**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**





**Washington,
      D.C. 20549**





**____________**





**FORM
      10-Q**


**(Mark
      One)**





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





**For
      the quarterly period ended June 30, 2006**





**Or**





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





**For
      the transition period from ____________to____________**





**Commission
      File Number 000-27385**










**INTERACTIVE
      INTELLIGENCE, INC.**


**(Exact
      name of registrant as specified in its charter)**





**Indiana**
            **35-1933097****(State
                or other jurisdiction of**
            **(IRS
                Employer Identification No.)****incorporation
                or organization)**





**7601
      Interactive Way**


**Indianapolis,
      Indiana 46278**


**(Address
      of principal executive offices)**





**(317)
      872-3000**


**(Registrant's
      telephone number)**





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




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” as defined in Rule 12b-2 of the Exchange
      Act.  Large
      accelerated filer  *****  Accelerated
      filer ***** **** Non-accelerated
      filer  **T**





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





The
      number of shares of common stock outstanding on July 31, 2006 was 16,627,603.











TABLE
      OF
      CONTENTS








PART
      I.
      FINANCIAL INFORMATION





Item
                1.
            Condensed
                Consolidated Balance Sheets as of June 30, 2006 and December 31,
                2005
            1Condensed
                Consolidated Statements of Income for the three and six months ended
                June
                30, 2006 and 2005
            2Condensed
                Consolidated Statement of Shareholders’ Equity for the six months ended
                June 30, 2006
            3Condensed
                Consolidated Statements of Cash Flows for the six months ended June
                30,
                2006 and 2005
            4Notes
                to Condensed Consolidated Financial Statements
            5Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            10Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            18Item
                4.
            Controls
                and Procedures
            18PART
                II. OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            18Item
                1A.
            Risk
                Factors
            18Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            19Item
                6.
            Exhibits
            19SIGNATURE
            21











**PART
      I. FINANCIAL INFORMATION**





**Item
      1. Condensed Consolidated Financial Statements and
      Footnotes.**





**Interactive
      Intelligence, Inc.**


**Condensed
      Consolidated Balance Sheets**


**As
      of June 30, 2006 and December 31, 2005**


**(in
      thousands, except share and per share amounts)**





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005****(unaudited)**
            
            **(Note
                1)****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            13,853
            
            $
            11,551Short-term
                investments
            
            
            6,316
            
            
            3,576Accounts
                receivable, net of allowance for doubtful accounts of $483 in 2006
                and
                $652 in 2005
            
            
            15,213
            
            
            14,927Prepaid
                expenses
            
            
            4,251
            
            
            2,939Other
                current assets
            
            
            1,169
            
            
            789Total
                current assets
            
            
            40,802
            
            
            33,782Property
                and equipment, net
            
            
            4,177
            
            
            4,013Other
                assets, net
            
            
            634
            
            
            603Total
                assets
            
            $
            45,613
            
            $
            38,398**Liabilities
                and Shareholders’ Equity**Current
                liabilities:Accounts
                payable and accrued liabilities
            
            $
            6,528
            
            $
            6,676Accrued
                compensation and related expenses
            
            
            2,293
            
            
            1,906Deferred
                product revenues
            
            
            6,118
            
            
            5,195Deferred
                services revenues
            
            
            17,969
            
            
            16,828Total
                current liabilities
            
            
            32,908
            
            
            30,605Shareholders’
                equity:Preferred
                stock, no par value: 10,000,000 authorized; no shares issued and
                outstanding
            
            
            --
            
            
            --Common
                stock, $0.01 par value: 100,000,000 authorized; 16,544,699 issued
                and
                outstanding at June 30, 2006, 16,120,543 issued and outstanding at
                December 31, 2005
            
            
            165
            
            
            161Additional
                paid-in capital
            
            
            68,760
            
            
            65,826Accumulated
                deficit
            
            
            (56,220
            )
            
            (58,194
            )Total
                shareholders’ equity
            
            
            12,705
            
            
            7,793Total
                liabilities and shareholders’ equity
            
            $
            45,613
            
            $
            38,398





See
      Accompanying Notes to Condensed Consolidated Financial Statements





1








**Interactive
      Intelligence, Inc.**


**Condensed
      Consolidated Statements of Income (unaudited)**


**For
      the Three and Six Months Ended June 30, 2006 and 2005**


**(in
      thousands, except per share amounts)**





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Revenues:Product
            
            $
            9,586
            
            $
            8,596
            
            $
            18,447
            
            $
            16,482Services
            
            
            9,667
            
            
            7,026
            
            
            18,736
            
            
            13,733Total
                revenues
            
            
            19,253
            
            
            15,622
            
            
            37,183
            
            
            30,215Cost
                of revenues:Product
            
            
            2,033
            
            
            1,108
            
            
            3,366
            
            
            1,874Services
            
            
            3,315
            
            
            2,703
            
            
            6,459
            
            
            5,410Total
                cost of revenues
            
            
            5,348
            
            
            3,811
            
            
            9,825
            
            
            7,284Gross
                profit
            
            
            13,905
            
            
            11,811
            
            
            27,358
            
            
            22,931Operating
                expenses:Sales
                and marketing
            
            
            6,855
            
            
            6,146
            
            
            13,734
            
            
            12,000Research
                and development
            
            
            3,221
            
            
            3,212
            
            
            6,262
            
            
            6,407General
                and administrative
            
            
            2,833
            
            
            2,035
            
            
            5,367
            
            
            4,056Total
                operating expenses
            
            
            12,909
            
            
            11,393
            
            
            25,363
            
            
            22,463Operating
                income
            
            
            996
            
            
            418
            
            
            1,995
            
            
            468Other
                income (expense):Interest
                income, net
            
            
            116
            
            
            62
            
            
            220
            
            
            113Other
                income (expense)
            
            
            (12
            )
            
            (136
            )
            
            (64
            )
            
            (182
            )Total
                other income (expense)
            
            
            104
            
            
            (74
            )
            
            156
            
            
            (69
            )Income
                before income taxes
            
            
            1,100
            
            
            344
            
            
            2,151
            
            
            399Income
                taxes
            
            
            138
            
            
            54
            
            
            177
            
            
            84Net
                income
            
            $
            962
            
            $
            290
            
            $
            1,974
            
            $
            315Net
                income per share:Basic
            
            $
            0.06
            
            $
            0.02
            
            $
            0.12
            
            $
            0.02Diluted
            
            
            0.05
            
            
            0.02
            
            
            0.11
            
            
            0.02Shares
                used to compute net income per share:Basic
            
            
            16,433
            
            
            16,015
            
            
            16,343
            
            
            15,986Diluted
            
            
            18,070
            
            
            16,685
            
            
            17,652
            
            
            16,608








See
      Accompanying Notes to Condensed Consolidated Financial Statements





2








**Interactive
      Intelligence, Inc.**


**Condensed
      Consolidated Statement of Shareholders’ Equity (unaudited)**


**For
      the Six Months Ended June 30, 2006**


**(in
      thousands)**





**Common
                Stock**
            
            **Additional**
              **Paid-in**
            
            **Accumulated****Shares**
            
            **Amount**
            
            **Capital**
            
            **Deficit**
            
            **Total**Balances,
                December 31, 2005
            
            
            16,121
            
            $
            161
            
            $
            65,826
            
            $
            (58,194
            )
            $
            7,793Issuances
                of common stock
            
            
            17
            
            
            --
            
            
            96
            
            
            --
            
            
            96Exercise
                of stock options
            
            
            407
            
            
            4
            
            
            1,672
            
            
            --
            
            
            1,676Stock-based
                compensation
            
            
            --
            
            
            --
            
            
            1,166
            
            
            --
            
            
            1,166Net
                income
            
            
            --
            
            
            --
            
            
            --
            
            
            1,974
            
            
            1,974Balances,
                June 30, 2006
            
            
            16,545
            
            $
            165
            
            $
            68,760
            
            $
            (56,220
            )
            $
            12,705





See
      Accompanying Notes to Condensed Consolidated Financial Statements





3








**Interactive
      Intelligence, Inc.**


**Condensed
      Consolidated Statements of Cash Flows (unaudited)**


**For
      the Six Months Ended June 30, 2006 and 2005**


**(in
      thousands)**





**Six
                Months Ended**
              **June
                30,****2006**
            
            **2005****Operating
                activities:**Net
                income
            
            $
            1,974
            
            $
            315Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activities:Depreciation
            
            
            867
            
            
            1,143Stock-based
                compensation expense related to stock options
            
            
            1,166
            
            
            61Loss
                on disposal of fixed assets
            
            
            4
            
            
            --Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (286
            )
            
            (2,959
            )Prepaid
                expenses
            
            
            (1,312
            )
            
            (11
            )Other
                current assets
            
            
            (380
            )
            
            147Other
                assets
            
            
            (31
            )
            
            (36
            )Accounts
                payable and accrued liabilities
            
            
            (148
            )
            
            (938
            )Accrued
                compensation and related expenses
            
            
            387
            
            
            190Deferred
                product revenues
            
            
            923
            
            
            (7
            )Deferred
                services revenues
            
            
            1,141
            
            
            2,032Net
                cash provided by (used in) operating activities
            
            
            4,305
            
            
            (63
            )**Investing
                activities:**Purchases
                of property and equipment
            
            
            (1,035
            )
            
            (1,227
            )Purchases
                of available-for-sale investments
            
            
            (6,829
            )
            
            --Sales
                of available-for-sale investments
            
            
            4,089
            
            
            --Net
                cash used by investing activities
            
            
            (3,775
            )
            
            (1,227
            )**Financing
                activities:**Proceeds
                from issuance of common stock
            
            
            96
            
            
            111Proceeds
                from stock options exercised
            
            
            1,676
            
            
            215Net
                cash provided by financing activities
            
            
            1,772
            
            
            326Net
                increase (decrease) in cash and cash equivalents
            
            
            2,302
            
            
            (964
            )Cash
                and cash equivalents, beginning of period
            
            
            11,551
            
            
            14,603Cash
                and cash equivalents, end of period
            
            $
            13,853
            
            $
            13,639Cash
                paid for interest
            
            $
            7
            
            $
            8Cash
                paid for taxes
            
            
            159
            
            
            180





See
      Accompanying Notes to Condensed Consolidated Financial Statements








4





**Interactive
      Intelligence, Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006 and 2005 (unaudited)**





**1.**
            **The
                Company and Significant Accounting
                Policies**





*The
      Company*





Interactive
      Intelligence, Inc. (the “Company”) is a leading provider of software
      applications for contact centers and is leveraging that leadership position
      to
      provide mission critical voice over Internet protocol (VoIP) applications to
      enterprises. The Company participates in four distinct areas, all of whose
      needs
      are increasing for VoIP-based systems:


·
            Contact
                Centers,


·
            Enterprise
                IP Telephony,


·
            Unified
                Communications, and


·
            Self-service
                Automation.





The
      Company’s principal competitors are hardware vendors who offer proprietary
      approaches using a combination of phone systems, automated call distributors
      (ACD), voice mail systems, and interactive voice response (IVR) systems
      equipment. The Company offers a software solution based on Microsoft Windows
      that resides on a customer’s server and uses an open Session Initiation Protocol
      (SIP) for VoIP networking. This open approach typically results in lower overall
      costs for phone devices, system maintenance, and customer networking. The
      Company’s software applications are also pre-integrated to many popular business
      applications such as financial, customer relationship management (CRM) and
      enterprise resource planning (ERP) software, thereby automating and tracking
      business transactions to customer interactions. The Company is best known for
      its bundled suite of contact center applications that includes multi-media
      customer contact for phone calls, Web chat, Web callback, e-mail queuing,
      customer defined queues, and integrated speech recognition applications.





Principal
      operations of the Company commenced during 1994 and initial revenue was
      recognized in 1997. Since then, the Company has established wholly-owned
      subsidiaries in Australia, France, the Netherlands and the United Kingdom.
      The
      Company also currently has international branch offices in Canada, Germany,
      Japan, Korea, Malaysia, Singapore and Sweden. In 2004, the Company formed its
      Vonexus, Inc. (Vonexus) subsidiary to license Enterprise IP Telephony for small
      and medium sized business customer markets. The Company markets its software
      applications in the Americas, Europe, the Middle East and Africa (EMEA), and
      Asia/Pacific (APAC).





The
      accompanying unaudited financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of America
      for interim financial information and with the instructions for Form 10-Q and
      Article 10 of Regulation S-X. Accordingly, certain information and footnote
      disclosures normally included in financial statements prepared in accordance
      with accounting principles generally accepted in the United States of America
      have been condensed, or omitted, pursuant to the rules and regulations of the
      Securities and Exchange Commission. In our opinion, the statements include
      all
      adjustments necessary (which are of a normal and recurring nature) for the
      fair
      presentation of the results of the interim periods presented.





The
      balance sheet at December 31, 2005 has been derived from the audited financial
      statements at that date but does not include all of the information and
      footnotes required by accounting principles generally accepted in the United
      States of America for complete financial statements.





These
      financial statements should be read in conjunction with our audited consolidated
      financial statements for the year ended December 31, 2005, included in the
      Company’s Form 10-K for the year ended December 31, 2005 as filed with the
      Securities and Exchange Commission. Our results of operations for any interim
      period are not necessarily indicative of the results of operations for any
      other
      interim period or for a full fiscal year.





*Stock
      Based Compensation*





On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123 (revised 2004), *Share-Based
      Payment* (FAS
      123R), which requires the measurement and recognition of compensation expense
      for all share-based payment awards made to employees and directors under the
      Company’s stock option plans, based on fair values. FAS 123R supersedes the
      Company’s previous accounting under Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* (APB
      25). In March 2005, the Securities and Exchange Commission issued Staff
      Accounting Bulletin No. 107 (SAB 107) relating to FAS 123R, which the Company
      utilized in its adoption of FAS 123R beginning January 1, 2006.








5





The
      Company adopted FAS 123R using the modified prospective transition method,
      which
      requires the application of the accounting standard as of January 1, 2006,
      the
      first day of the Company’s fiscal year. The Company’s Condensed Consolidated
      Financial Statements for all periods beginning January 1, 2006 reflect the
      impact of FAS 123R. In accordance with the modified prospective transition
      method, the Company’s Condensed Consolidated Financial Statements for prior
      periods have not been restated to reflect, and do not include, the impact of
      FAS
      123R. Stock-based compensation expense for employee stock options recognized
      under FAS 123R for the three and six months ended June 30, 2006 was $668,000
      and
      $1.2 million, respectively.





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





Stock-based
      compensation expense recognized during the period is based on the value of
      the
      portion of share-based payment awards that is ultimately expected to vest.
      Stock-based compensation expense recognized in the Company’s Condensed
      Consolidated Statements of Income for the three and six months ended June 30,
      2006 included compensation expense for share-based payment awards granted prior
      to, but not yet vested as of January 1, 2006, based on the grant date fair
      value
      estimated in accordance with the pro forma provisions of FAS 123, and
      compensation expense for the share-based payment awards granted subsequent
      to
      January 1, 2006 based on the grant date fair value estimated in accordance
      with
      the provisions of FAS 123R. Compensation expense for all share-based payment
      awards are recognized using the straight-line single option approach.
      Stock-based compensation expense recognized in the Company’s Condensed
      Consolidated Statements of Income for the three and six months ended June 30,
      2006 is based on awards ultimately expected to vest and has been reduced for
      estimated forfeitures. FAS 123R requires forfeitures to be estimated at the
      time
      of grant and revised, if necessary, in subsequent periods if actual forfeitures
      differ from those estimates. Beginning with the Company’s implementation of FAS
      123R in January 2006, stock-based compensation expense has been reduced for
      estimated forfeitures. In the Company’s pro forma disclosure required under FAS
      123, for the periods prior to 2006, the Company accounted for forfeitures as
      they occurred.





With
      the
      adoption of FAS 123R, the Company continued to use the Black-Scholes
      option-pricing model as its method of valuation for share-based awards. For
      additional information, refer to Note 3. The Company’s determination of fair
      value of share-based payment awards on the date of grant using an option-pricing
      model is affected by the Company’s stock price as well as assumptions regarding
      a number of highly complex and subjective variables. These variables include,
      but are not limited to, the Company’s expected stock price volatility over the
      term of the awards and actual and projected employee stock option exercise
      behaviors.





**2.**
            **Net
                Income Per Common Share**





Basic
      net
      income per share is calculated based on the weighted-average number of
      outstanding common shares in accordance with Statement of Financial Accounting
      Standards No. 128, *Earnings
      per Share* .
      Diluted
      net income per share is calculated based on the weighted-average number of
      outstanding common shares plus the effect of dilutive potential common shares.
      Potential common shares are composed of shares of common stock issuable upon
      the
      exercise of stock options. The calculation of diluted net income per share
      excludes shares underlying outstanding stock options whose effect would be
      antidilutive.





The
      following table presents the calculation of basic and diluted net income per
      share (in thousands, except per share amounts):





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                income, as reported (A)
            
            $
            962
            
            $
            290
            
            $
            1,974
            
            $
            315Weighted
                average outstanding shares of common stock (B)
            
            
            16,433
            
            
            16,015
            
            
            16,343
            
            
            15,986Dilutive
                effect of options to purchase common stock
            
            
            1,637
            
            
            670
            
            
            1,309
            
            
            622Common
                stock and common stock equivalent shares (C)
            
            
            18,070
            
            
            16,685
            
            
            17,652
            
            
            16,608Net
                income per share:Basic
                (A/B)
            
            $
            0.06
            
            $
            0.02
            
            $
            0.12
            
            $
            0.02Diluted
                (A/C)
            
            
            0.05
            
            
            0.02
            
            
            0.11
            
            
            0.02








6





The
      Company’s calculation of diluted net income per share for the three months ended
      June 30, 2006 and 2005 excludes options to purchase 366,000 and 2.0 million
      shares of common stock, respectively, and diluted net income per share for
      the
      six months ended June 30, 2006 and 2005 excludes options to purchase 417,000
      and
      2.2 million shares of common stock, respectively, as their effect would be
      antidilutive.





**3.**  **Stock-Based
      Compensation**





The
      Company's Stock Option Plans, adopted in 1995, 1999 and 2006, authorize the
      Board of Directors or the Compensation Committee, as applicable, to grant
      incentive and nonqualified stock options, and, in the case of the 2006 Equity
      Incentive Plan (2006 Plan), stock appreciation rights, restricted stock,
      restricted stock units, performance shares, performance units and other
      stock-based awards. The 2006 Plan was adopted at the Company’s 2006 Annual
      Meeting of Shareholders held in May 2006. After adoption of the 2006 Plan,
      the
      Company may no longer issue grants from previous plans, but any shares subject
      to awards under the 1999 Stock Option and Incentive Plan and the Outside
      Directors Stock Option Plan (the 1999 Plans) that are cancelled will be added
      to
      shares available under the 2006 Plan. A maximum of 4,950,933 shares are
      available for delivery under the 2006 Plan, which consists of (i) 1,250,000
      shares, plus (ii) 320,000 shares available for issuance under the 1999 Plans,
      but not underlying any outstanding stock options or other awards under the
      1999
      Plans, plus (iii) up to 3,380,933 shares subject to outstanding stock options
      or
      other awards under the 1999 Plans that expire, are forfeited or otherwise
      terminate unexercised on or after May 18, 2006. The number of shares available
      under the 2006 Plan is subject to adjustment for certain changes in the
      Company's capital structure.  The
      exercise price of incentive options must not be less than the fair market value
      of the common stock at the date of grant. Options granted under the 2006 Plan
      generally vest in equal installments over four years from the first anniversary
      of the date of grant, although vesting is at the Compensation Committee’s
      discretion.





For
      most
      options granted through December 31, 2004, the term of each option is ten years
      from the date of grant. In 2005, the Company began issuing options with a term
      of six years from the date of grant.





If
      an
      incentive option is granted to an employee who, at the time the option is
      granted, owns stock representing more than ten percent of the voting power
      of
      all classes of stock of the Company, the exercise price of the option may not
      be
      less than 110% of the market value per share on the date the option is granted
      and the term of the option shall be five years from the date of grant.





The
      plans
      may be terminated by the Board of Directors at any time.





*Pro
      Forma Information under FAS 123 for Periods Prior to 2006*





Prior
      to
      the adoption of FAS 123R, the Company provided the disclosures required under
      FAS 123, as amended by Statement of Financial Accounting Standards No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosures* and
      recognized compensation expense for certain non-employee stock options that
      were
      granted. The Company did not recognize stock-based compensation expense in
      its
      Consolidated Statement of Income for periods prior to the adoption of FAS 123R
      for employee stock option grants as all options granted had an exercise price
      equal to the market value of the underlying common stock on the date of the
      grant.





Pro
      forma
      information regarding option grants made to the Company’s employees (including
      Directors) is as follows (in thousands, except per share amounts):





**Three
                Months**
              **Ended**
              **June
                30, 2005**
            
            **Six
                Months**
              **Ended**
              **June
                30, 2005**Net
                income, as reported
            
            $
            290
            
            $
            315Add:
                Stock-based compensation expense for non-employee stock options included
                in reported net income, net of related tax effects
            
            
            18
            
            
            61Deduct:
                Total stock-based compensation expense determined under fair-value-based
                method for all awards
            
            
            (842
            )
            
            (1,614
            )Pro
                forma net loss
            
            $
            (534
            )
            $
            (1,238
            )Net
                income (loss) per share:Basic
                - as reported
            
            $
            0.02
            
            $
            0.02Diluted
                - as reported
            
            
            0.02
            
            
            0.02Basic
                - pro forma
            
            
            (0.03
            )
            
            (0.08
            )Diluted
                - pro forma
            
            
            (0.03
            )
            
            (0.08
            )








7





*Valuation
      and Expense Information under FAS 123R*





The
      following table summarizes the allocation of stock-based compensation expense
      related to employee stock options under FAS 123R for the three and six months
      ended June 30, 2006 (in thousands, except per share amounts):





**Three
                Months Ended**
              **June
                30, 2006**
            
            **Six
                Months Ended**
              **June
                30, 2006**Stock-based
                compensation expense for employee stock options:Cost
                of services
            
            $
            39
            
            $
            78Sales
                and marketing
            
            
            264
            
            
            549Research
                and development
            
            
            61
            
            
            110General
                and administrative
            
            
            304
            
            
            420Total
                stock-based compensation expense for employee stock
                options
            
            $
            668
            
            $
            1,157Diluted
                net income per share - as reported
            
            $
            0.05
            
            $
            0.11Effect
                of stock-based compensation for employee stock options on basic and
                diluted earnings per share
            
            
            (0.04
            )
            
            (0.07
            )





During
      the three and six months ended June 30, 2006, the Company granted stock options
      for 248,179 and 597,179 shares of common stock, respectively, with an estimated
      total grant-date fair value of approximately $1.3 million and $2.4 million,
      respectively. As required by FAS 123R, management has made an estimate of
      expected forfeitures and is recognizing compensation costs only for those stock
      awards expected to vest. The Company estimated that the total stock-based
      compensation for the awards not expected to vest was $260,000 and $495,000,
      with
      such amounts deducted to arrive at the fair value of $1.3 million and $2.4
      million for the three and six months ended June 30, 2006,
      respectively.





*Valuation
      Assumptions*





The
      Company estimated the fair value of stock options using the Black-Scholes
      valuation model. The fair value of each option grant is estimated on the date
      of
      grant and is amortized on a straight-line basis over the vesting period. The
      weighted-average estimated value of options granted to employees and directors
      under the stock option plans was $5.38 and $2.88 during the three months ended
      June 30, 2006 and 2005, respectively, and $3.97 and $3.09 during the six months
      ended June 30, 2006 and 2005, respectively, using the Black-Scholes model with
      the following assumptions:





**As
                of June 30,****2006**
            
            **2005**Dividend
                yield
            
            
            --
            
            
            --Expected
                volatility
            
            
            68.8
            %
            
            114.3
            %Risk-free
                interest rate
            
            
            5.08
            %
            
            4.00
            %Expected
                life of option (in years)
            
            
            4.25
            
            
            4.25





*Expected
      Dividend:* The
      Black-Scholes valuation model calls for a single expected dividend yield as
      an
      input. The Company has not issued any dividends and has no expectation to do
      so
      in the foreseeable future.





*Expected
      Volatility* :
      The
      Company’s volatility factor was based exclusively on its historical stock prices
      over the most recent period commensurate with the estimated expected life of
      the
      stock options.





*Risk-Free
      Rate:* The
      Company bases the risk-free interest rate on the implied yield currently
      available on U.S. Treasury zero-coupon issues with an equivalent remaining
      term
      commensurate with the estimated expected life of the stock options.





*Expected
      Term* :
      The
      Company’s expected term represents the period that the Company’s stock options
      are expected to be outstanding and was determined using the simplified method
      described in SAB 107.





*Estimated
      Pre-vesting Forfeitures:* Beginning
      January 1, 2006, the Company included an estimate for forfeitures in calculating
      stock option expense. When estimating forfeitures, the Company considers
      historical termination behavior as well as any future trends it expects. Prior
      to 2006, the Company accounted for forfeitures of employee stock options for
      pro
      forma disclosure purposes under FAS 123 on an as-incurred basis.








8


*Stock
      Option Activity*





The
      following is a summary of options activities for the three and six months ended
      June 30, 2006:





**Three
                Months Ended**
              **June
                30, 2006**
            
            **Six
                Months Ended**
              **June
                30, 2006****Options**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Options**
            
            **Weighted
                Average Exercise Price**Beginning
                outstanding
            
            
            3,931,666
            
            $
            5.44
            
            
            3,853,688
            
            $
            5.44Options
                granted
            
            
            248,179
            
            
            9.54
            
            
            597,179
            
            
            7.02Options
                exercised
            
            
            (166,512
            )
            
            4.88
            
            
            (407,123
            )
            
            4.11Options
                canceled
            
            
            (27,612
            )
            
            6.12
            
            
            (58,032
            )
            
            5.45Ending
                outstanding
            
            
            3,985,712
            
            
            5.81
            
            
            3,985,712
            
            
            5.81Option
                price range at end of period
            
            $
            0.13
                - $50.50
            
            
            
            
            $
            0.13-$50.50Options
                exercisable at end of period
            
            
            2,287,029
            
            $
            6.03
            
            
            2,287,029
            
            $
            6.03Options
                available for grant at end of period
            
            
            1,355,446
            
            
            
            
            
            1,355,446Weighted
                average fair value of options granted during the period
            
            $
            5.38
            
            
            
            
            $
            3.97





The
      following table summarizes information about the options outstanding at June
      30,
      2006:





**Options
                Outstanding**
            
            **Options
                Exercisable****Range
                of Exercise Prices**
            
            **Number**
              **Outstanding**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Number**
              **Exercisable**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**$
                0.13 - $ 2.99
            
            
            435,660
            
            
            3.11
                years
            
            $
            1.65
            
            
            380,793
            
            $
            1.48$
                3.00 - $ 4.49
            
            
            972,447
            
            
            5.67
                years
            
            
            3.63
            
            
            535,890
            
            
            3.39$
                4.50 - $ 5.99
            
            
            1,822,772
            
            
            6.43
                years
            
            
            5.55
            
            
            906,116
            
            
            5.70$
                6.00 - $ 8.99
            
            
            200,933
            
            
            5.64
                years
            
            
            7.18
            
            
            123,330
            
            
            7.72$
                9.00 - $13.49
            
            
            424,761
            
            
            4.91
                years
            
            
            10.04
            
            
            211,761
            
            
            10.49$13.50
                - $50.50
            
            
            129,139
            
            
            4.36
                years
            
            
            23.89
            
            
            129,139
            
            
            23.89Total/average
            
            
            3,985,712
            
            
            5.61
                years
            
            
            5.81
            
            
            2,287,029
            
            
            6.03





The
      total
      intrinsic value of options exercised during the three and six months ended
      June
      30, 2006 was $1.2 million and $2.0 million, respectively. The aggregate
      intrinsic value of options outstanding as of June 30, 2006 was $34.5 million
      and
      the aggregate intrinsic value of options currently exercisable as of June 30,
      2006 was $19.8 million. The aggregate intrinsic value represents the total
      intrinsic value, based on the Company’s closing stock price of $14.14 as of June
      30, 2006, which would have been realized by the option holders had all option
      holders exercised their options as of that date. The total number of
      in-the-money options exercisable as of June 30, 2006 was 2,171,390, with a
      weighted average exercise price of $5.02.





As
      of
      June 30, 2006, there was $4.9 million of total unrecognized compensation cost
      related to non-vested stock options. These costs are expected to be recognized
      over the weighted average remaining life of 3 years.





The
      Company adopted the 2000 Employee Stock Purchase Plan in May 2000. This plan
      was
      modified as of January 1, 2006 to ensure that it is considered non-compensatory
      under FAS 123R. No compensation expense has been recognized related to this
      plan.





**4.**
            **Concentration
                of Credit Risk**





No
      resellers or customers had greater than 10% concentration of accounts receivable
      as of June 30, 2006 and December 31, 2005. No resellers or customers had greater
      than 10% concentration of revenues for the three and six months ended June
      30,
      2006 and 2005.





**5.**
            **Contingencies**





From
      time
      to time the Company has received claims from competitors and other technology
      providers claiming that the Company’s technology infringes their proprietary
      rights. The Company cannot assure you that these matters can be resolved
      amicably without litigation, or that the Company will be able to enter into
      licensing arrangements on terms and conditions that would not have a material
      adverse effect on its business, financial condition or results of operations.


9





On
      September 30, 2003, Recursion Software, Inc. filed suit in Dallas County Court
      in Dallas, Texas against the Company alleging breach of contract and money
      due
      under claims of quantum meruit and unjust enrichment. During the second quarter
      of 2006, the Company settled this suit, which did not have a material adverse
      impact on the Company's financial statements, for the period ended June 30,
      2006. Pursuant to the settlement agreement with Recursion Software, Inc., the
      Company has no future obligations regarding this matter.





During
      the three months ended June 30, 2006, the Company entered into settlement
      agreements with former employees in France for an aggregate amount of
      approximately 320,000 Euros, or $410,000. The Company had previously accrued
      for
      an estimated settlement amount and the amount paid was not materially different.
      The Company paid the settlement amount in the third quarter of 2006. Pursuant
      to
      the settlement agreements, the Company has no future obligations regarding
      this
      matter and there are no remaining claims with former employees in
      France.





On
      January 14, 2005, the Company entered into a non-exclusive license agreement
      with a telecommunication technology provider to use certain of its fax-related
      patents. Pursuant to this agreement, the Company believes that it is reasonably
      possible that in the foreseeable future it will owe the final payment under
      the
      agreement of $225,000. The Company has not recorded an accrual for this amount
      as of June 30, 2006.





In
      November 2002, the Company received a notification from the French government
      as
      a result of a tax audit that had been conducted encompassing the years 1998,
      1999, 2000 and 2001. These assessments claim various taxes are owed related
      to
      Value Added Tax (VAT) and corporation taxes in addition to what has previously
      been paid and accrued. As of June 30, 2006, the assessment related to VAT was
      approximately $2.9 million. The Company’s tax counsel has assessed the
      possibility of the Company paying the assessment related to VAT as remote and
      therefore, the Company has not accrued the VAT amount. The Company has filed
      for
      VAT refunds in France of more than $600,000, which the Company has not recorded
      as a receivable, and to which the French government has not yet responded.
      The
      Company believes that these VAT refunds could be used to offset amounts owed
      to
      the French government in connection with the assessments. As of June 30, 2006,
      the assessment related to corporation taxes was approximately $383,000. The
      Company’s tax counsel has assessed the possibility of the Company paying the
      assessment related to corporation taxes as reasonably possible. As of June
      30,
      2006, the Company has recorded what it deems an appropriate amount for
      corporation taxes. The Company is appealing both the VAT and corporation tax
      assessments, but cannot assure you that these matters will be resolved without
      litigation or that it will not have to pay some or all of the assessments.





From
      time
      to time, the Company is also involved in certain legal proceedings in the
      ordinary course of conducting its business. While the ultimate liability
      pursuant to these actions cannot currently be determined, the Company believes
      these legal proceedings will not have a material adverse effect on its financial
      position or results of operations. Litigation in general, and intellectual
      property litigation in particular, can be expensive and disruptive to normal
      business operations. Moreover, the results of complex legal proceedings are
      difficult to predict.





**6.**
            **Recent
                Accounting Pronouncements**





In
      July
      2006, the Financial Accounting Standards Board (FASB) released Interpretation
      No. 48, *Accounting
      for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109* (FIN
      48).
      FIN 48 clarifies the accounting and reporting for uncertainty in income taxes
      recognized in an enterprise’s financial statements. This interpretation
      prescribes a comprehensive model for the financial statement recognition,
      measurement, presentation and disclosure of uncertain tax positions taken or
      expected to be taken on income tax returns. FIN 48 is effective for fiscal
      years
      beginning after December 15, 2006. The Company does not expect the adoption
      of
      this new tax guideline to have a material impact on its consolidated financial
      position, results of operations or cash flows.





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





**Forward-Looking
      Information**





Certain
      statements in this Form 10-Q contain "forward-looking" information (as
      defined in Section 27A of the Securities Act of 1933, as amended, and
      Section 21E of the Securities Exchange Act of 1934, as amended) that
      involve risks and uncertainties which may cause actual results to differ
      materially from those predicted in the forward-looking statements.
      Forward-looking statements can often be identified by their use of such verbs
      as
      "expects," "anticipates," and "believes" or similar verbs or conjugations of
      such verbs. If any of our assumptions on which the statements are based prove
      incorrect or should unanticipated circumstances arise, our actual results could
      materially differ from those anticipated by such forward-looking statements.
      The
      differences could be caused by a number of factors or combination of factors,
      including, but not limited to, the Risk Factors described in our Securities
      and
      Exchange Commission filings, including the Form 10-K filing for the year
      ended December 31, 2005 and this Form 10-Q.





**Overview**
 
 We
        are a
        leading provider of software applications for contact centers and are leveraging
        that leadership position to provide mission critical VoIP applications to
        enterprises. Our customers are in a wide variety of industries such as financial
        services which includes insurance companies, banks and credit unions, healthcare
        and others. We are a global software provider with a presence in the Americas;
        Europe, Middle East and Africa (EMEA); and Asia/Pacific (APAC).


10


**Financial
      Highlights**




For
      the
      three months ended June 30, 2006, revenues grew 7% over the previous three
      month
      period and 23% over the three months ended June 30, 2005. Factors that affect
      revenues in any particular quarter include potential customers’ budget
      constraints, personnel resources to implement our solutions, and willingness
      to
      implement a critical telecommunications system. As shown in the table below,
      revenues in any particular quarter can fluctuate from other periods. Because
      of
      particular contract terms or our payment experience with certain customers
      or
      resellers, revenue recognition may occur in periods later than when an order
      is
      received.





The
      information below shows our total revenues (in millions) for the most recent
      five quarters and the years ended December 31, 2005, 2004 and 2003 and the
      percentage change over the previous period.





**Period**
            
            **Revenues**
            
            **Sequential**
              **%
                Growth**
            
            **Year
                Over Year**
              **%
                Growth**Three
                months ended:June
                30, 2006
            
            $
            19.3
            
            
            7
            %
            
            23
            %March
                31, 2006
            
            
            17.9
            
            
            2
            
            
            23December
                31, 2005
            
            
            17.5
            
            
            15
            
            
            22September
                30, 2005
            
            
            15.2
            
            
            (3
            )
            
            13June
                30, 2005
            
            
            15.6
            
            
            7
            
            
            15Year
                ended December 31:2005
            
            $
            62.9
            
            
            14
            %2004
            
            
            55.1
            
            
            72003
            
            
            51.5
            
            
            8





For
      the
      three months ended June 30, 2006, product revenues increased 12% compared to
      the
      three months ended June 30, 2005. Services revenues increased 38% for the same
      period. The large increase in services revenues was related to an increase
      of
      $1.9 million in support fees recognized due to our growing installed customer
      base. In addition, other services revenues, such as professional services and
      education, increased a total of $740,000 in the three months ended June 30,
      2006
      compared to the three months ended June 30, 2005.





Cost
      of
      revenues increased $1.5 million and $2.5 million for the three and six months
      ended June 30, 2006 compared to the three and six months ended June 30, 2005,
      respectively. The increases for both periods are the result of increased
      personnel in the services department, increased hardware costs related to our
      IP
      PBX product and increased royalty expenses.





Effective
      January 1, 2006, we adopted the Statement of Financial Accounting Standards
      No.
      123 (revised 2004), *Share-Based
      Payment* (FAS
      123R) which requires the measurement and recognition of compensation expense
      for
      all share-based payment awards made to employees under the Company’s stock
      option plans, based on fair values. The adoption of FAS 123R had a significant
      effect on our costs during the three and six month periods ended June 30, 2006
      compared to the comparable periods a year ago before the expense was recorded.
      The following table summarizes stock-based compensation expense related to
      employee stock options under FAS 123R for the three and six months ended June
      30, 2006 which was allocated as follows (in thousands, except per share
      amounts):





**Three
                Months**
              **Ended**
              **June
                30, 2006**
            
            **Six
                Months**
              **Ended**
              **June
                30, 2006**Stock-based
                compensation expense for employee stock options:Cost
                of services
            
            $
            39
            
            $
            78Sales
                and marketing
            
            
            264
            
            
            549Research
                and development
            
            
            61
            
            
            110General
                and administrative
            
            
            304
            
            
            420Total
                stock-based compensation expense for employee stock
                options
            
            $
            668
            
            $
            1,157Diluted
                net income per share - as reported
            
            $
            0.05
            
            $
            0.11Effect
                of stock-based compensation for employee stock options on basic and
                diluted earnings per share
            
            
            (0.04
            )
            
            (0.07
            )




Operating expenses
      increased $1.5 million and $2.9 million for the three and six months ended
      June
      30, 2006 compared to the three and six months ended June 30, 2005, respectively.
      These increases were partially due to compensation expense related to FAS 123R
      for sales and marketing, research and development and general and
      administrative, as detailed above. In addition, we experienced increases in
      commission expenses, professional services related to legal fees and costs
      related to Section 404 of the Sarbanes-Oxley Act (Sarbanes-Oxley 404) and
      compensation increases as a result of increased staffing. These increases were
      slightly offset by decreases in depreciation, particularly in research and
      development.




We
        had
        $20.2 million of cash and cash equivalents and short-term investments as
        of June
        30, 2006. Cash and cash equivalents and short-term investments increased
        from
        $15.1 million as of December 31, 2005 principally as a result of net earnings
        for the six months ended June 30, 2006, exercises of stock options, cash
        collections of accounts receivable and increased deferred revenues offset
        in
        part by an increase in prepaid expense.


11





Based
      on
      currently issued non-vested options, we expect 2006 expenses related to FAS
      123R
      to be approximately $2.0 million, or approximately $440,000 for the three months
      ended September 30, 2006 and $425,000 for the three months ended December 31,
      2006.





Due
      to
      the amount of our public float as of June 30, 2006, we will be deemed an
“accelerated filer” by the Securities and Exchange Commission (Commission) as of
      December 31, 2006 for purposes of Section 404 of the Sarbanes-Oxley Act of
      2002.
      We are currently in the process of documenting, evaluating and testing our
      internal control over financial reporting and believe that we will be able
      to
      complete all requirements by the deadline for the filing of our Form 10-K for
      the year ending December 31, 2006. We have incurred costs for the six months
      ended June 30, 2006 of approximately $100,000 related to consulting fees and
      anticipate additional costs as we continue to address these
      requirements.





We
      currently have a full valuation allowance recorded against our deferred tax
      asset related to the net operating losses we incurred since the inception of
      our
      business. For the year ended December 31, 2005, we had taxable net income and
      therefore utilized a portion of these net operating losses. Each quarter we
      evaluate the likelihood of our using additional net operating losses in future
      quarters and how much would be used. If we continue to generate taxable income,
      all or a portion of our valuation allowance may be reversed, which would result
      in an income tax credit in the period when this determination is made and could
      result in income tax expense in future quarters if we continue to report taxable
      net income.





**Historical
      Results of Operations**




The
      following table presents certain financial data, derived from our unaudited
      Condensed Consolidated Statements of Income, as a percentage of total revenues
      for the periods indicated. The operating results for the three and six months
      ended June 30, 2006 and 2005 are not necessarily indicative of the results
      that
      may be expected for the full year or for any future period.





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Revenues:Product
            
            
            50
            %
            
            55
            %
            
            50
            %
            
            55
            %Services
            
            
            50
            
            
            45
            
            
            50
            
            
            45Total
                revenues
            
            
            100
            
            
            100
            
            
            100
            
            
            100Cost
                of revenues:Product
            
            
            11
            
            
            7
            
            
            9
            
            
            6Services
            
            
            17
            
            
            17
            
            
            18
            
            
            18Total
                cost of revenues
            
            
            28
            
            
            24
            
            
            27
            
            
            24Gross
                profit
            
            
            72
            
            
            76
            
            
            73
            
            
            76Operating
                expenses:Sales
                and marketing
            
            
            35
            
            
            39
            
            
            37
            
            
            40Research
                and development
            
            
            17
            
            
            21
            
            
            17
            
            
            21General
                and administrative
            
            
            15
            
            
            13
            
            
            14
            
            
            13Total
                operating expenses
            
            
            67
            
            
            73
            
            
            68
            
            
            74Operating
                income
            
            
            5
            
            
            3
            
            
            5
            
            
            2Other
                income (expense):Interest
                income, net
            
            
            1
            
            
            --
            
            
            1
            
            
            --Other
                income (expense)
            
            
            --
            
            
            (1
            )
            
            --
            
            
            (1
            )Total
                other income (expense)
            
            
            1
            
            
            (1
            )
            
            1
            
            
            (1
            )Income
                before income taxes
            
            
            6
            
            
            2
            
            
            6
            
            
            1Income
                taxes
            
            
            1
            
            
            --
            
            
            1
            
            
            --Net
                income
            
            
            5
            %
            
            2
            %
            
            5
            %
            
            1
            %


12


**Comparison
      of Three and Six Months Ended June 30, 2006 and 2005**




***Revenues***




*Product
      Revenues*




**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****($
                in thousands)**Product
                revenues
            
            $
            9,586
            
            $
            8,596
            
            $
            18,447
            
            $
            16,482Change
                from prior year
            
            
            12
            %
            
            18
            %
            
            12
            %
            
            15
            %Percentage
                of total revenues
            
            
            50
            %
            
            55
            %
            
            50
            %
            
            55
            %





The
      increase in product revenues during the three months ended June 30, 2006
      compared to the three months ended June 30, 2005 was due to an increase in
      the
      total orders. The total dollar amount of orders increased 22% for the three
      months ended June 30, 2006 compared to the three months ended June 30, 2005
      with
      relatively faster growth in the EMEA region. In addition, the total dollar
      amount of our IP PBX product orders increased 110% for the three months ended
      June 30, 2006 compared to the three months ended June 30, 2005. Finally, for
      the
      three months ended June 30, 2006 compared to the three months ended June 30,
      2005 our new contact center orders increased 28% and the average contract for
      new contact center customers increased from $87,000 to $112,000 per contract.





The
      increase in product revenues for the six months ended June 30, 2006 compared
      to
      the six months ended June 30, 2005 was also a result of an increase in the
      dollar amount of orders, specifically from the EMEA region. The total dollar
      amount of orders increased 29% for the six months ended June 30, 2006 compared
      to the six months ended June 30, 2005. The total dollar amount of our IP PBX
      product orders increased 155% for the six months ended June 30, 2006 compared
      to
      the six months ended June 30, 2005. Finally, our new contact center orders
      increased almost 18% for the six months ended June 30, 2006 compared to the
      six
      months ended June 30, 2005.





The
      product revenues as a percentage of total revenues decreased for both the three
      and six months ended June 30, 2006 compared to the three and six months ended
      June 30, 2005 due to a larger percentage increase in our services revenues,
      as
      described below.





*Services
      Revenues*




**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****($
                in thousands)**Services
                revenues:Support
                and license renewals
            
            $
            7,873
            
            $
            5,972
            
            $
            15,406
            
            $
            11,264Other
            
            
            1,794
            
            
            1,054
            
            
            3,330
            
            
            2,469Total
                services revenues
            
            $
            9,667
            
            $
            7,026
            
            $
            18,736
            
            $
            13,733Change
                from prior year
            
            
            38
            %
            
            10
            %
            
            36
            %
            
            6
            %Percentage
                of total revenues
            
            
            50
            %
            
            45
            %
            
            50
            %
            
            45
            %





Services
      revenues include support and license renewal fees as well as revenues from
      professional services, education and other miscellaneous revenues. For the
      three
      and six months ended June 30, 2006 compared to the same periods in 2005, support
      and license renewals increased primarily due to higher renewal amounts from
      our
      growing customer base. Other services revenues also increased due to an increase
      in the number of training and professional services engagements.





Our
      support and license renewal revenues should continue to increase as we implement
      new customers and as existing customers continue to renew annual licenses or
      support agreements for our applications. In addition, as we license our software
      directly to larger customers, these customers may need assistance in setting
      up
      and implementing the software resulting in additional professional services
      revenues.




13


***Cost
        of Revenues***
  **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****($
                  in thousands)**Cost
                  of revenues:Product
              
              $
              2,033
              
              $
              1,108
              
              $
              3,366
              
              $
              1,874Services
              
              
              3,315
              
              
              2,703
              
              
              6,459
              
              
              5,410Total
                  cost of revenues
              
              $
              5,348
              
              $
              3,811
              
              $
              9,825
              
              $
              7,284Change
                  from prior year
              
              
              40
              %
              
              20
              %
              
              35
              %
              
              12
              %Product
                  costs as a % of product revenues
              
              
              21
              %
              
              13
              %
              
              18
              %
              
              11
              %Services
                  costs as a % of services revenues
              
              
              34
              %
              
              38
              %
              
              34
              %
              
              39
              %




Costs
      of
      product consist primarily of product and software royalties paid to third
      parties for the use of their technologies in our products, hardware costs and,
      to a lesser extent, software packaging costs, which include product media,
      duplication and documentation. Costs of product can fluctuate depending on
      which
      software applications are licensed to our customers, the third party technology,
      if any, which is licensed and the dollar amount of IP PBX systems licensed
      which
      include hardware such as servers and telephone handsets. The increase in the
      product costs for the three and six months ended June 30, 2006 compared to
      the
      three and six months ended June 30, 2005 was due to IP PBX hardware costs and
      an
      increase in royalties paid to third party software providers. We expect that
      hardware costs will continue to increase if we license increasing amounts of
      IP
      PBX systems. Software royalties will vary depending on third party software
      licenses recognized in each quarter.





Costs
      of
      services consist primarily of compensation expenses for technical support,
      education and professional services personnel and other costs associated with
      supporting our resellers and customers. These costs increased 23% and 19% for
      the three and six months ended June 30, 2006, respectively, compared to the
      three and six months ended June 30, 2005 due to an increase in salary-related
      expenses as headcount increased by 35 total support and services employees
      from
      June 30, 2005 to June 30, 2006. In addition, compensation expenses for services
      related to FAS 123R were $39,000 and $78,000 for the three and six months ended
      June 30, 2006, respectively.





Services
      costs as a percentage of services revenues decreased during the three and six
      months ended June 30, 2006 compared to the same periods in 2005 because the
      percentage increases in services revenues outpaced the percentage increases
      in
      services costs as we gained efficiencies in the support and services
      group.




***Gross
      Profit***




**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****($
                in thousands)**Gross
                profit
            
            $
            13,905
            
            $
            11,811
            
            $
            27,358
            
            $
            22,931Change
                from prior year
            
            
            18
            %
            
            13
            %
            
            19
            %
            
            10
            %Percentage
                of total revenues
            
            
            72
            %
            
            76
            %
            
            73
            %
            
            76
            %





The
      increase in the dollar amount of gross profit was primarily the result of an
      increase in revenues, particularly services revenues, partially offset by the
      smaller percentage increase in cost of revenues, both product and services
      related, discussed above. The percentage of gross profit to total revenues
      decreased due to the larger increase in costs of product and services compared
      to the percentage of revenue increases.




***Operating
      Expenses***




*Sales
      and Marketing*




**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****($
                in thousands)**Sales
                and marketing expenses
            
            $
            6,855
            
            $
            6,146
            
            $
            13,734
            
            $
            12,000Change
                from prior year
            
            
            12
            %
            
            22
            %
            
            14
            %
            
            19
            %Percentage
                of total revenues
            
            
            35
            %
            
            39
            %
            
            37
            %
            
            40
            %Percentage
                of product revenues
            
            
            72
            %
            
            71
            %
            
            74
            %
            
            73
            %


14


Sales
          and
          marketing expenses are comprised primarily of compensation expenses, promotional
          costs and travel and entertainment expenses. These expenses increased primarily
          due to higher commission expense. Commission expense increased $442,000
          for the
          three months ended June 30, 2006 compared to the three months ended June
          30,
          2005 and increased $852,000 for the six months ended June 30, 2006 compared
          to
          the six months ended June 30, 2005. In addition, compensation expense for
          sales
          and marketing related to FAS 123R was $264,000 and $549,000 for the three
          and
          six months ended June 30, 2006.
  *Research
        and Development*
  **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****($
                  in thousands)**Research
                  and development expenses
              
              $
              3,221
              
              $
              3,212
              
              $
              6,262
              
              $
              6,407Change
                  from prior year
              
              
              0
              %
              
              (1
              )%
              
              (2
              %)
              
              (2
              )%Percentage
                  of total revenues
              
              
              17
              %
              
              21
              %
              
              17
              %
              
              21
              %


Research
      and development expenses are comprised primarily of compensation and
      depreciation expenses. Depreciation expense decreased by $112,000 for the three
      months ended June 30, 2006 compared to the three months ended June 30, 2005,
      and
      decreased by $247,000 for the six months ended June 30, 2006 compared to the
      six
      months ended June 30, 2005, as certain of our assets became fully depreciated.
      In addition, outsourced services related to the translation of our products
      into
      different languages decreased $109,000 for the six months ended June 30, 2006
      compared to the six months ended June 30, 2005. These decreases were offset
      by
      compensation expense related to FAS 123R of $61,000 and $110,000 for the three
      and six months ended June 30, 2006, respectively.





*General
      and Administrative*




**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****($
                in thousands)**General
                and administrative expenses
            
            $
            2,833
            
            $
            2,035
            
            $
            5,367
            
            $
            4,056Change
                from prior year
            
            
            39
            %
            
            15
            %
            
            32
            %
            
            9
            %Percentage
                of total revenues
            
            
            15
            %
            
            13
            %
            
            14
            %
            
            13
            %





General
      and administrative expenses are comprised of compensation expense and general
      corporate expenses that are not allocable to other departments including bad
      debt, legal and other professional fees. The increase for the three months
      ended
      June 30, 2006 compared to the three months ended June 30, 2005 was primarily
      due
      to an increase in professional services of $74,000 related to legal fees and
      costs for Sarbanes-Oxley 404 compliance, as well as higher salary and related
      expenses due to an increase in staffing. The increase for the six months ended
      June 30, 2006 compared to the six months ended June 30, 2005 was primarily
      due
      to an increase in professional services of $175,000 related to legal fees and
      costs for Sarbanes-Oxley 404 compliance, and higher salary and related expenses
      of $621,000 due to an increase in staffing. Finally, compensation expense
      related to FAS 123R for general and administrative was $304,000 and $420,000
      for
      the three and six months ended June 30, 2006. The higher FAS 123R costs in
      the
      three months ended June 30, 2006 included almost $200,000 of compensation
      expense for option grants in May 2006 to outside Directors that were fully
      vested and therefore fully expensed upon grant.




***Other
      Income (Expense)***




*Interest
      Income, net*





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****($
                in thousands)**Cash,
                cash equivalents and short-term investments (average)
            
            $
            19,519
            
            $
            14,397
            
            $
            17,648
            
            $
            14,121Interest
                income
            
            
            121
            
            
            69
            
            
            228
            
            
            121Return
                on investment
            
            
            2.5
            %
            
            1.9
            %
            
            2.6
            %
            
            1.7
            %





Interest
      income, net is primarily comprised of interest earned from investments and
      interest-bearing cash accounts. Interest expense and fees, which are not
      material for any periods reported, are also included in interest income, net.
      Interest earnings improved during the three and six months ended June 30, 2006
      compared to the three and six months ended June 30, 2005 as shown above. Cash
      earned on investments improved partially due to an increasing cash balance.
      In
      addition, we reallocated the funds in which we have invested to increase our
      return on investment. The new investments have a higher interest rate and lower
      fees.





15
 *Other
      Income (Expense)*


**Three
                    Months Ended**
                  **June
                    30,**
                
                **Six
                    Months Ended**
                  **June
                    30,****2006**
                
                **2005**
                
                **2006**
                
                **2005****($
                    in thousands)**Other
                    income (expense)
                
                $
                (12
                )
                $
                (136
                )
                $
                (64
                )
                $
                (182
                )
 
 Beginning with the three months ended June 30, 2005, we began classifying
        our
        foreign currency transaction gains and losses, as well as foreign tax
        withholdings, in other income (expense) instead of sales and marketing and
        general and administrative expenses. All prior periods have been reclassified
        to
        this presentation. These amounts depend on the amount of revenue that is
        generated in certain international currencies, particularly the Euro, and
        the
        exchange gain or loss that results from foreign currency disbursements and
        receipts.


**Liquidity
      and Capital Resources**




We
      generate cash from collections related to licensing our applications, from
      annual license renewals, maintenance and support and other services revenues
      and
      from our employees exercising stock options. We also have in place a $3.0
      million line of credit, which we did not utilize as of June 30, 2006. We use
      cash primarily for paying our employees (including salaries, commissions and
      benefits), leasing office space, paying travel expenses, marketing activities,
      paying vendors for other services, supplies and royalties and purchasing
      property and equipment.





We
      determine liquidity by combining cash and cash equivalents and short-term
      investments net of any outstanding borrowings on our line of credit as shown
      in
      the table below. Our total liquidity position as of June 30, 2006 improved
      compared with our position as of December 31, 2005 due mainly to increased
      net
      income, increased stock option exercises, strong cash collections of accounts
      receivable and increased deferred revenues offset in part by an increase in
      prepaid expense. We believe that our current liquidity position, when combined
      with our anticipated cash flows from operations, will be sufficient to satisfy
      our operating cash needs over the next 12 months. If cash flows from operations
      are less than anticipated or we have additional cash needs (such as an
      unfavorable outcome in legal proceedings), our liquidity may not be sufficient
      to cover our needs. In this case, we may be forced to raise additional capital,
      either through the capital markets or debt financings. We may not be able to
      receive favorable terms in raising this capital.





**June
                30,**
            
            **December
                31,****2006**
            
            **2005****($
                in thousands)**Cash
                and cash equivalents
            
            $
            13,853
            
            $
            11,551Short-term
                investments
            
            
            6,316
            
            
            3,576Liquidity,
                net
            
            $
            20,169
            
            $
            15,127





Our
      operating activities resulted in net cash provided of $4.3 million for the
      six
      months ended June 30, 2006 and net cash used of $63,000 for the six months
      ended
      June 30, 2005. This increase in net cash provided was primarily a result of
      increased net income, strong cash collections on accounts receivable and
      increased deferred revenues offset in part by an increase in prepaid expense.





The
      amount that we report as cash and cash equivalents or as temporary investments
      fluctuates depending on investing decisions in each period. Purchases of
      short-term investments are reported as a use of cash and the related receipt
      of
      proceeds upon maturity of the investment is reported as a source of
      cash.





We
      purchased property and equipment with a cost of $1.0 million and $1.2 million
      in
      the six months ended June 30, 2006 and 2005, respectively. These purchases
      related mainly to hardware and leasehold improvements for our corporate
      headquarters. As our property and equipment becomes obsolete and as our
      operations continue to grow, we would anticipate that our purchases of property
      and equipment will continue to increase in future periods.





Net
      cash
      provided by financing activities was $1.8 million and $326,000 for the six
      months ended June 30, 2006 and 2005, respectively. The increase in cash provided
      was mainly due to proceeds from stock options that were exercised during the
      period. As our stock price increased during the period from $5.10 per share
      as
      of December 31, 2005 to $14.14 per share as of June 30, 2006, more stock options
      were exercised compared to the prior year period.





There
      have been no material changes in our contractual obligations described in our
      Form 10-K for the year ended December 31, 2005, except that during the third
      quarter of 2006, we amended a patent license agreement which was originally
      signed in 2002. The amendment requires that we make quarterly payments of
      $250,000 in 2006, $281,250 in 2007, $312,500 in 2008, $343,750 in 2009 and
      $375,000 in 2010. In addition, the amendment specifies quarterly royalty
      payments of 1.5% of our total sales for 2011 through 2020 and 1.125% of our
      total sales for 2021 through 2026.





**Critical
      Accounting Policies and Estimates**




We
      believe there are three accounting policies that are important to understanding
      our historical and future performance, as these policies affect the reported
      amounts of revenues and are the more significant areas involving management’s
      judgments and estimates. These critical accounting policies and estimates relate
      to revenue recognition, the allowance for doubtful accounts receivable and
      research and development. These policies, and our procedures related to these
      policies, are described below.


16





***Sources
      of Revenues and Revenue Recognition Polic*** ***y***





We
      generate product revenues from licensing the right to use our software
      applications and in certain instances providing hardware as a component of
      our
      solution, and generate services revenues primarily from annual renewal fees,
      annual support fees, educational services and professional services. Both of
      these sources of revenues are critical to our financial statements because
      of
      their materiality to our statements as a whole and because of the judgment
      required in determining if revenue recognition criteria have been
      met.





*Product
      Revenues*




Our
      license agreements are either perpetual or annually renewable. For any revenues
      to be recognized from a license agreement, the following criteria must be met:


·
            persuasive
                evidence of an arrangement exists;


·
            the
                fee is fixed or determinable;


·
            collection
                is probable; and


·
            delivery
                has occurred.





For
      a
      perpetual license agreement, upon meeting the revenue recognition criteria
      above, we immediately recognize as product revenues the amount of initial
      license fees if sufficient vendor specific objective evidence of fair value
      exists to support allocating a portion of the total fee to the undelivered
      elements of the arrangement. If sufficient vendor specific objective evidence
      of
      the fair value of the undelivered elements does not exist, we recognize the
      initial license fee as product revenues ratably over the initial term of the
      support agreement. The support period is generally 12 months but may be up
      to 18
      months for initial orders because support begins when the licenses are
      downloaded, when support commences, or no more than six months following the
      contract date.





For
      perpetual license agreements, we recognize revenues related to any hardware
      sales when the revenues related to the corresponding software are
      recognized.





For
      an
      annually renewable license agreement, upon meeting the revenue recognition
      criteria above, we recognize a majority of the initial license fees under these
      agreements as product revenues ratably over the initial license period, which
      is
      generally 12 months, and the remainder of the initial license fees are
      recognized as services revenues over the same time period.





*Services
      Revenues*




Services
      revenues are recognized for annually renewable license agreements and perpetual
      license agreements. For all agreements, the allocation of the initial order
      between product revenues and services revenues is based on the actual renewal
      fee. Under annually renewable license agreements, after the initial license
      period, our customers may renew their license agreement for an additional
      period, typically 12 months, by paying a renewal fee. Under perpetual license
      agreements, we recognize annual support fees as services revenues ratably over
      the post-contract support period, which is typically 12 months.





We
      also
      generate revenues from other services that we provide to our resellers and
      customers. These additional revenues include fees for educational services
      and
      professional services. Revenues from educational services, which consist of
      training courses for resellers and customers, and professional services, which
      include implementing our products for a customer, are recognized as the related
      services are performed.




***Allowance
      for Doubtful Accounts Receivable***




We
      review
      the allowance for doubtful accounts for each reporting period based on a
      detailed analysis of our accounts receivable to determine that the amount of
      the
      allowance for doubtful accounts receivable is appropriately stated at the end
      of
      that period. In the analysis of accounts receivable, we primarily consider
      the
      age of the reseller’s or customer's receivable and also consider the
      creditworthiness of the reseller or customer, the economic conditions of the
      customer's industry, and general economic conditions, among other factors.
      If
      payment is not made timely, we contact the customer or reseller to try to obtain
      payment. If this is not successful, we institute other collection practices
      such
      as generating collection letters, involving our sales representatives and
      ultimately terminating the customer’s or reseller’s access to future upgrades,
      licenses and customer support. Once all collection efforts are exhausted, the
      receivable is written off against the allowance for doubtful
      accounts.





17







**Research
      and Development**




Through
      June 30, 2006, all research and development expenditures have been expensed
      as
      incurred. Based on our product development process and technological
      feasibility, the date at which capitalization of development costs may begin
      is
      established upon completion of a working model. Costs incurred between
      completion of the working model and the point at which the product is ready
      for
      general release have been insignificant.





**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk.**





We
      develop products in the United States and license our products in the Americas,
      EMEA and APAC. As a result, our financial results could be affected by various
      factors, including changes in foreign currency exchange rates or weak economic
      conditions in foreign markets. As most sales are currently made in U.S. dollars,
      a strengthening of the dollar could make our products less competitive in
      foreign markets. Additionally, as our business matures in foreign markets,
      we
      may offer our products and services in certain other local currencies. As a
      result, we will be subject to foreign currency fluctuations, which may have
      an
      adverse affect on our company.





We
      manage
      our interest rate risk by maintaining an investment portfolio with debt
      instruments of high credit quality and relatively short average maturities.
      We
      also manage interest rate risk by maintaining sufficient cash and cash
      equivalent balances such that we are typically able to hold our investments
      to
      maturity. We have a line of credit with a variable interest rate based upon
      the
      bank’s prime rate on which we incur interest expense when the line is
      utilized.





**Item
      4. Controls and Procedures.**





We
      maintain a set of disclosure controls and procedures that are designed to ensure
      that information required to be disclosed by us in the reports filed by us
      under
      the Securities Exchange Act of 1934, as amended (Exchange Act) is recorded,
      processed, summarized and reported within the time periods specified in the
      SEC’s rules and forms. We carried out an evaluation, under the supervision and
      with the participation of our management, including our President and Chief
      Executive Officer and our Chief Financial Officer and Treasurer, of the
      effectiveness of the design and operation of our disclosure controls and
      procedures as of June 30, 2006 pursuant to Rule 13a-15(b) of the Exchange Act.
      Based on that evaluation, our President and Chief Executive Officer and our
      Chief Financial Officer and Treasurer concluded that our disclosure controls
      and
      procedures were effective.





There
      have been no changes in our internal control over financial reporting that
      occurred during the quarter ended June 30, 2006 that have materially affected,
      or are reasonably likely to materially affect, our internal control over
      financial reporting.





P **ART
      II. OTHER INFORMATION**





**Item
      1. Legal Proceedings.**




The
      information set forth in Note 5 to the Condensed Consolidated Financial
      Statements included in Part I, Item 1 of this report is incorporated herein
      by
      reference.





**Item
      1A. Risk Factors.**





You
      should carefully consider the risks and uncertainties we describe both in this
      Report and in the “Risk Factors” section of our Annual Report on Form 10-K for
      the year ended December 31, 2005 before deciding to invest in, or retain, shares
      of our common stock. These are not the only risks and uncertainties that we
      face. Additional risks and uncertainties that we do not currently know about,
      we
      currently believe are immaterial or we have not predicted may also harm our
      business operations or adversely affect us. If any of these risks or
      uncertainties actually occurs, our business, financial condition, results of
      operations or cash flows could be materially adversely affected. The following
      is an additional risk factor affecting us:








18





**We
      face risks from the impact of being classified as an “Accelerated
      Filer”**





An
      accelerated filer is defined by the Commission as a public company with public
      float greater than $75 million as of the end of its second fiscal quarter and
      satisfying certain other requirements. Due to our public float exceeding $75
      million as of June 30, 2006, we anticipate that we will be classified by the
      Commission as an accelerated filer as of December 31, 2006, and therefore the
      mandatory compliance date for the management report on internal control over
      financial reporting requirement and the related accounting firm report
      requirement under Section 404 of the Sarbanes-Oxley Act of 2002 will be December
      31, 2006. Complying with the requirements of Section 404 of the Sarbanes-Oxley
      Act as of December 31, 2006 will redirect some of management’s focus and funding
      for the current year.





While
      we
      anticipate being able to fully implement the requirements relating to internal
      controls and all other aspects of Section 404 by our compliance deadline, we
      cannot be certain as to the timing of completion of our evaluation, testing
      and
      remediation actions or the impact of the same on our operations. If we are
      not
      able to implement the requirements of Section 404 in a timely manner or with
      adequate compliance, we might be subject to sanctions or investigation by
      regulatory authorities, including the Commission. In addition, we may be
      required to incur a substantial financial investment to comply with the
      requirements of Section 404.





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





We
      held
      our annual meeting of shareholders on May 18, 2006. At that meeting, our
      shareholders:


·
            reelected
                Edward L. Hamburg, Ph.D. and Samuel F. Hulbert, Ph.D. as Directors
                of the
                Company to serve three-year terms and until their successors are
                elected
                and have qualified,


·
            approved
                the Interactive Intelligence, Inc. 2006 Equity Incentive Plan, and


·
            did
                not approve the proposal to restore voting rights to control shares.





The
      final
      results of the votes taken at the meeting were as follows:





Votes
                For
            
            Votes
                WithheldElection
                of Directors:Edward
                L. Hamburg, Ph.D.
            
            
            11,003,182
            
            
            122,268Samuel
                F. Hulbert, Ph.D.
            
            
            10,932,648
            
            
            192,902





Votes
                For
            
            Votes
                Withheld
            
            Broker
                Non-Votes
            
            AbstentionsInteractive
                Intelligence, Inc. 2006 Equity Incentive Plan
            
            
            6,577,294
            
            
            934,253
            
            
            3,602,537
            
            
            11,466Proposal
                to restore voting rights to control shares
            
            
            2,435,380
            
            
            337,065
            
            
            3,847,802
            
            
            65,047





In
      addition, the following Directors continue in office until the annual meeting
      of
      shareholders in the year indicated:





Mark
                E. Hill
            2007William
                E. McWhirter
            2007Donald
                E. Brown, M.D.
            2008Richard
                A. Reck
            2008





**Item
      6. Exhibits.**





(a)
            Exhibits





3.1  Restated
      Articles of Incorporation of the Company (incorporated herein by reference
      from
      the same exhibit number to the Company’s Registration Statement on Form S-1
      (Registration No. 333-79509))





3.2  By-Laws
      of the Company, as amended to date (incorporated herein by reference from the
      same exhibit number to the Company’s Registration Statement on Form S-1
      (Registration No. 333-79509))








19





10.6  Employment,
      Non-Disclosure and Non-Competition Agreement, dated as of May 26, 2006, by
      and
      between Interactive Intelligence, Inc. and Gary R. Blough (incorporated herein
      by reference from the same exhibit number to the Company’s Current Report on
      Form 8-K filed on May 31, 2006)





10.15  Employment,
      Non-Disclosure and Non-Competition Agreement, dated June 26, 2006, by and
      between Interactive Intelligence, Inc. and Melinda W. Marshall (incorporated
      herein by reference from the same exhibit number to the Company’s Current Report
      on Form 8-K filed on July 21, 2006)





10.34  Interactive
      Intelligence, Inc. 2006 Equity Incentive Plan (incorporated herein by reference
      from the same exhibit number to the Company’s Current Report on Form 8-K
      filed on May 23, 2006)





10.35  Form
      of
      Incentive Stock Option Agreement Under 2006 Equity Incentive Plan (incorporated
      herein by reference from the same exhibit number to the Company’s Current Report
      on Form 8-K filed on May 23, 2006)





10.36  Form
      of
      Nonqualified Stock Option Agreement Under 2006 Equity Incentive Plan
      (incorporated herein by reference from the same exhibit number to the Company's
      Current Report on Form 8-K filed on May 23, 2006)





31.1  Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002





31.2  Certification
      of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002





32.1  Certification
      of Donald E. Brown, M.D., CEO, pursuant to 18 U. S. C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





32.2  Certification
      of Stephen R. Head, CFO, pursuant to 18 U. S. C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002











20














**SIGNATURE**





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





Interactive
                Intelligence, Inc.(Registrant)Date:
                August 11, 2006
            By/s/
                Stephen R. HeadStephen
                R. Head*Chief
                Financial Officer, Vice President of Finance and**Administration,
                Secretary and Treasurer**(Principal
                Financial Officer and Principal Accounting
                Officer)*





21