| 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.) |   |

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

|   | large                accelerated filer |   | accelerated                filer | X | non-accelerated                filer |
|--------|----------------------------------------|--------|----------------------------------|---|--------------------------------------|

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

----

|                                                                                                                                                                                              | Page                No. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|
| PART                I. FINANCIAL INFORMATION                                                                                                                                                      |                    |
|  Item                1. Financial                Statements                                                                                                                             |                    |
|  Condensed                Consolidated Balance Sheets at June 30, 2006 (unaudited) and December                31, 2005                                                                      |   3           |
|  Condensed                Consolidated Statements of Operations for the Three and Six-Month                Periods                Ended June 30, 2006 and 2005 (unaudited)                   |   4           |
|  Condensed                Consolidated Statements of Changes in Stockholders’ Equity for the                Three                and Six-Month Periods Ended June 30, 2006 (unaudited) |   5           |
|  Condensed                Consolidated Statements of Cash Flows for the Six-Month Periods                Ended                June 30, 2006 and 2005 (unaudited)                             |   6           |
|  Notes                to Unaudited Condensed Consolidated Financial Statements                                                                                                               |  7                 |
|  Item                2. Management's                Discussion and Analysis of Financial Condition and Results                of Operations                                                  |   20          |
|  Item                3. Quantitative                and Qualitative Disclosures About Market Risk                                                                                            |  31                |
|  Item                4. Controls                and Procedures                                                                                                                               |  32                |
|  PART                II. OTHER INFORMATION                                                                                                                                              |                    |
|  Item                1. Legal                Proceedings                                                                                                                                     |  32                |
|  Item                1A. Risk                Factors                                                                                                                                         |  32                |
|  Item                2. Unregistered                Sale of Securities and Use of proceeds                                                                                                   |  32                |
|  Item                3. Defaults                Upon Senior Securities                                                                                                                       |  32                |
|  Item                4. Submission                of Matters to a Vote of Security Holders                                                                                                   |  32                |
|  Item                5. Other                Information                                                                                                                                     |  33                |
|  Item                6. Exhibits                                                                                                                                                             |                    |
|  (a)                Exhibits                                                                                                                                                                 |  33                |
|  Signatures                                                                                                                                                                                  |  34                |

----

|                                                                                                                                                                                                                               |   | June                30, |    | December                31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|-----------------------------|--------|
|                                                                                                                                                                                                                               |   | 2006                    |    | 2005                        |   |
|                                                                                                                                                                                                                               |   | Unaudited               |    |                        |   |
| Assets                                                                                                                                                                                                                             |   |                    |    |                        |   |
| Current                assets:                                                                                                                                                                                                     |   |                    |    |                        |   |
| Cash                and cash equivalents                                                                                                                                                                                      |   | $                       | 1,698   |                        | $      | 2,849 |   |
| Accounts                receivable, net                                                                                                                                                                                       |   |                    | 428     |                        |   | 483 |   |
| Deferred                financing costs - current portion                                                                                                                                                                     |   |                    | 91      |                        |   | 121 |   |
| Prepaid                expenses and other current assets                                                                                                                                                                      |   |                    | 152     |                        |   | 168 |   |
| Total                current assets                                                                                                                                                                                                |   |                    | 2,369   |                        |   | 3,621 |   |
|                                                                                                                                                                                                                               |   |                    |    |                        |   |   |   |
| Property                and equipment, net                                                                                                                                                                                    |   |                    | 188     |                        |   | 147 |   |
| Patents                and trademarks                                                                                                                                                                                         |   |                    | 4,096   |                        |   | 4,285 |   |
| Capitalized                software development costs                                                                                                                                                                         |   |                    | 516     |                        |   | 283 |   |
| Deferred                financing costs - long term                                                                                                                                                                           |   |                    | 30      |                        |   | 100 |   |
| Other                assets                                                                                                                                                                                                   |   |                    | 30      |                        |   | 30 |   |
| Total                assets                                                                                                                                                                                                        |   | $                       | 7,229   |                        | $      | 8,466 |   |
|                                                                                                                                                                                                                               |   |                    |    |                        |   |   |   |
| Liabilities                and Stockholders’ equity                                                                                                                                                                          |   |                    |    |                        |   |   |   |
| Current                liabilities:                                                                                                                                                                                                |   |                    |    |                        |   |   |   |
| Accounts                payable                                                                                                                                                                                               |   | $                       | 361     |                        | $      | 288 |   |
| Accrued                compensation                                                                                                                                                                                           |   |                    | 243     |                        |   | 235 |   |
| Other                accrued liabilities                                                                                                                                                                                      |   |                    | 254     |                        |   | 283 |   |
| Deferred                revenue                                                                                                                                                                                               |   |                    | 591     |                        |   | 557 |   |
| Total                current liabilities                                                                                                                                                                                           |   |                    | 1,449   |                        |   | 1,363 |   |
| Convertible                notes, net of unamortized fair value assigned tothe                beneficial conversion feature and warrants of $368 and $674at                June 30, 2006 and December 31, 2005, respectively  |   |                    | 1,015   |                        |   | 1,169 |   |
|                                                                                                                                                                                                                               |   |                    |    |                        |   |   |   |
| Minority                interest                                                                                                                                                                                              |   |                    | 73      |                        |   | 78 |   |
|                                                                                                                                                                                                                               |   |                    |    |                        |   |   |   |
| Commitments                and contingencies                                                                                                                                                                                       |   |                    | -       |                        |   | - |   |
|                                                                                                                                                                                                                               |   |                    |    |                        |   |   |   |
| Stockholders’                equity:                                                                                                                                                                                         |   |                    |    |                        |   |   |   |
| Preferred                Stock, $.01 par value, 10,000 shares authorized,0                outstanding at June 30, 2006 and December 31, 2005                                                                                  |   |                    | -       |                        |   | - |   |
|  Common                stock $.01 par value; 125,000 shares authorized,107,557                and 106,542 shares issued and outstanding at June                30, 2006 and December 31, 2005                            |   |                    | 1,076   |                        |   | 1,065 |   |
| Additional                paid-in capital                                                                                                                                                                                     |   |                    | 90,078  |                        |   | 89,517 |   |
| Accumulated                deficit                                                                                                                                                                                            |   |                    | (86,311 | )                           |   | (84,575 | ) |
| Accumulated                foreign currency translation adjustment                                                                                                                                                            |   |                    | (151    | )                           |   | (151 | ) |
| Total                stockholders’ equity                                                                                                                                                                                    |   |                    | 4,692   |                        |   | 5,856 |   |
|                                                                                                                                                                                                                               |   |                    |    |                        |   |   |   |
| Total                liabilities and stockholders' equity                                                                                                                                                                          |   | $                       | 7,229   |                        | $      | 8,466 |   |

----

|                                                                                     |   | Three                Months Ended |    | Six                Months Ended |   |
|------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|---------------------------------|--------|
|                                                                                     |   | June                30,           |    | June                30,         |   |
|                                                                                     |   | 2006                              |    | 2005                            |   | 2006 |   | 2005 |   |
|                                                                                     |   |                              |    |                            |   |   |   |   |   |
| Revenues                                                                                 |   |                              |    |                            |   |   |   |   |   |
| eSignature                                                                          |   | $                                 | 310     |                            | $      | 1,012 |   | $ | 804 |   | $ | 1,343 |   |
| Natural                input                                                        |   |                              | 138     |                            |   | 197 |   |   | 345 |   |   | 445 |   |
|                                                                                     |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Total                Revenues                                                            |   | $                                 | 448     |                            | $      | 1,209 |   | $ | 1,149 |   | $ | 1,788 |   |
|                                                                                     |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Operating                costs and expenses:                                             |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
|                                                                                     |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Cost                of sales                                                             |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| eSignature                                                                          |   |                              | 26      |                            |   | 29 |   |   | 84 |   |   | 51 |   |
| Natural                input                                                        |   |                              | 3       |                            |   | − |   |   | 12 |   |   | − |   |
| Research                and development                                             |   |                              | 143     |                            |   | 242 |   |   | 426 |   |   | 545 |   |
| Sales                and marketing                                                  |   |                              | 433     |                            |   | 328 |   |   | 779 |   |   | 637 |   |
| General                and administrative                                           |   |                              | 655     |                            |   | 559 |   |   | 1,158 |   |   | 1,068 |   |
| Total                operating costs and expenses                                   |   |                              | 1,260   |                            |   | 1,158 |   |   | 2,459 |   |   | 2,301 |   |
|                                                                                     |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Income                (loss) from operations                                        |   |                              | (812    | )                               |   | 51 |   |   | (1,310 | ) |   | (513 | ) |
|                                                                                     |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Other                (expense)                                                           |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Interest                and other income (expense), net                                  |   |                              | 14      |                            |   | (10 | ) |   | 30 |   |   | (9 | ) |
| Interest                expense                                                     |   |                              | (26     | )                               |   | (68 | ) |   | (56 | ) |   | (140 | ) |
| Amortization                of loan discount and deferred financing cost (Note 8)        |   |                              | (104    | )                               |   | (813 | ) |   | (405 | ) |   | (1,273 | ) |
| Minority                interest                                                    |   |                              | 3       |                            |   | 6 |   |   | 5 |   |   | 13 |   |
|                                                                                     |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Net                loss                                                             |   | $                                 | (925    | )                               | $      | (834 | ) | $ | (1,736 | ) | $ | (1,922 | ) |
|  Basic                and diluted loss per common share                             |   | $                                 | (0.01   | )                               | $      | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) |
|  Weighted                average common shares outstanding, basic and diluted  |   |                              | 107,552 |                            |   | 102,382 |   |   | 107,199 |   |   | 102,034 |   |

----

|                                                         |   |    SharesOutstanding |    |    CommonStock |   |   AdditionalPaid-InCapital |   |    AccumulatedDeficit |   |  AccumulatedOtherComprehensiveLoss |   |     Total |   |
|--------------------------------------------------------------|--------|-------------------------------------|---------|-------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|-----------------------------------------|--------|-------------------------------|--------|
|                                                         |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |
| Balances                as of December 31, 2005              |   |                                | 106,542 |                          | $      | 1,065                                |   | $                                    | 89,517 |                                    | $      | (84,575                       | )      | $ | (151 | ) | $ | 5,856 |   |
|                                                         |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   |   |   |
| Shares                issued on conversion of notes          |   |                                | 931     |                          |   | 10                                   |   |                                 | 421    |                                    |   |                          |   |   |   |   |   | 431 |   |
|                                                         |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   |   |   |
| Stock                based employee compensation             |   |                                |    |                          |   |                                 |   |                                 | 56     |                                    |   |                          |   |   |   |   |   | 56 |   |
|                                                         |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   |   |   |
| Stock                based service expense                   |   |                                |    |                          |   |                                 |   |                                 | 6      |                                    |   |                          |   |   |   |   |   | 6 |   |
|                                                         |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   |   |   |
| Comprehensive                loss:                           |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   |   |   |
|  Net                loss                                |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   | (811                          | )      |   |   |   |   | (811 | ) |
|  Foreign                currency translation adjustment |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   | 1 |   |   | 1 |   |
| Total                comprehensive loss                      |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   | (810 | ) |
|  Balances                as of March 31, 2006           |   |                                | 107,473 |                          | $      | 1,075                                |   | $                                    | 90,000 |                                    | $      | (85,386                       | )      | $ | (150 | ) | $ | 5,539 |   |
|                                                         |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   |   |   |
| Shares                issued on conversion of notes          |   |                                | 64      |                          |   | 1                                    |   |                                 | 29     |                                    |   |                          |   |   |   |   |   | 30 |   |
|  Shares                issued for services              |   |                                | 19      |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   | − |   |
|  Stock                based employee compensation       |   |                                |    |                          |   |                                 |   |                                 | 49     |                                    |   |                          |   |   |   |   |   | 49 |   |
|  Net                loss                                |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   | (925                          | )      |   |   |   |   | (925 | ) |
|  Foreign                currency translation adjustment |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   | (1 | ) |   | (1 | ) |
|  Total                comprehensive loss                |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   | (926 | ) |
|  Balances                as of June 30, 2006            |   |                                | 107,556 |                          | $      | 1,076                                |   | $                                    | 90,078 |                                    | $      | (86,311                       | )      | $ | (151 | ) | $ | 4,692 |   |

----

|                                                                                                                         |   | Six                Months EndedJune                30, |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                                                                                         |   | 2006                                                   |   | 2005 |   |
| Cash                flows from operating activities:                                                                         |   |                                                   |   |   |   |
| Net                loss                                                                                                 |   | $                                                      | (1,736 | ) | $ | (1,922 | ) |
| Adjustments                to reconcile net loss to net cash   used                for operating activities:  |   |                                                   |   |   |   |   |   |
| Depreciation                and amortization                                                                                 |   |                                                   | 278    |   |   | 531 |   |
| Amortization                of discount on convertible notes                                                                 |   |                                                   | 306    |   |   | 952 |   |
| Deferred                financing costs                                                                                      |   |                                                   | 100    |   |   |   |   |
| Stock                based employee compensation                                                                             |   |                                                   | 105    |   |   | - |   |
| Stock                issued for services                                                                                     |   |                                                   | 6      |   |   | - |   |
| Provision                for doubtful accounts                                                                               |   |                                                   | -      |   |   | 11 |   |
| Loss                on disposal of fixed assets                                                                              |   |                                                   | -      |   |   | 38 |   |
| Minority                interest                                                                                             |   |                                                   | (5     | ) |   | (13 | ) |
| Changes                in operating assets and liabilities:                                                                  |   |                                                   |   |   |   |   |   |
| Accounts                receivable, net                                                                                      |   |                                                   | 55     |   |   | (64 | ) |
| Prepaid                expenses and other current assets                                                                     |   |                                                   | 16     |   |   | (29 | ) |
| Accounts                payable                                                                                              |   |                                                   | 73     |   |   | 26 |   |
| Accrued                compensation                                                                                          |   |                                                   | 8      |   |   | (1 | ) |
| Other                accrued liabilities                                                                                     |   |                                                   | (24    | ) |   | (55 | ) |
| Deferred                revenue                                                                                              |   |                                                   | 34     |   |   | 52 |   |
| Net                cash used for operating activities                                                                        |   |                                                   | (784   | ) |   | (474 | ) |
|                                                                                                                         |   |                                                   |   |   |   |   |   |
| Cash                flows from investing activities:Acquisition                of property and equipment                |   |                                                   | (85    | ) |   | (35 | ) |
| Capitalized                software development costs                                                                   |   |                                                   | (277   | ) |   | (193 | ) |
| Net                cash used for investing activities                                                                        |   |                                                   | (362   | ) |   | (228 | ) |
|                                                                                                                         |   |                                                   |   |   |   |   |   |
| Cash                flows from financing activities:                                                                         |   |                                                   |   |   |   |   |   |
| Payments                on short-term debt                                                                              |   |                                                   | -      |   |   | (6 | ) |
| Payments                on long-term debt                                                                               |   |                                                   | -      |   |   | (3 | ) |
| Principal                payments on capital lease obligations                                                          |   |                                                   | (5     | ) |   | (5 | ) |
| Net                cash used for financing activities                                                                        |   |                                                   | (5     | ) |   | (54 | ) |
|  Effect                of exchange rate changes on cash                                                            |   |                                                   | -      |   |   | - |   |
|                                                                                                                         |   |                                                   |   |   |   |   |   |
| Net                decrease in cash and cash equivalents                                                                |   |                                                   | (1,151 | ) |   | (756 | ) |
| Cash                and cash equivalents at beginning of period                                                         |   |                                                   | 2,849  |   |   | 4,736 |   |
| Cash                and cash equivalents at end of period                                                               |   | $                                                      | 1,698  |   | $ | 3,980 |   |

|  Convertible                Notes converted to common stock         |   | $      | 460    |   | $      | 1,135  |   |
|-------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|  Supplementary                disclosure of cash flow information   |   |   |   |   |   |   |   |
| Interest                paid                                             |   | $      | 26     |   | $      | 143    |   |

----

*Going      Concern*

----

*Recent      Pronouncements *

*."      *

----

*Accounting      Changes and Error Corrections*
*a*
*b*

----

|                        |   | June                30,2006 |   | December                31,2005 |   |
|-----------------------------|--------|-----------------------------|--------|---------------------------------|--------|
|                        |   | Unaudited                   |   |                            |   |
| Cash                in bank |   | $                           | 116    |                            | $      | 213 |   |
| Money                market |   |                        | 1,582  |                            |   | 2,636 |   |
|                        |   | $                           | 1,698  |                            | $      | 2,849 |   |

----

----

----

|                                                |   | Three                Months Ended |   |
|-----------------------------------------------------|--------|-----------------------------------|--------|
|                                                |   | June                30, 2006      |   | June                30, 2005 |   |
|                                                |   |   NetLoss               |   | WeightedAverage                SharesOutstanding |   |  Per-ShareAmount |   |   NetLoss |   | WeightedAverage                SharesOutstanding |   |   Per-ShareAmount |   |
| Basic                (loss) per share:              |   |                              |   |   |   |   |   |   |   |   |   |   |   |
|  Loss                available to stockholders |   | $                                 | (925   | ) |   | 107,552 |   | $ | (0.01 | ) | $ | (834 | ) |   | 102,382 |   | $ | (0.01 | ) |
|                                                |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Effect                of dilutive securities        |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock                options                        |   |                              | -      |   |   |   |   |   | - |   |   | - |   |   |   |   |   | - |   |
|                                                |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                (loss)                       |   | $                                 | (925   | ) |   | 107,552 |   | $ | (0.01 | ) | $ | (834 | ) |   | 102,382 |   | $ | (0.01 | ) |

|                                                |   | Six                Months Ended |   |
|-----------------------------------------------------|--------|---------------------------------|--------|
|                                                |   | June                30, 2006    |   | June                30, 2005 |   |
|                                                |   |   NetLoss             |   | WeightedAverage                SharesOutstanding |   |  Per-ShareAmount |   |   NetLoss |   | WeightedAverage                SharesOutstanding |   |  Per-ShareAmount |   |
| Basic                (loss) per share:              |   |                            |   |   |   |   |   |   |   |   |   |   |   |
|  Loss                available to stockholders |   | $                               | (1,736 | ) |   | 107,199 |   | $ | (0.02 | ) | $ | (1,922 | ) |   | 102,034 |   | $ | (0.02 | ) |
|                                                |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Effect                of dilutive securities        |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock                options                        |   |                            | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
|                                                |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                (loss)                       |   | $                               | (1,736 | ) |   | 107,199 |   | $ | (0.02 | ) | $ | (1,922 | ) |   | 102,034 |   | $ | (0.02 | ) |

*Share-Based      Payment*

----

*Accounting      for Stock Issued to Employees*

*Accounting      for Stock-Based Compensation*

----

|                                         |   | Three                and Six Months EndedJune                30, 2006 |
|----------------------------------------------|--------|-----------------------------------------------------------------------|
|  Risk                free interest rate |   |  3.65%                - 5.11%                                    |
| Expected                life (years)         |   | 3.66                -7.00                                             |
| Expected                volatility           |   | 82.1%                                                                 |
| Expected                dividends            |   | None                                                                  |

|                                                                           |   | Three                Months EndedJune                30, 2006 |   | Six                Months EndedJune                30, 2006 |   |
|--------------------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|-------------------------------------------------------------|--------|
|  Research                and development                                  |   | $                                                             | 9      |                                                        | $      | 34 |   |
| Sales                and marketing                                             |   |                                                          | 12     |                                                        |   | 38 |   |
| General                and administrative                                      |   |                                                          | 7      |                                                        |   | 11 |   |
| Director                options                                                |   |                                                          | 21     |                                                        |   | 21 |   |
| Stock-based                compensation expense included in operating expenses |   | $                                                             | 49     |                                                        | $      | 104 |   |

----

|     Options                                   |   |    Shares(000) |   |  Weighted                Average Exercise Price |   | Weighted                average Remaining Contractual Term |   |   Aggregate                Intrinsic Value |   |
|-------------------------------------------------------------------|--------|-------------------------------|--------|------------------------------------------------------|--------|------------------------------------------------------------|--------|------------------------------------------------------|--------|
|  Outstanding                at January 01, 2006              |   |                          | 8,591  |                                                 | $      | 0.75                                                       |   |                                                 |   |   |   |   |   |
|  Granted                                                     |   |                          | 844    |                                                 | $      | 0.58                                                       |   |                                                 |   |   |   |   |   |
|  Exercised                                                   |   |                          | (19    | )                                                    | $      | 0.42                                                       |   |                                                 |   |   |   |   |   |
|  Forfeited                or expired                         |   |                          | (3,015 | )                                                    | $      | 0.77                                                       |   |                                                 |   |   |   |   |   |
|  Outstanding                at June 30, 2006                 |   |                          | 6,401  |                                                 | $      | 0.73                                                       |   |                                                 | 5.59   |   | $ | − |   |
|  Vested                and expected to vest at June 30, 2006 |   |                          | 5,537  |                                                 | $      | 0.77                                                       |   |                                                 | 5.44   |   | $ | − |   |
|  Exercisable                at June 30, 2006                 |   |                          | 5,537  |                                                 | $      | 0.77                                                       |   |                                                 | 5.44   |   | $ | − |   |

|                                                            |   | 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 |   |
|  $                0.00 - $0.50                             |   |                                                | 2,111  |                                                                 |   | 6.0 |   | $ | 0.40 |   |   | 1,397 |   | $ | 0.39 |   |
| 0.51                - 1.00                                      |   |                                                | 3,636  |                                                                 |   | 5.7 |   | $ | 0.73 |   |   | 3,486 |   | $ | 0.74 |   |
| 1.01                - 2.00                                      |   |                                                | 562    |                                                                 |   | 4.1 |   | $ | 1.51 |   |   | 562 |   | $ | 1.51 |   |
| 2.01                - 3.00                                      |   |                                                | 50     |                                                                 |   | 1.3 |   | $ | 3.00 |   |   | 50 |   | $ | 3.00 |   |
| 3.01                - 7.50                                      |   |                                                | 42     |                                                                 |   | 2.0 |   | $ | 3.42 |   |   | 42 |   | $ | 3.42 |   |
|                                                            |   |                                                | 6,401  |                                                                 |   | 5.6 |   | $ | 0.73 |   |   | 5,537 |   | $ | 0.77 |   |

----

|   Nonvested                Shares       |   |   Shares |   | Weighted                AverageGrant-DateFair                Value |   |
|---------------------------------------------------|--------|--------------------|--------|--------------------------------------------------------------------|--------|
|  Nonvested                at January 1, 2006 |   |               | 402    |                                                               | $      | 0.36 |   |
| Granted                                           |   |               | 844    |                                                               | $      | 0.30 |   |
| Vested                                            |   |               | (382   | )                                                                  | $      | 0.38 |   |
|  Nonvested                at June 30, 2006   |   |               | 864    |                                                               | $      | 0.33 |   |

*Pro      Forma Information Under SFAS 123 for Periods Prior to Fiscal 2006*

|                                         |   | Six                Months EndedJune                30, 2005 |
|----------------------------------------------|--------|-------------------------------------------------------------|
|  Risk                free interest rate |   |  3.91%                                                 |
| Expected                life (years)         |   | 6.4                                                         |
| Expected                volatility           |   | 90%                                                         |

|                                                                                                                                                                    |   | Three                Months   |   | Six                months     |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|-------------------------------|--------|
|                                                                                                                                                                    |   | Ended                June 30, |   | Ended                June 30, |   |
|                                                                                                                                                                    |   | 2005                          |   | 2005                          |   |
| Net                loss available to stockholders:                                                                                                                      |   |                          |   |                          |   |   |   |
| As                reported                                                                                                                                              |   | $                             | (834   | )                             | $      | (1,922 | ) |
| Add:                Stock-based employee compensation expense included in reported results                of                operations, net of related tax effect  |   |                          | -      |                          |   | - |   |
| Deduct:                Total stock based employee compensation expense determined under                fair                value based method, net of tax          |   |                          | (116   | )                             |   | (168 | ) |
|  Pro                forma                                                                                                                                          |   | $                             | (950   | )                             | $      | (2,090 | ) |
|                                                                                                                                                                    |   |                          |   |                          |   |   |   |
| Basic                and diluted loss per share available to stockholders:                                                                                              |   |                          |   |                          |   |   |   |
| As                reported                                                                                                                                              |   | $                             | (0.01  | )                             | $      | (0.02 | ) |
| Pro                forma                                                                                                                                                |   | $                             | (0.01  | )                             | $      | (0.02 | ) |

----

|                                              |   | Three                Months EndedJune                30, |   | Six                Months Ended June 30, |   |
|---------------------------------------------------|--------|----------------------------------------------------------|--------|------------------------------------------|--------|
|                                              |   | 2006                                                     |   | 2005                                     |   | 2006 |   | 2005 |   |
|                                              |   |                                                     |   |                                     |   |   |   |   |   |
| Net                (loss)                         |   | $                                                        | (925   | )                                        | $      | (834 | ) | $ | (1,736 | ) | $ | (1,922 | ) |
| Other                comprehensive income (loss): |   |                                                     |   |                                     |   |   |   |   |   |   |   |   |   |
| Cumulative                translation adjustment  |   |                                                     | (1     | )                                        |   | 7 |   |   | − |   |   | 9 |   |
|  Total                comprehensive (loss)   |   | $                                                        | (926   | )                                        | $      | (827 | ) | $ | (1,736 | ) | $ | (1,913 | ) |

|                                               |   | Three                Months EndedJune                30, |   | Six                Months EndedJune                30, |   |
|----------------------------------------------------|--------|----------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                               |   | 2006                                                     |   | 2005                                                   |   | 2006 |   | 2005 |   |
|                                               |   | HandwritingRecognition                                   |   | HandwritingRecognition                                 |   | HandwritingRecognition |   | HandwritingRecognition |   |
|                                               |   |                                                     |   |                                                   |   |   |   |   |   |
| Revenues                                           |   | $                                                        | 448    |                                                   | $      | 1,209 |   | $ | 1,149 |   | $ | 1,788 |   |
|  Income                (loss) from Operations |   | $                                                        | (812   | )                                                      | $      | 51 |   | $ | (1,310 | ) | $ | (513 | ) |

----

----

*Forward      Looking Statements*

| ·   | 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. |
|--------------------|----------------------------------------------------------------------------------------------------------------------|

*Overview*

----

*Critical      Accounting Policies*

----

| ·   | whether                there are legal, regulatory or contractual provisions known to it                that                limit the useful life of each patent to less than the assigned useful                life; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | whether                the Company needs to incur material costs or make modifications in                order                for it to continue to be able to realize the protection afforded                by the                patents; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | whether                any effects of obsolescence or significant competitive pressure on                the                Company's current or future products are expected to reduce the                anticipated cash flow from the products covered by the                patents; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | whether                demand for products utilizing the patented technology will diminish,                remain stable or increase; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | whether                the current markets for the products based on the patented technology                will                remain constant or will grow over the useful lives assigned to the                patents. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

* *
*Accounting      for Stock-Based Compensation*

----

* *

----

*Results      of Operations*

|                                                     |   | Three                Months Ended |   | Six                Months Ended |   |
|----------------------------------------------------------|--------|-----------------------------------|--------|---------------------------------|--------|
|                                                     |   | June                30,           |   | June                30,         |   |
|                                                     |   | 2006                              |   | 2005                            |   | 2006 |   | 2005 |   |
| Segment                revenues:                         |   |                              |   |                            |   |   |   |   |   |
| Handwriting                recognition                   |   |                              |   |                            |   |   |   |   |   |   |   |   |   |
| eSignature                                               |   | $                                 | 269    |                            | $      | 856 |   | $ | 722 |   | $ | 1,185 |   |
| eSignature                China                          |   |                              | 41     |                            |   | 156 |   |   | 82 |   |   | 158 |   |
|  Natural                input                       |   |                              | 138    |                            |   | 197 |   |   | 345 |   |   | 445 |   |
| Total                handwriting recognition             |   | $                                 | 448    |                            | $      | 1,209 |   | $ | 1,149 |   | $ | 1,788 |   |
|                                                     |   |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Cost                of Sales                             |   |                              |   |                            |   |   |   |   |   |   |   |   |   |
| eSignature                                               |   | $                                 | 26     |                            | $      | 29 |   | $ | 84 |   | $ | 51 |   |
| Natural                input                             |   |                              | 3      |                            |   | - |   |   | 12 |   |   | - |   |
| Total                cost of sales                       |   | $                                 | 29     |                            | $      | 29 |   | $ | 96 |   | $ | 51 |   |
|                                                     |   |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Operating                cost and expenses               |   |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Research                and development                  |   | $                                 | 143    |                            | $      | 242 |   | $ | 426 |   | $ | 545 |   |
| Sales                and Marketing                       |   |                              | 433    |                            |   | 328 |   |   | 779 |   |   | 637 |   |
| General                and administrative                |   |                              | 655    |                            |   | 559 |   |   | 1,158 |   |   | 1,068 |   |
| Total                operating costs and expenses        |   | $                                 | 1,231  |                            | $      | 1,129 |   | $ | 2,363 |   | $ | 2,250 |   |
|                                                     |   |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Interest                and other income (expense), net  |   | $                                 | 17     |                            | $      | (4 | ) | $ | 35 |   | $ | 4 |   |
| Interest                expense                          |   |                              | (130   | )                               |   | (881 | ) |   | (461 | ) |   | (1,413 | ) |
|                                                     |   |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Net                (loss)                                |   | $                                 | (925   | )                               | $      | (834 | ) | $ | (1,736 | ) | $ | (1,922 | ) |
|                                                     |   |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Amortization                of intangible assets         |   |                              |   |                            |   |   |   |   |   |   |   |   |   |
| Cost                of sales, capitalized software costs |   | $                                 | 29     |                            | $      | 17 |   | $ | 57 |   | $ | 20 |   |
| General                and administrative                |   |                              | 94     |                            |   | 94 |   |   | 189 |   |   | 189 |   |
| Total                amortization of intangible assets   |   | $                                 | 123    |                            | $      | 112 |   | $ | 246 |   | $ | 209 |   |
|                                                     |   |                              |   |                            |   |   |   |   |   |   |   |   |   |

*Revenues*

*eSignature      revenue. *

----

*™      *

*Natural      Input revenues.*

----

*Cost      of Sales*

*Operating      expenses *

*Research      and Development Expenses*

----

*Sales      and Marketing Expenses*

----

*General      and Administrative Expenses*

*Interest      and other income (expense), net*

*Interest      expense*

----

*Liquidity      and Capital Resources*

----

----

|                                              |   | Payments                due by period |   |
|---------------------------------------------------|--------|---------------------------------------|--------|
| Contractual                obligations            |   | Total                                 |   | 2006 |   | 2007 |   | 2008 |   | 2009 |   | 2010 |   | Thereafter |   |
| Long-term                debt (1)                 |   | $                                     | 1,015  |   | $ | - |   | $ | 1,015 |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   |
| Operating                lease commitments (2)    |   |                                  | 1,416  |   |   | 124 |   |   | 236 |   |   | 264 |   |   | 272 |   |   | 280 |   |   | 240 |   |
| Total                contractual cash obligations |   | $                                     | 2,431  |   | $ | 124 |   | $ | 1,251 |   | $ | 264 |   | $ | 272 |   | $ | 280 |   | $ | 240 |   |

| 1.   | Long-term                debt is net of approximately $368 in discounts representing the fair                value                of warrants issued to the investors and the beneficial conversion                feature                associated with the convertible                notes. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | The                operating lease commenced on November 1, 2002. The lease was renegotiated                in December 2005 and extended for an additional 60 months. The base                rent                will increase approximately 3% per annum over the term of the lease,                which                expires on October 31, 2011. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   |                            |   |         |   |
|--------|---------------------------------|--------|--------------|--------|
|   | Name                            |   | For          |   |
|   | Guido                DiGregorio |   |  97,456 |   |
|   | Louis                P. Panetta |   | 97,837       |   |
|   | C.                B. Sung       |   | 96,771       |   |
|   | David                E. Welch   |   | 97,904       |   |

----

| ExhibitNumber |  Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  2.0     |  Second                Amended Plan of Reorganization of the Company, incorporated herein                by                reference to the Company's Form 8-K filed October 24,                1994.                                                                                                                                                                                                                                                                                                             |
| 2.1           | Orderly                Liquidation Valuation, Exhibit F to the Second Amended Plan of                Reorganization, incorporated herein by reference to the Company's                Form 8-K filed October 19, 1994.                                                                                                                                                                                                                                                                                                 |
| 2.2           | Order                Confirming Plan of Reorganization, incorporated herein by reference                to the                Company's Form 8-K filed November 14, 1994.                                                                                                                                                                                                                                                                                                                                              |
| 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).                                                                                                                                                                                                                                                                                       |
| *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                                            |
|   |   |                                                  |

| August                11, 2006 |   | /s/                Francis V. Dane                                                                                                         |
|--------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|
| Date                           |   | Francis                V. Dane                                                                                                             |
|                           |   | (Principal                Financial Officer and Officer Duly Authorized to Sign on Behalf of                the                Registrant) |

----