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

|   | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|------------------------------------------------------------------------------------------|

|   | Delaware                        |   | 94-2790442          |   |
|--------|---------------------------------|--------|---------------------|--------|
|   | (State or other jurisdiction of |   | (I.R.S. Employer    |   |
|   | incorporation or organization)  |   | Identification No.) |   |

|   | Registrant's telephone number, including area code |
|--------|----------------------------------------------------|

|   | Yes | X |   | No |   |   |
|--------|-----|---|--------|----|--------|--------|

|   | Yes |   |   | No |   |   |
|--------|-----|--------|--------|----|--------|--------|

|   | large accelerated filer |   | accelerated filer |   | non-accelerated filer |  X | Smaller reporting Company |
|--------|-------------------------|--------|-------------------|--------|-----------------------|---------|---------------------------|

|   | Yes |   |   | No | X |   |
|--------|-----|--------|--------|----|---|--------|

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Page No.            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|
| PART I.  FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                |
| Item 1.  Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                |
|  Condensed Consolidated Balance Sheets at March 31, 2010 (unaudited) andDecember 31, 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   3       |
|  Condensed Consolidated Statements of Operations for the Three-MonthPeriods Ended March 31, 2010 and 2009 (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |    4 |
|  Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity for theThree-Month Period Ended March 31, 2010 (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   5       |
|  Condensed Consolidated Statements of Cash Flows for the Three-Month PeriodsEnded March 31, 2010 and 2009 (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   6       |
|  Notes to Unaudited Condensed Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  8             |
|  Item 2.  Management's Discussion and Analysis of Financial Condition andResults of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   18      |
|  Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                  |  24            |
|  Item 4.  Controls and Procedures                                                                                                                                                                     |  24            |
|  PART II.  OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                |
|  Item 1.    Legal Proceedings                                                                                                                                                          |  25            |
|  Item 1A. Risk Factors                                                                                                                                                                                     |  25            |
|  Item 2.    Unregistered Sale of Securities and Use of proceeds                                                                                                                        |  25            |
|  Item 3.    Defaults Upon Senior Securities                                                                                                                                            |  26            |
|  Item 4.    (Removed and Reserved)                                                                                                                                                     |  26            |
|  Item 5.    Other Information                                                                                                                                                          |  26            |
|  Item 6.    Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                |
| (a) Exhibits                                                                                                                                                                                                                        |  26            |
|  Signatures                                                                                                                                                                                                |  27            |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | March 31, |                |   | December 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|---------------------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2010      |                |   | 2009         |   |
| Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Unaudited |                |   |         |   |
| Current assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |      |                |   |         |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $         | 334                 |   |         | $      | 1,021 |   |
| Accounts receivable, net of allowance of $113 and $117 at March 31, 2010 and December 31, 2009, respectively                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |      | 108                 |   |         |   | 227 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |      | 92                  |   |         |   | 66 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      |                |   |         |   |   |   |
| Total current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      | 534                 |   |         |   | 1,314 |   |
|  Property and equipment, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |      | 27                  |   |         |   | 31 |   |
| Patents, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |      | 2,676               |   |         |   | 2,771 |   |
| Capitalized software development costs, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |      | 1,553               |   |         |   | 1,515 |   |
| Deferred financing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |      | 229                 |   |         |   | 218 |   |
| Other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |      | 29                  |   |         |   | 29 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      |                |   |         |   |   |   |
| Total assets                                                                                        |   | $         | 5,048               |   |         | $      | 5,878 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      |                |   |         |   |   |   |
| Liabilities and Stockholders'(Deficit) Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |      |                |   |         |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      |                |   |         |   |   |   |
| Current portion of long-term debt –net of discount of $1,766 and $2,222, at March 31, 2010 and December 31, 2009, respectively, including related party debt of $5,015 and $4,918, net of discount of $1,706 and $2,138 at March 31, 2010 and December 31, 2009 respectively (Note 4)                                                                                                                                                                                                                                                            |   |      |     3,425 |   |         |   |     2,869 |   |
| Accounts payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |      | 215                 |   |         |   | 118 |   |
| Accrued compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      | 332                 |   |         |   | 327 |   |
| Other accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |      | 125                 |   |         |   | 169 |   |
| Deferred revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |      | 487                 |   |         |   | 458 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      |                |   |         |   |   |   |
| Total current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |      | 4,584               |   |         |   | 3,941 |   |
| Deferred revenue long-term                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |      | 836                 |   |         |   | 867 |   |
| Derivative liability                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      | 537                 |   |         |   | 422 |   |
| Total liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |      | 5,957               |   |         |   | 5,230 |   |
| Commitments and contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |      |                |   |         |   |   |   |
| Stockholders' (deficit) equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |      |                |   |         |   |   |   |
| Preferred stock, $.01 par value; 10,000 shares authorized; 766 and 751 shares outstanding at March 31, 2010 and December 31, 2009, respectively ($766 liquidation preference at March 31, 2010)                                                                                                                                                                                                                                                                                                                                                        |   |      |   766          |   |         |   |   751 |   |
| Common stock, $.01 par value; 275,000 shares authorized; 190,776 and 190,026 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively                                                                                                                                                                                                                                                                                                                                                                                       |   |      |   1,908        |   |         |   |   1,900 |   |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |      | 101,290             |   |         |   | 101,221 |   |
| Accumulated deficit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |      | (104,828            | )      |         |   | (103,178 | ) |
| Accumulated other comprehensive loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      | (45                 | )      |         |   | (46 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      |                |   |         |   |   |   |
| Total stockholders' (deficit) equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      | (909                | )      |         |   | 648 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |      |                |   |         |   |   |   |
| Total liabilities and stockholders' (deficit) equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $         | 5,048               |   |         | $      | 5,878 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Three Months Ended |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | March 31,          |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2010               |    |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |               |    |   |   |   |
| Revenue:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |    |   |   |   |
| Product                                                                                                                                     |   | $                  | 37      |   |   | $ | 69 |   |
| Maintenance                                                                                                                                 |   |               | 170     |   |   |   | 177 |   |
| Total Revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               | 207     |   |   |   | 246 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |               |    |   |   |   |   |   |
| Operating costs and expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               |    |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |               |    |   |   |   |   |   |
| Cost of sales:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |               |    |   |   |   |   |   |
| Product                                                                                                                                                                   |   |               | 156     |   |   |   | 170 |   |
| Maintenance                                                                                                                                                               |   |               | 24      |   |   |   | 49 |   |
| Research and development                                                                                                                    |   |               | 103     |   |   |   | 112 |   |
| Sales and marketing                                                                                                                         |   |               | 425     |   |   |   | 375 |   |
| General and administrative                                                                                                                  |   |               | 425     |   |   |   | 462 |   |
| Total operating costs and expenses                                                                                                                                        |   |               | 1,133   |   |   |   | 1,168 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |               |    |   |   |   |   |   |
| Loss from operations                                                                                               |   |               | (926    | ) |   |   | (922 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |               |    |   |   |   |   |   |
| Interest and other income, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |               | – |   |   |   | 1 |   |
| Interest expense:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |               |    |   |   |   |   |   |
| Related party                                                                                                                               |   |               | (101    | ) |   |   | (69 | ) |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |               | (5      | ) |   |   | (4 | ) |
| Amortization of loan discount and deferred financing:                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |               |    |   |   |   |   |   |
| Related party                                                                                                                               |   |               | (589    | ) |   |   | (197 | ) |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |               | (21     | ) |   |   | (10 | ) |
| Loss on derivative liability                                                                                       |   |               | (8      | ) |   |   | (85 | ) |
| Net loss                                                                                                                                    |   |               | (1,650  | ) |   |   | (1,286 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |               |    |   |   |   |   |   |
| Preferred stock dividends:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |               |    |   |   |   |   |   |
| Related party                                                                                                                               |   |               | (12     | ) |   |   | (13 | ) |
| Other                                                                                                                                       |   |               | (3      | ) |   |   | (4 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |               |    |   |   |   |   |   |
| Net loss attributable to common                                                                      stockholders                           |   | $                  | (1,665  | ) |   | $ | (1,303 | ) |
| Basic and diluted loss per common share                                                                            |   | $                  | (0.01   | ) |   | $ | (0.01 | ) |
| Weighted average common shares outstanding, basic and diluted                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               | 190,551 |   |   |   | 130,670 |   |

----

|                                          |   |   PreferredSharesOutstanding |   |   |   PreferredSharesAmount |   |   |   CommonSharesOutstanding |   |   |   CommonStock Amount |   |   |   AdditionalPaid-InCapital |   |   |    AccumulatedDeficit |   |    |  AccumulatedOtherComprehensiveLoss |   |   |     Total |   |
|-----------------------------------------------|--------|----------------------------------------|--------|--------|-----------------------------------|--------|--------|-------------------------------------|--------|--------|--------------------------------|--------|--------|--------------------------------------|--------|--------|--------------------------------------|--------|---------|-----------------------------------------|--------|--------|-------------------------------|--------|
|                                          |   |                                   |   |   |                              |   |   |                                |   |   |                           |   |   |                                 |   |   |                                 |   |    |                                    |   |   |                          |   |
| Balances as of December 31, 2009              |   |                                   | 751    |   |                              | $      | 751    |                                |   |   | 190,026                        |   |   | $                                    | 1,900  |   |                                 | $      | 101,221 |                                    |   | $      | (103,178                      | )      |   | $ | (46 | ) |   | $ | 648 |   |
|                                          |   |                                   |   |   |                              |   |   |                                |   |   |                           |   |   |                                 |   |   |                                 |   |    |                                    |   |   |                          |   |   |   |   |   |   |   |   |   |
| Stock based employee compensation             |   |                                   |   |   |                              |   |   |                                |   |   |                           |   |   |                                 |   |   |                                 |   | 26      |                                    |   |   |                          |   |   |   |   |   |   |   | 26 |   |
| Common stock issued for services              |   |                                   |   |   |                              |   |   |                                |   |   | 750                            |   |   |                                 | 8      |   |                                 |   | 58      |                                    |   |   |                          |   |   |   |   |   |   |   | 66 |   |
| Comprehensive loss:                           |   |                                   |   |   |                              |   |   |                                |   |   |                           |   |   |                                 |   |   |                                 |   |    |                                    |   |   |                          |   |   |   |   |   |   |   |   |   |
|  Net loss                                |   |                                   |   |   |                              |   |   |                                |   |   |                           |   |   |                                 |   |   |                                 |   |    |                                    |   |   | (1,650                        | )      |   |   |   |   |   |   | (1,650 | ) |
|  Foreign currency translation adjustment |   |                                   |   |   |                              |   |   |                                |   |   |                           |   |   |                                 |   |   |                                 |   |    |                                    |   |   |                          |   |   |   |   1 |   |   |   |   1 |   |
| Total comprehensive loss                      |   |                                   |   |   |                              |   |   |                                |   |   |                           |   |   |                                 |   |   |                                 |   |    |                                    |   |   |                          |   |   |   |   |   |   |   | (1,649 | ) |
| Preferred share dividends                     |   |                                   | 15     |   |                              |   | 15     |                                |   |   |                           |   |   |                                 |   |   |                                 |   | (15     | )                                       |   |   |                          |   |   |   |   |   |   |   | − |   |
|  Balances as of March 31, 2010           |   |                                   | 766    |   |                              | $      | 766    |                                |   |   | 190,776                        |   |   | $                                    | 1,908  |   |                                 | $      | 101,290 |                                    |   | $      | (104,828                      | )      |   | $ | (45 | ) |   | $ | (909 | ) |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | Three Months EndedMarch 31, |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 2010                        |    |   | 2009 |   |
| Cash flows from operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                        |    |   |   |   |
| Net loss                                                                                                                                               |   | $                           | (1,650  | ) |   | $ | (1,286 | ) |
| Adjustments to reconcile net loss to net cashused for operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                        |    |   |   |   |   |   |
| Depreciation and amortization                                                                                                                                                   |   |                        | 264     |   |   |   | 280 |   |
| Amortization of debt discount and deferred financing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                        | 611     |   |   |   | 207 |   |
| Stock-based employee compensation                                                                                                                                               |   |                        | 26      |   |   |   | 26 |   |
| Loss on derivative liability                                                                                                                                                    |   |                        | 8       |   |   |   | 85 |   |
| Non-cash financing expense                                                                                                                                                      |   |                        | 108     |   |   |   | − |   |
| Changes in operating assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                        |    |   |   |   |   |   |
|    Accounts receivable, net                                                                                                                                      |   |                        | 119     |   |   |   | 447 |   |
|    Prepaid expenses and other assets                                                                                                                             |   |                        | (26     | ) |   |   | (22 | ) |
|    Accounts payable                                                                                                                                              |   |                        | 97      |   |   |   | 46 |   |
|    Accrued compensation                                                                                                                                          |   |                        | 5       |   |   |   | (4 | ) |
|    Other accrued liabilities                                                                                                                                     |   |                        | (44     | ) |   |   | (53 | ) |
|    Deferred revenue                                                                                                                                              |   |                        | (2      | ) |   |   | (146 | ) |
| Net cash used for operating  activities                                                                                                                               |   |                        | (484    | ) |   |   | (420 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                        |    |   |   |   |   |   |
| Cash flows from investing activities:Acquisition of property and equipment                                                                             |   |                        | (2      | ) |   |   | (2 | ) |
| Capitalized software development costs                                                                                                                 |   |                        | (201    | ) |   |   | (167 | ) |
| Net cash used for investing activities                                                                                                                                          |   |                        | (203    | ) |   |   | (169 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                        |    |   |   |   |   |   |
| Cash flows from financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                        |    |   |   |   |   |   |
| Principal payments on short term debt                                                                                                                  |   |                        | − |   |   |   | (15 | ) |
| Net cash used for financing activities                                                                                                                                          |   |                        | − |   |   |   | (15 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                        |    |   |   |   |   |   |
| Effect of exchange rate changes on cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                        | − |   |   |   | (8 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                        |    |   |   |   |   |   |
| Net decrease in cash and cash equivalents                                                                                |   |                        | (687    | ) |   |   | (612 | ) |
| Cash and cash equivalents at beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                        | 1,021   |   |   |   | 929 |   |
| Cash and cash equivalents at end of period                                                                               |   | $                           | 334     |   |   | $ | 317 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Three Months EndedMarch 31, |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010                        |    |   | 2009 |   |
| Supplementary disclosure of cash flow information                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                        |    |   |   |   |
| Interest paid                                                                                                 |   | $                           | − |   |   | $ | 79 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                        |    |   |   |   |   |   |
| Non-cash financing and investing transactions                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                        |    |   |   |   |   |   |
| Conversion of preferred stock to common stock                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                           | − |   |   | $ | 86 |   |
| Issuance of long-term debt for payment of interest in kind                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                           | 100     |   |   | $ | 72 |   |
| Reclassification of equity linked instrument to derivative liability                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $                           | − |   |   | $ | 1,353 |   |
| Issuance of preferred shares by payment of dividends in kind                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $                           | 15      |   |   | $ | 17 |   |
| Warrants issued for interest recorded as derivative liability                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                           | 107     |   |   | $ | 19 |   |
| Issuance of common stock for services                                                                         |   | $                           | 66      |   |   | $ | − |   |

----

| 1.   | Nature of business |
|----------------|--------------------|

----

| 1.   | Nature of business |
|----------------|--------------------|

| 3.   | Patents |
|----------------|---------|

----

| 4.   | Debt: |
|----------------|-------|

----

| 4.   | Debt (continued): |
|----------------|-------------------|

----

| 4.   | Debt (continued): |
|----------------|-------------------|

|                    | March 31, 2010    | December 31, 2009 |
|-------------------------|-------------------|-------------------|
| Expected term           | .25 to 3.00 years | 0.5 to 3.00 years |
| Volatility              | 109.4% - 161.8%   | 139.0% - 156.0%   |
| Risk-free interest rate | 1.45%             | 1.70%             |
| Dividend yield          | 0%                | 0%                |

|                 | Value at                           |   | Quoted prices in active markets                                            |   | Significant other observable inputs                      |   | Significant unobservable inputs                      |
|----------------------|------------------------------------|--------|----------------------------------------------------------------------------|--------|----------------------------------------------------------|--------|------------------------------------------------------|
|                 | March 31, 2010                     |   | (Level 1)                                                                  |   | (Level 2)                                                |   | (Level 3)                                            |
| Derivative liability | $     537 |   | $           − |   | $        − |   | $        537 |

|   | Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|

|                                                             |   | Derivative Liability |   |
|------------------------------------------------------------------|--------|----------------------|--------|
| Balance at December 31, 2009                                     |   | $                    | 422    |   |
| Additional liabilities recorded related to paid in kind interest |   |                 | 107    |   |
| Loss on derivative liability                                     |   |                 | 8      |   |
|                                                             |   |                 |   |   |
| Balance at March 31, 2010                                        |   | $                    | 537    |   |

| 6. | Net loss per share |
|----|--------------------|

| 7. | Equity |
|----|--------|

----

| 7. | Equity (continued) |
|----|--------------------|

|                    |   |                             |
|-------------------------|--------|----------------------------------|
|                    |   | Three Months EndedMarch 31, 2010 | Three Months EndedMarch 31, 2009 |
| Risk free interest rate |   | 1.12% – 5.11%              | 3.32% – 5.11% |
| Expected life (years)   |   | 2.82 – 7.00                | 3.21 – 6.88 |
| Expected volatility     |   | 91.99% – 147.41%           | 80.96% – 104.57% |
| Expected dividends      |   | None                             | None |

|                             |   | Three Months Ended March31, |   |
|----------------------------------|--------|-----------------------------|--------|
|                             |   | 2010                        |   |   | 2009 |   |
|  Research and development   |   | $                           | 7      |   |   | $ | 4 |   |
| Sales and marketing              |   |                        | 2      |   |   |   | 8 |   |
| General and administrative       |   |                        | 17     |   |   |   | 14 |   |
| Stock-based compensation expense |   | $                           | 26     |   |   | $ | 26 |   |

----

| 7. | Equity (continued) |
|----|--------------------|

|                                          |   | As of March 31,         |    |
|-----------------------------------------------|--------|-------------------------|---------|
|                                          |   | 2010                    |    |   | 2009 |   |
|     Options               |   |   Shares(000) |    |   | Weighted Average Exercise Price |   |   | Weighted average Remaining Contractual Term |   |   |  Aggregate Intrinsic Value |   |   |   Shares(000) |   |   | Weighted Average Exercise Price |   |   | Weighted average Remaining Contractual Term |   |   |  Aggregate Intrinsic Value |   |
| Outstanding at January 1,                     |   |                    | 10,231  |   |   | $ | 0.34 |   |   |   |   |   |   |   |   |   | 7,608 |   |   | $ | 0.48 |   |   |   |   |   |   |   |
| Granted                                       |   |                    | 250     |   |   | $ | 0.12 |   |   |   |   |   | $ | − |   |   |   | − |   |   |   |   |   |   |   |   |   |   |   |
| Exercised                                     |   |                    | − |   |   |   |   |   |   |   |   |   |   |   |   |   |   | − |   |   |   |   |   |   |   |   |   |   |   |
| Forfeited or expired                          |   |                    | (1,013  | ) |   | $ | 0.11 |   |   |   |   |   | $ | 6 |   |   |   | (475 | ) |   | $ | 0.79 |   |   |   |   |   |   |   |
| Outstanding at March 31                       |   |                    | 9,468   |   |   | $ | 0.36 |   |   |   | 4.06 |   |   | $ | 6 |   |   |   | 7,133 |   |   | $ | 0.47 |   |   |   | 4.33 |   |   | $ | − |   |
|  Vested and expected to vest at March 31 |   |                    | 9,468   |   |   | $ |   0.36 |   |   |   | 4.06 |   |   | $ | − |   |   |   | 7,133 |   |   | $ |    0.47 |   |   |   | 4.33 |   |   | $ | − |   |
| Exercisable at March 31                       |   |                    | 8,457   |   |   | $ | 0.39 |   |   |   | 3.50 |   |   | $ | − |   |   |   | 5,841 |   |   | $ | 0.53 |   |   |   | 3.93 |   |   | $ | − |   |

|                                       |                   |   | As of March 31, 2010           |   |
|--------------------------------------------|------------------------|--------|--------------------------------|--------|
|                                       |                   |   | Options Outstanding            |   |   | Options Exercisable |   |
|    Range of Exercise Prices |                   |   |   Number Outstanding |   |   | Weighted Average Remaining Contractual Life (in years) |   |   | Weighted Average Exercise Price |   |   |   Number Outstanding |   |   | Weighted Average Exercise Price |   |
| $                                          | 0.07 – 0.50      |   |                           |   | 6,472 |   |   |   | 3.5 |   |   | $ | 0.18 |   |   |   | 5,461 |   |   | $ | 0.18 |   |
| $                                          | 0.51 – 1.00 |   |                           |   | 2,908 |   |   |   | 2.5 |   |   | $ | 0.72 |   |   |   | 2,908 |   |   | $ | 0.72 |   |
| $                                          | 1.01 – 2.00 |   |                           |   | 73 |   |   |   | 1.9 |   |   | $ | 1.66 |   |   |   | 73 |   |   | $ | 1.66 |   |
| $                                          | 2.01 – 3.00 |   |                           |   | − |   |   |   | − |   |   | $ | − |   |   |   | − |   |   | $ | − |   |
| $                                          | 3.01 – 7.50 |   |                           |   | 15 |   |   |   | 0.2 |   |   | $ | 3.56 |   |   |   | 15 |   |   | $ | 3.56 |   |
|                                       |                   |   |                           |   | 9,468 |   |   |   | 3.2 |   |   | $ | 0.36 |   |   |   | 8,457 |   |   | $ | 0.39 |   |

|                                       |                   |   | As of March 31, 2009           |   |
|--------------------------------------------|------------------------|--------|--------------------------------|--------|
|                                       |                   |   | Options Outstanding            |   |   | Options Exercisable |   |
|    Range of Exercise Prices |                   |   |   Number Outstanding |   |   | Weighted Average Remaining Contractual Life (in years) |   |   | Weighted Average Exercise Price |   |   |   Number Outstanding |   |   | Weighted Average Exercise Price |   |
| $                                          | 0.12 – 0.50      |   |                           |   | 4,054 |   |   |   | 5.0 |   |   | $ | 0.25 |   |   |   | 2,762 |   |   | $ | 0.28 |   |
| $                                          | 0.51 – 1.00 |   |                           |   | 2,991 |   |   |   | 3.5 |   |   | $ | 0.72 |   |   |   | 2,991 |   |   | $ | 0.72 |   |
| $                                          | 1.01 – 2.00 |   |                           |   | 73 |   |   |   | 2.9 |   |   | $ | 1.66 |   |   |   | 73 |   |   | $ | 1.66 |   |
| $                                          | 2.01 – 3.00 |   |                           |   | − |   |   |   | − |   |   | $ | − |   |   |   | − |   |   | $ | − |   |
| $                                          | 3.01 – 7.50 |   |                           |   | 15 |   |   |   | 1.2 |   |   | $ | 3.56 |   |   |   | 15 |   |   | $ | 3.56 |   |
|                                       |                   |   |                           |   | 7,133 |   |   |   | 4.3 |   |   | $ | 0.47 |   |   |   | 5,841 |   |   | $ | 0.53 |   |

----

| 7. | Equity (continued) |
|----|--------------------|

|   Nonvested Shares       |   |  Shares |   |   | Weighted AverageGrant-DateFair Value |   |
|------------------------------------|--------|--------------|--------|--------|--------------------------------------|--------|
|  Nonvested at January 1, 2009 |   |         | 1,982  |   |                                 | $      | 0.13 |   |
| Granted                            |   |         | 250    |   |                                 | $      | 0.12 |   |
| Forfeited                          |   |         | (1,014 | )      |                                 | $      | 0.11 |   |
| Vested                             |   |         | (207   | )      |                                 | $      | 0.12 |   |
| Nonvested at March 31, 2010        |   |         | 1,011  |   |                                 | $      | 0.14 |   |

| 8.   | Subsequent event |
|----------------|------------------|

----

| 8.   | Subsequent events (continued) |
|----------------|-------------------------------|

----

| ·   | Technological, engineering, manufacturing, quality control or other circumstances that could delay the sale or shipment of products; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Economic, business, market and competitive conditions in the software industry and technological innovations that could affect the Company’s business; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The Company’s inability to protect its trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | General economic and business conditions and the availability of sufficient financing. |
|--------------------|----------------------------------------------------------------------------------------|

----

----

----

----

----

|                                  |   | Payments due by period |   |
|---------------------------------------|--------|------------------------|--------|
| Contractual obligations               |   | Total                  |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | 2014 |   |   | Thereafter |   |
| Current portion of long-term debt (1) |   | $                      | 5,191  |   |   | $ | 5,191 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| Operating lease commitments (2)       |   |                   | 463    |   |   |   | 223 |   |   |   | 240 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Total contractual cash obligations    |   | $                      | 5,654  |   |   | $ | 5,414 |   |   | $ | 240 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |

| 1.   | Current portion of long-term debt reported on the balance sheet is net of approximately $1,766 in discounts representing the fair value of warrants issued in connection with the Company’s debt financings. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | The base rent will increase approximately 3% per annum over the term of the lease, which expires on October 31, 2011. |
|----------------|-----------------------------------------------------------------------------------------------------------------------|

----

----

| Exhibit Number |  Document                                                                                                                                                                                                                                                                                                                                                                                                                         |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  3.1      |  Certificate of Incorporation of the Company, as amended, incorporated herein by reference to Exhibits 3.1, 3.2, 3.3 and 3.4 to the Company's Registration Statement on Form 10 (File No. 0-19301).                                                                                                                                                                                                                |
| 3.2            | Certificate of Amendment to the Company's Certificate of Incorporation (authorizing the reclassification of the Class A Common Stock and Class B Common Stock into one class of Common Stock) as filed with the Delaware Secretary of State's office on November 1, 1991, incorporated herein by reference to Exhibit 3 to Amendment 1 on Form 8 to the Company's Form 8-A (File No. 0-19301). |
| 3.3            | By-laws of the Company adopted on October 6, 1986, incorporated herein by reference to Exhibit 3.5 to the Company's Registration Statement on Form 10 (File No. 0-19301).                                                                                                                                                                                                                                          |
|  3.4      |  By-laws of the Company adopted on October 6, 1986, incorporated herein by reference to Exhibit 3.5 to the Company's Registration Statement on Form 10 (File No. 0-19301).                                                                                                                                                                                                                                    |
|  3.5      |  Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation dated January 24, 2001, incorporated herein by reference to Exhibit 3.5 to the Company’s Registration Statement on Form S/1, filed December 28, 2007.                                                                                                                                                                    |
| 3.6            | Certificate of Elimination of the Company’s Certificate of Designation of the Series A Preferred Stock dated August 17, 2001, incorporated herein by reference to Exhibit 3.6 to the Company’s Registration Statement on Form S/1, filed December 28, 2007.                                                                                                                                                                |

----

| Exhibit Number |  Document                                                                                                                                                                                                                                                                                                   |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.7            | Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State August 17, 2007, incorporated herein by reference to Exhibit 3.7 to the Company’s Registration Statement on Form S/1 filed on December 28, 2007.              |
| 3.8            | Amended and Restated Certificate of Incorporation of the Company filed with the Delaware Secretary of State on May 18, 1995, incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.                                                      |
| 3.9            | Certificate of Designations, Powers, Preferences and Rights of the Series A Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on June 4, 2008, incorporated herein by reference to Exhibit 4.23 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.   |
| 3.10           | Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on June 30, 2008, incorporated herein by reference to Exhibit 3.7 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.                    |
| 3.11           | Certificate of Designations, Powers, Preferences and Rights of the Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on October 30, 2008, incorporated herein by reference to Exhibit 3.11 to the Company’s Annual Report on Form 10-K filed on March 12, 2009. |
| 3.12           | Certificate of Elimination of the Company’s Series A Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on December 30, 2008, incorporated herein by reference to Exhibit 3.12 to the Company’s Annual Report on Form 10-K filed on March 12, 2009.                   |
| 3.13           | Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on June 30, 2009, incorporated herein by reference to Exhibit 3.13 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2009.                   |
| *31.1          | Certification of Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                               |
| *31.2          | Certificate of Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                 |
| *32.1          | Certification of Chief Executive Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                   |
| *32.2          | Certification of Chief Financial Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                   |

| * | Filed herewith. |
|---|-----------------|

----

|   |   | COMMUNICATION INTELLIGENCE CORPORATION |
|--------|--------|----------------------------------------|
|   |   | Registrant                             |
|   |   |                                   |

| May 17, 2010 |   | /s/ Francis V. Dane                                                                           |
|--------------|--------|-----------------------------------------------------------------------------------------------|
| Date         |   | Francis V. Dane                                                                               |
|         |   | (Principal Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant) |