UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

xþ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended ~~March 31~~June 30, ~~2005~~ 2006

¨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 0-27412

~~COTELLIGENT~~WATCHIT MEDIA, INC.

(Exact name of registrant as specified in its charter)

Delaware		94-3173918
(State of incorporation)		(I.R.S. IDEmployer Identification No.)

~~655~~3485 ~~Montgomery Street,~~W. ~~Suite~~Harmon ~~1000~~Avenue, ~~San~~Las ~~Francisco~~Vegas, ~~California~~Nevada ~~94111~~89103 (Address of principal executive offices)

(~~Address~~702) 740-1700 (Registrant’s oftelephone ~~principal~~number, ~~executive~~including ~~offices)~~area code)

(415) 477-9900

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by checkmark whether the registrant is large accelerated filer, an accelerated filer or ~~(as~~a ~~defined~~non-accelerated infiler. ~~Rule~~See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check One) ~~Yes ¨ No x~~

AtLarge ~~May~~accelerated ~~12,~~filer ~~2005,~~o Accelerated ~~there~~filer ~~were~~o Non-accelerated ~~28,520,962~~filer ~~shares of common stock outstanding.~~ þ

Indicated by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act) Yes o No þ

At February 6, 2007, there were 42,714,844 shares of Common Stock outstanding.

~~COTELLIGENT~~WATCHIT MEDIA, INC.

INDEX

Part I - Financial Information


		Part I — Financial Information

Item 1.		Financial Statements

Watchit Media, Inc.

		Condensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005

		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005

		Notes to Condensed Consolidated Financial Statements

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

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

Item 4.		Controls and Procedures

		Part II — Other Information

Item 1.		Legal Proceedings

Item 1A.		Risk Factors

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

Item 3.		Defaults upon Senior Securities

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

Item 5.		Other Information

Item 6.		Exhibits and Reports on Form 8-K

Signature

Exhibits
EX-31.1: CERTIFICATION
EX-32.1: CERTIFICATION

		Page
Item 1.	Financial Statements
Cotelligent, Inc.
	Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18
Part II – Other Information
Item 1. Legal Proceedings		19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 3. Defaults upon Senior Securities		19
Item 4. Submission of Matters to a Vote to Security Holders		19
Item 5. Other Information		19
Item 6. Exhibits and Reports on Form 8-K		19
Signature		20
Exhibits		21

Item 1. Financial Statements

~~COTELLIGENT~~WATCHIT MEDIA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)

(In thousands, except share data)


	June 30,			December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	11
Refundable income taxes		—			13
Accounts receivable, net of allowance for doubtful accounts of $54 and $54, and $325 and $368 pledged as collateral security, respectively		327			340
Prepaid expenses and other current assets		—			92

Total current assets		327			456
Property and equipment, net		144			177
Goodwill		2,728			2,728
Other intangibles, net		537			607
Other assets		—			182

Total assets	$	3,736		$	4,150


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank Overdraft	$	41		$	—
Secured borrowings		325			287
Accounts payable		1,354			801
Accrued compensation and related payroll liabilities		253			269
Restructuring liabilities		594			595
Other accrued liabilities		464			243
Debt		264			—

Total current liabilities		3,295			2,195

Commitments and contingencies		—			—

Stockholders’ equity:
Preferred Stock, $0.01 par value; 500,000 shares authorized, no shares issued or outstanding		—			—
Common Stock, $0.01 par value; 100,000,000 shares authorized, 33,668,896 and 28,868,229 shares issued, respectively		337			289
Additional paid-in capital		83,079			82,785
Accumulated deficit		(82,862	)		(81,006	)
Treasury stock		(113	)		(113	)

Total stockholders’ equity		441			1,955

Total liabilities and stockholders’ equity	$	3,736		$	4,150

(Unaudited)

	March 31,2005			December 31,2004
ASSETS
Current assets:
Cash and cash equivalents	$	107		$	526
Refundable income taxes		10			16
Accounts receivable, including unbilled accounts of $- and $2, net of allowance for doubtful accounts of $51 and $60, and $502 and $588 pledged as collateral security, respectively		451			530
Prepaid expenses and other current assets		126			133
Current assets of discontinued operations held for sale		159			160
Total current assets		853			1,365
Property and equipment, net		271			259
Goodwill		2,592			2,592
Other intangibles, net of $153 and $118 of accumulated amortization		713			748
Other assets		239			239
Non-current assets of the discontinued operations held for sale		170			170
Total assets	$	4,838		$	5,373
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Secured borrowings	$	322		$	386
Accounts payable		728			247
Accrued compensation and related payroll liabilities		205			264
Restructuring liabilities		465			425
Other accrued liabilities		277			198
Current liabilities of the discontinued operations held for sale		859			898
Total current liabilities		2,856			2,418
Restructuring liabilities, net of current portion		214			268
Lease deposits on sublet properties		13			13
Income taxes payable		—			69
Total liabilities		3,083			2,768
Commitments and contingencies		—			—
Stockholders’ equity:
Preferred Stock, $0.01 par value; 500,000 shares authorized, no shares issued or outstanding		—			—
Common Stock, $0.01 par value; 100,000,000 shares authorized, 26,665,562 and 24,984,792 shares issued, respectively		266			250
Additional paid-in capital		82,910			82,801
Accumulated deficit		(80,921	)		(79,946	)
Treasury stock		(500	)		(500	)
Total stockholders’ equity		1,755			2,605
Total liabilities and stockholders’ equity	$	4,838		$	5,373

See accompanying notes to the condensed consolidated financial statements.

~~COTELLIGENT~~WATCHIT MEDIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited)

(In thousands, except share and per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Revenues		658			609		$	1,241		$	864
Cost of revenues		308			232			619			345

Gross profit		350			377			622			519
Selling, general and administrative expenses		1,164			740			2,428			1,244

Operating loss		(814	)		(363	)		(1,806	)		(725	)

Other income (expense):
Interest expense		(35	)		(11	)		(49	)		(20	)
Interest income		—			—			—			1

Other		—			26						26

Total other income (expense)		(35	)		15			(49	)		7

Loss from continuing operations before income tax benefit (expense)		(849	)		(348	)		(1,855	)		(718	)
Income tax benefit (expense)		—			—						67

Loss from continuing operations		(849	)		(348	)		(1,855	)		(651	)
Loss from discontinued operations, net of income tax benefit of $- and $-		—			(279	)		—			(951	)

Net loss		(849	)		(627	)	$	(1,855	)	$	(1,602	)

Earnings per share:
Basic and diluted –
Loss from continuing operations		(0.03	)		(0.01	)	$	(0.06	)	$	(0.02	)
Loss from discontinued operations		(.000	)		(0.01	)		—			(0.04	)

Net loss		(0.03	)		(0.02	)	$	(0.06	)	$	(0.06	)


Basic and diluted weighted average number of shares outstanding		29,825,666			28,011,739			29,825,666			26,692,079

(Unaudited)

	Three Months Ended March 31,
	2005			2004
Revenues	$	255		$	77
Cost of revenues		113			29
Gross profit		142			48
Selling, general and administrative expenses		504			282
Operating loss		(362	)		(234	)
Other income (expense):
Interest expense		(9	)		—
Interest income		1			84
Total other income (expense)		(8	)		84
Loss from continuing operations before income tax		(370	)		(150	)
Income tax benefit (expense)		67			(3	)
Loss from continuing operations		(303	)		(153	)
Loss from discontinued operations, net of income tax benefit of $- and $-		(672	)		(1,387	)
Net loss	$	(975	)	$	(1,540	)
Earnings per share:
Basic and diluted –
Loss from continuing operations	$	(0.01	)	$	(0.01	)
Loss from discontinued operations		(0.03	)		(0.08	)
Net loss	$	(0.04	)	$	(0.09	)
Basic and diluted weighted average number of shares outstanding		25,357,756			16,952,763

See accompanying notes to condensed consolidated financial statements.

~~COTELLIGENT~~WATCHIT MEDIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

(In thousands)


	Six Months Ended June 30,
	2006			2005
				Revised See
				Note 1
Cash flows from operating activities:
Net Loss	$	(1,855	)	$	(651	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment		33			51
Common stock issued for services		—			—
Amortization of identifiable intangible assets		70			70
Restricted shares issued in connection with director compensation		—			39
Provision for doubtful accounts		—			8
Changes in current assets and liabilities:
Accounts receivable		13			(72	)
Prepaid expenses and other current assets		92			(3	)
Bank overdraft		41			—
Accounts payable and accrued liabilities		756			690
Income taxes, net		13			(63	)
Other assets		182			—

Net cash used in operating activities		(655	)		69

Cash flows from investing activities:
Purchases of property and equipment		—			(47	)

Net cash used in investing activities		—			(47	)

Cash flows from financing activities:
Additional (repayment) of secured borrowings		38			329
Proceeds from debt		264			—
Cost of issuing of Common Stock and warrants		—			(57	)
Proceeds from issuance of Common Stock and warrants		342			420

Net cash provided by financing activities		644			692

Cash flows from discontinued operations:

Cash used in discontinued operations					(1,042	)

Net decrease in cash and cash equivalents		(11	)		(328	)

Cash and cash equivalents at beginning of period		11			526

Cash and cash equivalents at end of period	$	—		$	198

(Unaudited)

	Three Months Ended March 31,
	2005			2004
Cash flows from operating activities:
Loss from continuing operations	$	(303	)	$	(153	)
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment		26			—
Amortization of identifiable intangible assets		35			—
Restricted shares issued in connection with director compensation		17			—
Provision for doubtful accounts		(9	)		—
Changes in current assets and liabilities:
Accounts receivable		88			(18	)
Prepaid expenses and other current assets		7			85
Accounts payable and accrued liabilities		487			716
Deferred revenue		—			(18	)
Income taxes, net		(63	)		54
Other assets		—			(1	)
Net cash provided by operating activities		285			665
Cash flows from investing activities:
Payments received on note from acquirer of previously sold business		—			200
Purchases of property and equipment		(38	)		(25	)
Cash paid for purchase of business		—			(81	)
Net cash provided by (used in) investing activities		(38	)		94
Cash flows from financing activities:
Repayment of secured borrowings		(64	)		—
Cost of issuing of Common Stock and warrants		(47	)		(183	)
Net proceeds from issuance of Common Stock and warrants		155			—
Net cash provided by (used in) financing activities		44			(183	)
Cash flows from discontinued operations:
Cash used in discontinued operations		(710	)		(1,995	)
Net decrease in cash and cash equivalents		(419	)		(1,419	)
Cash and cash equivalents at beginning of period		526			5,688
Cash and cash equivalents at end of period	$	107		$	4,269

See accompanying notes to condensed consolidated financial statements.

~~COTELLIGENT~~WATCHIT MEDIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share data) (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended
	June 30,
	2006		2005
Supplemental disclosures of cash flow information:
Interest paid	$	49	$	20
Income taxes refunded	$	13	$	6
Significant non-cash financing and investing activities:
Deferred acquisition costs	$	—	$	238
Issuance of Common Stock in debt transaction	$	—	$	—

(In thousands, except share data)

(Unaudited)

	Three Months EndedMarch 31,
	2005		2004
Supplemental disclosures of cash flow information:
Interest paid	$	9	$	—
Income taxes paid	$	2	$	3
Income taxes refunded	$	6	$	—
Significant non-cash financing and investing activities:
Repayment of officer notes receivable with severance and bonus compensation	$	—	$	364
Deferred acquisition costs	$	8	$	-—
Detail of acquisition:
Cash	$	—	$	(36	)
Accounts receivable		—		(50	)
Prepaid expenses and other current assets		—		(2	)
Property and equipment		—		(3	)
Other assets		—		(5	)
Goodwill		—		(2,592	)
Other intangibles		—		(847	)
Accounts payable		—		106
Accrued compensation		—		50
Other accrued liabilities		—		91
Common stock issued to sellers of acquired business		—		1,815
Warrants issued to sellers of acquired business		—		676
Consideration due sellers of acquired business		—		505
Cash paid in 2003		—		175
Cash paid in 2004		—		(117	)
Cash acquired in acquisition		—		36
Cash used for purchase of business	$	—	$	(81	)

See accompanying notes to condensed consolidated financial statements.

~~COTELLIGENT~~WATCHIT MEDIA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands)

(Dollar amounts in thousands)

Note 1 – Summary of Significant Accounting Policies and Practices

Description of Business

~~Cotelligent~~On December 8, 2005, Watchit Media, Inc. (~~“Cotelligent”~~WMDA.PK) orchanged the “Company~~”),~~’s aticker ~~Delaware~~symbol ~~corporation,~~to ~~provides~~WMDA ~~narrowcasting~~from CGZT. ~~services~~The ~~which~~change ~~include~~in ~~digital~~the ~~technologies~~Company’s ~~and~~ticker ~~production~~symbol ~~services~~reflects ~~for~~its ~~video~~change ~~content, distribution,~~in ~~scripting~~identity ~~and~~from ~~playback~~Cotelligent, Inc onto ~~digital~~Watchit ~~display~~Media, ~~channels~~Inc. The Company ~~also~~is ~~provides~~in ~~software~~the ~~consulting~~process ~~services~~of totransitioning ~~businesses~~all ~~with~~aspects ~~complex~~of ~~information~~its ~~technology~~former brand, ~~(“IT”)~~name ~~operations,~~and ~~but~~identity asto ~~discussed~~Watchit ~~below~~Media, ~~this business component is classified as a part of the Company’s discontinued operations~~Inc.

~~In 2004,~~Watchit ~~the Company was organized into two reportable segments, IT services and narrowcasting (which became effective with the acquisition of OnSite~~ Media, Inc. on(“Watchit ~~March~~Media” 2,or ~~2004). Prior to December 31, 2004,~~ the “Company”), ~~entered into~~ a ~~plan~~Delaware tocorporation, ~~divest~~provides ~~its~~narrowcasting IT services ~~segment.~~which ~~Accordingly,~~include ~~the~~digital ~~accompanying~~technologies ~~consolidated financial statements~~ and ~~related~~production ~~footnotes~~services ~~have~~for ~~been~~video content, ~~prepared~~distribution, toscripting ~~present~~and asplayback ~~discontinued~~on ~~operations~~digital ~~the~~display ~~Company’s IT services segment for all periods presented~~channels.

~~These~~In ~~financial~~2004, ~~statements~~the ~~include~~Company was organized into two reportable segments, IT services and narrowcasting (which became effective with the ~~accounts~~acquisition of ~~Cotelligent~~OnSite Media, Inc. ~~and~~on ~~its~~March 2, ~~subsidiaries~~2004). Prior to December 31, 2004, the Company entered into a plan to divest its IT services segment. The divestiture ~~results~~was ofcompleted ~~OnSite~~on ~~Media~~July 15, ~~Inc~~2005. Accordingly, the accompanying consolidated financial statements and related footnotes have been ~~included~~prepared into ~~the~~present as discontinued operations the Company’s ~~results~~IT ~~from~~services ~~its~~segment ~~acquisition~~for ~~date.~~all periods presented.

These financial statements include the accounts of Watchit Media, Inc. and its subsidiaries. The results of OnSite Media, Inc. have been included in the Company’s results from its acquisition date.

Liquidity

The Company has had operating losses and negative operating cash flows for the past several fiscal periods. This has been due to declining demand for IT services and solutions and investments the Company has made in ~~Watchit Media, Inc.,~~ its new narrowcasting business. As a result, the Company is exposed to certain risks which include the availability of financing, the retention of and dependence on key individuals, the effects of intense competition, the ability to develop and successfully market new product and service offerings, and the ability to streamline operations and increase revenues. While the Company is now focused on executing a growth strategy in the narrowcasting market, there can be no assurance the Company will be profitable in the future.

During the past and in ~~2004~~2006, management has taken action in response to the continued softness in IT services in order to preserve cash, including but not limited to significant reductions in headcount, outsourcing certain administrative functions, changing benefit plan insurance carriers, relocating the headquarters ~~office~~ resulting in lower lease obligations, acquiring a business in an industry with more near term growth prospects than IT services, securing a line of credit agreement against its accounts receivable and announcing the plan to ~~divest~~divesting its IT services segment. ~~Between~~ On February 1, 2005 ~~and April 27~~, ~~2005,~~ the Company entered into a Stock and Warrant Purchase ~~Agreements~~Agreement with certain accredited investors pursuant to which the Company sold Common Stock and warrants resulting in a cash infusion to the Company. In addition, on April 1, 2005 the Company signed a definitive agreement with FastTrack, LLC, an affiliate of Beverly Hills, California~~-based~~ private equity firm Skyview Capital, LLC, for the sale of its remaining IT services business. Management has carefully forecasted its results of operations and financial position through March 31, 2006, and has determined that the remaining cash on hand, together with cash available from the line of credit, proceeds from the sales of Common Stock to accredited investors, and proceeds from the sale of the IT services segment, will provide adequate cash to fund its anticipated working capital needs. In the event circumstances arise that are not factored into the forecast, management will take further action to streamline operations and seek financing alternatives.

~~Basis~~On February 20, 2006, the Company issued a 15% Convertible Promissory Note (the “Note”) to James Lavelle, it’s Chairman and CEO, in exchange for a $65 infusion by Mr. Lavelle to the Company. The Note is due and payable on demand. The Note has a conversion price of ~~Presentation~~$.07 per share, for each Common share issued upon conversion of the Note. In addition upon conversion Mr. Lavelle will receive two warrants for each common share issued. Each warrant, represents the right to purchase two additional unregistered shares.

The accompanying interim financial statements do not include all disclosures included in the financial statements in Cotelligent’s Annual Report on Form 10-K for the year ended December 31, 2004, and therefore these financial statements should be read in conjunction with the financial statements included in Cotelligent’s Form 10-K.

In the opinion of management, the interim financial statements filed as part of this Quarterly Report on Form 10-Q, reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods and dates presented.

Stock-Based Compensation

The Company has adopted the interim disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” Related interim disclosures are as follows.

The Company measures compensation expense for its employee stock-based compensation awards using the intrinsic value method and provides pro forma disclosures of net loss and loss per share as if a fair value method had been applied. Therefore, compensation cost for employee stock awards is measured as the excess, if any, of the fair value of our common stock at the grant date or re-measurement

~~date~~of ~~over~~Common ~~the~~Stock ~~amount~~at ana ~~employee~~price ~~must~~of ~~pay~~$.15 toper ~~acquire the stock and is amortized over the related service periods using the straight-line method~~share. ~~Compensation~~The ~~expense~~warrant ~~previously~~shall ~~recorded~~be ~~for~~immediately ~~unvested~~exercisable ~~employee stock-based compensation awards that are forfeited~~ upon issuance ~~employee~~and ~~termination~~shall isexpire ~~reversed~~three inyears from the ~~period~~date of ~~forfeiture~~issuance.

~~The~~On ~~following~~March 2, ~~table~~2006, ~~compares~~the ~~net~~Company ~~loss~~obtained ~~and~~$100 ~~loss~~from ~~per~~a ~~share~~private asinvestor, ~~reported~~who tois a related party (the Company’s ~~pro~~Public ~~forma~~Relations ~~amounts~~Manager), in a first round of short term financing (the “Bridge”) in the ~~that~~form ~~would~~of bea ~~reported~~short ~~had~~term ~~compensation~~note ~~expense~~bearing ~~been~~an ~~recognized~~interest ~~for~~rate ~~our~~of ~~stock-based~~1.5% ~~compensation~~per ~~plans~~annum, plus 500,000 shares of the Company’s unregistered common shares. The Bridge is due and payable in ~~accordance~~September 2006. ~~with~~The Company valued the ~~fair~~Common ~~value~~Stock ~~recognition~~using ~~provisions~~the market price of ~~SFAS~~the ~~No.~~Company’s ~~123~~Common Stock on March 2, ~~“Accounting~~2006, which ~~for~~resulted ~~Stock-Based~~in ~~Compensation”:~~an estimated fair value of $53. This amount has been recorded as prepaid interest and is being amortized to interest expense.

	Three Months Ended March 31,
	2005			2004
Net loss, as reported	$	(975	)	$	(1,540	)
Deduct: Stock-based compensation expense determined under fair value based method for awards net of related tax expense, if applicable		21			155
Pro forma net loss	$	(996	)	$	(1,695	)
Loss per share, as reported:
Basic and diluted	$	(0.04	)	$	(0.09	)
Pro forma loss per share:
Basic and diluted	$	(0.04	)	$	(0.10	)

On March 16, 2005, the Company obtained $200 from a private equity fund, who is not a related party, in a first round of a private placement of the Company’s unregistered stock. 3,333,334 shares of the Company’s unregistered common shares and warrants were issued for this transaction. The same investor has committed to invest another $100 in the next round of funding scheduled to occur in the second quarter of 2006.

~~Note~~Management 2has -carefully ~~Changes~~forecasted its results of operations and financial position through March 31, 2007, and has determined that the remaining cash on hand, together with cash available from the line of credit (see discussion in subsequent events, regarding notice from CAPCO) and ~~Stockholders’~~proceeds ~~Equity~~from the sales of Common Stock to accredited investors, and proceeds from the sale of the IT services segment, will provide adequate cash to fund its anticipated working capital needs. In the event circumstances arise that are not factored into the forecast, management will take further action to streamline operations and to continue looking for financing alternatives.

				Additional Paid-In Capital			Accum. Deficit							Total Stockholders’ Equity
	Common Stock									Treasury Stock
	Shares	Amount								Shares	Amount
Balance at December 31, 2004	24,984,792	$	250	$	82,801		$	(79,946	)	644,600	$	(500	)	$	2,605
Issuance of Common Stock in connection with private placement	1,550,000		15		53			—		—		—			68
Issuance of Warrants in connection with private placement	—		—		87			—		—		—			87
Cost of registering and issuing securities in connection with private placement	—		—		(47	)		—		—		—			(47	)
Restricted shares issued in connection with director compensation	130,770		1		16			—		—		—			17
Net loss								(975	)						(975	)
Balance at March 31, 2005	26,665,562	$	266	$	82,910		$	(80,921	)	644,600	$	(500	)	$	1,755

Stock-Based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006.

The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of the Company’s fiscal year 2006. The Company’s Consolidated Financial Statements as of and for the six months ended June 30, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense recognized under SFAS 123(R) for the three months ended March 31, 2006 and six months ended June 30, 2006 was $36 and -0- which consisted of stock-based compensation expense related to employee stock options. There was no stock-based compensation expense related to employee stock options and employee stock purchases recognized during the three months ended March 31, 2006 and six months ended June 30, 2006.

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statement of Operations. Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s Consolidated Statement of Operations, because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.

The table below reflects net income and diluted net income per share pro forma information for the six months ended June 30, 2006 as follows:


	Six Months
	Ended
	June 30
	2006
Net loss, as reported	$	(1,855	)
Deduct: Stock-based compensation expense determined under fair value based method for awards net of related tax expense, if applicable		—

Net Loss – pro forma	$	(1,855	)


Basic and diluted:
Net loss per share, as reported	$	(0.06	)
Effect of stock-based compensation per SFAS 123		—

Basic and diluted	$	(0.06	)

The Company calculated the value of each option on the grant date using the Black-Scholes option pricing model as prescribed in SFAS No. 123 using the following assumptions:


	Six Months Ended
	June 30, 2006
Dividend Yield		0	%
Volatility		157	%
Risk-free interest rate		3.96	%
Expected term	1.25 years

Basis of Presentation

We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. These condensed consolidated financial statements should be read in conjunction with our audited financial statements and footnotes related thereto for the year ended December 31, 2005, included in our annual report on Form 10-K filed with the Securities and Exchange Commission on April 17, 2006. The unedited condensed consolidated financial statements include, in our opinion, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position as of June 30, 2006. The results of operations for such interim periods are not necessarily indicative of the results to be achieved for the full year.

Revised Cash Flow

In 2005, the Company has not reported operating, investing, and financing portions of the cash flow attributed to its discontinued operations as a single amount.

Note 2 – Changes in Stockholders Equity


					Additional											Total
	Common Stock				Paid in						Treasury Stock					Stockholders’
	Shares		Amount		Capital			Net Loss			Shares		Amount			Equity
Balance at December 31, 2005		28,868,229	$	289	$	82,785		$	(81,006	)		144,600	$	(113	)	$	1,955
Issuance of Common Stock in connection with private placement		3,333,334		33		—			—			—		—			33
Issuance of Warrants in connection with private placement		—		—		167			—			—		—			167
Cost of registering and issuing securities in connection with private placement		—		—		(9	)		—			—		—			(9	)
Issuance of Common Stock in connection with purchase of a business		197,333		2		8			—			—		—			10
Cost of registering and issuing securities in connection with purchase of a business		—		—		(10	)		—			—		—			(10	)
Issuance of Common Stock for services		770,000		8		55			—			—		—			63
Stock-based compensation expense related to employee stock options		—		—		35			—			—		—			35
Issuance of Common Stock in connection with issuing debt		500,000		5		48			—			—		—			53
Net loss		—		—		—			(991	)		—		—			(991	)

Balance at June 30, 2006		33,668,896	$	337		83,079		$	(81,997	)		144,600	$	(113	)	$	1,306

Note 3 –Acquisition

~~Cotelligent~~Watchit Media acquired OnSite Media, Inc, a Nevada corporation, on March 2, 2004. In the acquisition, OnSite was merged with and into Watchit Media USA, Inc. a wholly owned subsidiary of Watchit ~~Cotelligent~~Media, or “Watchit”. OnSite was a ten year old ~~company~~Company that developed enabling digital technologies and production services aimed at providing complete solutions for video content creation, distribution, scripting and playback for companies with digital display channels and networks. OnSite historically provided this software and service offerings to the hospitality and gambling industries. This is called narrowcasting.

Narrowcasting technology presents dynamic, compelling motion media that influences the actions of captive audiences. Promotional messages for hotel in-room channels, presenting commercial messages to casino entertainment facilities and outdoor signage had been the primary business of OnSite. In addition, OnSite developed a unique Internet media creation software application which we believe will give the newly formed Watchit a competitive advantage. ~~Cotelligent~~Watchit Media intends to leverage its marketing expertise, resources and infrastructure to enhance Watchit’s current services, launch new proprietary television programs, add greater value to current client relationships, add clients in the hospitality market, and expand to new markets.

The Company believes the convergence of Internet, wireless and video media will soon become a major part of the technology landscape. The Company believes ~~Cotelligent~~Watchit Media’s infrastructure, experience in developing wireless and Internet business applications and its system integration expertise are an excellent fit with the rapidly evolving narrowcasting market.

The aggregate consideration paid for the acquisition was $3,307 (10,679,608 shares of the Company’s Common Stock issued at fair value of $1,815 and based on the average closing price of the Company’s Common Stock for a few days prior to and after the signing of the definitive agreement and related public announcement to purchase the business on November 25, 2003, warrants to purchase 5,339,803 shares of the Company’s ~~common~~Common ~~stock~~Stock value using the Black-Scholes with the following assumptions: (1) risk-free interest rate of 1.95%, (2) a dividend yield of 0%, (3) volatility factor of the expected market price of the Company’s Common Stock of 175%, and (4) a weighted average expected life of 2 years, that resulted in a valuation of $676, cash consideration of $505 and transaction costs of $501). Transaction costs of $501 include $195 paid for registration of securities in connection with the acquisition which were netted against the issuance of the shares. Liabilities assumed were approximately $247, and tangible assets acquired were approximately $96. The Company recognized total intangible assets of $3,458 resulting from the acquisition.

The Company has obtained an independent valuation for the aggregate consideration paid for the acquisition as follows.

Total liabilities assumed	$	(247	)
Total tangible assets acquired		96
Identifiable intangible assets:
Software		73
Customer contracts		98
Archived content video library		695
Goodwill		2,592
Total aggregate consideration paid	$	3,307

~~The~~Immediately ~~changes~~following inthe ~~carrying~~close ~~amounts~~of the transaction, with the issuance of ~~goodwill~~ ~~and~~10,679,608 ~~other~~shares ~~intangibles~~of Watchit ~~for~~Media Common Stock, the ~~three~~former ~~months~~OnSite ~~ended~~stockholders ~~March~~owned ~~31,~~43% ~~2005~~of ~~were~~the astotal ~~follows.~~shares of Watchit Media Common Stock then outstanding.

	Goodwill		OtherIntangibles
Balance at December 31, 2004	$	2,592	$	748
Amortization expense		—		(35	)
Balance at March 31, 2005	$	2,592	$	713

The Company has ascribed useful lives to the identifiable intangible assets that range from 2 to 20 years.

Immediately following the close of the transaction, with the issuance of 10,679,608 shares of Cotelligent Common Stock, the former OnSite stockholders owned 43% of the total shares of Cotelligent Common Stock then outstanding.

The results of the acquired business were included in the Company’s results of operations from its acquisition date, March 2, 2004.

InThe ~~accordance~~results ~~with~~of ~~SFAS No. 141, “Business Combinations,”~~ the ~~following~~acquired ~~unaudited~~business ~~pro~~were ~~forma~~included ~~information for~~in the ~~three~~Company’s ~~months~~results ~~ended~~of ~~March~~operations ~~31,~~from ~~2004, gives effect to the~~ its acquisition ~~of OnSite Media~~date, ~~Inc.~~March 2, ~~as if the acquisition was completed as of the beginning of the periods reported below~~2004.

	(Unaudited)Three Months Ended March 31, 2004
Pro forma revenues	$	316
Pro forma loss from continuing operations before income tax expense	$	(104	)
Pro forma loss from continuing operations	$	(110	)
Pro forma loss per share:
Basic and diluted	$	—

California Visitors Network

Pursuant to an Asset Purchase Agreement dated September 15, 2005, between the Company and California Visitors Network, the aggregate consideration paid to California Visitors Network was $126 (202,667 shares of the Company’s Common Stock issued at fair value of $30, based on the average closing price of the Company’s Common Stock on a few days prior to and after the signing of the Asset Purchase Agreement and cash considerations of $66 and future cash payments payable of $30). Liabilities assumed were $10.

The Company has accounted for the aggregate consideration paid for the acquisition as follows:


Liabilities assumed	$	(10	)
Goodwill		136

Total aggregate consideration paid	$	126

The changes in carrying amounts of goodwill and other intangibles for the six months ended June 30, 2006 were as follows.


			Other
	Goodwill		Intangibles
Balance at December 31, 2005	$	2,728	$	607
Amortization expense		—		(70	)

Balance at June 30, 2006	$	2,728	$	537

The Company has ascribed useful lives to the identifiable intangible assets that range from 2 to 20 years. In the six months ended June 30, 2006 and 2005 the Company recorded amortization on the identifiable intangible assets of $35 and $35, respectively.

Note 4 – Restructuring Programs

In September 2001, as part of the Company’s efforts to streamline its operations commensurate with its revenue base, the Company identified opportunities to reduce its cost structure. Accordingly, the Company adopted an exit plan which resulted in a restructuring charge of $2,436 during the year ended December 31, 2001. The September 2001 plan included provisions for severance of approximately 145 management and operating staff ($1,034) as well as closure costs associated with a plan to consolidate or dispose of certain locations ($1,402). The September 2001 plan did not meet the requirements in order to accrue employee severance costs as of a commitment date, and these severance costs that did not provide a future benefit were charged to operations when due and payable.

~~In August 2003, as part of the Company’s efforts to streamline its operations~~12 commensurate with its revenue base, the Company identified opportunities to reduce its cost structure by reducing headcount. The Company terminated approximately 33 management and operating staff between August 2003 and December 2003 and recorded a restructuring charge related to the severance and extended medical coverage (“COBRA”) benefits provided to the terminated employees of $2,531. Only the COBRA benefits remained payable at September 30, 2004.

In October of 2004, as part of the Company’s efforts to streamline its operations commensurate with its revenue base, the Company identified additional opportunities to reduce its cost structure and decided to close its software development operation in southern California. Accordingly, the Company adopted an exit plan which resulted in a reduction of approximately 14 management and operating staff ($93) as well as closure costs associated with a plan to dispose of the southern California location ($24). The Company accounted for the plan in line with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”.

The following summarizes the activity and balances for these restructuring programs for the three months ended March 31, 2005.

	September 2001		August 2003			October 2004
	FacilitiesClosure		Severance& Benefits			Severance			FacilitiesClosure			Total
Balance at December 31, 2004	$	616	$	9		$	44		$	24		$	693
Spending, net of sublease receipts on facilities		17		(9	)		(10	)	$	(12	)		(14	)
Balance at March 31, 2005	$	633	$	—		$	34		$	12		$	679

The following summarizes the activity and balances for these restructuring programs for the six months ended June 30, 2006.


	September 2001
	Facilities
	Closure
Balance at December 31, 2005	$	595
Spending, net of sublease receipts on facilities		(1	)

Balance at June 30, 2006	$	594

Note 5 – Discontinued Operations

Prior to December 31, 2004, the Company entered into a plan to divest its IT services segment. The following financial data reflects the ~~total~~ ~~assets~~summary ~~and~~of ~~total~~operating ~~liabilities~~results offor the ~~discontinued~~three ~~operations~~months asended of March 31, 2005. ~~and~~The ~~December~~sale ~~31, 2004 and summary~~ of ~~operating~~the ~~results~~IT ~~for~~services ~~the~~segment ~~three~~was ~~months~~completed ~~ended~~on ~~March 31~~July 15, 2005 ~~and 2004.~~

Assets and Liabilities of Discontinued Operations:

	March 31,2005		December 31,2004
Assets
Prepaid expenses and other	$	159	$	160
Total current assets of discontinued operations held for sale		159		160
Property and equipment, net of accumulated depreciation of $156 and $156		170		170
Total non-current assets of discontinued operations held for sale		170		170
Total assets of discontinued operations held for sale		329		330
Liabilities
Accounts payable		67		36
Accrued compensation		191		262
Deferred revenue		601		600
Total current liabilities of discontinued operations		859		898
Net liabilities of discontinued operations held for sale	$	530	$	568

Summary of Operating Loss from Discontinued Operations:

	For the Three Months Ended March 31,
	For the Three Months
	2005			2004
	Ended March 31,
Revenues	$	937		$	1,936
	2005
Cost of revenues		514			1,146
Revenues	$	937
Gross profit		423			790
Cost of revenues		514
Selling, general and administrative expenses		1,095			2,177
Gross profit		423
Operating loss		(672	)		(1,387	)
Selling, general and administrative expenses		1,095
Total other income		—			—
Operating loss		(672	)
Loss before income tax		(672	)		(1,387	)
Total other expense		—
Income tax		—			—
Loss before income tax expense		(672	)
Net loss	$	(672	)	$	(1,387	)
Income tax expense		—
Net loss	$	(672	)

Note 6 – Weighted Average Number of Shares Outstanding

There were no reconciling items between the numerator and denominator used to compute basic and diluted loss per share for the periods presented in the condensed consolidated statements of operations. The Company had outstanding stock options, and warrants of 1017,~~310~~416,~~805~~088 and 710,~~878~~310,~~115~~805 at ~~March~~ March 31, ~~2005~~2006 and ~~2004~~2005 respectively, that were not included in EPS for those relevant periods because the Company reported a loss from continuing operations resulting in an antidilutive effect.

Note 7 – ~~Segment~~Stock ~~Information~~Based Compensation

~~Prior~~Long-term toIncentive ~~March 2, 2004, Cotelligent was organized into one reportable segment, IT services.~~Plan Effective with the acquisition of OnSite Media, Inc. on March 2, 2004, the Company became organized into the following two reportable segments, to align internal management with current service offerings:

ITThe ~~services.~~Company ITmaintains ~~software~~the 1998 Long-Term Incentive Plan (the “1998 Plan”) and ~~consulting~~the ~~services~~2000 Long-Term Incentive Plan (the “2000 Plan”). The 1998 Plan was adopted as a replacement to ~~businesses~~the Company’s 1995 Long-Term Incentive Plan (the “1995 Plan”). No further awards may be granted under the 1995 Plan, although awards granted prior to the adoption of the 1998 Plan remain outstanding under the 1995 Plan in accordance with ~~complex~~their ITterms. The 2000 Plan is similar to the 1998 Plan, except that (i) awards ~~operations~~under the 2000 Plan are to be made primarily to employees who are not officers or directors, (ii) the 2000 Plan does not contain a limit as to the number of shares that may be subject to outstanding awards granted either individually or in ~~addition~~the aggregate (whereas the 1998 Plan contains 750,000 per individual annual limit, and aggregate limit of 18% of total outstanding shares), and (iii) incentive stock options (ISOs) cannot be granted under the 2000 Plan. Of the non-qualified options granted to ~~maintenance~~date, ~~support~~a majority is generally exercisable beginning one year from the date of the grant in cumulative yearly amounts of 25% to 33% of the shares under option and ~~hosting~~all onexpire ~~software~~ten years ~~products~~from itthe ~~has~~date ~~licensed~~of the grant. Under the provisions of the plans, stock-based awards are granted at terms and prices determined by the Compensation Committee of the Board of Directors as defined in each plan, except for grants of 10,000 stock options or less, which are administered by the Chief Executive Officer of the Company.

~~Narrowcasting~~A summary of option transactions is described in the table below. ~~Creative~~All ~~media~~options ~~development,~~granted ~~private~~in ~~venue~~the periods ~~video~~below ~~programming,~~are ~~installation~~non-qualified and ~~integration~~were ofgranted ~~Internet~~with ~~protocol~~exercise ~~(IP)~~prices ~~digital~~no ~~technology~~less ~~presenting~~than ~~video~~the ~~content,~~fair ~~distribution,~~market value ~~scripting~~of ~~and playback~~the ~~via~~underlying ~~Broadband~~stock toon ~~private~~the ~~video~~date ~~networks.~~of the grant.


				Weighted Average
	Number of Shares			Exercise Price
Outstanding at December 31, 2005		5,419,810		$	0.19
Granted		1,575,000		$	0.07
Cancelled		(1,214,936	)	$	0.24

Outstanding at March 31, 2006		5,379,874		$	0.14

The total compensation cost not yet recognized as of March 31, 2006 related to non-vested options was $107,874 which will be recognized over 3 years.

Note 8 — Segment Information

Prior to March 2, 2004, Watchit Media was organized into one reportable segment, IT services. Effective with the acquisition of OnSite Media, Inc. on March 2, 2004, the Company became organized into the following two reportable segments, to align internal management with current service offerings:

IT services . IT software and consulting services to businesses with complex IT operations in addition to maintenance, support and hosting on software products it has licensed.

Narrowcasting. Creative media development, private venue video programming, installation and integration of Internet protocol (IP) digital technology presenting video content, distribution, scripting and playback via Broadband to private video networks.

Prior to December 31, 2004, the Company committed to a plan to discontinue its IT services segment. Accordingly, these accompanying consolidated financial statements have been prepared on a discontinued operations basis effectively reporting the Narrowcasting segment as continuing operations (see accompanying condensed consolidated statements of operations), and the IT services segment as discontinued operations (see Note 5).

Note 89 – — Subsequent Events

Issuances of Common Stock – —

On April 11 14, ~~2005~~2006, the Company ~~entered~~obtained ~~into~~$20,000 afrom ~~Stock and Warrant Purchase Agreement with~~ an accredited investor, ~~pursuant~~who tois ~~which~~not ~~the~~a ~~Company sold an aggregate of 1~~related party,~~000,000~~ ~~shares~~as ofpart ~~Common Stock at an offering price~~ of ~~$0.10~~the ~~per~~private ~~share~~placement ~~and warrants to purchase up to an additional 1,000,000 shares~~ of ~~Common Stock. On April 27, 2005,~~ the ~~Company~~ ~~entered into a Stock and Warrant Purchase Agreement with the~~ Company’s ~~Chief~~unregistered ~~Executive Officer pursuant to which the company sold an aggregate of 1,000,000 shares of Common~~ stock ~~at an offering price of $0~~.10 ~~per shares and warrants to purchase up to an additional 1~~333,~~000,000~~333 shares of ~~Common Stock. Each warrant is exercisable for~~ the ~~purchase of one share of the~~ Company’s ~~Common~~unregistered ~~Stock~~common atshares anwere ~~exercise~~issued ~~price~~for ofthis $0transaction.~~30 per share. The warrants are immediately exercisable and expire~~ ~~three years from their date of issuance. The Company has the right to redeem all or any portion of the warrants at any time at a price of $0.05 per share.~~

~~The~~On ~~Company~~April 28, ~~further~~2006, ~~agreed~~the toCompany ~~use~~obtained ~~its~~$500,000 ~~commercially~~from ~~reasonable~~two ~~efforts~~accredited toinvestors, ~~file~~who aare ~~registration~~not ~~statement~~a related ~~with~~party, ~~the Securities and Exchange Commission~~ as ~~promptly~~part ~~as reasonably practicable after the first anniversary~~ of the ~~above~~private ~~agreements~~placement ~~and to use its commercially reasonable efforts to have such registration statement declared effective in order to comply with the provisions~~ of the ~~Securities~~Company’s ~~Act~~unregistered ofstock. ~~1933~~5, ~~as amended~~555,555 shares ~~so as to permit (i) the registered resale~~ of the ~~warrants~~Company’s ~~and~~unregistered ~~the~~common ~~exercise of the warrants for~~ shares ofand ~~Common~~2,777,778 ~~Stock by persons to whom the~~ warrants ~~are~~were ~~resold~~issued ~~pursuant to such resale registration and (ii) the registered resale of the Common Stock and the shares of Common Stock issuable upon exercise of the warrants~~ for ~~a period of one year following the date on which the registration statement is declared effective by the holder of the Common Stock and warrants sold pursuant to~~this ~~the agreements who desires to register the resale of their shares of Common Stock and warrants~~transaction.

~~Sale~~On May 16, 2006, the Company obtained $125,000 from two accredited investors, who are not a related party, as part of ITthe ~~Services~~private ~~Business~~placement of the Company’s unregistered stock. 1,250,000 shares of the Company’s unregistered common shares and 625,000 warrants were issued for this transaction.

On ~~April 1~~May 5, ~~2005~~2006, the Company ~~and~~filed ~~certain~~form ofSB-2 ~~its subsidiaries entered into an Asset Purchase Agreement~~ with ~~FastTrack,~~the ~~LLC,~~Securities anand ~~affiliate~~Exchange ofCommission ~~Beverly~~registering all ~~Hills,~~shares ~~California-based~~and ~~private~~warrants ~~equity~~that ~~firm~~were ~~Skyview~~to ~~Capital,~~be ~~LLC,~~issued for ~~the~~all ~~sale~~funding ofthat ~~its~~was ITreceived ~~services~~prior ~~business located~~to ~~at Broomall~~May 5, ~~Pennsylvania~~ 2006. ~~Aggregate~~On ~~consideration~~May 12, ~~for~~2006, the ~~business~~SEC ~~includes:~~informed ~~cash~~the atCompany ~~closing~~that ~~of $2,800 and an earn-out of up to $950 if certain future revenue targets are attained over~~ the ~~three~~SEC ~~years~~does ~~following~~not ~~completion~~plan ofon ~~the~~reviewing ~~sale. The~~the ~~purchaser~~form ~~will be entitled to a post~~SB-~~closing~~2 ~~refund~~and ~~of up to $700 in~~ the ~~event~~Company ~~certain~~may ~~specified~~proceed ~~business~~with ~~conditions~~requesting ~~are not satisfied~~effectiveness. The ~~transaction~~Company isplans ~~subject~~ to ~~stockholder~~do ~~approval and is expected to close by the end of the second quarter of~~so ~~2005~~promptly.

12 Other

On August 1, 2006, the Company entered into an Agreement with Access Commercial Credit for the purpose of factoring our accounts receivable. By factoring our accounts receivable we are able to have access to 80% of the cash underlying the accounts receivable upon presentation of our invoices to our clients. Under the Agreement Access Commercial Credit is paid 2.5% of the face amount of each invoice factored and 2.0% of each invoice factored for each 15 day period beyond the initial 60 day period. The Agreement is for a term of two years and may be renewed by the parties for an additional year at the end of the initial term. The Company has the right on 90 days notice to terminate the Agreement. Upon termination the Company is obligated to pay a termination fee equal to the highest monthly fees paid during the 90 days preceding the termination date.

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

Except for statements of historical fact contained herein, any statements contained in this report may be deemed to be forward-looking statements within the meaning of ~~Section~~ Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. All such forward-looking statements are based upon current expectations that involve risks and uncertainties. ~~Cotelligent~~The Company’s actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those discussed under “Risk Factors” in ~~Cotelligent~~The Company’s Annual Report on Form 10-K for the fiscal year ended ~~December~~ December 31, ~~2004~~2005 and other filings made with the Securities and Exchange Commission. The following discussion is qualified in its entirety by, and should be read in conjunction with, the more detailed information set forth in our financial statements and the notes thereto included elsewhere in this filing. All forward-looking statements included in this report are based upon information available to ~~Cotelligent~~The Company as of the date thereof, and ~~Cotelligent~~The ~~assumes~~Company assumes no obligation to update any of such forward-looking statements.

~~Cotelligent~~The Company was formed in February 1993 to acquire, own and operate IT services businesses. ~~Cotelligent~~The Company was a non-operating entity until 1996 when it first began to acquire businesses. The Company historically operated on an April 1 to March 31, fiscal year. In July 2000, the Company changed its fiscal year to December 31, resulting in a nine-month transition period from April 1, 2000 through December 31, 2000. In 2004, the Company was organized into two reportable segments, IT services and narrowcasting (which became effective with the acquisition of OnSite Media, Inc. on March 2, 2004). The results of OnSite Media, Inc. have been included in the Company’s results from its acquisition date. Prior to December 31, 2004, the Company entered into a plan to divest its IT services segment. Accordingly, the financial information on the Quarterly Report has been restated to present as discontinued operations the Company’s IT services segment for all periods presented.

On a continuing operations basis, ~~Cotelligent~~Watchit Media provides narrowcasting services which includes Internet protocol (IP) technologies and production services for video content, distribution, scripting and playback on digital display video channels and networks, as well as maintenance, support and contract services on software and hardware products it licenses. The Company provides these services primarily to gaming and hospitality businesses. Narrowcasting, maintenance and support services are provided under term contracts of which most are one year or longer. These contracts are renewable at the discretion of our clients.

The Company recognizes revenue for the subscription of maintenance, support and contract services on software and hardware products it licenses to its narrowcasting clients as the Company performs the services. Revenues earned for software license sales and service contracts are recorded based on the provisions of AICPA SOP 97-2, “ Software Revenue Recognition ,” as amended, which shares the basic criteria described above. For each element in a software arrangement (e.g. license, maintenance, and services), the amount of revenue recognized is based upon vendor specific objective evidence of fair value using the residual method. Revenue for production services for video content, distribution, scripting and playback on digital display video channels and ~~networks~~ networks on either a time and materials basis, when services are provided or where pursuant to fixed-fee contract, the revenue is generally recognized as services are rendered on the percentage-of-completion method of accounting based on hours incurred to total estimated labor hours to complete. Revenues include reimbursable expenses charged to and collected from clients.

The Company’s principal costs are professional compensation directly related to the performance of services and related expenses. Gross profits (revenues after professional compensation and related expenses) are primarily a function of the number of gaming and hospitality properties that subscribe to the narrowcasting services as well as the number of channels for different narrowcasting services each property elects to subscribe to and the level of video production service purchased by the client. Gross profits can be adversely impacted if clients do not renew contracts, if the Company is not effective in managing its service activities, or if fixed-fee engagements for production services are not properly priced.

Operating income can be adversely impacted by increased administrative staff compensation and expenses related to streamlining or expanding the Company’s business, which may be incurred before revenues or economies of scale are16 ~~generated from such investment.~~

~~OVERVIEW~~Operating OFincome ~~2005~~can ~~AND~~be ~~2004~~adversely impacted by increased administrative staff compensation and expenses related to streamlining or expanding the Company’s business, which may be incurred before revenues or economies of scale are generated from such investment.

OVERVIEW OF 2006 AND 2005

In the years leading up to 2004, we strategically shifted from providing general IT services and solutions to a targeted approach to offering mobile workforce management and Web services. We changed our go-to-market strategy to better focus our resources and leverage our experience and solid client base in these areas. Our decision to do this was reinforced at the time by market research, financial research and our own research and analysis indicating that mobile workforce management and Web services were the next emerging growth markets. Our solutions utilized broadly accepted as well as cutting edge technologies. We spent considerable time on the development of these core competencies after divesting the majority of our IT staffing business in 2000. In addition, the Company carefully assessed and exited a number of solutions and service offerings that were not core to the principal service offerings outlined above.

While executing this strategy we believed we were focused on offering services that would help us increase revenue in the near term. From 2001 through the third quarter of 2003 the Company continued to invest heavily in a large scale sales, marketing and business development organization working to capture new business. In September 2002, the Company hired a marketing executive to develop and implement a more formalized and systematic marketing program for the Company because of the difficulty we were having in selling new business to new clients. Marketing programs re-designed and put in place by early 2003 offered promising results when measured against prior year sales opportunity pipeline and business backlog. By the second quarter of 2003, the Company gained more confidence in its marketing program and saw an unprecedented number of prospect and client proposals. Nevertheless, throughout 2003 we continued to be disappointed by prospects and clients either delaying decisions to initiate projects or pursuing lower cost off-shore technical resource to executing their projects. In spite of the Company’s investments in its selling organization, we were not successful in signing new business with companies we had not done business with before. We did, however, continue to sign new contracts with existing clients.

In August of 2003, it became clear to us that a number of opportunities that only a few months before looked promising were not going to close. The Company performed an in-depth review of each opportunity and concluded that businesses were reticent to use discretionary expenditures to invest in mobile workforce and Web service technologies (or other new projects) given the fact that their current IT environments operated satisfactorily. In addition, fearful of continuing poor economic conditions and market pressures, we observed that many of the prospects that decided to pursue projects did so with larger, better capitalized firms than ~~Cotelligent~~Watchit Media.

It became evident that the outlook for spending in IT services would continue to be uncertain without any clear indication of when a turnaround could be expected. Accordingly, in August 2003, the Company terminated the majority of its senior executive staff along with most of the sales and business development organization. At the same time we aggressively engaged our existing clients and committed ourselves to supporting their project requirements. In some cases we have been successful in securing longer term commitments. By scaling back expenses and focusing intensely on generating business from our long term clients we began to stabilize our revenue trend allowing us to move forward in our attempt to restore profitability and positive cash flow ~~Throughout the remainder of 2003, the Company continued to reduce headcount and looked closely at expense activity to scale back and streamline operating costs in line with revenue~~. ~~The Philadelphia-based operation that supports Cotelligent’s sales force automation application FastTrack has achieved~~ stable revenue over the past several years and our clients continue to give us high marks for performance and client service. In addition, the core team responsible for our custom software development activities is helping us to take advantage of recurring projects with existing clients. By keeping only the top sales account executives and account managers, we have lowered our selling cost and improved our client relationships and retention.

InThroughout ~~April~~the remainder of 2003, ~~our~~the ~~Chief~~Company ~~Executive~~continued ~~Officer,~~to ~~James~~reduce ~~Lavelle,~~headcount ~~sent~~and alooked ~~letter~~closely toat expense ~~our~~activity ~~stockholders indicating~~to ~~the~~scale ~~Company’s~~back ~~intention~~and tostreamline ~~engage~~operating costs in ~~merger~~line ~~and~~with ~~acquisition~~revenue. ~~activities~~The Philadelphia-based inoperation ~~order~~that tosupports ~~help~~Watchit ~~improve Cotelligent~~Media’s ~~prospects~~sales ~~for~~force ~~the~~automation ~~future~~application FastTrack ~~and~~has ~~increase~~achieved ~~our~~stable ~~scale.~~revenue Asover athe ~~matter~~past ofseveral ~~course~~years ~~since~~and ~~we started~~ our ~~Company~~clients incontinue ~~1996~~to ~~and~~give ~~successfully~~us ~~executed~~high anmarks ~~aggressive~~for ~~merger~~performance and ~~acquisition~~client ~~strategy~~service. ~~through~~In ~~early 1999~~addition, wethe ~~believed~~core ~~this~~team ~~strategy~~responsible ~~would~~for ~~help~~our custom ussoftware ~~improve~~development ~~our~~activities ~~prospects.~~is Wehelping ~~researched~~us ~~and~~to ~~analyzed~~take aadvantage ~~variety~~ of ~~vertical~~recurring ~~markets~~projects ~~that could provide new growth~~with ~~opportunities~~existing ~~for us through merger or acquisition~~clients. InBy ~~mid-2003~~keeping ~~Cotelligent~~only ~~signed~~the atop ~~letter~~sales ofaccount ~~intent~~executives toand ~~acquire~~account amanagers, ~~field~~we ~~force~~have lowered ~~automation~~our ~~firm.~~selling ~~After~~cost 90and ~~days~~improved ofour ~~due~~client ~~diligence,~~relationships weand ~~decided not to consummate the transaction~~retention.

~~In September 2003, Cotelligent engaged in a dialog with a Las Vegas based narrowcasting~~17 company, OnSite Media, Inc. The combination of Cotelligent’s deep history in Internet, media and wireless technologies and OnSite’s strength in driving video content to high growth venues in the gaming and hospitality industries looked promising. Cotelligent entered into a definitive agreement to acquire OnSite Media, Inc. on November 24, 2003, and closed the acquisition transaction on March 2, 2004. By integrating OnSite’s business with Cotelligent’s infrastructure, and by utilizing our public company know how to position us for the future, we have set about executing a strategy that we believe will allow us to play an important role in the convergence of Internet, video and mobile technology. This is a growing; fast paced market in which we believe the ability to integrate these technologies will help us to differentiate us from many other companies.

~~Upon~~In ~~completion~~April 2003, ofour ~~the~~Chief ~~acquisition~~Executive Officer, ~~OnSite~~James ~~Media~~Lavelle, ~~was~~sent ~~renamed~~a ~~Watchit~~letter ~~Media,~~to ~~Inc.,~~our ~~and~~stockholders indicating isthe ~~now~~Company’s aintention ~~wholly-owned~~to ~~subsidiary~~engage ~~of Cotelligent,~~in ~~Inc.~~merger ~~The~~and ~~newly~~acquisition ~~acquired~~activities ~~business~~in ~~was~~order ~~immediately~~to ~~integrated~~help improve ~~into~~Watchit ~~the~~Media’s ~~Cotelligent~~prospects ~~infrastructure~~for ~~from~~the ~~March~~future ~~through~~and ~~October~~increase ~~2004~~our scale. ~~Our~~As ~~Board~~a matter of ~~Directors~~course since ~~carefully~~we ~~followed~~started ~~and~~our ~~evaluated~~Company ~~the~~in ~~financial~~1996 and ~~operating~~successfully ~~performance~~executed ofan ~~our Company’s~~aggressive ~~two~~merger ~~business~~and ~~segments.~~acquisition strategy ~~While~~through ~~the~~early IT1999, ~~services~~we ~~and~~believed ~~solutions~~this ~~business~~strategy ~~continued~~would tohelp ~~struggle,~~us ~~Watchit~~improve ~~Media~~our ~~performed~~prospects. ~~well~~We researched and ~~experienced~~analyzed ~~significant~~a ~~revenue~~variety ~~growth,~~of ~~together~~vertical ~~with~~markets ~~stabile~~that tocould ~~increasing~~provide ~~gross~~new ~~margin~~growth ~~performance~~opportunities for us through merger or acquisition. In ~~addition,~~ mid-2003 Watchit’s ~~near~~Media ~~and~~signed ~~longer~~a ~~term~~letter ~~business~~of ~~opportunities~~intent ~~appeared~~ to acquire ~~indicate~~a ~~the~~field ~~strong~~force ~~possibility~~automation firm. After 90 days of ~~future~~due ~~revenue~~diligence, ~~growth.~~we decided not to consummate the transaction.

In ~~November 2004~~September 2003, weWatchit ~~announced~~Media ~~our~~engaged ~~plan~~in toa ~~divest~~dialog ~~our~~with ~~entire~~a ITLas ~~services~~Vegas ~~and~~based ~~solutions~~narrowcasting ~~business~~Company, OnSite ~~and~~Media, ~~change~~Inc. ~~our~~The ~~name~~combination toof Watchit Media,’s ~~Inc.~~deep ~~allowing~~history usin toInternet, ~~focus~~media ~~all~~and ~~of our~~wireless ~~attention~~technologies onand ~~narrowcasting.~~OnSite’s Onstrength ~~April~~in 1,driving ~~2005,~~video wecontent ~~signed~~to ahigh ~~definitive~~growth ~~agreement~~venues toin ~~divest~~the ~~our~~gaming ITand hospitality ~~services~~industries ~~and~~looked ~~solutions~~promising. ~~business~~Watchit toMedia ~~Fast~~entered ~~Track~~into ~~LLC,~~a andefinitive ~~affiliate~~agreement ofto acquire ~~Beverly~~OnSite ~~Hills~~Media, ~~California-based~~Inc. ~~private~~on ~~equity~~November 24, ~~firm~~2003, ~~Skyview~~and ~~Capital,~~closed ~~LLC,~~the ~~for aggregate~~acquisition ~~consideration~~transaction ofon $March 2,~~800~~ 2004. inBy ~~cash~~integrating atOnSite’s ~~closing~~business ~~and~~with anWatchit ~~earn-out~~Media’s ofinfrastructure, upand toby ~~$950~~utilizing ifour public ~~certain~~Company ~~revenue~~know ~~targets~~how ~~are~~to ~~attained~~position ~~over~~us for the ~~three~~future, ~~years~~we ~~following~~have ~~completion~~set ofabout ~~the~~executing ~~sale.~~a ~~The~~strategy ~~purchaser~~that we believe will beallow ~~entitled~~us to aplay ~~post-closing~~an ~~refund~~important ofrole upin tothe ~~$700 if~~convergence ~~certain~~of ~~specified~~Internet, ~~business~~video ~~conditions~~and ~~are~~mobile technology. ~~not~~This ~~satisfied.~~is ~~The~~a ~~divestiture~~growing; isfast ~~subject~~paced tomarket ~~stockholder~~in ~~approval~~which ~~and~~we isbelieve ~~expected~~the ability to ~~close~~integrate bythese technologies ~~the~~will ~~end~~help ofus ~~the~~to ~~second~~differentiate ~~quarter~~us offrom ~~2005.~~many other companies.

~~Three~~Upon ~~Months~~completion ~~Ended~~of the acquisition, OnSite Media was renamed Watchit Media, Inc., and is now a wholly-owned subsidiary of Watchit Media, Inc. The newly acquired business was immediately integrated into the Watchit Media infrastructure from March 31through October 2004. Our Board of Directors carefully followed and evaluated the financial and operating performance of our Company’s two business segments. While the IT services and solutions business continued to struggle, ~~2005~~Watchit Media ~~Compared~~performed well and experienced significant revenue growth, together with stabile to increasing ~~Three~~gross ~~Months~~margin ~~Ended~~performance. ~~March~~In 31addition, ~~2004~~Watchit’s near and longer term business opportunities appeared to indicate the strong possibility of future revenue growth.

~~The~~In ~~Company~~November 2004, ~~has~~we ~~two~~announced ~~reportable~~our ~~segments:~~plan to divest our entire IT services and ~~narrowcasting~~solutions business and change our name to Watchit Media, Inc. ~~Prior~~allowing us to ~~December~~focus all of our attention on 31narrowcasting. On July 13, ~~2004~~2005, the Company’s ~~entered~~stockholders ~~into~~approved athe ~~plan~~sale toof ~~divest~~the ~~its~~ IT services business ~~segment.~~located ~~Accordingly~~at Broomall, Pennsylvania, the ~~financial~~remaining ~~information~~component ~~presented~~of inour ~~this~~discontinued ~~Quarterly~~operations, pursuant ~~Report~~to ~~has~~an ~~been~~Asset ~~prepared~~Purchase toAgreement, ~~present~~dated as ~~discontinued~~of ~~operations~~April 1, ~~the~~2005, ~~Company’s~~as ITamended ~~services~~on ~~business.~~June 27, 2005 ~~The~~(the ~~Company’s~~“Asset ~~continuing~~Purchase ~~operations~~Agreement”) ~~consist~~entered ofinto between the ~~narrowcasting segment. The~~ Company ~~commenced~~and ~~reporting~~certain ~~revenues~~of ~~for~~ its ~~narrowcasting~~subsidiaries and ~~segment~~FastTech ~~following~~Integrated ~~the~~Solutions, ~~acquisition~~LLC, an affiliate of ~~On-Site~~Beverly ~~Media~~Hills, ~~Inc.~~California-based onprivate equity ~~March~~firm 2Skyview Capital, ~~2004~~LLC. AsThe atransaction ~~result,~~was completed on aJuly 15, ~~continuing~~2005. Pursuant to the ~~operations~~Asset ~~basis~~Purchase Agreement, aggregate consideration for the ~~Company~~business ~~had~~included: nocash ~~revenue~~at closing of $2,300, ~~gross~~subject ~~profit~~to orclosing ~~selling~~date adjustments, ~~general~~ and ~~administrative~~an ~~expenses~~earn-out of up to ~~report~~$1,450 ~~prior~~if tocertain ~~March~~future revenue 2,targets ~~2004.~~are attained over the three years following completion of the sale.

Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005

Revenues

Revenues increased $~~178~~49 or ~~231~~8%, to $~~255~~658 in the three months ended ~~March 31~~June 30, ~~2005~~2006, from $77609 in the three months ended ~~March 31~~June 30, ~~2004~~2005. ~~Effective~~The ~~with~~increase ~~the~~in ~~acquisition~~revenues ofresulted ~~OnSite~~from ~~Media,~~stabilizing ~~Inc, March 2, 2004, the Company~~monthly ~~commenced~~recurring ~~reporting~~contract ~~revenues~~fee ~~under~~based ~~its~~revenue ~~narrowcasting~~and ~~segment.~~having ~~The~~a ~~increase~~quarterly uplift in ~~revenues~~2006 ~~resulted~~with ~~from~~larger ~~the~~platform installations ~~full~~with ~~quarter~~premier ~~effect~~casinos ~~of including revenue resulting from the 2004 acquisition~~clients.

Our narrowcasting clients retain us to manage a part of their television system infrastructure, produce video content pertinent to their brand, marketing communications and hotel property amenities, and present this content on their Private Video Networks. We have annual renewable contracts with our clients for managing the computer hardware that interfaces with their ~~television~~ television systems and, in some cases, their information system infrastructure. Watchit Media charges a base monthly subscription fee for these services. Currently, Watchit derives over 95% of its revenue from base monthly subscription fess under these ~~recurring revenue contracts.~~

information system infrastructure. Watchit Media charges a base monthly subscription fee for these services.

In addition, our clients pay us on a time and materials basis for the production of video content. In the gaming and hospitality industry, our clients tend to require frequent changes to the content we produce for them. Video content pertaining to their entertainment, casino games, cross promotions, and activities are among the dynamic video content we produce.

Gross Profit

Gross profit ~~increased~~decreased $9427 or ~~196~~7%, to $~~142~~350 in the three months ended ~~March 31~~June 30, ~~2005~~2006, from $48377 in the three months ended ~~March 31~~June 30, ~~2004~~2005. Effective with the acquisition of OnSite Media, Inc, March 2, 2004, the Company commenced reporting revenues under its narrowcasting segment. The ~~increase~~ indecrease in gross profit resulted from ~~the~~higher ~~full~~revenues ~~quarter~~offset ~~effect~~by a higher mix of ~~including~~hardware ~~revenue~~platform installations ~~resulting~~which ~~from~~have slightly lower margins than the ~~2004~~monthly ~~acquisition.~~service contracts.

As a percentage of revenues, the gross margin decreased to 5644% in the three months ended ~~March 31~~June 30, ~~2005~~ 2006, from 6256% in the three months ended ~~March 31~~June 30, ~~2004~~2005. The decrease in gross margin was the result of the ~~hiring~~new revenue product mix which contained a higher percentage of ~~additional~~hardware ~~staff~~installations passed through to ~~support~~clients ~~client~~with ~~services~~a innominal ~~anticipation~~mark-up ofwhich ~~revenue~~have ~~growth.~~lower margins than service and labor margins.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $~~222~~424 or 7957%, to $~~504~~1,164 in the three months ended ~~March 31~~June 30, ~~2005~~2006, from $~~282~~740 in the three months ended ~~March 31~~June 30, ~~2004~~2005. Effective with the acquisition of OnSite Media, Inc, March 2, 2004, the Company commenced reporting revenues under its narrowcasting segment. The increase in selling, general and administrative expenses ~~resulted~~was ~~from~~ the ~~full~~result of ~~quarter~~a ~~effect~~different mix of ~~including~~ staff, marketing programs and development of ~~revenue~~new ~~resulting~~proprietary ~~from~~video programming not yet introduced to clients. In addition, corporate selling, general and administrative expense was allocated between the ~~2004~~narrowcasting ~~acquisition~~and IT services segment. Upon completion of the divestiture of the remaining component of the IT services segment on July 15, 2005, corporate selling, general and administrative expenses were allocated solely to the narrowcasting segment.

Other Income (Expense)

Other income (expense) consists of interest income and interest expense.

Interest expense, ~~net of interest income,~~ was $835 for the three months ended ~~March 31~~June 30, ~~2005~~2006 compared to ~~interest income, net of interest expense of~~ $8411 for the three months ended ~~March 31~~June 30, ~~2004~~2005. The ~~decrease~~increase in net interest ~~income~~expense was the result of lower cash balances on hand coupled with interest expense on secured borrowings ~~that commenced in October of 2004~~.

Income Tax Benefit

The Company recognized an income tax benefit of $67 for the three months ended March 31, 2005 which resulted from the reversal of an accrual for income tax contingencies of $69, offset by state tax payments of $2.

The Company recognized an income tax expense of $3 for the three months ended March 31, 2004 which represented state tax payments.

Loss from Discontinued Operations

Discontinued operations comprised operations associated with the IT services segment. Loss ~~from~~ from discontinued operations was $672 for the three months ended ~~March 31~~June 30, 2005 compared to $~~1,387~~0 for the three months ended ~~March 31~~June 30, ~~2004~~2006. The ~~reduction~~sales ~~in loss was the result~~ of ~~improvements to~~ the ~~utilization~~IT ofservices ~~billable~~and ~~staff~~solutions ~~due~~business ~~to the~~transaction ~~elimination~~was ofcompleted aon ~~number of underutilized billable people and reductions in selling~~July 15, ~~general and administrative expenses~~2005.

LIQUIDITY AND CAPITAL RESOURCES

In recent years, the Company has financed its operations principally through its own cash resources.

Cash (used in) and provided by operating activities was ($~~285~~655) and $~~665~~69 for the three months ended ~~March 31~~ June 30, ~~2005~~2006 and ~~March 31~~June 30, ~~2004~~2005, respectively. In the three months ended ~~March 31~~June 30, ~~2005~~2006, the primary sources of cash provided by operating activities were $~~487~~515 increase in accounts payable, $8863 ~~reduction~~of Common inStock ~~accounts~~issued ~~receivable~~for services and $6160 of depreciation and amortization, offset by $~~303~~991 net loss ~~from continuing operations~~ and $63149 ofincrease ~~income~~in accounts ~~taxes~~payable. In the three months ended ~~March 31~~June 30, ~~2004~~2005 the primary sources of cash provided ~~by operating activities were $716 increase in accounts payable, $85 in prepaid expenses and other current assets and $54 in~~ ~~income taxes, offset by $153 net loss from continuing operations~~

~~Cash used by~~19 investing activities was $38 for the three months ended March 31, 2005, compared to cash provided by investing activities of $94 for the three months ended March 31, 2004. In the three months ended March 31, 2005, $38 was used to acquire property and equipment. In the three months ended March 31, 2004 the primary sources from investing activities was $200 of payments received on a note from the acquirer of a previously sold business offset by $81 used to purchase a business and $25 used to acquire property and equipment.

Cash provided by financing activities was $44 in the three months ended March 31, 2005 compared to $183 used for financing activities in the three months ended March 31, 2004. In the three months ended March 31, 2005, $155 was provided from the issuance of common stock and warrants, offset by $64 of repayments of secured borrowings and $47 of cost incurred in connection with the issuance of common stock and warrants. In the three months ended March 31, 2004, $183 was used for costs incurred in connection with the issuance of stock and warrants.

The primary sources of liquidity for the Company going forward are the collection of its accounts receivable and existing cash balances at March 31, 2005. Total receivables were 38 and 33 days of quarterly revenue at March 31, 2005 and December 31, 2004, respectively.

In the past and during the three months ended March 31, 2005, management has taken action in response to the continued softness in IT services in order to preserve cash, including but not limited to significant reductions in headcount, outsourcing certain administrative functions, changing benefit plan insurance carriers and acquiring a business in an industry with more near term growth prospects than IT services. Management has carefully forecasted its results of operations and financial position through September 30,

~~2005~~by ~~and~~operating ~~has~~activities ~~determined~~were ~~the~~$756 ~~Company~~increase ~~may~~in ~~not~~accounts ~~have~~payable, ~~adequate~~$92 ~~cash~~decrease ~~to fund its anticipated working capital needs. Beginning~~ in ~~October~~prepaid ~~2004, management continued~~expenses toand ~~take~~other ~~further~~current ~~action,~~assets ~~including salary reductions for the executive officers~~ and ~~vice~~$61 ~~presidents of the Company, further reductions~~ in ~~headcount,~~depreciation ~~securing~~and ~~a line of credit against its trade accounts receivable. We are also considering other alternatives for attracting other financing. The Company cannot be sure~~amortization, ~~however,~~offset ~~that~~by ~~its results of operations will be sufficient to meet its cash needs through March 31~~$1,855 ~~2006,~~net ~~or that it will be able to take additional actions to make up for any cash shortfall~~loss.

~~The~~Cash ~~following~~used ~~table~~by ~~reflects~~investing ~~our~~activities ~~contractual~~was ~~cash~~$0 ~~obligations~~for the three months ended June 30, 2006, compared to cash asused by investing activities of ~~March~~$47 31for the three months ended June 30, 2005,. ~~excluding~~In ~~interest~~the three months ended June 30, ~~due~~2006, ~~over~~$0 ~~the~~was ~~indicated~~used ~~periods~~to acquire property and equipment. In the three months ended June 30, 2005 $38 was used to acquire property and equipment.

	Payments Due by Period
Contractual Cash Obligations:	Total		Less than 1 Year		1 to 3 Years		4 to 5 Years		After 5Years
Operating leases, net of sublet arrangements	$	1,590	$	817	$	773	$	—	$	—

Cash provided by financing activities was $644 in the three months ended June 30, 2006 compared to $692 provided from financing activities in the three months ended June 30, 2005. In the three months ended June 30, 2006, $342 was provided from the issuance of Common Stock and warrants, $38 from specified borrowings, and $264 from issuance of debt, offset by $0 of cost incurred in connection with the issuance of Common Stock and warrants. In the three months ended June 30, 2005, $420 was used for costs incurred in connection with the issuance of stock and warrants $329 specified borrowings, and $57 cost incurred in connection with the issuance of Common Stock and warrants.

Management has carefully forecasted its results of operations and financial position through June 30, 2007, and has determined that the cash accessible through our factoring arrangement along with proceeds from the sales of Common Stock to accredited investors, will provide adequate cash to fund its anticipated working capital needs. In the event circumstances arise that are not contemplated in the forecast, management will take further action to streamline operations and to continue looking for financing alternatives.

The following table reflects our contractual cash obligations as of June 30, 2006, excluding interest, due over the indicated periods.


	Payments Due by Period
			Less than		1 to 3		4 to 5		After 5
Contractual Cash Obligations:	Total		1 Year		Years		Years		Years
Operating leases, net of sublet arrangements	$	858	$	769	$	89	$	—	$	—

CRITICAL ACCOUNTING ESTIMATES

Allowance for Doubtful Accounts

The Company provides an allowance for potentially uncollectible accounts receivable under the provisions of SFAS No. 5, “Accounting for Contingencies,” in the ordinary course of business. The allowance is derived as the result of periodic reviews of aged and known problem accounts during each quarter. In addition, the Company reserves for unknown issues in its receivables at the balance sheet date using a formula consistent from quarter to quarter. Management believes that its approach is appropriate to reserve for potentially uncollectible receivables. If management had taken another approach to developing its reserve, the allowance for doubtful accounts may have been different than that reported.

Revenue Recognition

The Company recognizes revenue for time and materials contracts when there is evidence of an agreement, a fixed or determinable fee, its ability to collect is reasonably assured, and delivery has occurred. Revenues exclude reimbursable expenses charged to and collected from clients. Revenues pursuant to fixed-fee contracts are generally recognized as services are rendered on the percentage-of-completion method of accounting based on hours incurred to total estimated labor hours to complete. Revenues earned for software license sales and service contracts are recorded based on the provisions of AICPA SOP 97-2, “ Software Revenue Recognition,” “ as amended, which shares the basic criteria described above, except its ability to collect is probable rather than reasonably assured.

Accounting for Income Taxes

The Company accounts for income taxes under SFAS No. 109, “ Accounting for Income Taxes. ” This pronouncement requires using an asset and liability approach to recognize deferred tax assets and liabilities for the tax consequences of temporary differences by applying enacted statutory tax rates to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The Company has not given benefit to any deferred tax assets or net operating losses in the previous three fiscal years due to uncertainty of realizing these assets in future periods. In addition, the financial statements have provided for certain tax positions taken by the Company in certain tax periods where the statute of limitations still applies.

~~RECENT~~Stock-Based ~~ACCOUNTING~~Compensation ~~PRONOUNCEMENTS~~

InOn ~~December 2004~~January 1, ~~the~~2006 ~~FASB~~our ~~issued~~accounting apolicy ~~revision~~related ofto ~~FASB Statement~~stock ~~No.~~option ~~123,~~accounting ~~Accounting~~changed ~~for~~upon ~~Stock-Based~~our adoption ~~Compensation,~~of Statement ~~No.~~of ~~123R.~~Financial ~~Statement~~Accounting NoStandards (“SFAS”) no. ~~123R~~123 ~~supersedes~~(R), ~~APB~~“Share ~~Opinion~~Based NoPayment. “SFAS ~~25,~~123 ~~Accounting~~(R) requires ~~for~~us ~~Stock~~to ~~Issued~~expense tothe ~~Employees,~~fair ~~and~~value ~~its~~of ~~related~~employee ~~implementation~~stock ~~guidance~~options and itother ~~establishes~~forms ~~standards~~of share-based ~~for~~compensation. Under the fair value recognition provisions of SFAS 123 (R), share-based ~~accounting~~compensation ~~for~~cost ~~transactions~~is inestimated ~~which~~at anthe ~~entity~~grant ~~exchanges~~date ~~its~~based ~~equity~~on ~~instruments~~the ~~for~~value ~~goods~~of orthe ~~services.~~award ~~Statement~~and ~~No.~~is ~~123R~~recognized as ~~also~~expense ~~requires~~ratably ~~that~~over the ~~benefits~~requisite ~~associated~~service ~~with~~period of the ~~tax~~award. ~~deductions~~Determining inthe ~~excess~~appropriate offair value ~~recognized~~model ~~compensation~~and ~~cost~~calculating bethe ~~reported~~fair asvalue aof share-based awards requires judgment, including ~~financing~~estimating ~~cash~~stock ~~flow~~price volatility, ~~rather~~the ~~than~~risk-free asinterest anrate, ~~operating~~forfeiture ~~cash~~rates ~~flow~~and asthe ~~required~~expected life ~~under~~of ~~current~~the ~~literature~~equity instrument. ~~This~~Expected ~~requirement~~volatility ~~will~~utilized ~~reduce~~in ~~net~~the ~~operating~~model ~~cash~~is ~~flows~~based on the historical volatility of the Company’s stock price and ~~increase~~other ~~net~~factors. ~~financing~~The ~~cash~~risk-free ~~flows~~interest rate is derived from the U.S. Treasury yield in ~~periods~~effect ~~after~~at the ~~effective~~time ~~date~~of the grant. The ~~effective~~model ~~date~~incorporates offorfeiture ~~Statement~~assumptions ~~No.~~based ~~123R~~on isan ~~the~~analysis ~~first~~of ~~reporting~~historical ~~period~~data. ~~beginning~~The ~~after~~expected ~~June~~life ~~15,~~of ~~2005,~~the ~~which~~2006 grants is derived ~~third~~from ~~quarter~~historical ~~2005~~and ~~for~~other ~~calendar~~factors. ~~year~~In ~~companies,~~accordance ~~although~~with ~~early~~the ~~adoption~~SFAS ~~is allowed~~No. 123 ~~However~~(R), we recorded $36 of share-based compensation in ~~April~~the ~~2005~~three-month period ended March 31, ~~the~~2006. ~~Securities~~Before ~~and~~2006, ~~Exchange~~we accounted ~~Commission~~for share-based compensation to employees in accordance with Accounting Principles Board (Opinion No. 25, “~~SEC~~Accounting for Stock Issued to Employees,”) ~~announced~~and ~~that~~related interpretations and followed the ~~effective~~disclosure ~~date~~requirements of ~~Statement~~SFAS No. 123 ~~123R~~(R), ~~will~~“Accounting befor ~~deferred~~Sock-Based ~~until~~Compensation.” Thus ~~January~~before 1,the first quarter of 2006, ~~for~~we ~~calendar~~did ~~year~~not ~~companies~~record any significant compensation cost related to share-based awards. ~~The~~Periods ~~Company~~before ~~has~~our first quarter of 2006 were not ~~yet~~restated ~~determined~~to reflect the fair value method of ~~adoption~~expensing orstock ~~the~~options. ~~effect~~The ~~that~~impact ~~the~~of ~~adoption~~expensing ~~will~~stock ~~have~~awards on ~~its~~our earnings, ~~financial~~is ~~position~~and orwill ~~results~~continue ofto ~~operations.~~be, not significant and is further described in Note 1 to the notes to the unaudited consolidated financial statements.

In March 2005, the SEC staff issued guidance on Statement No. 123R. Staff Accounting Bulletin No. 107 (“SAB No. 107”) was issued to assist preparers by simplifying some of the implementation challenges of Statement No. 123R while enhancing the information that investors receive. SAB No. 107 creates a framework that is premised on (a) considerable judgment will be required by preparers to successfully implement Statement No. 123R, specifically when valuing employee stock options; and (b) reasonable individuals, acting in good faith, may conclude differently on the fair value of employee stock options. Key topics covered by SAB No. 107 include (a) valuation models (SAB No. 107 reinforces the flexibility allowed by Statement No. 123R to choose an option-pricing model that meets the standard’s fair value measurement objective), (b) expected volatility (the SAB provides guidance on when it would be appropriate to rely exclusively on either historical or implied volatility in estimating expected volatility) and (c) expected term (the new guidance includes examples and some simplified approaches to determining the expected term under certain circumstances). The Company will apply the principles of SAB No. 107 in conjunction with its adoption of Statement No. 123R.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Cotelligent~~The Company’s policy is to invest its cash in a manner that provides ~~Cotelligent~~the Company with the appropriate level of liquidity to enable the Company to meet its current obligations, primarily accounts payable, capital expenditures and payroll.

~~Cotelligent~~The Company has invested its existing cash in highly liquid money market accounts and does not use derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions. Accordingly, the Company believes that it is not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.

~~On August 19, 2002, the Company acquired Convertible Redeemable Preferred Stock in Bluebook~~21 International Holding Company (“Bluebook”). The Company accounted for the preferred stock as a trading security with changes in fair value recorded in the consolidated statements of operations. On May 4, 2004, the Preferred Stock was fully converted to common stock of Bluebook. The Company continues to account for the investment at fair value. Accordingly, subsequent to August 19, 2002, the Company was exposed to market risk related to changes in the market price of the common stock in Bluebook.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report was carried out by the Company under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report, were designed and were functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a ~~company~~Company have been detected.

Change in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are, from time to time, a party to litigation arising in the normal course of our business. ~~We are not presently subject to any material litigation.~~

In June 2005, Advance at Branchburg, LLC (“Advance”) filed a lawsuit against us in the Superior Court of New Jersey, Law Division, Somerset County. The lawsuit arises out of a commercial lease agreement between Advance as landlord and the Company as tenant. Specifically, Advance alleges that we breached the lease agreement by failing to make base and additional rent payments for the months of March 2005 to the present. Advance seeks payment of all amounts allegedly due under the lease, including base rent, late charges, interest and attorneys’ fees and costs. Advance also seeks “loss of bargain” damages, consisting of all rent due through the end of the lease term, reduced to present value using an interest rate of 6% per annum. The lawsuit does not specify the specific amount of damages sought. At December 31, 2005, we have accrued $595 related to the lease obligation, which is classified as part of restructuring liabilities. The accrual covers obligations for base and additional rent and late charges, offset by estimated potential rent from the sublet of the facility. In addition, we maintain a $180 security deposit with Advance in connection with the lease, classified as part of other long term assets.

During 2005 a claim was filed against us stating that we breached an employment contract by terminating an employee without cause. The claimant’s demand is for $170 plus attorneys’ fees and costs. We believe that the claim is without merit, however if the claimant were to prevail the exposure could range from $0 to as much as $250 with attorney fees. We carry insurance to cover the cost of these types of claims but as of the date of this report, we are unsure of the amount that would be covered by insurance, if any.

Item 1A Risk Factors

For information regarding factors that could affect the Company’s results of operation, financial condition and liquidity, see the risk factors discussion provided under “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. See also, “Forward-Looking Statements” included in this Quarterly Report of Form 10-Q.

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

~~None~~On February 20, 2006, the Company issued a 15% Convertible Promissory Note (the “Note”) to James Lavelle, it’s Chairman and CEO, in exchange for a $65 infusion by Mr. Lavelle to the Company. The Note has a conversion price of $.07 per share, for each Common share issued upon conversion of the Note. In addition to the conversion shares, Mr. Lavelle received warrants. One warrant will be issued for each common share converted. Each warrant represents the right to purchase two additional unregistered shares of Common Stock at a price of $.15 per share. The warrant shall be immediately exercisable upon issuance and shall expire three years from the date of issuance.

On March 2, 2006, the Company obtained $100 from a private investor, who is a related party (the Company’s Public Relations Manager), in a first round of short term financing (the “Bridge”) in the form of a short term note bearing an interest rate of 1.5% per annum, plus 500,000 shares of the Company’s unregistered common shares.

On March 16, 2005, the Company obtained $200 from a private equity fund, who is not a related party, in a first round of a private placement of the Company’s unregistered stock. 3,333,334 shares of the company’s unregistered common shares and warrants were issued for this transaction. The same investor has committed to invest another $100 in the next round of funding scheduled to occur in the second quarter of 2006.

All proceeds received in connection with the above transactions are applied to working capital.

Item 3. Defaults upon Senior Securities

None

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

None

Item 5. Other Information

Not applicable

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

(a) Exhibits

31.1 Rule 13a-14(a) Certification of Chief Executive Officer

	31.1		Rule 13a-14(a) Certification of Chief Executive Officer / Chief Financial Officer

	32.1		Certification pursuant to 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer / Chief Financial Officer.

~~31.2 Rule 13a-14(a) Certification of Chief Financial Officer~~23

32.1 Certification pursuant to 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer. Section 1350.

32.2 Certification pursuant to 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer. Section 1350.

(b) Reports on Form 8-K

Form 8-K, dated February 1, 2005, with the Securities and Exchange Commission in connection with the entry into a material definitive agreement for the sale of unregistered securities.

SIGNATURE

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.

		COTELLIGENT, INC.
	WATCHIT MEDIA, INC.
Date: May 13, 2005		/s/ Curtis J. Parker
Date: February 6, 2007	/s/ James R. Lavelle
		Curtis J. Parker
	James R. Lavelle
		Executive Vice President,
	Chief Executive Officer
		Chief Financial Officer and Treasurer

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Filing Compare · WATCHIT MEDIA, INC.