                        |  |            |        |                           |  |         

|                                        |  | Goodwill   |        |                           |  |         
|--------------------------------------- |  | ---------- | ------ | ------------------------- |  | --------
|                                        |  | Technology |        | Advertising
      Systems |  | Services
|Balance
        as of December 31, 2004 |  | $          | 10,206 |                           |  | $       
|Additions
        during period         |  |            | —      |                           |  |         
|Adjustments                             |  |            | —      |                           |  |         
|Amortization                            |  |            | —      |                           |  |         
|                                        |  |            |        |                           |  |         
|Balance
        as of March 31, 2005    |  | $          | 10,206 |                           |  | $       
|                                        |  |            |        |                           |  |         
|Additions
        during period         |  |            | —      |                           |  |         
|Adjustments                             |  |            | —      |                           |  |         
|Amortization                            |  |            | —      |                           |  |         
|                                        |  |            |        |                           |  |         
|Balance
        as of June 30, 2005     |  | $          | 10,206 |                           |  | $       
|                                        |  |            |        |                           |  |         
|                                        |  |            |        |                           |  |         

As
  of June 30, 2006 and December 31, 2005, the Companys intangible assets
  and related accumulated amortization consisted of the following (in thousands):

|                                        |  |                 |       |                            |   |      |   |       |       |                            |   |       |  |   |      |   |   |       | 
|--------------------------------------- |  | --------------- | ----- | -------------------------- | - | ---- | - | ----- | ----- | -------------------------- | - | ----- |  | - | ---- | - | - | ----- | 
|                                        |  | June
  30, 2006 |       | December
  31, 2005        |  
|                                        |  |                 |       |                            |  
|                                        |  | Gross           |       | Accumulated
  Amortization |   | Net  |   | Gross |       | Accumulated
  Amortization |   | Net   | 
|                                        |  |                 |       |                            |   |      |   |       |       |                            |   |       | 
|Website Partner Relationships - Unicast |  | $               | 3,772 |                            | $ | (591 | ) | $     | 3,181 |                            | $ | 3,772 |  | $ | (404 | ) | $ | 3,368 | 
|Acquired Technology - Unicast           |  |                 | 410   |                            |   | (243 | ) |       | 167   |                            |   | 410   |  |   | (187 | ) |   | 223   | 
|Patents and Trademarks - Unicast        |  |                 | 326   |                            |   | (111 | ) |       | 215   |                            |   | 326   |  |   | (80  | ) |   | 246   | 
|Patents and Trademarks                  |  |                 | 392   |                            |   | (40  | ) |       | 352   |                            |   | 332   |  |   | (38  | ) |   | 294   | 
|                                        |  |                 |       |                            |   |      |   |       |       |                            |   |       |  |   |      |   |   |       | 
|Total Intangible Assets                 |  | $               | 4,900 |                            | $ | (985 | ) | $     | 3,915 |                            | $ | 4,840 |  | $ | (709 | ) | $ | 4,131 | 
|                                        |  |                 |       |                            |   |      |   |       |       |                            |   |       |  |   |      |   |   |       | 

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

The
  Company has also reclassified depreciation expense amounts in the 2005 financial
  statements to conform to the 2006 presentation. The 2005 reclassification consisted
  of the allocation of depreciation from operating expenses into cost of sales.
  For the three and six month periods ended June 30, 2006, depreciation expense
  amounted to $0.1 million and $0.2 million, respectively, of which less than
  $0.1 million was recorded in cost of sales for the three months ended June 30,
  2006, and $0.1 million was recorded in cost of sales for the six months ended
  June 30, 2006.

4. 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 June 30, 2006, 0.8 million warrants were outstanding
related to this placement.

11

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For
the three and six month period ended June 30, 2006, the Company recognized a
loss related to the change in the valuation for the outstanding warrants of
$0.2 million and $0.3 million, respectively, resulting from an increase in the
fair market value of the Companys common stock. For the three and six month
period ended June 30, 2005, the Company recognized a gain from the change in
the fair value of the outstanding warrants of $0.6 million and $0.8 million,
respectively resulting from a decrease in the fair market value of the
Companys common stock.  As of June 30,
2006 and December 31, 2005, the fair value of these outstanding warrants
amounted to $0.4 million and $0.1 million, respectively.

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.

On
March 31, 2006, the Company redeemed notes with a principal amount of $0.4
million pursuant to the agreement. The maturity date for the remaining notes
with a principal amount of $3.1 million was extended in July, 2005. (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.

12

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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.

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 and $0.2 million for the three and six months ended June 30, 2006
and $0.1 and $0.2 for the three and six months ending June 30, 2005. In March
2006, the Company began making monthly payments as required by the agreement
and this resulted in a decrease of the aggregate carrying value of these notes
to $2.0 million as of June 30, 2006, of which $1.6 million is long-term.

The
Companys total carrying value by note at June 30, 2006 and December 31, 2005
is as follows (amounts in thousands):

|                                       |  |         |       |             |   |       | 
|-------------------------------------- |  | ------- | ----- | ----------- | - | ----- | 
|                                       |  | June 30 |       | December 31 |  
|                                       |  |         |       |             |  
|                                       |  | 2006    |       | 2005        |  
|                                       |  |         |       |             |  
|                                      
|Subordinated notes                     |  | $       | 2,263 |             | $ | 2,505 | 
|Unicast notes                          |  |         | 2,014 |             |   | 1,981 | 
|                                       |  |         |       |             |   |       | 
|Total long-term debt                   |  |         | 4,277 |             |   | 4,486 | 
|                                       |  |         |       |             |   |       | 
|Less current portion                   |  |         | 389   |             |   | 814   | 
|                                       |  |         |       |             |   |       | 
|Long-term debt, net of current portion |  | $       | 3,888 |             | $ | 3,672 | 
|                                       |  |         |       |             |   |       | 

The
reconciliation of the carrying value to the face value of each note as of June
30, 2006, is as follows (amounts in thousands):

|                                 |  |                      |       |               |   |       |  |   |       | 
|-------------------------------- |  | -------------------- | ----- | ------------- | - | ----- |  | - | ----- | 
|                                 |  | Subordinated
  Notes |       | Unicast Notes |   | Total | 
|                                 |  |                      |       |               |   |       | 
|Book value of long-term debt     |  |                      | 2,263 |               |   | 2,014 |  |   | 4,277 | 
|Discount on long-term debt       |  |                      | 787   |               |   | 606   |  |   | 1,393 | 
|                                 |  |                      |       |               |   |       |  |   |       | 
|Face value of the long-term debt |  | $                    | 3,050 |               | $ | 2,620 |  | $ | 5,670 | 
|                                 |  |                      |       |               |   |       |  |   |       | 

The
maturity schedule for the Companys debt subsequent to June 30, 2006 is as
follows (amounts in thousands):

|                      |  |   |       | 
|--------------------- |  | - | ----- | 
|Maturity              |  |   |       | 
|                      |  |   |       | 
|2006                  |  | $ | 162   | 
|2007                  |  |   | 350   | 
|2008                  |  |   | 3,400 | 
|2009                  |  |   | 350   | 
|2010 and
  thereafter |  |   | 1,408 | 
|                      |  |   |       | 
|                      |  | $ | 5,670 | 
|                      |  |   |       | 

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

13

---



VIEWPOINT CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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 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 and six months ended June 30, 2005 would have
been as follows (amounts in thousands, except per share data):

|                                                                                                                                        |  |                                   |       |                                 |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ----- | ------------------------------- | - | ------ | -
|                                                                                                                                        |  | Three
  Months
  Ended
  June 30, |       | Six
  Months
  Ended
  June 30, |  
|                                                                                                                                        |  |                                   |       |                                 |  
|                                                                                                                                        |  | 2005                              |       | 2005                            |  
|                                                                                                                                        |  |                                   |       |                                 |  
|Net income (loss), as reported                                                                                                          |  | $                                 | (446  | )                               | $ | (1,191 | )
|Add: Stock-based employee compensation charges included in reported
  net loss, net of related tax effects                              |  |                                   | 581   |                                 |   | 595    |  
|Deduct: Stock-based employee compensation charges determined under
  fair value based method for all awards, net of related tax effects |  |                                   | (945  | )                               |   | (1,926 | )
|                                                                                                                                        |  |                                   |       |                                 |   |        |  
|Pro forma net income (loss)                                                                                                             |  | $                                 | (810  | )                               | $ | (2,522 | )
|                                                                                                                                        |  |                                   |       |                                 |   |        |  
|Net income (loss) per share:                                                                                                            |  |                                   |       |                                 |   |        |  
|Basic and diluted as reported                                                                                                           |  | $                                 | (0.01 | )                               | $ | (0.02  | )
|                                                                                                                                        |  |                                   |       |                                 |   |        |  
|Basic and diluted pro forma                                                                                                             |  | $                                 | (0.01 | )                               | $ | (0.04  | )
|                                                                                                                                        |  |                                   |       |                                 |   |        |  

Pro
forma disclosures for the three and six months ended June 30, 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 and the compensation cost that was recognized under FAS No. 123(R) for the
  six months and three months ended June 30, 2006 and 2005, the Company uses the
  Black-Scholes option-pricing model with the following weighted-average assumptions
  by the ranges specified for equity awards granted:

14

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|                                          |  |                              |           |      |  |           |   | 
|----------------------------------------- |  | ---------------------------- | --------- | ---- |  | --------- | - | 
|                                          |  | Three and
  Six Months Ended |           |     
|                                          |  |                              |           |     
|                                          |  | June 30,                     |           |     
|                                          |  |                              |           |     
|                                          |  | 2006                         |           | 2005 |  |          
|                                          |  |                              |           |      |  |          
|Risk-free interest rate                   |  |                              | 4.72-5.07 | %    |  | 3.73-4.04 | % | 
|Dividend yield                            |  |                              |          |      |  |          |   | 
|Volatility factor                         |  |                              | 1.34-1.35 |      |  | 1         |   | 
|Weighted average expected
  life in years |  |                              | 4.52-4.58 |      |  | 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 $0.3 million which will vest if certain operating
performance is achieved by December 31, 2006. As of June 30, 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 June 30, 2006, total unrecognized share-based compensation cost related to
unvested stock options was $4.0 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 and six months ended June 30, 2006
(amounts in thousands):

|                           |  |                      |     |                    |   |       | 
|-------------------------- |  | -------------------- | --- | ------------------ | - | ----- | 
|                           |  | Three
  Months Ended |     | Six Months
  Ended |  
|                           |  |                      |     |                    |  
|                           |  | June 30,
  2006      |     | June 30,
  2006    |  
|                           |  |                      |     |                    |  
|Cost of revenues:         
|Advertising systems        |  | $                    | 2   |                    | $ | 5     | 
|Services                   |  |                      | 46  |                    |   | 101   | 
|Operating expenses:        |  |                      |     |                    |   |       | 
|Sales and marketing        |  |                      | 119 |                    |   | 291   | 
|Research and
development   |  |                      | 84  |                    |   | 193   | 
|General and
administrative |  |                      | 243 |                    |   | 572   | 
|                           |  |                      |     |                    |   |       | 
|Total                      |  | $                    | 494 |                    | $ | 1,162 | 
|                           |  |                      |     |                    |   |       | 

Share-based
compensation expense recognized during the three and six months ended June 30,
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. 123R.

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 June 30, 2006, options to purchase an aggregate of 4.1
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 up to 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.

15

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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 June 30, 2006, 4.1million 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
June 30, 2006, options to purchase an aggregate of 1.3 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 up to ten years. At June 30,
2006, an aggregate of 0.2 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.

2006 Equity Incentive Plan

The
Companys 2006 Equity Incentive Plan (the 2006 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,
stock appreciation rights, restricted stock, restricted stock units and other
stock awards. The 2006 Plan was adopted by the stockholders of the Company at
the 2006 annual meeting of stockholders on June 21, 2006. As of June 30, 2006,
no grants were outstanding under the 2006 Plan and an aggregate of 4.5 million
shares of common stock were reserved for future issuance under the 2006 Plan.

Options Issued Outside the Option Plans

For
the three and six months ended June 30, 2006, the Company issued 0.2 million
and 0.3 million, respectively, 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.

16

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Summary of All Outstanding Options

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
  Availablefor 
  Grant |       | Number 
  ofShares    |  | Weighted
  AverageExercise
  Price |  
|                                             |  |                                 |       |                       |  |                                    |  
|Options outstanding at December 31,
2005     |  |                                 | 363   |                       |  | 12,566                             |   | $ | 1.79 | 
|Granted  exercise price
equal to fair value |  |                                 | (418  | )                     |  | 418                                |   |   | 1.17 | 
|Granted  non-plan
options                   |  |                                 |      |                       |  | 250                                |   |   | 1.53 | 
|Plan approved at June 30,
2006               |  |                                 | 4,500 |                       |  |                                   |   |   |     | 
|Exercised                                    |  |                                 |       |                       |  | (2,323                             | ) |   | 0.81 | 
|Cancelled                                    |  |                                 | 388   |                       |  | (388                               | ) |   | 1.68 | 
|Cancelled  expired
plan                     |  |                                 |      |                       |  | (633                               | ) |   | 4.91 | 
|Cancelled  non-plan
options                 |  |                                 |      |                       |  | (221                               | ) |   | 3.15 | 
|                                             |  |                                 |       |                       |  |                                    |   |   |      | 
|Options outstanding at June 30, 2006         |  |                                 | 4,833 |                       |  | 9,669                              |   | $ | 1.82 | 
|                                             |  |                                 |       |                       |  |                                    |   |   |      | 

During
the three and six months ended June 30, 2006, the total intrinsic value of
options exercised to purchase common stock was $1.1 million and $1.5 million,
and the weighted average fair value of options to purchase common stock that
were granted was $1.80 and $1.31 per share.

During
the three and six months ended June 30, 2006, financing cash generated from
share-based compensation arrangements amounted to $1.1 million and $1.9 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 June 30, 2006, is
as follows (in thousands except per share data):

|                                                    |  |                                                             |       |                          |                                          |                                                         |  |        |                                          |                                                              |   |       |  |   |      | 
|--------------------------------------------------- |  | ----------------------------------------------------------- | ----- | ------------------------ | ---------------------------------------- | ------------------------------------------------------- |  | ------ | ---------------------------------------- | ------------------------------------------------------------ | - | ----- |  | - | ---- | 
|                                                    |  | Outstanding                                                 |       | Exercisable              |                                         
|                                                    |  |                                                             |       |                          |                                         
|Exercise
        Price Range                        |  | Shares                                                      |       | Average
        Life (a) |                                          | Weighted
        Average
        Exercise
        Price |  | Shares |                                          | WeightedAverage
        Exercise
        Price               |  
|$0.46
         $0.77                               |  |                                                             | 2,035 |                          |                                          | 7.19                                                    |  | $      | 0.73                                     |                                                              |   | 2,035 |  | $ | 0.73 | 
|$0.78
         $0.87                               |  |                                                             | 2,028 |                          |                                          | 5.61                                                    |  |        | 0.90                                     |                                                              |   | 1,614 |  |   | 0.85 | 
|$0.93
         $1.36                               |  |                                                             | 2,546 |                          |                                          | 8.05                                                    |  |        | 1.31                                     |                                                              |   | 906   |  |   | 1.29 | 
|$1.40
         $4.35                               |  |                                                             | 1,994 |                          |                                          | 7.13                                                    |  |        | 2.68                                     |                                                              |   | 1,318 |  |   | 3.01 | 
|$4.40
         $25.13                              |  |                                                             | 1,066 |                          |                                          | 2.86                                                    |  |        | 5.29                                     |                                                              |   | 1,065 |  |   | 5.29 | 
|                                                    |  |                                                             |       |                          |                                          |                                                         |  |        |                                          |                                                              |   |       |  |   |      | 
|Total                                               |  |                                                             | 9,669 |                          |                                          | 6.59                                                    |  |        | 1.82                                     |                                                              |   | 6,938 |  |   | 1.97 | 
|                                                    |  |                                                             |       |                          |                                          |                                                         |  |        |                                          |                                                              |   |       |  |   |      | 
|                                                    |  |                                                             |       |                          |                                          |                                                         |  |        |                                          |                                                              |   |       |  |   |      | 
|                                                    |  | Intrinsic
        Value
        Options
        Outstanding |       |                          |                                          |                                                         |  |        |                                          | Intrinsic
        Value 
        Options
        Exercisable |   |       |  |  
|                                                    |  |                                                             |       |                          |                                          |                                                         |  |        |                                          |                                                              |   |       |  |  
|Aggregate
        intrinsic value (in thousands)    |  | $                                                           | 4,996 |                          |                                          |                                                         |  |        |                                          |                                                              | $ | 3,961 |  |   |      | 
|                                                    |  |                                                             |       |                          |                                          |                                                         |  |        |                                          |                                                              |   |       |  |   |      | 
|                                                    |  |                                                             |       |                          | Outstanding
        Average
        Life |                                                         |  |        | Exercisable
        Average
        Life |                                                              |   |       | 
|                                                    |  |                                                             |       |                          |                                          |                                                         |  |        |                                          |                                                              |   |       | 
|Weighted
        average remaining contractual life |  |                                                             |       |                          |                                          | 6.59                                                    |  |        |                                          |                                                              |   | 6.09  |  |   |      | 

The
aggregate intrinsic value in the table above is based on the Companys closing
stock price of $1.75 per share as of June 30, 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 and six months ended June 30, 2006 was $0.5 million, and $1.2 million,
respectively.

17

---



VIEWPOINT CORPORATION
NOTES 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 June 30, 2006 and all payments have been made.

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 during 2005. The
lease was terminated in the first quarter of 2006. Rent expense for office
space, equipment, and the executives vehicle totaled approximately $0.3
million, and $0.5 million, and $0.3 million and $0.6 for the three and six
months ended June 30, 2006 and 2005, respectively.

Future
minimum lease payments under non-cancelable operating leases for each year
subsequent to June 30, 2006 are as follows (amounts in thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2006 |  | $ | 511   | 
|2007 |  |   | 1,014 | 
|2008 |  |   | 855   | 
|2009 |  |   | 799   | 
|2010 |  |   | 90    | 
|     |  |   |       | 
|     |  | $ | 3,269 | 
|     |  |   |       | 

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.

18

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

9. Segment
Information and Enterprise-Wide Disclosures

As
discussed in more detail in Notes 1 and 2 in the Companys 2005 Form 10-K, 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 or analyze operating expenses by segment. 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 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 the
Companys 2005 Form 10-K.

19

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|                                          |  | Three Months Ended
      June 30, |       | Six Months Ended
      June 30,
|----------------------------------------- |  | --------------------------------- | ----- | -------------------------------
|                                          |  | 2006                              |       | 2005                           
|Revenues:                                 |  |                                   |       |                                
|Technology                                |  |                                   |       |                                
|Licenses                                  |  | $                                 | 32    |                                
|Related
        party licenses            |  |                                   | —     |                                
|Search                                    |  |                                   | 1,573 |                                
|                                          |  |                                   |       |                                
|Total
        technology revenue          |  |                                   | 1,605 |                                
|Advertising
        systems               |  |                                   | 3,013 |                                
|Services:                                 |  |                                   |       |                                
|Services                                  |  |                                   | 1,091 |                                
|Related
        party services            |  |                                   | —     |                                
|                                          |  |                                   |       |                                
|Total
        revenues                    |  |                                   | 5,709 |                                
|                                          |  |                                   |       |                                
|Cost
        of Revenues                  |  |                                   |       |                                
|Technology                                |  |                                   |       |                                
|License                                   |  |                                   | 2     |                                
|Search                                    |  |                                   | 38    |                                
|                                          |  |                                   |       |                                
|Total
        technology cost of revenues |  |                                   | 40    |                                
|Advertising
        systems               |  |                                   | 2,199 |                                
|Services                                  |  |                                   | 648   |                                
|                                          |  |                                   |       |                                
|Total
        cost of revenues            |  |                                   | 2,887 |                                
|                                          |  |                                   |       |                                
|Gross
        profit                      |  |                                   | 2,822 |                                
|                                          |  |                                   |       |                                
|Technology                                |  |                                   |       |                                
|Licenses                                  |  |                                   | 30    |                                
|Search                                    |  |                                   | 1,535 |                                
|                                          |  |                                   |       |                                
|Total
        technology gross profit     |  |                                   | 1,565 |                                
|Advertising
        systems               |  |                                   | 814   |                                
|Services                                  |  |                                   | 443   |                                
|                                          |  |                                   |       |                                
|Total
        gross profit                |  | $                                 | 2,822 |                                
|                                          |  |                                   |       |                                
|Gross
        profit margin               |  |                                   |       |                                
|Technology                                |  |                                   |       |                                
|Licenses                                  |  |                                   | 94    | %                              
|Search                                    |  |                                   | 98    |                                
|                                          |  |                                   |       |                                
|Total
        technology gross profit     |  |                                   | 98    |                                
|Advertising
        systems               |  |                                   | 27    |                                
|Services                                  |  |                                   | 41    |                                
|                                          |  |                                   |       |                                
|Total
        gross profit                |  |                                   | 49    | %                              
|                                          |  |                                   |       |                                
|                                          |  |                                   |       |                                

|                            |  |  |  |                               |   |                                   |  |   |        |  |  |  | 
|--------------------------- |  |  |  | ----------------------------- | - | --------------------------------- |  | - | ------ |  |  |  | 
|                            |  |  |  |                               |   |                                   |  |   |       
|                            |  |  |  | June
        30,
        2006 |   | December
        31,
        2005 |  |   |       
|                            |  |  |  |                               |   |                                   |  |   |       
|Total assets:               |  |  |  |                               |   |                                   |  |   |        |  |  |  | 
|Technology                  |  |  |  |                               | $ | 12,416                            |  | $ | 13,369 |  |  |  | 
|Advertising
        systems |  |  |  |                               |   | 7,189                             |  |   | 8,086  |  |  |  | 
|Services                    |  |  |  |                               |   | 14,537                            |  |   | 14,388 |  |  |  | 
|Corporate
        (*)       |  |  |  |                               |   | 7,705                             |  |   | 9,293  |  |  |  | 
|                            |  |  |  |                               |   |                                   |  |   |        |  |  |  | 
|Total assets                |  |  |  |                               | $ | 41,847                            |  | $ | 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.

20

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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 as advertising
or content at websites, 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 (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

21

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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 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 enhances 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 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 by assuming the title to the media space
purchased. In addition, the Company assumes 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.

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 and 2006 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 June 30, 2006, had an
accumulated deficit of $272.6 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.

22

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

RESULTS OF OPERATIONS

The
following table sets forth for the three and six months ended June 30, 2006 and
2005, the Companys consolidated statements of operations expressed as a
percentage of total revenues for the periods indicated:

|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|--------------------------------------------------------------------------------------------------------- |  | ---------------------------- | --- | -------------------------- |  | ---- | -- | ---- | --- | -- |  | --- | --
|                                                                                                          |  | Three
  Months EndedJune 30, |     | Six
  Months EndedJune 30, | 
|                                                                                                          |  |                              |     |                            |  |      |    |      |    
|                                                                                                          |  | 2006                         |     | 2005                       |  | 2006 |    | 2005 |    
|                                                                                                          |  |                              |     |                            |  |      |    |      |    
|Statements
  of Operations Data                                                                           |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Revenues:                                                                                                 |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Search                                                                                                    |  |                              | 27  | %                          |  | 37   | %  |      | 35  | %  |  | 38  | % 
|Advertising Systems                                                                                       |  |                              | 53  |                            |  | 18   |    |      | 47  |    |  | 16  |   
|Services                                                                                                  |  |                              | 19  |                            |  | 24   |    |      | 17  |    |  | 23  |   
|Related party services                                                                                    |  |                              |    |                            |  | 5    |    |      |    |    |  | 6   |   
|Licenses                                                                                                  |  |                              | 1   |                            |  | 3    |    |      | 1   |    |  | 3   |   
|Related party licenses                                                                                    |  |                              |    |                            |  | 13   |    |      |    |    |  | 14  |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Total revenues                                                                                            |  |                              | 100 |                            |  | 100  |    |      | 100 |    |  | 100 |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Cost of revenues:                                                                                         |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Search                                                                                                    |  |                              | 1   |                            |  | 1    |    |      | 1   |    |  | 1   |   
|Advertising Systems                                                                                       |  |                              | 39  |                            |  | 14   |    |      | 33  |    |  | 12  |   
|Services                                                                                                  |  |                              | 11  |                            |  | 16   |    |      | 14  |    |  | 16  |   
|Licenses                                                                                                  |  |                              |    |                            |  |     |    |      |    |    |  |    |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Total cost of revenues                                                                                    |  |                              | 51  |                            |  | 31   |    |      | 48  |    |  | 29  |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Gross profit                                                                                              |  |                              | 49  |                            |  | 69   |    |      | 52  |    |  | 71  |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Operating expenses:                                                                                       |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Sales and marketing                                                                                       |  |                              | 25  |                            |  | 19   |    |      | 31  |    |  | 21  |   
|Research and development                                                                                  |  |                              | 19  |                            |  | 17   |    |      | 22  |    |  | 19  |   
|General and administrative                                                                                |  |                              | 38  |                            |  | 40   |    |      | 48  |    |  | 39  |   
|Depreciation                                                                                              |  |                              | 2   |                            |  | 3    |    |      | 2   |    |  | 3   |   
|Amortization of intangible assets                                                                         |  |                              | 2   |                            |  | 2    |    |      | 2   |    |  | 2   |   
|Restructuring charges                                                                                     |  |                              |    |                            |  |     |    |      | 1   |    |  |    |   
|Impairment of goodwill and other intangible
assets                                                        |  |                              |    |                            |  |     |    |      |    |    |  |    |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Total operating expenses                                                                                  |  |                              | 87  |                            |  | 81   |    |      | 106 |    |  | 84  |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Gain/Loss from operations                                                                                 |  |                              | (38 | )                          |  | (12  | )  |      | (54 | )  |  | (13 | ) 
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Other income (expense):                                                                                   |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Interest and other income, net                                                                            |  |                              | 2   |                            |  |     |    |      | 1   |    |  |    |   
|Interest expense                                                                                          |  |                              | (4  | )                          |  | (5   | )  |      | (5  | )  |  | (5  | ) 
|Changes in fair values of warrants to purchase
common stock and conversion
  feature of convertible notes |  |                              | (10 | )                          |  | 10   |    |      | (12 | )  |  | 7   |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Total Other income
  (expense)                                                                            |  |                              | (12 | )                          |  | 5    |    |      | (16 | )  |  | 2   |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Loss before provision for
  income taxes                                                                  |  |                              | (49 | )                          |  | (7   | )  |      | (70 | )  |  | (11 | ) 
|Provision for income taxes                                                                                |  |                              |    |                            |  |     |    |      |    |    |  |    |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Net loss from continuing
  operations                                                                     |  |                              | (49 | )                          |  | (7   | )  |      | (70 | )  |  | (11 | ) 
|Adjustment to net loss on disposal of discontinued
operations                                             |  |                              |    |                            |  |     |    |      |    |    |  | 1   |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   
|Net loss                                                                                                  |  |                              | (49 | )%                         |  | (7   | )% |      | (70 | )% |  | (10 | )%
|                                                                                                          |  |                              |     |                            |  |      |    |      |     |    |  |     |   

23

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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 critical accounting policies and
estimates refer to the Companys 2005 Form 10-K and Stock-Based Compensation
discussed below.

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 134%, actual and projected employee stock option
exercise behaviors resulting in an estimated term of 4.52 years, risk-free
interest rate of 5.07%, and expected dividends of zero. 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.

Financial Results

Viewpoint
  reported total revenue of $5.7 million for the second quarter 2006 compared
  to $6.6 million for the second quarter 2005. Operating loss for the second quarter
  of 2006 was $2.1 million compared to $0.8 million in the second quarter of 2005.
  The increase in operating loss compared to the second quarter 2005 resulted
  principally from lower revenues associated with the expiration of a license
  and services revenue arrangement with AOL in December 2005 from a contract executed
  in 2003. The Company experienced a 34% decline in revenue in its search business,
  however its ad systems business experienced growth of 159% in the second quarter
  of 2006 as compared with the second quarter in 2005. The Company recorded $0.5
  million of stock-based compensation expense in the second quarter of 2006 associated
  with the adoption of Statement of Financial Accounting Standards (SFAS) No.
  123R Share-Based Payment on January 1, 2006 which also led to an
  increase in operating loss. This compared to a stock based compensation charge
  of $0.6 million recorded in the second quarter of 2005 associated with the departure
  of an executive from the Company and corresponding extension of the exercise
  period. Net loss for the second quarter 2006 was $2.8 million, or a loss of
  $0.04 per share, compared to a net loss of $0.4 million, or a loss of $0.01
  per share, in the second quarter of 2005. The net loss in the second quarter
  of 2006 included a non-cash charge of $0.5 million to recognize the impact of
  the Companys increased stock price on its outstanding warrants. The net
  loss in the second quarter of 2005 included a non-cash gain of $0.6 million
  to recognize the impact of the Companys decreased stock price on its outstanding
  warrants.

24

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Viewpoint
  reported total revenue of $9.7 million for the first six months of 2006 compared
  to $12.2 million for the same period in 2005. Operating loss for the first six
  months of 2006 was $5.2 million compared to $1.6 million in the same period
  of 2005. This increase in operating loss resulted principally from lower revenues
  associated with the expiration of a license and services revenue arrangement
  with AOL in December 2005 of a contract executed in 2003. The Company experienced
  a 34% decline in revenue in its search business which contributed to an increase
  in the operating loss on a comparative basis; however its ad systems business
  experienced growth of 159%, as stated above. The Companys services revenue
  declined 41% in the first six months of 2006 compared to the same period in
  2005. During March 2006, when the Company noted it was experiencing a decline
  in this business it announced a restructuring of this group. This restructuring
  streamlined the business by terminating 29% of the services employees and relocating
  the principal services office from New York to Los Angeles. During the first
  six months of 2006, the Company also recorded $1.1 million of stock-based compensation
  expense associated with the adoption of Statement of Financial Accounting Standards
  (SFAS) No. 123R Share-Based Payment on January 1, 2006. This compared
  to a stock based compensation expense of $0.6 million in the same period in
  2005. Net loss for the first six months of 2006 was $6.8 million, or a loss
  of $0.10 per share including a non-cash charge of $1.2 million to recognize
  the impact of the Companys increased stock price of its outstanding warrants.
  Net loss for the first six months of 2005 was $1.2 million, or a loss of $0.02
  per share, including a non-cash charge of $0.8 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 June 30, 2006 were $7.5
  million. This compares 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 six month period offset by proceeds from the exercise of stock options
  granted to current and former employees.

25

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Revenues

|                       |  |                          |       |      |   |        |  |  |      |   
|---------------------- |  | ------------------------ | ----- | ---- | - | ------ |  |  | ---- | --
|                       |  | Months
  EndedJune 30,   |       | %    |  
|                       |  |                          |       |      |  
|                       |  | 2006                     |       | 2005 |   | Change | 
|                       |  |                          |       |      |   |        | 
|                       |  | (dollars
  in thousands) |       |      |  
|Three months ended:    |  |                          |       |      |   |        |  |  |      |   
|Search                 |  | $                        | 1,573 |      | $ | 2,393  |  |  | (34  | ) 
|Advertising Systems    |  |                          | 3,013 |      |   | 1,163  |  |  | 159  |   
|Services               |  |                          | 1,091 |      |   | 1,564  |  |  | (30  | ) 
|Related party services |  |                          |      |      |   | 354    |  |  | (100 | ) 
|Licenses               |  |                          | 32    |      |   | 227    |  |  | (86  | ) 
|Related party licenses |  |                          |      |      |   | 872    |  |  | (100 | ) 
|                       |  |                          |       |      |   |        |  |  |      |   
|Total revenues         |  | $                        | 5,709 |      | $ | 6,573  |  |  | (13  | )%
|                       |  |                          |       |      |   |        |  |  |      |   
|                       |  |                          |       |      |   |        |  |  |      |   
|Six months ended:      |  |                          |       |      |   |        |  |  |      |   
|Search                 |  | $                        | 3,362 |      | $ | 4,573  |  |  | (26  | )%
|Advertising Systems    |  |                          | 4,608 |      |   | 1,895  |  |  | 143  |   
|Services               |  |                          | 1,644 |      |   | 2,807  |  |  | (41  | ) 
|Related party services |  |                          |      |      |   | 749    |  |  | (100 | ) 
|Licenses               |  |                          | 78    |      |   | 382    |  |  | (80  | ) 
|Related party licenses |  |                          |      |      |   | 1,745  |  |  | (100 | ) 
|                       |  |                          |       |      |   |        |  |  |      |   
|Total revenues         |  | $                        | 9,692 |      | $ | 12,151 |  |  | (20  | )%
|                       |  |                          |       |      |   |        |  |  |      |   

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 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.

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 and 2006, 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

26

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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
business.

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.

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.

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 $1.6 million for the three months ended June 30, 2006 as
  compared to $2.4 million in the three months ended June 30, 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 2004, 12.4 million
  through March 2005, 16.1 million throughout June 2005, 21.4 million through
  December 2005, 22.6 million through March 2005 and 23.9 million through June
  2006. Internet users can uninstall the Viewpoint Toolbar, and through December
  2004, 3.3 million users who had accepted the installation of the Toolbar had
  later uninstalled it during 2004. The total of cumulative toolbars installed,
  net of those uninstalled was 11.6 million at December 2005 and 12.0 million
  at June 2006.

Search
  revenues of $3.4 million for the six months ended June 30, 2006 decreased compared
  with revenues of $4.6 million for the six months ended June 30, 2005. The Company
  believes that search revenues may increase in the second half of 2006 as compared
  to the first half of 2006 if it is able to continue to 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 the second
  half of 2006 will be critical to this growth.

The
Company recognized $3.0 million in advertising systems revenue during the three
months ended June 30, 2006 compared to $1.2 million for the same period in
2005. This revenue was generated by delivering advertising impressions to
websites in several different formats including video and the purchase of media
space from publishers on behalf of advertisers. The revenue increase is
attributable to the Company continuing to expand its customer base and types of
advertising formats delivered to them.

27

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Ad
systems revenues of $4.6 million for the six months ended June 30, 2006
increased compared with revenues of $1.9 million for the six months ended June
30, 2005. Growth in this segment accelerated during the second quarter and is
expected to continue to increase during the remainder of 2006 as the Company is
able to attract more clients and websites to its various ad serving formats.

Services
revenues amounted to $1.1 million for the three months ended June 30, 2006 as
compared to $1.6 million for the same period in 2005. The Company experienced a
decline in its number of clients during the quarter. During March 2006, in
recognition of a decline in revenues for this group, the Company announced a
restructuring which resulted in a reduction of its workforce and the relocation
of its principal operational headquarters for this business to its Los Angeles
office.

Services
  revenues amounted to $1.6 million for the six months ended June 30, 2006 as
  compared to revenues of $2.8 million for the six months ended June 30, 2005.
  This segments revenues were down significantly in the first quarter of
  2006 compared to the same period the prior year which led to the March 2006
  restructuring. The Company believes that it can increase revenues in the second
  half of 2006 in this segment if customers continue to seek the Companys
  assistance in building more content using the Viewpoint Platform to be used
  at their websites, develop advertising formats, and more client contracts for
  private label toolbars.

There
were no related party services or license revenues for the three months ended
June 30, 2006, as the October 2003 AOL contract expired on December 31, 2005.

License
revenues amounted to less than $0.1 million in the six months ended June 30,
2006, which represents a decrease of approximately $0.2 million, as 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.

28

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Cost of revenues

|                                           |  |                          |       |      |   |        |   |  |     |   
|------------------------------------------ |  | ------------------------ | ----- | ---- | - | ------ | - |  | --- | --
|                                           |  | June
  30,               |       | %    |  
|                                           |  |                          |       |      |  
|                                           |  | 2006                     |       | 2005 |   | Change |  
|                                           |  |                          |       |      |   |        |  
|                                           |  | (dollars
  in thousands) |       |      |  
|Three months ended:                        |  |                          |       |      |   |        |   |  |     |   
|Search                                     |  | $                        | 38    |      | $ | 49     |   |  | (22 | )%
|Percentage of Search Revenues              |  |                          | 2     | %    |   | 2      | % |  |     |   
|Six months ended:                          |  |                          |       |      |   |        |   |  |     |   
|Search                                     |  | $                        | 74    |      | $ | 95     |   |  | (22 | )%
|Percentage of Search Revenues              |  |                          | 2     | %    |   | 2      | % |  |     |   
|                                           |  |                          |       |      |   |        |   |  |     |   
|Three months ended:                        |  |                          |       |      |   |        |   |  |     |   
|Advertising Systems                        |  | $                        | 2,199 |      | $ | 909    |   |  | 142 | % 
|Percentage of Advertising Systems
Revenues |  |                          | 73    | %    |   | 78     | % |  |     |   
|Six months ended:                          |  |                          |       |      |   |        |   |  |     |   
|Advertising Systems                        |  | $                        | 3,239 |      | $ | 1,498  |   |  | 116 | % 
|Percentage of Advertising Systems
Revenues |  |                          | 70    | %    |   | 79     | % |  |     |   
|                                           |  |                          |       |      |   |        |   |  |     |   
|Three months ended:                        |  |                          |       |      |   |        |   |  |     |   
|Services                                   |  | $                        | 648   |      | $ | 1,055  |   |  | (39 | )%
|Percentage of Services Revenues            |  |                          | 59    | %    |   | 55     | % |  |     |   
|Six months ended:                          |  |                          |       |      |   |        |   |  |     |   
|Services                                   |  | $                        | 1,311 |      | $ | 1,923  |   |  | (32 | )%
|Percentage of Services Revenues            |  |                          | 80    | %    |   | 54     | % |  |     |   
|                                           |  |                          |       |      |   |        |   |  |     |   
|Three months ended:                        |  |                          |       |      |   |        |   |  |     |   
|Licenses                                   |  | $                        | 2     |      | $ | 1      |   |  | 100 | % 
|Percentage of Licenses Revenues            |  |                          | 6     | %    |   |       | % |  |     |   
|Six months ended:                          |  |                          |       |      |   |        |   |  |     |   
|Licenses                                   |  | $                        | 8     |      | $ | 3      |   |  | 167 | % 
|Percentage of Licenses Revenues            |  |                          | 10    | %    |   | 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 were $2.2 million and $3.2 million for the
three and six month periods, respectively, ended June 30, 2006 compared to $0.9
million and $1.5 million for the same periods last year. These costs consist of
the web-hosting and employee fees associated with serving advertising content,
costs for media space at websites, 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 by $1.4 million and $2.0 million in the three and six month periods,
respectively, in 2006, compared with the same periods last year. This increase
was 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 and $1.3
million for the three and six month periods, respectively, ended June 30, 2006
decreased by $0.4 and $0.6 million, respectively, compared to the same periods
last year. The decreases in cost of revenues for services is attributable to
the decrease in service revenues compared to the prior year. Additionally, due
to the decline in revenues the Company initiated a restructuring which reduced
the cost of revenues in the second quarter

29

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

of 2006 as
compared to the first quarter of 2006. The Company believes that the costs for
services as a percentage of revenue will improve during the remainder of 2006.

Sales and marketing

|                             |  |                          |       |      |   |            |   |  |    |  
|---------------------------- |  | ------------------------ | ----- | ---- | - | ---------- | - |  | -- | -
|                             |  | June
  30,               |       |      |   |           
|                             |  | 2006                     |       | 2005 |   | %
  Change |  
|                             |  |                          |       |      |  
|                             |  | (dollars
  in thousands) |       |      |   |           
|Three months
  ended:        |  |                          |       |      |   |            |   |  |    |  
|Sales and Marketing          |  | $                        | 1,449 |      | $ | 1,228      |   |  | 18 | %
|Percentage of total revenues |  |                          | 25    | %    |   | 19         | % |  |    |  
|Six months
  ended:          |  |                          |       |      |   |            |   |  |    |  
|Sales and Marketing          |  | $                        | 3,027 |      | $ | 2,503      |   |  | 21 | %
|Percentage of total revenues |  |                          | 31    | %    |   | 21         | % |  |    |  

Sales
and marketing expenses include salaries and benefits, sales commissions,
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 $1.4 million for the three months ended June 30, 2006
increased by $0.2 million compared to the same period last year. The increase
was principally due to recording $0.1 million in stock-based compensation in
2006 due to the adoption of FAS 123R.

Sales
and marketing expenses of $3.0 million for the six months ended June 30, 2006
increased by $0.5 million compared to the same period last year. The increase
was principally due to recording $0.3 million in stock-based compensation in
2006 due to the adoption of FAS 123R. Personnel costs including commissions
increased by $0.1 million and search marketing costs increased by $0.2 million.
These increases were offset by a decrease in consulting expenses of $0.1
million.

30

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Research and
development

|                             |  |                          |       |      |   |            |   |  |    |   
|---------------------------- |  | ------------------------ | ----- | ---- | - | ---------- | - |  | -- | --
|                             |  | June
  30,               |       |      |   |           
|                             |  | 2006                     |       | 2005 |   | %
  Change |  
|                             |  |                          |       |      |  
|                             |  | (dollars
  in thousands) |       |      |   |           
|Three months ended:          |  |                          |       |      |   |            |   |  |    |   
|Research and development     |  | $                        | 1,068 |      | $ | 1,147      |   |  | (7 | )%
|Percentage of total revenues |  |                          | 19    | %    |   | 17         | % |  |    |   
|Six months ended:            |  |                          |       |      |   |            |   |  |    |   
|Research and development     |  | $                        | 2,156 |      | $ | 2,353      |   |  | (8 | )%
|Percentage of total revenues |  |                          | 22    | %    |   | 19         | % |  |    |   

Research
and development expenses consist primarily of salaries and benefits for
software developers, contracted development efforts, and 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 were focused
on building an ad delivery system that combined 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 $0.2 million and $0.1 million for the six
and three months ended June 30, 2006 compared to the same periods last year.
These changes resulted from a decrease in salaries due to fewer employees in
this group during the past year.

31

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

General and
administrative

|                             |  |                          |       |      |   |            |   |  |     |   
|---------------------------- |  | ------------------------ | ----- | ---- | - | ---------- | - |  | --- | --
|                             |  | June
  30,               |       |      |  
|                             |  | 2006                     |       | 2005 |   | %
  Change |  
|                             |  |                          |       |      |  
|                             |  | (dollars
  in thousands) |       |      |   |           
|Three months ended:          |  |                          |       |      |   |            |   |  |     |   
|General and Administsrative  |  | $                        | 2,226 |      | $ | 2,654      |   |  | (16 | )%
|Percentage of total revenues |  |                          | 38    | %    |   | 40         | % |  |     |   
|Six months ended:            |  |                          |       |      |   |            |   |  |     |   
|General and Administsrative  |  | $                        | 4,585 |      | $ | 4,741      |   |  | (3  | )%
|Percentage of total revenues |  |                          | 48    | %    |   | 39         | % |  |     |   

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 decreased by $0.4 million for the three months ended
  June 30, 2006 compared to the same period last year. The Company recorded $0.2
  million in stock-based compensation for the three months ended June 30, 2006
  due to the adoption of FAS 123R. During the same period in 2005 the Company
  recorded a stock based compensation expense of $0.6 million associated with
  a charge taken on extending the options of a former executive at June 30, 2005.
  Salary and fringe benefit costs decreased by $0.2 million in the three months
  ended June 30, 2006 due primarily to an overall reduction of employees in this
  department during the year.

General
and administrative expenses decreased by $0.1 million, or 3%, for the six
months ended June 30, 2006 compared to the same period last year. Stock based
compensation charges were $0.6 million for both periods. Accounting fees
increased by $0.2 million in the six months ended June 30, 2006 as compared to
the same period in the prior year. Salary and fringe benefit costs decreased by
$0.4 million due primarily to a decrease of employees in this area during 2006.

32

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Depreciation expense

|                             |  |                          |     |      |   |            |   |  |     |   
|---------------------------- |  | ------------------------ | --- | ---- | - | ---------- | - |  | --- | --
|                             |  | June
  30,               |     |      |  
|                             |  | 2006                     |     | 2005 |   | %
  Change |  
|                             |  |                          |     |      |  
|                             |  | (dollars
  in thousands) |     |      |   |           
|Three months ended:          |  |                          |     |      |   |            |   |  |     |   
|Depreciation                 |  | $                        | 107 |      | $ | 182        |   |  | (41 | )%
|Percentage of total revenues |  |                          | 2   | %    |   | 3          | % |  |     |   
|Six months ended:            |  |                          |     |      |   |            |   |  |     |   
|Depreciation                 |  | $                        | 224 |      | $ | 338        |   |  | (34 | )%
|Percentage of total revenues |  |                          | 2   | %    |   | 3          | % |  |     |   

Depreciation
  expense relating to operating expenses decreased by less than $0.1 million for
  the three and six month periods ended June 30, 2006, as compared with 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. Certain
  depreciation amounts were reclassed to the cost of revenue for the three and
  six months ending June 30, 2005 to conform to the 2006 presentation. Refer to
  the consolidated financial statements for further information regarding the
  reclassification.

Amortization of
intangible assets

|                                  |  |                          |     |      |   |            |   |  |     |   
|--------------------------------- |  | ------------------------ | --- | ---- | - | ---------- | - |  | --- | --
|                                  |  | June
  30,               |     |      |  
|                                  |  | 2006                     |     | 2005 |   | %
  Change |  
|                                  |  |                          |     |      |  
|                                  |  | (dollars
  in thousands) |     |      |   |           
|Three months ended:               |  |                          |     |      |   |            |   |  |     |   
|Amortization of intangible assets |  | $                        | 111 |      | $ | 126        |   |  | (12 | )%
|Percentage of total revenues      |  |                          | 2   | %    |   | 2          | % |  |     |   
|Six months ended:                 |  |                          |     |      |   |            |   |  |     |   
|Amortization of intangible assets |  | $                        | 221 |      | $ | 252        |   |  | (12 | )%
|Percentage of total revenues      |  |                          | 2   | %    |   | 2          | % |  |     |   

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, 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. Certain amortization amounts
  were reclassed to cost of revenue for the three and six months ending June 30,
  2005 to conform to the 2006 presentation. Refer to the consolidated financial
  statements for further information regarding the reclassification.

At
December 31, 2005 the Company determined that, based upon a decline in
operating performance during the fourth quarter of 2005, the Services reporting
unit had experienced an impairment of its allocated goodwill. At that time, the
Company recorded an impairment expense of $7.8 million.

33

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Restructuring charges

|                             |  |                        |    |      |   |         |   |  |     |  
|---------------------------- |  | ---------------------- | -- | ---- | - | ------- | - |  | --- | -
|                             |  | June 30,               |    |      |   |        
|                             |  | 2006                   |    | 2005 |   | %Change |  
|                             |  |                        |    |      |   |         |  
|                             |  | (dollars in thousands) |    |      |  
|Three months ended:          |  |                        |    |      |   |         |   |  |     |  
|Restructuring charges        |  | $                      |   |      | $ |        |   |  | N/A | %
|Percentage of total revenues |  |                        |   | %    |   |        | % |  |     |  
|Six months ended:            |  |                        |    |      |   |         |   |  |     |  
|Restructuring charges        |  | $                      | 92 |      | $ |        |   |  | N/A | %
|Percentage of total revenues |  |                        | 1  | %    |   |        | % |  |     |  

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 and the severance was paid in the second quarter of 2006.

Interest and other
income, net

|                               |  |                        |     |      |   |         |   |  |     |  
|------------------------------ |  | ---------------------- | --- | ---- | - | ------- | - |  | --- | -
|                               |  | June 30,               |     |      |   |        
|                               |  | 2006                   |     | 2005 |   | %Change |  
|                               |  |                        |     |      |   |         |  
|                               |  | (dollars in thousands) |     |      |  
|Three months ended:            |  |                        |     |      |   |         |   |  |     |  
|Interest and other income, net |  | $                      | 90  |      | $ | 32      |   |  | 181 | %
|Percentage of total revenues   |  |                        | 2   | %    |   |        | % |  |     |  
|Six months ended:              |  |                        |     |      |   |         |   |  |     |  
|Interest and other income, net |  | $                      | 169 |      | $ | 56      |   |  | 202 | %
|Percentage of total revenues   |  |                        | 1   | %    |   |        | % |  |     |  

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

Interest
  and other income, net, increased 181% and 202% for the three and six months
  ended June 30, 2006, respectively, 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

|                             |  |                        |      |      |   |         |    |  |     |   
|---------------------------- |  | ---------------------- | ---- | ---- | - | ------- | -- |  | --- | --
|                             |  | June 30,               |      |      |  
|                             |  | 2006                   |      | 2005 |   | %Change |   
|                             |  |                        |      |      |   |         |   
|                             |  | (dollars in thousands) |      |      |  
|Three months ended:          |  |                        |      |      |   |         |    |  |     |   
|Interest expense             |  | $                      | (209 | )    | $ | (339    | )  |  | (38 | )%
|Percentage of total revenues |  |                        | (4   | )%   |   | (5      | )% |  |     |   
|Six months ended:            |  |                        |      |      |   |         |    |  |     |   
|Interest expense             |  | $                      | (496 | )    | $ | (655    | )  |  | (24 | )%
|Percentage of total revenues |  |                        | (5   | )%   |   | (5      | )% |  |     |   

34

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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 based on the effective rate of interest, as well as a reduction
  of $0.4 million of debt in March 2006.

Changes in fair
value of warrants to purchase common stock

|                                                                                                         |  |                        |        |      |   |         |   |  |      |   
|-------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------- | - |  | ---- | --
|                                                                                                         |  | June 30,               |        |      |   |        
|                                                                                                         |  | 2006                   |        | 2005 |   | %Change |  
|                                                                                                         |  |                        |        |      |   |         |  
|                                                                                                         |  | (dollars in thousands) |        |      |  
|Three months ended:                                                                                      |  |                        |        |      |   |         |   |  |      |   
|Changes in fair value of warrants to purchase
common stock and
  conversion options of convertible notes |  | $                      | (544   | )    | $ | 648     |   |  | (184 | )%
|Percentage of total revenues                                                                             |  |                        | (10    | )%   |   | 10      | % |  |      |   
|Six months ended:                                                                                        |  |                        |        |      |   |         |   |  |      |   
|Changes in fair value of warrants to purchase
common stock and
  conversion options of convertible notes |  | $                      | (1,172 | )    | $ | 830     |   |  | (241 | )%
|Percentage of total revenues                                                                             |  |                        | (12    | )%   |   | 7       | % |  |      |   

35

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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 and six month periods ended June 30, 2006, the Company recorded an
expense of $0.5 million and $1.2 million, respectively, based on the change in
the fair value of warrants. For the three and six months ended June 30, 2005,
the Company recorded income of $0.6 million and $0.8 million, respectively, in
the Companys consolidated statements of operations based on the change in the
fair values of warrants.

Provision for income
taxes

|                             |  |                        |    |      |   |         |   |  |     |  
|---------------------------- |  | ---------------------- | -- | ---- | - | ------- | - |  | --- | -
|                             |  | June 30,               |    |      |   |        
|                             |  | 2006                   |    | 2005 |   | %Change |  
|                             |  |                        |    |      |   |         |  
|                             |  | (dollars in thousands) |    |      |  
|Three months ended:          |  |                        |    |      |   |         |   |  |     |  
|Provision for income taxes   |  | $                      | 19 |      | $ | 9       |   |  | 111 | %
|Percentage of total revenues |  |                        |   | %    |   |        | % |  |     |  
|Six months ended:            |  |                        |    |      |   |         |   |  |     |  
|Provision for income taxes   |  | $                      | 26 |      | $ | 12      |   |  | 117 | %
|Percentage of total revenues |  |                        |   | %    |   |        | % |  |     |  

Provision
for income taxes consists primarily of certain minimum state and city income
taxes.

36

---



VIEWPOINT CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Adjustment to net
loss on disposal of discontinued operations

|                                                                            |  |                          |   |      |   |          |   |  |      |   
|--------------------------------------------------------------------------- |  | ------------------------ | - | ---- | - | -------- | - |  | ---- | --
|                                                                            |  | June 30,                 |   |      |   |         
|                                                                            |  | 2006                     |   | 2005 |   | % Change |  
|                                                                            |  |                          |   |      |   |          |  
|                                                                            |  | (dollars
  in thousands) |   |      |   |         
|Three months ended:                                                         |  |                          |   |      |   |          |   |  |      |   
|Adjustment to net loss on
disposal of discontinued operations, net of
  tax |  | $                        |  |      | $ |         |   |  | N/A  | % 
|Percentage of total
revenues                                                |  |                          |  | %    |   |         | % |  |      |   
|Six months ended:                                                           |  |                          |   |      |   |          |   |  |      |   
|Adjustment to net loss on
disposal of discontinued operations, net of
  tax |  | $                        |  |      | $ | 145      |   |  | (100 | )%
|Percentage of total
revenues                                                |  |                          |  | %    |   | 1        | % |  |      |   

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 and six month periods ended June 30, 2006. The adjustment to net loss on
disposal of discontinued operations for the six month ended June 30, 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 UAP 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 improperly 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.                                                          

37

---



| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                         
| |   |                                                                                                                                                                                                                                         
| |  | 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.                                                                                                                                                                                 

38

---



VIEWPOINT CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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.

In
July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies
the recognition threshold and measurement of a tax position taken on a tax
return. FIN 48 is effective for fiscal years beginning after December 15, 2006.
FIN 48 also requires expanded disclosure with respect to the uncertainty in
income taxes. We are currently evaluating the requirements of FIN 48 and the
impact this interpretation may have on our financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and
Capital Resources

Cash,
cash equivalents, and marketable securities totaled $7.5 million at June 30,
2006, down from $9.1 million at December 31, 2005.

|                                                  |  |                            |      |      |   |      |  
|------------------------------------------------- |  | -------------------------- | ---- | ---- | - | ---- | -
|                                                  |  | Six Months
  EndedJune 30, |     
|                                                  |  | 2006                       |      | 2005 |  
|                                                  |  |                            |     
|                                                  |  | (dollars in millions)      |     
|                                                 
|Cash used in operating
  activities               |  | $                          | (2.6 | )    | $ | (3.7 | )
|Cash provided by (used in)
  investing activities |  |                            | (3.3 | )    |   | 1.0  |  
|Cash provided by financing
  activities           |  | $                          | 1.3  |      | $ | 0.4  |  

39

---



VIEWPOINT CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Operating activities

In
the six months ended June 30, 2006, cash used in operating activities was $2.6
million, a decrease of $1.1 million compared to the six months ended June 30,
2005. The use of cash was mainly due to a net loss of $6.8 million as well as a
decrease in accounts payable of $0.7million, offset by a decrease in accounts
receivable of $1.5 million, a change in the fair value of warrants of $1.2
million, stock-based compensation charges of $1.2, depreciation and
amortization expenses of $0.6 million and amortization of debt related costs of
$0.4 million.

Investing activities

In
the six months ended June 30, 2006, cash used in investing activities was $3.3
million, primarily as a result of net purchases of marketable securities of
$3.1 million.

In
the six months ended June 30, 2005, cash provided by investing activities was
$1.0 million, primarily due to net sale of marketable securities of $1.7
million offset by the cash used in the acquisition of Unicast of $0.5 million
and capital expenditures of $0.3 million.

Financing activities

In
the six months ended June 30, 2006, net cash provided by financing activities
was $1.3 million, resulting from the exercise of stock options of $1.9 million
which was offset by cash used for the repayment of debt totaling $0.6 million.

In the six months
ended June 30,2005, net cash provided by financing activities was $0.4 million resulting
solely from the exercise of stock options.

As of June 30,
2006, the Company had cash commitments totaling approximately $10.7 million
through 2011, related mainly to 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                       |  |                          | 3,269  |                   |   | 511       |  |           | 1,869 |                     |   | 889   |  |   |  | 
|Interest Payments on
  Long-Term Debt Obligations |  |                          | 547    |                   |   | 119       |  |           | 314   |                     |   | 114   |  |   |  | 
|Employee Agreement                                |  |                          | 30     |                   |   | 30        |  |           |      |                     |   |      |  |   |  | 
|Unicast Debt Obligations                          |  |                          | 3,155  |                   |   | 194       |  |           | 778   |                     |   | 2,183 |  |   |  | 
|Purchase Obligations                              |  |                          | 609    |                   |   | 609       |  |           |      |                     |   |      |  |   |  | 
|                                                  |  |                          |        |                   |   |           |  |           |       |                     |   |       |  |   |   | 
|Total                                             |  | $                        | 10,660 |                   | $ | 1,463     |  | $         | 6,011 |                     | $ | 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,

40

---



VIEWPOINT CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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. 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 convertible
  notes were converted to Viewpoint common stock in 2004. 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.
  In 2003 and 2004, all of the convertible noted were converted into common stock
  or redeemed for cash, therefore, no convertible notes remained outstanding as
  of June 30, 2006 and December 31, 2005. As of June 30, 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 were scheduled to matured 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 and these notes
  remain outstanding as of June 30, 2006.

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.

Liquidity

The
Company had cash, cash equivalents and marketable securities of $7.5 million at
June 30, 2006. During the six months ended June 30, 2006, net cash used in
operations amounted to $2.6 million. As of June 30, 2006, the Company had an
accumulated deficit of $272.6 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 June 30, 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

41

---



VIEWPOINT CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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.

42

---



VIEWPOINT CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Item 3. Quantitative and Qualitative
Disclosures About Market Risk

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

Item 4. Controls and Procedures

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 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.

43

---



VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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 1A. 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 summary of these
risk factors 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

The Annual Meeting of
Stockholders of Viewpoint Corporation was held on June 21, 2006. A proposal to
elect five (5) members of the Board of Directors to serve for a one-year term
expiring at the annual meeting of stockholders in 2007 was approved by the
stockholders with the nominees receiving the following votes:

|                     |  |            |  |          
|-------------------- |  | ---------- |  | ---------
|                     |  | For        |  | Withheld 
|                     |  |            |  |          
|Stephen Duff         |  | 59,694,036 |  | 1,915,540
|Samuel H. Jones, Jr. |  | 60,584,957 |  | 1,024,619
|Dennis R. Raney      |  | 60,599,313 |  | 1,010,263
|Patrick Vogt         |  | 60,597,319 |  | 1,012,257
|Harvey D. Weatherson |  | 60,600,181 |  | 1,009,395

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.

44

---



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: August 9, 2006 | By:                   | /s/ PATRICK VOGT                       
|                      |                       |                                        
|                      |                       | Patrick Vogt                           
|                      |                       | President and Chief
  Executive Officer
|                      |                       |                                        
|Dated: August 9, 2006 | By:                   | /s/ WILLIAM H. MITCHELL                
|                      |                       |                                        
|                      |                       | William H. Mitchell                    
|                      |                       | Chief Financial Officer                
|                      |                       |                                        
|Dated: August 9, 2006 | By:                   | /s/ CHRISTOPHER C. DUIGNAN             
|                      |                       |                                        
|                      |                       | Christopher C. Duignan                 
|                      |                       | Chief Accounting Officer               

45

---