**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**X      Annual      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of      1934**

**For      the Fiscal Year Ended December 31, 2006**

**___      Transition report pursuant to Section 13 of 15(d) of the Securities Exchange      Act      of 1934 For the transition period from ___ to ___**

**Commission      File No. 0-19301**

**Communication      Intelligence Corporation**

| **Delaware**(State                or other jurisdiction ofincorporation                or organization) | **94-2790442**(I.R.S.                EmployerIdentification                No.) |
|---------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|

| **275                Shoreline Drive, Suite 500****Redwood                Shores, California**(Address                of principal executive offices) |   |  **94065**(Zip                Code) |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|

**650-802-7888**

**None**

**Common      Stock, $.01 par value**

----

|                                                                                                                                                 | Page     |
|------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                 |     |
| PART                I                                                                                                                                | 3        |
| Item                1. Business                                                                                                                      | 3        |
| Item                1A. Risk Factors                                                                                                                 | 7        |
| Item                1B. Unresolved Staff Comments                                                                                                    | 10       |
| Item                2. Properties                                                                                                                    | 10       |
| Item                3. Legal Proceedings                                                                                                             | 10       |
| Item                4. Submission of Matters to a Vote of Security Holders                                                                           | 10       |
| PART                II                                                                                                                               | 10       |
| Item                5. Market For Registrant's Common Equity and Related Stockholder                Matters                                          | 10       |
| Item                6. Selected Financial Data                                                                                                       | 12       |
| Item                7. Management's Discussion and Analysis of Financial                Conditionand                Results of Operations            |  13 |
| Item                7A. Quantitative and Qualitative Disclosures About Market                Risk                                                    | 23       |
| Item                8. Consolidated Financial Statements and Supplementary                Data                                                       | 24       |
| Item                9. Changes in and Disagreements with Accountants on                Accountingand                Financial Disclosures            |  24 |
| Item                9A. Controls and Procedures                                                                                                      | 24       |
| Item                9B. Other Information                                                                                                            | 25       |
| PART                III                                                                                                                              | 26       |
| Item                10. Directors and Executive Officers of the Registrant                                                                           | 26       |
| Item                11. Executive Compensation                                                                                                       | 28       |
| Item                12. Security Ownership of Certain Beneficial Owners and Management                and                Related Stockholder Matters | 35       |
| Item                13. Certain Relationships and Related Transactions                                                                               | 36       |
| Item                14. Principal                Accountant Fees and Services                                                                        | 36       |
| PART                IV                                                                                                                               | 38       |
| Item                15. Exhibits, Financial Statement Schedules, and Reports on Form                8-K                                         | 38       |

----

**PART      I**

**Item      1.*Business***

***General***

***Core      Technologies***

----

*Products*

|   | SignatureOne  | SignatureOne                Profile Server is the server compliment to CIC's Sign-it software,                which                enables the real-time capture of electronic and digital signatures                in                various application environments. All user enrollment, authentication                and                transaction tracking in SignatureOne is based on data from the Sign-it                client software. |   |
|--------|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | iSign         | A                suite of application development tools for electronic signatures,                biometric signature verification and cryptography for custom developed                applications and web based development.                                                                                                                                                                                                                       |   |
|   | Sign-it  | Multi-modal                electronic signature software for common applications including;                Microsoft                Word, Adobe Acrobat, AutoDesk AutoCAD, web based applications using                HTML,                XML, & XHTML, and custom applications for .NET, C# and similar                development environments for the enterprise market                                                                      |   |
|   | Jot      | Multi-lingual                handwriting recognition software                                                                                                                                                                                                                                                                                                                                                                                         |   |

| iSign                v4.0                                                                                                                                           |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| SignatureOne™                Profile Server v2.0. OracleSignatureOne™                Profile Server v2.0. SQL                                           |
| Sign-it®                Tools v3.0 for AutoCAD®Sign-it®                Tools v3.01 for AutoCAD®Sign-it®                Tools v3.0 for Word |
| Sign-it®                Tools v3.02 for Word                                                                                                                   |
| Sign-it®                v3.0 for AutoCAD®Sign-it®                v3.01 for AutoCAD®Sign-it®                v3.02 for AutoCAD®         |
| Sign-it®                v3.1 for AutoCAD® Sign-it®                v6.0 for Acrobat®                                                             |
| Sign-it®                v6.01 for Acrobat®                                                                                                                |
| Sign-it®                v6.02 for Acrobat®                                                                                                                |
| Sign-it®                v6.01 for WordSign-it®                v6.02 for WordSign-it®                v6.03 for Word                                   |
| Sign-it®                XF v1.0Sign-it®                XF v1.1                                                                                            |

----

***Copyrights,      Patents and Trademarks***

----

|   | Patent                No. | Expiration |   |
|--------|---------------------------|------------|--------|
|   | 5049862                   | 2008       |   |
|   | 5544255                   | 2013       |   |
|   | 5647017                   | 2014       |   |
|   | 5818955                   | 2015       |   |
|   | 5933514                   | 2016       |   |
|   | 6064751                   | 2017       |   |
|   | 6091835                   | 2017       |   |
|   | 6212295                   | 2018       |   |
|   | 6381344                   | 2019       |   |
|   | 6487310                   | 2019       |   |

***Material      Customers***

***Seasonality      of Business***

***Backlog***

***Competition***

----

***Employees***

***Geographic      Areas***

***Segments***

***Forward      Looking Statements***

**Item      1A *Risk      Factors***

**Our      auditors have raised substantial doubt about our ability to continue as a going      concern.**

----

**Operating      losses may continue, which could adversely affect financial results from      operations and stockholder value.**

**We      have experienced significant declines in revenues in recent periods which,      if      continued, could adversely affect stockholder value.**

**Our      competitors could develop products or technologies that could make our products      or technologies non-competitive, which would adversely affect sales, financial      results from operations and stockholder value.**

----

**If      we are unable to adequately protect our intellectual property, third parties      may      be able to use our technology, which could adversely affect our ability to      compete in the market, our financial results from operations and stockholder      value. **

**A      significant portion of our sales are derived from a limited number of customers,      and results from operations could be adversely affected and shareholder value      harmed if we lost any of these customers. **

***Risks      Related to our Capital Structure***

**The      market price of our stock can be volatile, which could result in losses for      investors. **

**Statutory      provisions and provisions in our charter may delay or frustrate transactions      that may be beneficial to our stockholders. **

----

**Resale      by the holder of the Notes and Warrants could adversely affect the market price      of our stock. **

**Item      1B. *Unresolved      Staff Comments***

**Item      2. *Properties***

**Item      3. *Legal      Proceedings***

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

**PART      II**

| **Item                5.** | ***Market                For Registrant's Common Equity and Related Stockholder                Matters*** |
|----------------------------|-----------------------------------------------------------------------------------------------------------|

|     |                          | **Sale                Price****Per                Share** |
|----------|-------------------------------|-----------------------------------------------------------|
| **Year** | **Period**                    | **High**                                                  | **Low** |
|     |                          |                                                      |   |
| 2005     | First                Quarter  | $                0.63                                     | $ 0.38 |
|     | Second                Quarter | $                0.59                                     | $                0.23 |
|     | Third                Quarter  | $                0.61                                     | $ 0.39 |
|     | Fourth                Quarter | $                0.55                                     | $ 0.37 |
| 2006     | First                Quarter  | $                0.53                                     | $ 0.40 |
|     | Second                Quarter | $                0.50                                     | $                0.39 |
|     | Third                Quarter  | $                0.41                                     | $ 0.24 |
|     | Fourth                Quarter | $                0.30                                     | $ 0.18 |

----

| Total                Return To Shareholders                |
|------------------------------------------------------------|
| (Includes                reinvestment of dividends)        |
|                                                       |   |   |   |   |   |   |
|                                                       |   | ANNUAL                RETURN PERCENTAGE |
|                                                       |   | Years                Ending December 31, |
|                                                       |   |   |   |   |   |   |
| Company                / Index                             |   | 2002 | 2003 | 2004 | 2005 | 2006 |
| Communication                Intelligence Corporation      | -45.31 | 5.71 | 60.81 | -27.73 | -52.33 |
| Nasdaq                U.S. & Foreign Index             |   | -31.19 | 50.84 | 8.81 | 2.28 | 10.31 |
| Nasdaq                Computer & Data Processing Index | -31.04 | 31.75 | 10.12 | 3.39 | 12.23 |
|                                                       |   |   |   |   |   |   |
|                                                       |   | INDEXED                RETURNS |
|                                                       | Base | Years                Ending December 31, |
|                                                       | Period |   |   |   |   |   |
| Company                / Index                             | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 |
| Communication                Intelligence Corporation      | 100 | 54.69 | 57.81 | 92.97 | 67.19 | 32.03 |
| Nasdaq                U.S. & Foreign Index             | 100 | 68.81 | 103.79 | 112.93 | 115.50 | 127.41 |
| Nasdaq                Computer & Data Processing Index | 100 | 68.96 | 90.85 | 100.04 | 103.44 | 116.09 |

----

*Selected      Financial Data*

|                                                     | **Years                Ended December 31,**             |
|----------------------------------------------------------|---------------------------------------------------------|
| ** **                                               | **2006**                                                | **2005** | **2004** | **2003** | **2002** |
|                                                     | (In                thousands, except per share amounts) |
| **Statement                of Operations Data:**         |                                                    |   |   |   |   |
| Revenues                                                 | $                  2,342                      | $                  3,121 | $                  7,284 | $                   3,034 | $                  3,272 |
| Research                and development expenses(1)      |                       817 |                    1,144 |                     1,187 |                      1,302 |                     1,485 |
| Sales                and marketing expenses              |                    1,658                 |                    1,240 |                     1,306 |                         905 |                     1,543 |
| General                and administrative expenses       |                    2,174                 |                    2,173 |                     2,483 |                      2,219 |                    2,424 |
| Income                (loss) from operations             |                   (2,557)                     |   (1,584) |                     2,255 |                     (2,157) |                   (3,337) |
| Net                income (loss)                         | $                (3,286)                                | $                (4,031) | $                  1,620 | $                   (2,345) | $                 (3,561) |
| Basic                and diluted income (loss) per share | $                  (0.03)                     | $                  (0.04) | $                   0.02 | $                    (0.02) | $                  (0.04) |

|                                                      |                                  | **As                of December 31,**                         | ** **                                    |
|-----------------------------------------------------------|---------------------------------------|---------------------------------------------------------------|-----------------------------------------------|
| ** **                                                | **2006**                              | **2005**                                                      | **2004**                                      | **2003** | **2002** |
|                                                      |                                  | (In                thousands)                                 |                                          |
| **Balance                Sheet Data:**                    |                                  |                                                          |                                          |   |   |
| Cash,                cash equivalents and restricted cash | $                  727      | $   2,849                                      | $                  4,736            | $                 1,039 | $                    711 |
| Working                capital(2)                         |                   (816)     |                     2,258                 |                     4,068 |                   (2,895) |                       443 |
| Total                assets                               |                  6,126           |                     8,466                 |                   10,819            |                    7,215 |                    7,168 |
| Deferred                revenue                           |                    404 |                        557 |        458 |                       165 |                       165 |
| Long-term                obligations (3)                  |                    334 |                     1,169                 |                    1,790       |                        13 |                    3,000 |
| Stockholders'                equity (4)                   |  3,584                           |                     5,856                 |                    7,531       |                   2,187 |                    2,934 |

| (1)   | Excludes                software development costs capitalized in accordance with Statement                of                Financial Accounting Standards No. 86 of $510                at December 31, 2006, $299 at December 31, 2005 and $45 at December                31,                2004 respectively. No software development costs were capitalized                in the                years ended December 31, 2003 and                2002. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Current                liabilities used to calculate working capital at December 31, 2006,                2005,                2004, 2003, and 2002 include deferred revenue of $404, $557, $458,                $165,                and $165, respectively. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Long-term                debt is net of the unamortized fair value assigned to warrants of                $266 for                related-party debt at December 31, 2006. Long-term debt is net of                the                unamortized debt discount related to convertible debt of $674, and                $2,410                at December 31, 2005 and 2004. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | The                Company has never paid dividends to the holders of its common stock. |
|-----------------|-----------------------------------------------------------------------------------------|

----

**Item      7.*Management's      Discussion and Analysis of Financial Condition and Results of      Operations***

*Overview*

*New      Accounting Pronouncements*

*Critical      Accounting Policies*

----

*Revenue:*
*Software      Revenue Recognition*
*Revenue      Recognition*
*Accounting      for Revenue Arrangements with Multiple Elements*

*Long-lived      assets:*
*Goodwill      and Other Intangible Assets*
*Accounting      for the Impairment or Disposal of Long Lived Assets*

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

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

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

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

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

----

*Customer      Base:*

*Software      Development Costs*
*Accounting      for the Costs of Computer Software to be Sold, Leased or Otherwise      Marketed*

*Research      and Development Costs*

*Share-based      compensation*

*Foreign      Currency Translation:*

----

*Net      Operating Loss Carryforwards:*

*Segments:*

**Results      of Operations**

***Revenues***

***Cost      of Sales***

----

***Operating      expenses***

*Research      and Development Expenses*

*Share-Based      Compensation*

*Sales      and Marketing Expenses*

*General      and Administrative Expenses*

*Share-based      compensation*

*Interest      income and other income, net*

*Interest      expense*

----

**Years      Ended December 31, 2005 and December 31, 2004**

***Revenues***

*™      *

***Cost      of Sales***

***Operating      expenses***

*Research      and Development Expenses*

----

*Sales      and Marketing Expenses*

*General      and Administrative Expenses*

*Interest      income and other income, net*

*Interest      expense*

----

***Liquidity      and Capital Resources***

----

*Financing*

*Accounting      for Derivative Instruments and Hedging Activities*
*The      Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument      Subject to EITF 00-19, “Accounting for Derivative Financial Instruments Indexed      to, and Potentially Settled in, a Company’s Own Stock*

----

*Accounting      for Convertible Securities with Beneficial Conversion Features or Contingently      Adjustable Conversion Ratios*
*Application      of Issue No. 98-5 to Certain Convertible Instruments*

----

*Contractual      Obligations*

|                                                       |   |   |   | Payments                due by period |   |
|------------------------------------------------------------|--------|--------|--------|---------------------------------------|--------|
|                Contractual                obligations |   |   |   | Total                                 |   | 2007 |   | 2008 |   | 2009 |   | 2010 |   | 2011 |   | Thereafter |   |
| Short-term                debt (1)                         |   |   |   |                                  | $      | 1,382 |   | $ | 1,382 |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   |
| Long-term                debt related party (2)            |   |   |   |                                  |   | 600 |   |   | - |   |   | 600 |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Operating                lease commitments (3)             |   |   |   |                                  |   | 1,252 |   |   | 196 |   |   | 264 |   |   | 272 |   |   | 280 |   |   | 240 |   |   | - |   |
| Total                contractual cash obligations          |   |   |   |                                  | $      | 3,234 |   | $ | 1,                578 |   | $ | 864 |   | $ | 272 |   | $ | 280 |   | $ | 240 |   | $ | - |   |

| 1.   | Short-term                debt reported on the balance sheet is net of approximately $228 in                discounts representing the fair value of warrants issued to the investors                and the beneficial conversion feature associated with the convertible                notes. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Long-term                debt reported on the balance sheet is net of approximately $266 in                discounts representing the fair value of warrants issued to the                investors. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Item      7A.*Quantitative      and Qualitative Disclosures About Market Risk***

*Interest      Rate Risk.*

*Foreign      Currency Risk*

----

*Future      Results and Stock Price Risk.*

**Item      8. Consolidated Financial Statements and Supplementary      Data**

**Item      9.*Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosures***

**Item      9A.*Controls      and Procedures***

*Disclosure      Controls*

----

*Internal      Controls and Procedures*

**Item      9B.*Other      Information***

----

**PART      III**

**Item      10.*Directors      and Executive Officers of the Registrant***

**Directors**

|  Name                                         |  Age | Year                First Electedor                Appointed |
|----------------------------------------------------|-----------|--------------------------------------------------------------|
|                                               |      |                                                         |
| Guido                D. DiGregorio                 | 68        | 1997                                                         |
| Louis                P. Panetta (1), (2), (3), (4) | 57        | 2000                                                         |
| C.                B. Sung (1), (2), (3), (4)       | 81        | 1986                                                         |
| David                E. Welch (1), (4)             | 60        | 2004                                                         |

*Guido      D. DiGregorio*

*Louis      P. Panetta *

*C.B.      Sung*

----

*David      E. Welch *

**EXECUTIVE      OFFICERS**

|   |  Name                               |  Age |  Positions                Currently Held                                             |   |
|--------|------------------------------------------|-----------|-------------------------------------------------------------------------------------------|--------|
|   |                                     |      |                                                                                      |   |
|   | Guido                D. DiGregorio  | 68        | Chairman                of the Board,Chief                Executive Officer and President |   |
|   | Francis                V. Dane           | 55        | Chief                Legal Officer,Secretary                and Chief Financial Officer   |   |
|   | Russel                L. Davis      | 42   | Chief                Technology Officer & Vice President, Product Development    |   |

*Guido      D. DiGregorio*

*Francis      V. Dane*

*Russel      L. Davis *

----

**CODE      OF BUSINESS CONDUCT AND ETHICS**

**Item      11.*Executive      Compensation***

**COMPENSATION      DISCUSSION AND ANALYSIS**

----

----

**Elements      of Compensation**

*Base      Salary.*

*Annual      Bonus.*

*Long-Term      Incentive Program.*

*Other      Compensation*
*.*

----

**Summary      Compensation Table**

|       Name                andPrincipalPosition |         Year                                                                     |        Salary($)                                                    |        Bonus($) |       StockAwards($) |       OptionAwards($)                (2) |      Non-EquityIncentive                PlanCompensation($) |  Change                inPension                ValueAndNonqualifiedDeferred                CompensationEarnings($) |       All                OtherCompensation($)                                                                                                                         |        Total($)                                                                                |
|------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|----------------------------------------------------|----------------------------------------------------|------------------------------------------------------------------------|--------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|
|  Guido                DiGregorio*President                & CEO*    |                     2006                   2005                   2004 |                   285,000(1)                 322,875(1)                 250,334(1) |  −−−                        |  −−−                        |  −502,732−                                            |  −−−                                                          |  −−−                                                                                              |                         9,072                       8,885                       9,037 |                     294,072                   834,492                   268,408 |
|  Frank                Dane*CLO                & CFO*                |                     2006                   2005                   2004 |                   160,000                 146,643                 138,125          |  −−−                        |  −−−                        |  −  42,567  39,390                      |  −−−                                                          |  −−−                                                                                              |  −−−                                                                                                                                                                         |                     160,000                   189,210                   177,515 |
|  Russel                Davis*CTO*                                       |                     2006                   2005(3)                                    |                   165,000                   48,303                                 |  −−                               |  −−                               |  −225,425                                                   |  −−                                                                 |  −−                                                                                                     |  −−                                                                                                                                                                                |                     166,179                   273,728                                          |

| (1)   | Mr.                DiGregorio's salary was increased in February 2002 to $250,000. In                2003                and 2004, Mr. DiGregorio voluntarily deferred approximately $70,000                in                salary payments to ease cash flow requirements. Mr. DiGregorio was                paid                his deferred salary from 2003 and 2004 of approximately $70,000 and                $70,000 in                January 2004 and 2005, respectively. In September of 2005, Mr.                DiGregorio’s salary was increased to $285,000. As of January 2007, $85,000                of his 2007 salary is being deferred in order to ease cash constraints                on                the Company. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | On                January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based                Payment*”*                Share-based compensation expense is based on the estimated grant                date fair                value of the portion of share-based payment awards that are ultimately                expected to vest during the period. The grant date fair value of                stock-based awards to officers, employees and directors is calculated                using the Black-Scholes option pricing model. Mr. DiGregorio has                1,950,000                options that are vested and exercisable within sixty days of December                31,                2006. Mr. Dane has 410,623 options that are vested and exercisable                within                sixty days of December 31, 2006. Mr. Davis has 500,000 options that                are                vested and exercisable within sixty days of December 31, 2006. In                accordance with applicable regulations, the value of such options                does not                reflect an estimate for features related to service-based vesting                used by                the Company for financial statement purposes(See footnote 6 in the                Notes                to Consolidated Financial                Statements) |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Grants      of Plan Based Awards in 2006**

----

----

**Outstanding      Equity Awards at Fiscal 2006 Year End**

|   |      **Name                and****Principal****Position** |  **Number                of****Securities****Underlying****Unexercised****Options****(#)****Exercisable**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  **Number                of****Securities****Underlying****Unexercised****Options****(#)****Unexercisable**                                         |      **Option****Exercise****Price                ($) (4)**                                                                                                                                                                                                                                                                                                |     **Option****Expiration****Date                (5)**                                                                                                                |
|--------|------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |  Guido                DiGregorio, *President                & CEO*(1)     |                                   250,000                                 425,000                              1,275,000                                                                                                                                                                                                                                                                   |                    −                  −                  −                                          |                           $ 0.79                         $ 0.39                         $ 0.75                                                                                                                           |  200920122012                                                                                                                                                                         |
|   |  Frank                Dane, *CLO                & CFO*(2)                 |                                  100,000                                100,000                                  66,680                                  35,985                                107,958 |                    −                  −33,320                  −                  − |           $ 0.79                        $ 0.33                        $ 0.55                        $ 0.39                        $ 0.75 |                     2009                   2010                   2011                   2012    2012 |
|   |  Russel                Davis, *CIO*(3)                                        |                                 125,000                               375,000                                                                                                                                                                                                                                                                                                                                                                                                        |                    −                  −                                                                        |                         $ 0.57                       $ 0.75                                                                                                                                                                                                                                    |                                     2012                   2012                        |

**Option      Exercises and Stock Vested**

**Pension      Benefits**

----

**Nonqualified      Deferred Compensation**

**Potential      Payments Upon Termination or Change in Control**

**Director      Compensation**

|        Name |     Fees                EarnedOr                Paid inCash($) |      StockAwards($) |      OptionAwards($) |    Non-EquityIncentivePlanCompensation($)                                          |  Change                in PensionValue                andNonqualified                DeferredCompensationEarnings($)  |      All                OtherCompensation($)                                        |       Total($)                |
|------------------------------------------------|------------------------------------------------------------------------------------|----------------------------------------------|-----------------------------------------------|---------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------|
|  Louis                P. Panetta (1)      |  $ 3,000                                                                 |  $  −                   |  $ 7,072                            |  $ −                                                                              |  $ −                                                                                                       |  $                            −       |                     $ 10,072            |
|  C.                B. Sung (2)            |  $ 2,000                                                                 |  $ −                         |  $ 7,072                            |  $                            − |  $                  − |  $                            −  |                     $   9,072 |
|  David                E. Welch(3)         |  $ 3,000                                                                 |  $ −                         |  $ 7,072                            |  $ −                                                                              |  $ −                                                                                                       |  $                            −       |                     $ 10,072            |
|                                           |                                                                               |                                         |                                          |                                                                                              |                                                                                                                       |                                                                                                         |                                                        |

----

**Employee      Benefit Plans**

**401(k)      Plan**

**Indemnification      of Officers and Directors**

**Item      12.*Security      Ownership of Certain Beneficial Owners and Management***

|   |                                                                       | Common                Stock                                                                                 |
|--------|----------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|
|   | Name                of Beneficial Owner                                    | Numberof                Shares                                                                              | Percentof                Class |
|   | Guido                DiGregorio (1)                                        |                            2,073,900                 |                               1.93% |
|   | C.                B. Sung (2)                                              |                            1,797,610                 |                               1.67% |
|   | Louis                P. Panetta (3)                                        |                               228,125 |                                    * |
|   | David                E. Welch, (4)                                         |               125,000                 |                                    * |
|   | Francis                V. Dane (5)                                         |                              419,165       |                                    * |
|   | Russel                L. Davis (6)                                         |                              500,000       |                                    * |
|   | All                directors and executive officers as a group (6 persons) |                           5,143,800                       |                               4.78% |
|   | 5%                Shareholder                                              |                                                                                                        |   |
|   | Michael                W. Engmann (7)                                      |                           8,033,877                       |                               7.46% |

| * | Less                than 1%. |
|---|------------------------------|

| (1)   | Represents                (a) 123,900 shares held by Mr. DiGregorio and (b) 1,950,000 shares,                issuable upon the exercise of stock options exercisable within 60                days                hereof. The business address of Mr. DiGregorio is 275 Shoreline                Drive, Suite 500, Redwood Shores, California                94065. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Includes                (a) 1,568,051 shares held by the Sung Family Trust, of which Mr. Sung                is a trustee, (b) 3,369 shares held by the Sung-Kwok Foundation,                of which                Mr. Sung is the Chairman, and (c) 226,190 shares of common stock                issuable                upon the exercise of stock options, exercisable within 60 days hereof.                Mr.                Sung may be deemed to beneficially own the shares held by the Sung                Family                Trust and the Sung-Kwok Foundation. The business address of Mr. Sung                is, UNISON Group, 1001 Bayhill Dr., 2nd                Floor, San Bruno, California 94066. See                “Certain Relationships and Related                Transactions.” |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (3)   | Represents                228,125 shares issuable upon the exercise of options exercisable                within 60                days hereof. Mr. Panetta’s business address is 827 Via Mirada,                Monterey, California 93940. See                “Certain Relationships and Related                Transactions.” |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Represents                125,000 shares issuable upon the exercise of stock options exercisable                within 60 days hereof. The business address of Mr. Welch is 1729                East                Otero Avenue, Littleton, CO 80122. See “Certain Relationships and Related                Transactions.” |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)   | Represents                (a) 212 shares held by Mr. Dane and (b) 418,953 shares issuable upon                the                exercise of stock options exercisable within 60 days hereof. The                business                address of Mr. Dane is 275 Shoreline Drive, Suite 500, Redwood                Shores, California 94065. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | Represents                500,000 shares issuable upon the exercise of stock options within                60 days                hereof. The business address of Mr. Davis is 275 Shoreline Drive,                Suite 500, Redwood Shores, California 94065. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7)   | Represents                8,033,877 shares beneficially owned by Mr. Engmann, of which 3,360,311                are                held by MDNH                Partners, L.P. of which Mr. Engmann is a partner. Such                shares were reported on Schedule 13G dated December 31, 2006.                 In                addition, Mr. Engmann was issued warrants to purchase 2,333,250 shares                of                the Company’s common stock at $0.51 per share. Such warrants were issued                in connection with a note in the amount of $600,000 (See note 5 to                the                Consolidated Financial Statements). The warrants first become exercisable                on June 30, 2007. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**SECTION      16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**

**Item      13.*Certain      Relationships and Related Transactions***

**Item      14.*Principal      Accounting Fees and Services***

----

* *

----

**PART      IV**

**Item      15. Exhibits, Financial Statement Schedules, and Reports on Form      8-K**

**Index      to Financial Statements**

|   |                                                                                                                                               | Page      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|-----------|
| (a)(1) | Financial                Statements                                                                                                                |      |
|   | Report                of GHP Horwath, P.C., Independent Registered Public Accounting                Firm                                           | F-1       |
|   | Report                of Stonefield Josephson, Inc., Independent Registered Public Accounting                Firm                                  | F-2       |
|   | Consolidated                Balance Sheets at December 31, 2006 and 2005                                                                      | F-3       |
|   | Consolidated                Statements of Operations for the years ended December 31, 2006, 2005,                and 2004                     | F-4       |
|   | Consolidated                Statements of Changes in Stockholders' Equity for the years ended                December 31, 2006, 2005 and 2004 |  F-5 |
|   | Consolidated                Statements of Cash Flows for the years ended December 31, 2006, 2005                and 2004                      | F-6       |
|   | Notes                to Consolidated Financial Statements                                                                                          | F-8       |
| (a)(2) | Financial                Statement Schedule                                                                                                        |      |
|   | Schedule                II Valuation and Qualifying Accounts and Reserves                                                                          | S-1       |

| 1.   | Current                Report on Form 8-K/A, Item 4.01 dated September 12, 2006, with respect                to                the termination of Stonefield Josephson, Inc. as the Company’s principal                accountants and the engagement of GHP Horwath P.C. as it principal                accountants. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ExhibitNumber | Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.0           | Second                Amended Plan of Reorganization of the Company, incorporated herein                by                reference to the Company's Form 8-K filed October 24,                1994.                                                                                                                                                                                                                                                                                                                   |
| 2.1           | Orderly                Liquidation Valuation, Exhibit F to the Second Amended Plan of                Reorganization, incorporated herein by reference to the Company's                Form 8-K filed October 19, 1994.                                                                                                                                                                                                                                                                                                 |
| 2.2           | Order                Confirming Plan of Reorganization, incorporated herein by reference                to the                Company's Form 8-K filed November 14, 1994.                                                                                                                                                                                                                                                                                                                                              |
| 3.1           | Certificate                of Incorporation of the Company, as amended, incorporated herein                by                reference to Exhibits 3.1, 3.2, 3.3 and 3.4 to the Company's Registration                Statement on Form 10 (File No. 0-19301).                                                                                                                                                                                                                                                    |
| 3.2           | Certificate                of Amendment to the Company's Certificate of Incorporation (authorizing                the reclassification of the Class A Common Stock and Class B                Common Stock into one class of Common Stock) as filed with the Delaware                Secretary of State's office on November 1, 1991, incorporated herein                by reference to Exhibit 3 to Amendment 1 on Form 8 to the                Company's Form 8-A (File No. 0-19301). |
| 3.3           | By-laws                of the Company adopted on October 6, 1986, incorporated herein by                reference to Exhibit 3.5 to the Company's Registration Statement on                Form 10 (File No. 0-19301).                                                                                                                                                                                                                                                                                       |
| 4.1           | 1984                Stock Option Plan of the Company, as amended and restated as of                October 15, 1987 and as amended by resolutions of the stockholders of                the Company passed on August 15, 1989 and October 8, 1990 to                increase the aggregate shares covered thereby to 1,000,000, incorporated                herein by reference to Exhibit 4.4 to the Company's Registration                Statement on Form 10 (File No. 0-19301).               |
| 4.2           | Form                of Stock Option Grant under 1984 Stock Option Plan, incorporated                herein by                reference to Exhibit 4.5 to the Company's Registration Statement on                Form 10 (File No. 0-19301).                                                                                                                                                                                                                                                                  |
| 4.3           | 1991                Stock Option Plan of the Company, incorporated herein by reference                to                Exhibit 4.5 of the Company's Form S-1 dated December 23,                1991 (Registration                No. 33-43879).                                                                                                                                                                                                                                                             |

----

| ExhibitNumber | Document |
|---------------|----------|

| 4.4         | 1991                Non-Discretionary Stock Option Plan, incorporated herein by reference                to                Exhibit 4.6 of the Company's Form S-1 dated December 23,                1991 (Registration No. 33-43879).                                                                                                                                             |
|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.5         | Form                of Incentive Stock Option Grant under 1991 Stock Option Plan, incorporated                herein by reference to Exhibit 4.7 of the Company's Form S-1                dated December 23, 1991 (Registration                No. 33-43879).                                                                                                                    |
| 4.6         | Form                of Non-Qualified Stock Option Grant under 1991 Stock Option Plan,                incorporated herein by reference to Exhibit 4.8 of the Company's                Form S-1 dated December 23, 1991 (Registration                No. 33-43879).                                                                                                                |
| 4.7         | Form                of Stock Option Grant under 1991 Non-Discretionary Stock Option Plan,                incorporated herein by reference to Exhibit 4.9 of the Company's                Form S-1 dated December 23, 1991 (Registration                No. 33-43879).                                                                                                            |
| 4.8         | 1994                Stock Option Plan, incorporated herein by reference to Exhibit G                of the                Company's Second Amended Disclosure Statement filed on Form 8-K dated                October 19, 1994 and approved by shareholders on November 14,                1994.                                                                                     |
| 4.9         | Form                of Warrant of the Company dated March 28, 1997 issued in connection                with the Waiver by and among the Company and the signatories thereto,                incorporated herein by reference to Exhibit 4.9 of the Company's 1996                Form 10-K (File No. 0-19301).                                                                   |
| 4.10        | 1999                Stock Option Plan, incorporated herein by reference to Exhibit A                of the                Company's Definitive Proxy Statement filed on May 4, 1999 and approved                by                shareholders on June 7, 1999. .                                                                                                                                    |
| 4.11        | Form                of Convertible Promissory Note issued by Communication Intelligence                Corporation, incorporated herein by reference to Exhibit 10.3 to                the                Company's Form 8-K dated November 3, 2004.                                                                                                                                            |
| 4.12        | Form                of Warrant issued by Communication intelligence Corporation, incorporated                herein by reference to Exhibit 10.4 to the Company's Form 8-K dated                November 3, 2004.                                                                                                                                                                               |
| 4.13        | Form                of Promissory Note issued by Communication Intelligence Corporation,                incorporated herein by reference to Exhibit 10.36 to the Company's                Form                8-K dated August 12, 2006.                                                                                                                                                             |
| 4.14        | Form                of Warrant issued by Communication intelligence Corporation, incorporated                herein by reference to Exhibit 10.37 to the Company's Form 8-K dated                August 12, 2006.                                                                                                                                                                                    |
| †10.1 | Licensing                and Development Agreement for Use and Marketing of Program Materials                dated                September 25, 1992 between the Company and International Business                Machines Corporation, incorporated herein by reference to                Exhibit 10.13 of the Company's 1992 Form 10-K                (File No. 0-19301) |
| 10.2        | Standby                Stock Purchase Agreement between the Company and Philip Sassower                dated                October 3, 1994, incorporated herein by reference to                Exhibit 10.13 of the Company's 1994 Form 10-K (File                No. 0-19301)                                                                                                  |
| 10.3        | Form                of Subscription Agreement between the Company and the Purchasers,                dated                November 28, 1995, incorporated herein by reference to Exhibit 1                of the Company's Form 8-K dated November 28,                1995.                                                                                                      |
| 10.4        | Form                of Registration Rights Agreement between the Company and the Purchasers,                dated November 28, 1995, incorporated herein by reference to                Exhibit 1 of the Company's Form 8-K dated November 28,                1995.                                                                                                              |
| 10.5        | Form                of Warrant of the Company issued to Libra Investments, Inc. on                November 28, 1995, incorporated herein by reference to Exhibit 1                of the Company's Form 8-K dated November 28,                1995.                                                                                                                              |
| 10.6        | Form                of Registration Rights Agreement between the Company and Libra                Investments, Inc., dated November 28, 1995, incorporated herein by                reference to Exhibit 1 of the Company's Form 8-K dated                November 28, 1995.                                                                                                     |
| 10.7        | Form                of Subscription Agreement between the Company and various investors,                dated                June 13, 1996, incorporated herein by reference to Exhibit 1 of                the Company's Form 8-K dated June 27, 1996.                                                                                                                          |
| 10.8        | Form                of Registration Rights Agreement between the Company and various                investors, dated June 13, 1996, incorporated herein by reference to                Exhibit 2 of the Company's Form 8-K dated June 27,                1996.                                                                                                                   |
| 10.9        | Form                of Preferred Stock Investment Agreement, dated as of December 31,                1996, between the Company and the investors listed on Schedule 1                thereto, incorporated herein by reference to Exhibit 1 of the                Company's Form 8-K dated December 31,                1996.                                                |

----

| ExhibitNumber | Document |
|---------------|----------|

| 10.10                   | Form                of Registration Rights Agreement between the Company and the Investors                Listed on Schedule 1 thereto, incorporated herein by reference to                Exhibit 2 of the Company's Form 8-K dated December 31,                1996.                                                                            |
|-------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.11                   | Form                of Certificate of Designation of the Company with respect to the                5%                Cumulative Convertible Preferred Stock, incorporated herein by reference                to Exhibit 3 of the Company's Form 8-K dated December 31,                1996.                                                           |
| 10.12                   | Waiver,                dated March 26, 1997, effective December 31, 1996, by and among                the Company and the signatories thereto, incorporated herein by reference                to Exhibit 10.19 of the Company's 1996 Form 10-K (File                No. 0-19301).                                                           |
| 10.13                   | Form                of Subscription Agreement between the Company and each subscriber,                dated                as of November 25, 1997, incorporated herein by reference to Exhibit                10.1 of the Company's Form 8-K dated December 3,                1997.                                                                        |
| 10.14                   | Certificate                of Designations of the Company with respect to the Series B 5% Cumulative                Convertible Preferred Stock, incorporated herein by reference to                Exhibit                10.2 of the Company's Form 8-K dated November 13,                1997.                                                                |
| 10.15                   | Form                of Registration Rights Agreement, by and among the Company and the                signatories thereto, dated as of November 25, 1997, incorporated                herein by reference to Exhibit 10.3 to the Company's Form 8-K dated                November 13, 1997.                                                                 |
| 10.16                   | Amendment                to the Company’s Certificate of Designation with respect to the 5%                Cumulative Convertible Preferred Stock dated June 12, 1998, incorporated                herein by reference to Exhibit 10.23 of the Company's 1998                Form 10-K (File No. 0-19301).                                       |
| 10.17                   | Amendment                to the Company’s Amended and Restated Certificate of Incorporation dated                June 12, 1998 incorporated herein by reference to Exhibit 10.24 of                the Company's 1998 Form 10-K (File                No. 0-19301).                                                                               |
| 10.18                   | Employment                Agreement dated August 14, 1998 between James Dao and the Company                incorporated herein by reference to Exhibit 10.25 of the Company's                1998 Form 10-K (File No. 0-19301).                                                                                                                        |
| ††10.19     | Software                Development and License Agreement dated December 4, 1998 between                Ericsson                Mobile Communications AB and the Company incorporated herein by reference                to Exhibit 10.26 of the Company's 1998 Form 10-K (File                No. 0-19301).                                           |
| 10.20                   | Loan                and Warrant Agreement dated October 20, 1999 between the Company                and the                Philip S. Sassower 1996 Charitable Remainder Annuity                Trust.                                                                                                                                                                 |
| 10.21                   | Asset                Purchase Agreement between the Company and PenOp Ltd and PenOp Inc.                incorporated herein by reference to the Company’s Form 8-K dated October                6, 2000.                                                                                                                                                        |
| 10.22                   | Loan                Agreement dated June 19, 2001 between the Company and the Philip                S.                Sassower 1996 Charitable Remainder Annuity Trust.                                                                                                                                                                                               |
| 10.23                   | Equity                Line of Credit Agreement between the Company and Cornell Capital                Partners,                LP, incorporated by reference to the Company’s Registration Statement on                Form S1 dated February 13, 2003 (File No. 333-103157)                                                                                    |
| 10.24                   | Form                of Note and Warrant Purchase Agreement dated October 28, 2004, among                Communication Intelligence Corporation and the Purchasers identified                therein,                incorporated herein by reference to Exhibit 10.1 to the Company's                Form 8-K                dated November 3, 2004.             |
| 10.25                   | Form                of Registration Rights Agreement dated October 28, 2004, among                Communication Intelligence Corporation and the parties identified                there                in,                incorporated herein by reference to Exhibit 10.2 to the Company's                Form 8-K                dated November 3, 2004. |
| 10.26                   | Form                of Note and Warrant Purchase Agreement dated August 10, 2006, among                Communication Intelligence Corporation and the Purchasers identified                therein,                incorporated herein by reference to Exhibit 10.34 to the Company's                Form                8-K dated August 12, 2006.                   |
| 10.27                   | Form                of Registration Rights Agreement dated August 10, 2006, among                Communication Intelligence Corporation and the parties identified                there                in,                incorporated herein by reference to Exhibit 10.35 to the Company's                Form                8-K dated August 12, 2006.       |
| Xx                10.28 | Amendment                dated May 31, 2005 to the License agreement dated December 22, 2000                between the Company and eCom Asia Pacific, Ltd. filed as Exhibit                10.26 of                the Company’s Form 10-K/A (file no. 0-19301) filed with the Commission on                September 15, 2005.                                |

----

| ExhibitNumber | Document |
|---------------|----------|

| Xx                10.29 | License                agreement dated June 2, 2005 between the Company and SnapOn Credit                LLC.                filed as Exhibit 10.27 of the Company’s Form 10-K/A (file no. 0-19301)                filed with the Commission on September 15, 2005.                                   |
|-------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.30                   | Amendment                to employment agreement with Guido DiGregorio, incorporated herein                by                reference to the Company's Form 8-K dated September 21,                2005.                                                                                                   |
| 10.31                   | Amendment                to employment agreement with Frank V. Dane, incorporated herein by                reference to the Company's Form 8-K dated September 21,                2005.                                                                                                                     |
| 10.32                   | Form                of stock option agreement dated August 31, 2005 with Russel L. Davis                -                incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K/A                (file no. 0-19301) filed with the Commission on September 15,                2006.    |
| 10.33                   | Form                of stock option agreement dated December 19, 2005 with Guido DiGregorio                -                incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K/A                (file no. 0-19301) filed with the Commission on September 15,                2006. |
| 10.34                   | Form                of stock option agreement dated August 31, 2005 with Francis V. Dane                -                incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K/A                (file no. 0-19301) filed with the Commission on September 15,                2006.    |
| 10.35                   | Form                of stock option agreement dated August 31, 2005 with C. B. Sung -                incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K/A                (file no. 0-19301) filed with the Commission on September 15,                2006.                        |
| 14.00                   | Code                of Ethics -Incorporated by reference to the registrant’s Annual Report on                Form 10-K (file no. 0-19301) filed with the Commission on March 30,                2004.                                                                                                 |
| *21.1                   | Schedule                of Subsidiaries.                                                                                                                                                                                                                                                                    |
| *23.1                   | Consent                of GHP Horwath, P.C., Independent Registered Public Accounting                Firm.                                                                                                                                                                                                  |
| *23.2                   | Consent                of Stonefield Josephson, Inc, Independent Registered Public Accounting                Firm.                                                                                                                                                                                          |
| *31.1                   | Certification                of Company’s Chief Executive Officer pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002                                                                                                                                                            |
| *31.2                   | Certificate                of Company’s Chief Financial Officer pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002                                                                                                                                                              |
| *32.1                   | Certification                of Chief Executive Officer pursuant to 18 USC Section 1750, as adopted                pursuant to Section 906 of the Sarbanes-Oxley Act of                2002                                                                                                                 |
| *32.2                   | Certification                of Chief Financial Officer pursuant to 18 USC Section 1750, as adopted                pursuant to Section 906 of the Sarbanes-Oxley Act of                2002                                                                                                                 |

| † | Confidential                treatment of certain portions of this exhibit have been previously                granted                pursuant to a request for confidentiality dated March 29, 1993, filed                pursuant to the Securities Exchange Act of 1934. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| †† | Confidential                treatment of certain portions of this exhibit have been requested                from the                SEC pursuant to a request for confidentiality dated March 30, 1999,                filed                pursuant to the Securities and Exchange Act of                1934. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Xx | Confidential                treatment of certain portions of this exhibit have been requested                from the                SEC pursuant to a request for confidentiality dated March 30, 2006                filed                pursuant to the Securities and Exchange Act of                1934. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Communication                Intelligence Corp. |
|--------|-------------------------------------------------|
|   | By:                                             |  /s/                Francis V. Dane Francis                V. Dane(Principal                Financial Officer and Officer Duly Authorized to Sign on Behalf of                the                Registrant) |

| Signature                                                                 | Title                                                                                                                           |
|---------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
|                                                                      |                                                                                                                            |
|  /s/                Guido DiGregorio Guido                DiGregorio |  Chairman,                President and Chief Executive Officer(Principal                Executive Officer)                |
|  /s/                Francis V. Dane Francis                V. Dane   |  Chief                Legal Officer and Chief Financial Officer(Principal                Financial and Accounting Officer) |
|  /s/                Louis P. Panetta Louis                P. Panetta |  Director                                                                                                                  |
|  /s/                Chien Bor Sung Chien                Bor Sung     |  Director                                                                                                                  |
|  /s/                David Welch David                Welch           |  Director                                                                                                                  |

----

----

----

**Communication      Intelligence Corporation**

**Consolidated      Balance Sheets**

**(In      thousands, except par value amounts)**

|                                                                                                                                                                                                      |   | December                31, |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                                                                                                                                                      |   | 2006                        |    | 2005 |   |
| Assets                                                                                                                                                                                                    |   |                        |    |   |   |
| Current                assets:                                                                                                                                                                            |   |                        |    |   |   |   |   |
| Cash                and cash equivalents                                                                                                                                                                  |   | $                           | 727     |   | $ | 2,849 |   |
| Accounts                receivable, net of allowances of $397 and $387 at December 31, 2006                and                2005, respectively                                                          |   |                        | 487     |   |   | 483 |   |
| Prepaid                expenses and other current assets                                                                                                                                                  |   |                        | 105     |   |   | 168 |   |
| Deferred                financing costs - current portion                                                                                                                                                 |   |                        | − |   |   | 121 |   |
|                                                                                                                                                                                                      |   |                        |    |   |   |   |   |
| Total                current assets                                                                                                                                                                  |   |                        | 1,319   |   |   | 3,621 |   |
| Property                and equipment, net                                                                                                                                                                |   |                        | 140     |   |   | 147 |   |
| Patents                                                                                                                                                                                                   |   |                        | 3,906   |   |   | 4,285 |   |
| Capitalized                software development costs                                                                                                                                                     |   |                        | 656     |   |   | 283 |   |
| Deferred                financing costs (Note 3)                                                                                                                                                          |   |                        | 75      |   |   | 100 |   |
| Other                assets                                                                                                                                                                               |   |                        | 30      |   |   | 30 |   |
|                                                                                                                                                                                                      |   |                        |    |   |   |   |   |
| Total                assets                                                                                                                                                                               |   | $                           | 6,126   |   | $ | 8,466 |   |
|  Liabilities                and Stockholders' Equity                                                                                                                                                 |   |                        |    |   |   |   |   |
| Current                liabilities:                                                                                                                                                                       |   |                        |    |   |   |   |   |
| Convertible                notes, net of unamortized fair value assigned to beneficial conversion                feature and warrants                of $228 at December 31, 2006 (Note                3) |   | $                           | 1,154   |   | $ | − |   |
| Accounts                payable                                                                                                                                                                           |   |                        | 72      |   |   | 288 |   |
| Accrued                compensation                                                                                                                                                                       |   |                        | 236     |   |   | 235 |   |
| Other                accrued liabilities                                                                                                                                                                  |   |                        | 269     |   |   | 283 |   |
| Deferred                revenue                                                                                                                                                                           |   |                        | 404     |   |   | 557 |   |
|                                                                                                                                                                                                      |   |                        |    |   |   |   |   |
| Total                current liabilities                                                                                                                                                                  |   |                        | 2,135   |   |   | 1,363 |   |
|                                                                                                                                                                                                      |   |                        |    |   |   |   |   |
| Long-term                debt - related party, net of unamortized fair value assigned to warrants                of $266 at December 31, 2006 (Note 4)                                                    |   |                        | 334     |   |   | − |   |
|                                                                                                                                                                                                      |   |                        |    |   |   |   |   |
| Convertible                notes, net of unamortized fair value assigned to beneficial conversion                feature and warrants of $674 at December 31, 2005 (Note 3)                               |   |                        | − |   |   | 1,169 |   |
|  Minority                interest                                                                                                                                                               |   |                        | 73      |   |   | 78 |   |
| Commitments                and contingencies (Note 7)                                                                                                                                                |   |                        |    |   |   |  |   |
| Stockholders'                equity:                                                                                                                                                                      |   |                        |    |   |   |   |   |
| Preferred                stock, $.01 par value; 10,000 shares authorized; 0 outstanding at                December                31, 2006 and 2005, respectively                                         |   |                        | -       |   |   | - |   |
| Common                stock, $.01 par value; 125,000 shares authorized; 107,557 and 106,542                shares issued and outstanding at December 31, 2006 and 2005,                respectively       |   |                        | 1,076   |   |   | 1,065 |   |
| Additional                paid-in capital                                                                                                                                                                 |   |                        | 90,497  |   |   | 89,517 |   |
| Accumulated                deficit                                                                                                                                                                        |   |                        | (87,861 | ) |   | (84,575 | ) |
| Accumulated                other comprehensive loss                                                                                                                                                       |   |                        | (128    | ) |   | (151 | ) |
| Total                stockholders' equity                                                                                                                                                                 |   |                        | 3,584   |   |   | 5,856 |   |
|                                                                                                                                                                                                      |   |                        |    |   |   |   |   |
| Total                liabilities and stockholders' equity                                                                                                                                                 |   | $                           | 6,126   |   | $ | 8,466 |   |
|                                                                                                                                                                                                      |   |                        |    |   |   |   |   |

----

**Communication      Intelligence Corporation**

**Consolidated      Statements of Operations**

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

|                                                                      |   | **Years                ended December 31,** |    |
|---------------------------------------------------------------------------|--------|---------------------------------------------|---------|
| ** **                                                                |   | **2006**                                    |    | **2005** |   | **2004** |   |
|                                                                      |   |                                        |    |   |   |   |   |
| Revenues:                                                                 |   |                                        |    |   |   |   |   |
| Product                                                                   |   | $                                           | 1,427   |   | $ | 2,067 |   | $ | 6,315 |   |
| Maintenance                                                               |   |                                        | 915     |   |   | 1,054 |   |   | 969 |   |
|                                                                      |   |                                        | 2,342   |   |   | 3,121 |   |   | 7,284 |   |
| Operating                costs and expenses:                              |   |                                        |    |   |   |   |   |   |   |   |
| Cost                of sales:                                             |   |                                        |    |   |   |   |   |   |   |   |
| Product                                                                   |   |                                        | 101     |   |   | 105 |   |   | 53 |   |
| Maintenance                                                               |   |                                        | 149     |   |   | 43 |   |   | - |   |
| Research                and development                                   |   |                                        | 817     |   |   | 1,144 |   |   | 1,187 |   |
| Sales                and marketing                                        |   |                                        | 1,658   |   |   | 1,240 |   |   | 1,306 |   |
| General                and administrative                                 |   |                                        | 2,174   |   |   | 2,173 |   |   | 2,483 |   |
|                                                                      |   |                                        |    |   |   |   |   |   |   |   |
|                                                                      |   |                                        | 4,899   |   |   | 4,705 |   |   | 5,029 |   |
|                                                                      |   |                                        |    |   |   |   |   |   |   |   |
| (Loss)                income from operations                              |   |                                        | (2,557  | ) |   | (1,584 | ) |   | 2,255 |   |
|                                                                      |   |                                        |    |   |   |   |   |   |   |   |
| Interest                income and other income, net                      |   |                                        | 43      |   |   | 17 |   |   | 47 |   |
| Interest                expense:                                          |   |                                        |    |   |   |   |   |   |   |   |
| Related                party (Note 4)                                     |   |                                        | (11     | ) |   | - |   |   | - |   |
| Other                (Note 3)                                             |   |                                        | (105    | ) |   | (208 | ) |   | (514 | ) |
| Amortization                of loan discount and deferred financing cost: |   |                                        |    |   |   |   |   |   |   |   |
| Related                party (Note 4)                                     |   |                                        | (70     | ) |   | - |   |   | - |   |
| Other                (Note 3)                                             |   |                                        | (591    | ) |   | (2,275 | ) |   | (187 | ) |
| Minority                interest                                          |   |                                        | 5       |   |   | 19 |   |   | 19 |   |
|                                                                      |   |                                        |    |   |   |   |   |   |   |   |
| Net                (loss) income                                          |   | $                                           | (3,286  | ) | $ | (4,031 | ) | $ | 1,620 |   |
|                                                                      |   |                                        |    |   |   |   |   |   |   |   |
|  Basic                and diluted (loss) income per share            |   | $                                           | (0.03   | ) | $ | (0.04 | ) | $ | 0.02 |   |
|                                                                      |   |                                        |    |   |   |   |   |   |   |   |
|  Basic                weighted average shares                        |   |                                        | 107,374 |   |   | 104,189 |   |   | 100,909 |   |
|                                                                      |   |                                        |    |   |   |   |   |   |   |   |
|  Diluted                weighted average shares                      |   |                                        | 107,374 |   |   | 104,189 |   |   | 107,572 |   |

----

**Communication      Intelligence Corporation**

**Consolidated      Statements of Changes in Stockholders' Equity **

**(In      thousands)**

| ** **                                                                                                                                    |   |   **Common                Shares** |    |   **Common****Stock** |   |  **Additional****Paid-In****Capital** |   |   **Accumulated****Deficit** |   | **Accumulated****Other****Comprehensive****Loss** |   |    **Total** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|---------|---------------------------------|--------|--------------------------------------------|--------|----------------------------------------|--------|---------------------------------------------------|--------|-----------------------------|--------|
| Balances                as of December 31, 2003                                                                                               |   |                                         | 100,102 |                            | $      | 1,001                                      |   | $                                      | 83,528 |                                              | $      | (82,164                     | )      | $ | (178 | ) | $ | 2,187 |   |
| Sale                of shares of Common Stock through Cornell Capital net of                expenses                                          |   |                                         | 1,133   |                            |   | 11                                         |   |                                   | 680    |                                              |   |                        |   |   |   |   |   | 691 |   |
| Exercise                of options for shares of common stock                                                                                 |   |                                         | 177     |                            |   | 2                                          |   |                                   | 51     |                                              |   |                        |   |   |   |   |   | 53 |   |
| Fair                value of warrants issued to the agent in connection with convertible                notes                                 |   |                                         |    |                            |   |                                       |   |                                   | 421    |                                              |   |                        |   |   |   |   |   | 421 |   |
| Fair                value of warrants issued to the investors in connection with convertible                notes                             |   |                                         |    |                            |   |                                       |   |                                   | 982    |                                              |   |                        |   |   |   |   |   | 982 |   |
| Fair                value of beneficial conversion feature associated with the convertible                notes                               |   |                                         |    |                            |   |                                       |   |                                   | 1,569  |                                              |   |                        |   |   |   |   |   | 1,569 |   |
| Comprehensive                income:Net                income                                                                                 |   |                                         |    |                            |   |                                       |   |                                   |   |                                              |   | 1,620                       |   |   |   |   |   | 1,620 |   |
| Foreign                currency translation adjustment                                                                                        |   |                                         |    |                            |   |                                       |   |                                   |   |                                              |   |                        |   |   | 8 |   |   | 8 |   |
| Total                comprehensive income                                                                                                     |   |                                         |    |                            |   |                                       |   |                                   |   |                                              |   |                        |   |   |   |   |   | 1,628 |   |
| Balances                as of December 31, 2004                                                                                               |   |                                         | 101,412 |                            |   | 1,014                                      |   |                                   | 87,231 |                                              |   | (80,544                     | )      |   | (170 | ) |   | 7,531 |   |
| Shares                of Common Stock issued on conversion of long-term notes                                                                 |   |                                         | 5,092   |                            |   | 51                                         |   |                                   | 2,271  |                                              |   |                        |   |   |   |   |   | 2,322 |   |
| Shares                issued for services                                                                                                     |   |                                         | 24      |                            |   |                                       |   |                                   | 10     |                                              |   |                        |   |   |   |   |   | 10 |   |
| Shares                issued on exercise of stock options                                                                                     |   |                                         | 14      |                            |   |                                       |   |                                   | 5      |                                              |   |                        |   |   |   |   |   | 5 |   |
| Comprehensive                (loss):Net                loss                                                                                   |   |                                         |    |                            |   |                                       |   |                                   |   |                                              |   | (4,031                      | )      |   |   |   |   | (4,031 | ) |
| Foreign                currency translation adjustment                                                                                        |   |                                         |    |                            |   |                                       |   |                                   |   |                                              |   |                        |   |   | 19 |   |   | 19 |   |
| Total                comprehensive loss                                                                                                       |   |                                         |    |                            |   |                                       |   |                                   |   |                                              |   |                        |   |   |   |   |   | (4,012 | ) |
| Balances                as of December 31, 2005                                                                                               |   |                                         | 106,542 |                            |   | 1,065                                      |   |                                   | 89,517 |                                              |   | (84,575                     | )      |   | (151 | ) |   | 5,856 |   |
| Shares                of Common Stock issued on conversion of long-term notes                                                                 |   |                                         | 996     |                            |   | 11                                         |   |                                   | 449    |                                              |   |                        |   |   |   |   |   | 460 |   |
| Shares                issued for services                                                                                                     |   |                                         | 19      |                            |   |                                       |   |                                   | 6      |                                              |   |                        |   |   |   |   |   | 6 |   |
| Stock                based employee compensation                                                                                              |   |                                         |    |                            |   |                                       |   |                                   | 189    |                                              |   |                        |   |   |   |   |   | 189 |   |
| Fair                value of warrants issued to the investors in connection with long                -term                debt, related party |   |                                         |    |                            |   |                                       |   |                                   | 336    |                                              |   |                        |   |   |   |   |   | 336 |   |
| Comprehensive                (loss):Net                loss                                                                                   |   |                                         |    |                            |   |                                       |   |                                   |   |                                              |   | (3,286                      | )      |   |   |   |   | (3,286 | ) |
| Foreign                currency translation adjustment                                                                                        |   |                                         |    |                            |   |                                       |   |                                   |   |                                              |   |                        |   |   | 23 |   |   | 23 |   |
| Total                comprehensive loss                                                                                                       |   |                                         |    |                            |   |                                       |   |                                   |   |                                              |   |                        |   |   |   |   |   | (3,263 | ) |
| Balances                as of December 31, 2006                                                                                               |   |                                         | 107,557 |                            | $      | 1,076                                      |   | $                                      | 90,497 |                                              | $      | (87,861                     | )      | $ | (128 | ) | $ | 3,584 |   |

----

**Communication      Intelligence Corporation**

**Consolidated      Statements of Cash Flows**

**(In      thousands)**

|                                                                                                                                            |   | **Years                ended December 31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
| ** **                                                                                                                                      |   | **2006**                                    |   | **2005** |   | **2004** |   |
|                                                                                                                                            |   |                                        |   |   |   |   |   |
| Cash                flows from operating activities:                                                                                            |   |                                        |   |   |   |   |   |
| Net                income (loss)                                                                                                                |   | $                                           | (3,286 | ) | $ | (4,031 | ) | $ | 1,620 |   |
| Adjustments                to reconcile net income (loss) to net cash provided by (used in)                operating                activities: |   |                                        |   |   |   |   |   |   |   |   |
| Depreciation                and amortization                                                                                                    |   |                                        | 623    |   |   | 466 |   |   | 425 |   |
| Amortization                of convertible note discount                                                                                   |   |                                        | 445    |   |   | 1,706 |   |   | 142 |   |
| Amortization                of warrant costs on long-term debt - related party                                                             |   |                                        | 70     |   |   | - |   |   | - |   |
| Deferred                financing costs                                                                                                    |   |                                        | 146    |   |   | 553 |   |   | - |   |
| Loss                on disposal of property and equipment                                                                                  |   |                                        | -      |   |   | 43 |   |   | 8 |   |
| Provision                for doubtful accounts                                                                                             |   |                                        | -      |   |   | 4 |   |   | 148 |   |
| Stock                issued for services                                                                                                   |   |                                        | 6      |   |   | 10 |   |   | - |   |
| Stock                based employee compensation                                                                                           |   |                                        | 189    |   |   | - |   |   | - |   |
| Minority                interest                                                                                                           |   |                                        | (5     | ) |   | - |   |   | - |   |
| Changes                in operating assets and liabilities                                                                                      |   |                                        |   |   |   |   |   |   |   |   |
| Accounts                receivable                                                                                                              |   |                                        | (4     | ) |   | (131 | ) |   | 238 |   |
| Inventories                                                                                                                                     |   |                                        | -      |   |   | - |   |   | 47 |   |
| Prepaid                expenses and other current assets                                                                                        |   |                                        | 63     |   |   | (63 | ) |   | (12 | ) |
| Accounts                payable                                                                                                                 |   |                                        | (218   | ) |   | 47 |   |   | (2 | ) |
| Accrued                compensation                                                                                                             |   |                                        | 1      |   |   | (23 | ) |   | (1 | ) |
| Other                accrued liabilities                                                                                                        |   |                                        | (18    | ) |   | (108 | ) |   | (85 | ) |
| Deferred                revenue                                                                                                                 |   |                                        | (153   | ) |   | 99 |   |   | 293 |   |
|                                                                                                                                            |   |                                        |   |   |   |   |   |   |   |   |
| Net                cash provided by (used in) operating activities                                                                              |   |                                        | (2,141 | ) |   | (1,428 | ) |   | 2,821 |   |
|                                                                                                                                            |   |                                        |   |   |   |   |   |   |   |   |
| Cash                flows from investing activities:                                                                                            |   |                                        |   |   |   |   |   |   |   |   |
| Acquisition                of property and equipment                                                                                            |   |                                        | (93    | ) |   | (107 | ) |   | (37 | ) |
| Capitalization                of software development costs                                                                                     |   |                                        | (510   | ) |   | (299 | ) |   | (45 | ) |
|                                                                                                                                            |   |                                        |   |   |   |   |   |   |   |   |
| Net                cash used in investing activities                                                                                            |   |                                        | (603   | ) |   | (406 | ) |   | (82 | ) |
|                                                                                                                                            |   |                                        |   |   |   |   |   |   |   |   |
| Cash                flows from financing activities:                                                                                            |   |                                        |   |   |   |   |   |   |   |   |
| Proceeds                from issuance of short-term debt                                                                                        |   |                                        | -      |   |   | - |   |   | 36 |   |
| Proceeds                from issuance of long-term debt - related party                                                                         |   |                                        | 600    |   |   | - |   |   | - |   |
| Proceeds                from issuance of convertible notes, net                                                                                 |   |                                        | -      |   |   | - |   |   | 3,885 |   |
| Principal                payments on short-term debt                                                                                            |   |                                        | -      |   |   | (36 | ) |   | (3,008 | ) |
| Principal                payments on long-term debt - related party                                                                             |   |                                        | -      |   |   | (13 | ) |   | - |   |
| Principal                payments on capital lease obligations                                                                                  |   |                                        | (8     | ) |   | (9 | ) |   | (8 | ) |
| Proceeds                from exercise of stock options                                                                                          |   |                                        | -      |   |   | 5 |   |   | 53 |   |
| Net                cash provided by (used in) financing activities                                                                              |   |                                        | 592    |   |   | (53 | ) |   | 958 |   |
| Effect                of exchange rate changes on cash                                                                                          |   |                                        | 30     |   |   | - |   |   | - |   |
| Net                increase (decrease) in cash and cash equivalents                                                                             |   |                                        | (2,122 | ) |   | (1,887 | ) |   | 3,697 |   |
| Cash                and cash equivalents at beginning of year                                                                                   |   |                                        | 2,849  |   |   | 4,736 |   |   | 1,039 |   |
|                                                                                                                                            |   |                                        |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents at end of year                                                                                         |   | $                                           | 727    |   | $ | 2,849 |   | $ | 4,736 |   |
|                                                                                                                                            |   |                                        |   |   |   |   |   |   |   |   |
|                                                                                                                                            |   |                                        |   |   |   |   |   |   |   |   |   |

----

**Communication      Intelligence Corporation**

**Consolidated      Statements of Cash Flows**

**(In      thousands)**

**Supplemental      disclosure of cash flow information:**

| ** **                                                                                                                                    |   | **December                31,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|
| ** **                                                                                                                                    |   | **2006**                        |   | **2005** |   | **2004** |   |
|  Interest                paid                                                                                                            |   | $                               | 109    |   | $ | 237 |   | $ | 509 |   |
|  Schedule                of non-cash transactions:                                                                                       |   |                            |   |   |   |   |   |   |   |   |
| Fair                value of warrants issued to the investors in connection with long                -term                debt, related party |   | $                               | 336    |   |   | - |   | $ | - |   |
|  Non-cash                compensation                                                                                                    |   | $                               | -      |   | $ | - |   | $ | 70 |   |
|  Common                stock issued upon the conversion of short-term debt, net                                                          |   | $                               | -      |   | $ | - |   | $ | 691 |   |
|  Common                stock issued upon the conversion of long-term debt, net                                                           |   | $                               | 460    |   | $ | 2,322 |   | $ | - |   |
|  Deferred                financing costs associated with convertible notes                                                               |   | $                               | -      |   | $ | - |   | $ | 714 |   |
|  Loan                discount associated with convertible notes net of                amortization                                       |   | $                               | -      |   | $ | - |   | $ | 2,409 |   |
|  Issuance                of common stock for services                                                                                    |   | $                               | 6      |   | $ | 10 |   | $ | - |   |

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies**

**The      Company:**

**Going      concern:**

**Basis      ofconsolidation:**

----

**1.      Nature      of      Business, Basis of Presentation and Summary of Significant Accounting Policies      (continued)**

**Segments**

**Use      of estimates:**

**Fair      value      of      financial instruments:**

**Cash      and cash equivalents:**

|                                     |   | 2006   |   | 2005   |   |
|------------------------------------------|--------|--------|--------|--------|--------|
|                                     |   |   |   |   |   |
| Cash                in bank              |   | $      | 533    |   | $      | 213 |   |
| Money                market funds        |   |   | 194    |   |   | 2,636 |   |
| Cash                and cash equivalents |   | $      | 727    |   | $      | 2,849 |   |
|                                     |   |   |   |   |   |   |

**Concentrations      of credit risk:**

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies (continued)**

**Deferred      financing      costs:**

**Property      and equipment, net:**

|                                                          |   | **2006** | ** ** | **2005** |   |
|---------------------------------------------------------------|--------|----------|------------|----------|--------|
|  Machinery                and equipment                  |   | $        | 1,216      |     | $      | 1,198 |   |
| Office                furniture and fixtures                  |   |     | 483        |     |   | 459 |   |
| Leasehold                improvements                         |   |     | 90         |     |   | 84 |   |
| Purchased                software                             |   |     | 315        |     |   | 270 |   |
|                                                          |   |     |       |     |   |   |   |
|                                                          |   |     | 2,104      |     |   | 2,011 |   |
| Less                accumulated depreciation and amortization |   |     | (1,964     | )        |   | (1,864 | ) |
|                                                          |   |     |       |     |   |   |   |
|                                                          |   | $        | 140        |     | $      | 147 |   |
|                                                          |   |     |       |     |   |   |   |

**Patents**
**:**

| ·   | Patent                numbers 5544255, 5647017, 5818955 and 6064751 involve (a) the electronic                capture of a handwritten signature utilizing an electronic tablet                device                on a standard computer system within an electronic document, (b)                the                verification of the identity of the person providing the electronic                signature through comparison of stored signature measurements, and                (c) a                system to determine whether an electronic document has been modified                after                signature. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies (continued)**

**Patents      (continued): **

| ·   | Patent                number 6091835 involves all of the foregoing and the recording of                the                electronic execution of a document regardless of whether execution                occurs                through a handwritten signature, voice pattern, fingerprint or other                identifiable means. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Patent                numbers 5933514, 6212295, 6381344, and 6487310 involve methods and                processes related to handwriting recognition developed by the Company                over                the years. Legal fees associated with these patents were immaterial                and                expensed as the fees were incurred. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                         |   |   **Expiration** | ** ** | **Estimated                Original****Life** | ** ** |   **2006**    | ** ** |   **2005** |   |
|----------------------------------------------|--------|----------------------------|------------|-----------------------------------------------|------------|-------------------------|------------|----------------------|--------|
| Patent                (Various)              |   |                       | Various    |                                          |       |                  5 |       | $                    | 9      |   | $ | 9 |   |
| Patent                (Various)              |   |                       | Various    |                                          |       |                  7 |       |                 | 476    |   |   | 476 |   |
| 5544255                                      |   |                       | 2013       |                                          |       | 13                      |       |                 | 93     |   |   | 93 |   |
| 5647017                                      |   |                       | 2014       |                                          |       | 14                      |       |                 | 187    |   |   | 187 |   |
| 5818955                                      |   |                       | 2015       |                                          |       | 15                      |       |                 | 373    |   |   | 373 |   |
| 6064751                                      |   |                       | 2017       |                                          |       | 17                      |       |                 | 1,213  |   |   | 1,213 |   |
| 6091835                                      |   |                       | 2017       |                                          |       | 17                      |       |                 | 4,394  |   |   | 4,394 |   |
|                                         |   |                       |       |                                          |       |                    |       |                 |   |   |   |   |   |
|                                         |   |                       |       |                                          |       |                    |       |                 | 6,745  |   |   | 6,745 |   |
| Less                accumulated amortization |   |                       |       |                                          |       |                    |       |                 | (2,839 | ) |   | (2,460 | ) |
|                                         |   |                       |       |                                          |       |                    |       |                 |   |   |   |   |   |
|                                         |   |                       |       |                                          |       |                    |       | $                    | 3,906  |   | $ | 4,285 |   |
|                                         |   |                       |       |                                          |       |                    |       |                 |   |   |   |   |   |

| ·   | The                estimated cash flow from products based upon each patent are expected                to                exceed the value assigned to each                patent; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | There                are no legal, regulatory or contractual provisions known to the Company                that limit the useful life of each patent to less than the assigned                useful                life; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | No                additional material costs need to be incurred or modifications made                in                order for the Company to continue to be able to realize the protection                afforded by the patents; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                Company does not foresee any effects of obsolescence or significant                competitive pressure on its current or future products, anticipates                increasing demand for products utilizing the patented technology,                and                believes that the current markets for its products based on the patented                technology will remain constant or will grow over the useful lives                assigned to the patents because of a legal, regulatory and business                environment encouraging the use of electronic                signatures. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies (continued)**

**Patents      (continued):**

*Goodwill      and Other Intangible Assets*
*Accounting      for the Impairment or Disposal of Long Lived Assets*

**Long-lived      assets:**

**Software      development      costs:**

*Accounting      for the Costs of Computer Software to be Sold, Leased or Otherwise      Marketed*

**Other      current liabilities:**

|                                         |   | 2006   |   | 2005   |   |
|----------------------------------------------|--------|--------|--------|--------|--------|
| Accrued                professional services |   | $      | 125    |   | $      | 104 |   |
| Refundable                deposits           |   |   | 48     |   |   | 115 |   |
| Other                                        |   |   | 96     |   |   | 64 |   |
| Total                                        |   | $      | 269    |   | $      | 283 |   |

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies (continued)**

**Other      current      liabilities (continued):**

**Material      commitments:**

|                                                       |   | Payments                due by period |   |
|------------------------------------------------------------|--------|---------------------------------------|--------|
|                Contractual                obligations |   |                                  |   | Total |   | 2007 |   | 2008 |   | 2009 |   | 2010 |   | 2011 |   | Thereafter |   |
| Short-term                debt (1)                         |   |                                  |   |   | $ | 1,382 |   | $ | 1,382 |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   |
| Long-term                debt related party (2)            |   |                                  |   |   |   | 600 |   |   | - |   |   | 600 |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Operating                lease commitments (3)             |   |                                  |   |   |   | 1,252 |   |   | 196 |   |   | 264 |   |   | 272 |   |   | 280 |   |   | 240 |   |   | - |   |
| Total                contractual cash obligations          |   |                                  |   |   | $ | 3,234 |   | $ | 1,578 |   | $ | 864 |   | $ | 272 |   | $ | 280 |   | $ | 240 |   | $ | - |   |

| 1.   | Short-term                debt reported on the balance sheet is net of approximately $228 in                discounts representing the fair value of warrants issued to the investors                and the beneficial conversion feature associated with the convertible                notes. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Long-term                debt - related party reported on the balance sheet, is net of                approximately $266 in discounts representing the fair value of warrants                issued to the investor. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Stock-based      compensation:**

*Share-Based      Payment”*

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies (continued)**

**Stock-based      compensation (continued):**

*Accounting      for Stock Issued to Employees*
*Accounting      for Stock-Based Compensation*

|                                                                                                                                                                                                    |   | **2005** | ** ** | **2004** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
| Net                income (loss) as reported                                                                                                                                                            |   | $        | (4,031     | )        | $      | 1,620 |   |
| Add:                Stock-based employee compensation expense included in reported results                of                operations, net of related tax effects                                      |   |     | -          |     |   | - |   |
| Deduct:                Total stock-based employee compensation expense determined under                fair                value-based method for all awards, net of related tax                effects |   |     | (1,298     | )        |   | (248 | ) |
| Pro                forma net income (loss)                                                                                                                                                              |   | $        | (5,329     | )        | $      | 1,372 |   |
| Basic                and diluted net income (loss) per share available to                stockholders:                                                                                                  |   |     |       |     |   |   |   |
| As                reported                                                                                                                                                                              |   | $        | (0.04      | )        | $      | 0.02 |   |
| Pro                forma                                                                                                                                                                                |   | $        | (0.05      | )        | $      | 0.01 |   |

**Revenue      recognition:**

*Software      Revenue Recognition*
*Revenue      Recognition*
*Accounting      for Revenue Arrangements with Multiple Elements*

----

**1.        Nature of Business, Basis of Presentation and Summary of Significant Accounting        Policies (continued)**

**Revenue        recognition (continued):**

**Major      customers:**

**Research      and development:**

**Advertising:**

**Net      (loss) income per share:**

*Earnings      Per Share*

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies (continued)**

**Net      (loss) income per share (continued):**

| For                the Year Ended December 31,         |   |
|--------------------------------------------------------|--------|
|                                                   |   | 2006 |   | 2005 |   | 2004 |   |
|                                                   |   |   Net                Loss |   | Weighted                Average SharesOutstanding |   |   Per-ShareAmount |   |   Net                Income |   | WeightedAverage                SharesOutstanding |   |   Per-ShareAmount |   |   NetLoss |   | WeightedAverage                SharesOutstanding |   |   Per-ShareAmount |   |
| Basic                income (loss):                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                (loss) available to stockholders |   | $ | (3,286 | ) |   | 107,374 |   | $ | (0.03 | ) | $ | (4,031 | ) |   | 104,189 |   | $ | (0.04 | ) | $ | 1,620 |   |   | 100,909 |   |   $                0.02 |
|                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Effect                of dilutive securities:          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock                options                           |   |   | - |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   |   |   |   | 1,813 |   |                       - |
| Warrants                                               |   |   | - |   |   | - |   |   | - |   |   |   |   |   | - |   |   | - |   |   |   |   |   | 4,850 |   |                       - |
| Diluted                income (loss)                   |   | $ | (3,286 | ) |   | 107,374 |   | $ | (0.03 | ) | $ | (4,031 | ) |   | 104,189 |   | $ | (0.04 | ) | $ | 1,620 |   |   | 107,572 |   |  $                0.02 |

**Foreign      currency translation:**

**Comprehensive      income:**

*Reporting      Comprehensive Income*

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies (continued)**

**Income      taxes:**

**Recent      pronouncements:**

*The      Fair Value Option for Financial Assets and Financial Liabilities - Including      an      amendment to FASB Statement No. 115”.*

*Fair      Value Measurement*

*Accounting      for Uncertainty in Income Taxes, an interpretation of FASB Statement      109*
*Accounting      for Income Taxes*

----

**1.      Nature of Business, Basis of Presentation and Summary of Significant Accounting      Policies (continued)**

**Reclassifications:**

**2.      Chinese Joint Venture:**

**3.      Convertible      notes:**

*Accounting      for Derivative Instruments and Hedging Activities*
*The      Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument      Subject to EITF 00-19, “Accounting for Derivative Financial Instruments Indexed      to, and Potentially Settled in, a Company’s Own Stock*

----

**3.      Convertible      notes (continued):**

**4.      Long-term debt - related party:**

----

**4.      Long-term debt - related party (continued):**

**5.      Stockholders' equity:**

**Common      stock      options:**

**Share-based      payment:**

*”*

----

**5.      Stockholders' equity (continued): **

**Share-based      payment (continued):**

*Valuation      and Expense Information under SFAS No. 123(R): *

|                                         |   | Year                EndedDecember                31, 2006 |
|----------------------------------------------|--------|-----------------------------------------------------------|
|  Risk                free interest rate |   |  4.60%                - 5.11%                        |
| Expected                life (years)         |   | 3.46                -5.02                                 |
| Expected                volatility           |   | 80.92%                - 104.57%                           |
| Expected                dividends            |   | None                                                      |

|   |                                                                           |   | Year                EndedDecember                31, 2006                                                                                                                                                                        |
|--------|--------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |  Research                and development                                  |   |  $54                                                                                                                                                                                                                        |
|   | Sales                and marketing                                             |   |  92                                                                                                                                                                                                                         |
|   | General                and administrative                                      |   |  22                                                                                                                                                                                                                         |
|   | Director                options                                                |   |  21                                                                                                                                                                                                                         |
|   | Stock-based                compensation expense included in operating expenses |   |                                                   $189 |

----

**5.      Stockholders' equity: **

**Share-based      payment (continued):**

|                                                                                                      | December                31, 2006                   | December                31, 2005             |
|-----------------------------------------------------------------------------------------------------------|----------------------------------------------------|----------------------------------------------|
|                                                                                                      |   Shares                                 | WeightedAverageExercise                Price | Aggregate                Intrinsic Value | Weighted                Average Remaining Contractual Life |   Shares | WeightedAverageExercise                Price | Aggregate                Intrinsic Value | Weighted                Average Remaining Contractual Life |
|                                                                                                      |                                               |                                         |   |   |   |   |   |   |
| Outstanding                at beginning of period                                                         |                   8,591                  | $0.75                                        | $                 6,498 |   | 5,716 | $0.74 |   |   |
| Granted                                                                                                   |                  1,764                        | $0.44                                        | $                    779 |   | 4,142 | $0.75 |   |   |
| Exercised                                                                                                 |                      (19) | $0.42                                        |                          − |   | (24) | $0.41 |   |   |
| Forfeited                                                                                                 |                  (4,443)                      | $0.72                                        | $                 3,232 |   | (1,243) | $0.69 |   |   |
|                                                                                                      |                                               |                                         |   |   |   |   |   |   |
|  Outstanding                at period end                                                            |                    5,893            |  $0.69                                  |  $                 4,038 |  5.4 |  8,591 |  $0.75 |   |   |
|                                                                                                      |                                               |                                         |   |   |   |   |   |   |
| Options                vested and exercisable at period end                                               |                    5,066            |  $0.74                                  |  $                 3,761 |  5.2 |   |   |   |   |
|                                                                                                      |                                               |                                         |   |   |   |   |   |   |
| Weighted                average grant-date fair value of options granted during the                period |   $0.24                                  |                                         |   |   |   |   |   |   |

|                                                            | Options                Outstanding                                                                                                   |                                                                 | Options                Exercisable                   |
|-----------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------|------------------------------------------------------|
|     Range                of Exercise Prices |    OptionsOutstanding                                                                                                 | Weighted                Average Remaining Contractual Life(in years) |  Weighted                Average Exercise Price |   |    Number                Outstanding |  Weighted                Average Exercise Price |
| $0.00                - $0.50                                    |                                2,014                      | 5.8                                                                  | $0.35                                                |   |                                1,312 | $ 0.39 |
| $0.51                - $1.00                                    |                                3,454                      | 5.4                                                                  | $0.73                                                |   |                                3,329 | $ 0.74 |
| $1.01                - $2.00                                    |                                   333      | 4.3                                                                  | $1.51                                                |   |                                   333 | $ 1.51 |
| $2.01                - $2.99                                    |                                    50 | 0.8                                                                  | $                3.00                                |   |                                     50 | $ 3.00 |
| $3.00                - $7.50                                    |                                    42 | 1.5                                                                  | $3.42                                                |   |                      42 | $ 3.42 |
|                                                            |                                5,893                      |                                                                 |                                                 |   |  5,066 |   |

----

**5.      Stockholders' equity (continued):**

**Share-based      payment (continued):**

|   |   Nonvested                Shares       |   |   Shares                                                                                                                          |   | Weighted                AverageGrant-DateFair                Value |
|--------|---------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|
|   |  Nonvested                at January 1, 2006 |   |                                     401 |   |  $0.36                                                        |
|   | Granted                                           |   |                                1,764                             |   | $0.24                                                              |
|   | Unvested                options cancelled         |   |                                  (885)                 |   | $0.29                                                              |
|   | Vested                                            |   |                                  (453)                 |   | $0.26                                                              |
|   | Nonvested                                         |   |                                    827       |   | $0.22                                                              |

**Warrants:**

**6.      Commitments:**

**Lease      commitments:**

----

**7.      Income taxes:**

|                                            | **2006**                                                                                                     | ** ** | **2005**                                                                                         |
|-------------------------------------------------|--------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|
| Deferred                tax assets:             |                                                                                                         |       |                                                                                             |
| Net                operating loss carryforwards | $28,182                                                                                                      |       | $24,585                                                                                          |
| Credit                carryforwards             |                               315      |       |                             396      |
| Deferred                income                  |                               162      |       |                             223      |
| Other,                net                       |                               213      |       |                             215      |
|                                            |                                                                                                         |       |                                                                                             |
| Total                deferred tax assets        |                          28,872                                 |       |                        25,419                                 |
|                                            |                                                                                                         |       |                                                                                             |
| Valuation                allowance              |         (28,872)                                                     |       |       (25,419)                                                     |
|                                            |                                                                                                         |       |                                                                                             |
| Net                deferred tax assets          | $                               - |       | $                             - |

|                                                        |   | **2006** |   | **2005** |   | **2004** |   |
|-------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|  Expected                income tax cost (benefit)     |   | $        | (1,085 | )        | $      | (1,327   | )      | $ | 668 |   |
| State                income tax net of federal benefit cost |   |     | 291    |     |   | 234      |   |   | (89 | ) |
| Expired                net operating loss                   |   |     | 1,471  |     |   | 2,268    |   |   | 254 |   |
| Change                in valuation allowance                |   |     | (111   | )        |   | (2,848   | )      |   | (833 | ) |
| Other                                                       |   |     | (566   | )        |   | 1,673    |   |   | - |   |
|  Income                tax expense (benefit)           |   | $        | -      |     | $      | -        |   | $ | - |   |

**8.      Employee benefit plans:**

----

**9.      Quarterly information (unaudited)**

|                                                                    |   | FirstQuarter |   | Second                Quarter |   | ThirdQuarter |   | FourthQuarter |   |  Total |   |
|-------------------------------------------------------------------------|--------|--------------|--------|-------------------------------|--------|--------------|--------|---------------|--------|-------------|--------|
| **2006                Unaudited**                                       |   |         |   |                          |   |         |   |          |   |        |   |
| Net                sales                                                |   | $            | 701    |                          | $      | 448          |   | $             | 701    |        | $      | 492 |   | $ | 2,342 |   |
| Gross                profit                                             |   | $            | 634    |                          | $      | 419          |   | $             | 645    |        | $      | 394 |   | $ | 2,092 |   |
| Loss                before income taxes, and minority interest          |   | $            | (813   | )                             | $      | (928         | )      | $             | (672   | )           | $      | (878 | ) | $ | (3,291 | ) |
|  Net                loss                                           |   | $            | (811   | )                             | $      | (925         | )      | $             | (669   | )           | $      | (881 | ) | $ | (3,286 | ) |
|  Basic                and diluted loss per share                   |   | $            | (0.01  | )                             | $      | (0.01        | )      | $             | (0.01  | )           | $      | (0.01 | ) | $ | (0.03 | ) |
|                                                                    |   |         |   |                          |   |         |   |          |   |        |   |   |   |   |   |   |
|                                                                    |   |         |   |                          |   |         |   |          |   |        |   |   |   |   |   |   |
| **2005                Unaudited**                                       |   |         |   |                          |   |         |   |          |   |        |   |   |   |   |   |   |
| Net                sales                                                |   | $            | 579    |                          | $      | 1,209        |   | $             | 607    |        | $      | 726 |   | $ | 3,121 |   |
| Gross                profit                                             |   | $            | 557    |                          | $      | 1,180        |   | $             | 579    |        | $      | 657 |   | $ | 2,973 |   |
| Loss                before income taxes, and minority interest          |   | $            | (1,095 | )                             | $      | (840         | )      | $             | (1,575 | )           | $      | (540 | ) | $ | (4,050 | ) |
|  Net                loss                                           |   | $            | (1,088 | )                             | $      | (834         | )      | $             | (1,569 | )           | $      | (540 | ) | $ | (4,031 | ) |
|  Basic                and diluted loss per share                   |   | $            | (0.01  | )                             | $      | (0.01        | )      | $             | (0.01  | )           | $      | (0.01 | ) | $ | (0.04 | ) |
|                                                                    |   |         |   |                          |   |         |   |          |   |        |   |   |   |   |   |   |
|                                                                    |   |         |   |                          |   |         |   |          |   |        |   |   |   |   |   |   |
| **2004                Unaudited**                                       |   |         |   |                          |   |         |   |          |   |        |   |   |   |   |   |   |
| Net                sales                                                |   | $            | 2,429  |                          | $      | 630          |   | $             | 3,669  |        | $      | 556 |   | $ | 7,284 |   |
| Gross                profit                                             |   | $            | 2,396  |                          | $      | 619          |   | $             | 3,663  |        | $      | 553 |   | $ | 7,231 |   |
| Income                (loss) before income taxes, and minority interest |   | $            | 1,167  |                          | $      | (678         | )      | $             | 2,138  |        | $      | (1,026 | ) | $ | 1,601 |   |
|  Net                income (loss)                                  |   | $            | 1,167  |                          | $      | (678         | )      | $             | 2,145  |        | $      | (1,014 | ) | $ | 1,620 |   |
|  Basic                and diluted income (loss) per share          |   | $            | 0.01   |                          | $      | (0.01        | )      | $             | 0.02   |        | $      | (0.01 | ) | $ | 0.02 |   |

**10.      Subsequent event:**

----

**10.      Subsequent event (continued):**

----

|                                               | BalanceAt                BeginningOf                Period | Charged                toCosts                andExpense |    Deductions |  BalanceAt                EndOf                Period |
|----------------------------------------------------|------------------------------------------------------------|----------------------------------------------------------|------------------------------|------------------------------------------------------------|
|                                               |                                                       |                                                     |                         |                                                       |
|  Year                ended December 31, 2004: |                                                       |                                                     |                         |                                                       |
| Accounts                receivable reserves        | $                256                                       | $                234                                     | $ (86)                  | $                404                                       |
|                                               |                                                       |                                                     |                         |                                                       |
|  Year                ended December 31, 2005: |                                                       |                                                     |                         |                                                       |
| Accounts                receivable reserves        | $                404                                       | $                4                                       | $ (21)                  | $                387                                       |
|                                               |                                                       |                                                     |                         |                                                       |
|  Year                ended December 31, 2006: |                                                       |                                                     |                         |                                                       |
| Accounts                receivable reserves        | $                387                                       | $                10                                      | $                -           | $                397                                       |
|                                               |                                                       |                                                     |                         |                                                       |
|                                               |                                                       |                                                     |                         |                                                       |