**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

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

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

**COMMUNICATION      INTELLIGENCE CORPORATION**

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

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

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

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

----

|                                                                                                                                                                                                                                     | Page                No. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|
| PART                I. FINANCIAL INFORMATION                                                                                                                                                                                             |                    |
|  Item                1. Financial                Statements                                                                                                                                                                    |                    |
|  Condensed                Consolidated Balance Sheets at June 30, 2007 (unaudited) andDecember                31, 2006                                                                                                              |   3           |
|  Condensed                Consolidated Statements of Operations for the Three and                Six-MonthPeriods                Ended June 30, 2007 and 2006 (unaudited)                                                           |   4           |
|  Condensed                Consolidated Statements of Changes in Stockholders’ Equity for the                Three                and Six-Month Periods Ended June 30, 2007 (unaudited)                                        |   5           |
|  Condensed                Consolidated Statements of Cash Flows for the Six-Month                PeriodsEnded                June 30, 2007 and 2006 (unaudited)                                                                     |   6           |
|  Notes                to Unaudited Condensed Consolidated Financial Statements                                                                                                                                                      |  7                 |
|  Item                2. Management's                Discussion and Analysis of Financial Condition and                             Results                of Operations |   16          |
|  Item                3. Quantitative                and Qualitative Disclosures About Market Risk                                                                                                                                   |  22                |
|  Item                4. Controls                and Procedures                                                                                                                                                                      |  22                |
|  PART                II. OTHER INFORMATION                                                                                                                                                                                     |                    |
|  Item                1. Legal                Proceedings                                                                                                                                                                            |  22                |
|  Item                1A. Risk                Factors                                                                                                                                                                                |  22                |
|  Item                2. Unregistered                Sale of Securities and Use of proceeds                                                                                                                                          |  23                |
|  Item                3. Defaults                Upon Senior Securities                                                                                                                                                              |  23                |
|  Item                4. Submission                of Matters to a Vote of Security Holders                                                                                                                                          |  23                |
|  Item                5. Other                Information                                                                                                                                                                            |  23                |
|  Item                6. Exhibits                                                                                                                                                                                                    |                    |
|  (a)                Exhibits                                                                                                                                                                                                        |  24                |
|  Signatures                                                                                                                                                                                                                         |  25                |

----

|                                                                                                                                                                                                                                                                      |   | June                30 |    | December                31 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|----------------------------|--------|
|                                                                                                                                                                                                                                                                      |   | 2007                   |    | 2006                       |   |
| Assets                                                                                                                                                                                                                                                                    |   | Unaudited              |    |                       |   |
| Current                assets:                                                                                                                                                                                                                                            |   |                   |    |                       |   |
| Cash                and cash equivalents                                                                                                                                                                                                                                  |   | $                      | 867     |                       | $      | 727 |   |
| Accounts                receivable, net of allowances of $413 and $397 at June 30, 2007 and                December 31, respectively                                                                                                                                      |   |                   | 467     |                       |   | 487 |   |
| Prepaid                expenses and other current assets                                                                                                                                                                                                                  |   |                   | 76      |                       |   | 105 |   |
| Total                current assets                                                                                                                                                                                                                                  |   |                   | 1,410   |                       |   | 1,319 |   |
| Property                and equipment, net                                                                                                                                                                                                                                |   |                   | 89      |                       |   | 140 |   |
| Patents                                                                                                                                                                                                                                                                   |   |                   | 3,717   |                       |   | 3,906 |   |
| Capitalized                software development costs                                                                                                                                                                                                                     |   |                   | 877     |                       |   | 656 |   |
| Deferred                financing costs (Note 5)                                                                                                                                                                                                                          |   |                   | 30      |                       |   | 75 |   |
| Other                assets                                                                                                                                                                                                                                               |   |                   | 30      |                       |   | 30 |   |
| Total                assets                                                                                                                                                                                                                                               |   | $                      | 6,153   |                       | $      | 6,126 |   |
|                                                                                                                                                                                                                                                                      |   |                   |    |                       |   |   |   |
| Liabilities                and Stockholders' Equity                                                                                                                                                                                                                       |   |                   |    |                       |   |   |   |
| Current                liabilities:                                                                                                                                                                                                                                       |   |                   |    |                       |   |   |   |
| Convertible                notes, net of unamortized fair value assigned to beneficial conversion                feature and warrants                of $91 and $228 at June 30, 2007 and December 31, 2006, respectively                (Note                4)          |   | $                      | 1,291   |                       | $      | 1,154 |   |
| Short-term                debt - including $450 to a related party, net of unamortized fair                value                assigned to warrants of $169 at June 30, 2007 (Note 5)                                                                                    |   |                   | 431     |                       |   | - |   |
| Accounts                payable                                                                                                                                                                                                                                           |   |                   | 85      |                       |   | 72 |   |
| Accrued                compensation                                                                                                                                                                                                                                       |   |                   | 274     |                       |   | 236 |   |
| Other                accrued liabilities                                                                                                                                                                                                                                  |   |                   | 270     |                       |   | 269 |   |
| Deferred                revenue                                                                                                                                                                                                                                           |   |                   | 507     |                       |   | 404 |   |
| Total                current liabilities                                                                                                                                                                                                                                  |   |                   | 2,858   |                       |   | 2,135 |   |
|                                                                                                                                                                                                                                                                      |   |                   |    |                       |   |   |   |
| Long-term                debt - including $770 and $450 to a related party, net of unamortized                fair                value assigned to warrants of $446 and $266 at June 30, 2007 and                December                31, 2006, respectively (Note 5) |   |                   | 674     |                       |   | 334 |   |
|                                                                                                                                                                                                                                                                      |   |                   |    |                       |   |   |   |
| Minority                interest                                                                                                                                                                                                                                     |   |                   | 68      |                       |   | 73 |   |
| Commitments                and contingencies                                                                                                                                                                                                                         |   |                   |    |                       |   |   |   |
| Stockholders'                equity:                                                                                                                                                                                                                                      |   |                   |    |                       |   |   |   |
| Preferred                stock, $.01 par value; 10,000 shares authorized; 0 outstanding at                June 30,                2007 and December 31, 2006, respectively                                                                                                |   |                   | -       |                       |   | - |   |
| Common                stock, $.01 par value; 155,000 shares authorized; 107,557 shares                issued                and outstanding at June 30, 2007 and 125,000 shares authorized; 107,557                shares issued and outstanding at December 31, 2006     |   |                   | 1,076   |                       |   | 1,076 |   |
| Additional                paid-in capital                                                                                                                                                                                                                                 |   |                   | 91,115  |                       |   | 90,497 |   |
| Accumulated                deficit                                                                                                                                                                                                                                        |   |                   | (89,511 | )                          |   | (87,861 | ) |
| Accumulated                other comprehensive loss                                                                                                                                                                                                                       |   |                   | (127    | )                          |   | (128 | ) |
| Total                stockholders' equity                                                                                                                                                                                                                                 |   |                   | 2,553   |                       |   | 3,584 |   |
|                                                                                                                                                                                                                                                                      |   |                   |    |                       |   |   |   |
| Total                liabilities and stockholders' equity                                                                                                                                                                                                                 |   | $                      | 6,153   |                       | $      | 6,126 |   |
|                                                                                                                                                                                                                                                                      |   |                   |    |                       |   |   |   |

----

|                                                                                     |   | Three                Months Ended |    | Six                Months Ended |   |
|------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|---------------------------------|--------|
|                                                                                     |   | June                30,           |    | June                30,         |   |
|                                                                                     |   | 2007                              |    | 2006                            |   | 2007 |   | 2006 |   |
|                                                                                     |   |                              |    |                            |   |   |   |   |   |
| Revenues                                                                                 |   |                              |    |                            |   |   |   |   |   |
| Product                                                                        |   | $                                 | 385     |                            | $      | 222 |   | $ | 543 |   | $ | 626 |   |
| Maintenance                                                                         |   |                              | 170     |                            |   | 226 |   |   | 346 |   |   | 523 |   |
| Total                Revenues                                                            |   |                              | 555     |                            |   | 448 |   |  | 889 |   |   | 1,149 |   |
|                                                                                     |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Operating                costs and expenses:                                             |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Cost                of sales                                                             |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Product                                                                             |   |                              | 132     |                            |   | 6 |   |   | 162 |   |   | 50 |   |
| Maintenance                                                                         |   |                              | 30      |                            |   | 23 |   |   | 58 |   |   | 46 |   |
| Research                and development                                             |   |                              | 131     |                            |   | 143 |   |   | 260 |   |   | 426 |   |
| Sales                and marketing                                                  |   |                              | 297     |                            |   | 433 |   |   | 557 |   |   | 779 |   |
| General                and administrative                                           |   |                              | 523     |                            |   | 655 |   |   | 998 |   |   | 1,158 |   |
| Total                operating costs and expenses                                   |   |                              | 1,113   |                            |   | 1,260 |   |   | 2,035 |   |   | 2,459 |   |
|                                                                                     |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Loss                from operations                                                 |   |                              | (558    | )                               |   | (812 | ) |   | (1,146 | ) |   | (1,310 | ) |
|                                                                                     |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Interest                and other income (expense), net                                  |   |                              | 4       |                            |   | 14 |   |   | 4 |   |   | 30 |   |
| Interest                expense:                                                         |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Related                party (Note 5)                                               |   |                              | (33     | )                               |   | − |   |   | (49 | ) |   | − |   |
| Other                (Notes 4 and 5)                                                |   |                              | (43     | )                               |   | (26 | ) |   | (74 | ) |   | (56 | ) |
| Amortization                of loan discount and deferred financing:                     |   |                              |    |                            |   |   |   |   |   |   |   |   |   |
| Related                party (Note 5)                                               |   |                              | (74     | )                               |   | − |   |   | (147 | ) |   | − |   |
| Other                (Notes 4 and 5)                                                |   |                              | (141    | )                               |   | (104 | ) |   | (243 | ) |   | (405 | ) |
| Minority                interest                                                    |   |                              | 2       |                            |   | 3 |   |   | 5 |   |   | 5 |   |
| Net                loss                                                             |   | $                                 | (843    | )                               | $      | (925 | ) | $ | (1,650 | ) | $ | (1,736 | ) |
|  Basic                and diluted loss per common share                             |   | $                                 | (0.01   | )                               | $      | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) |
|  Weighted                average common shares outstanding, basic and diluted  |   |                              | 107,557 |                            |   | 107,552 |   |   | 107,557 |   |   | 107,199 |   |

----

|                                                                                                                                                      |   |    SharesOutstanding |    |    CommonStock |   |   AdditionalPaid-InCapital |   |    AccumulatedDeficit |   |  AccumulatedOtherComprehensiveLoss |   |     Total |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|---------|-------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|-----------------------------------------|--------|-------------------------------|--------|
|                                                                                                                                                      |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |
| Balances                as of December 31, 2006                                                                                                           |   |                                | 107,557 |                          | $      | 1,076                                |   | $                                    | 90,497 |                                    | $      | (87,861                       | )      | $ | (128 | ) | $ | 3,584 |   |
|                                                                                                                                                      |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   |   |   |
| Fair                value of warrants issued in connection with short-term                    debt                                    |   |                                |    |                          |   |                                 |   |                                 | 359    |                                    |   |                          |   |   |   |   |   | 359 |   |
| Stock                based employee compensation                                                                                                          |   |                                |    |                          |   |                                 |   |                                 | 24     |                                    |   |                          |   |   |   |   |   | 24 |   |
|                                                                                                                                                      |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   |   |   |
| Comprehensive                loss:                                                                                                                        |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   |   |   |
| Net                loss                                                                                                                                   |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   | (807                          | )      |   |   |   |   | (807 | ) |
| Foreign                currency translation adjustment                                                                                                    |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   | (3 | ) |   | (3 | ) |
| Total                comprehensive loss                                                                                                                   |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   | (810 | ) |
| Balances                as of March 31, 2007                                                                                                              |   |                                | 107,557 |                          |   | 1,076                                |   |                                 | 90,880 |                                    |   | (88,668                       | )      |   | (131 | ) |   | 3,157 |   |
|                                                                                                                                                      |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   |   |   |
| Fair                value of warrants issued in connection with short-termdebt                                                                            |   |                                |    |                          |   |                                 |   |                                 | 187    |                                    |   |                          |   |   |   |   |   | 187 |   |
| Stock                based employee compensation                                                                                                          |   |                                |    |                          |   |                                 |   |                                 | 36     |                                    |   |                          |   |   |   |   |   | 36 |   |
| Adjustment                to the fair value of beneficial conversion feature associated with                the                convertible notes (Note 5) |   |                                |    |                          |   |                                 |   |                                 | 12     |                                    |   |                          |   |   |   |   |   | 12 |   |
|  Comprehensive                loss:                                                                                                                  |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   |   |   |
|  Net                loss                                                                                                                             |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   | (843                          | )      |   |   |   |   | (843 | ) |
| Foreign                currency translation adjustment                                                                                                    |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   | 4 |   |   | 4 |   |
| Total                comprehensive loss                                                                                                                   |   |                                |    |                          |   |                                 |   |                                 |   |                                    |   |                          |   |   |   |   |   | (839 | ) |
| Balances                as of June 30, 2007                                                                                                               |   |                                | 107,557 |                          | $      | 1,076                                |   | $                                    | 91,115 |                                    | $      | (89,511                       | )      | $ | (127 | ) | $ | 2,553 |   |

----

|                                                                                                                  |   | Six                Months EndedJune                30, |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                                                                                  |   | 2007                                                   |   | 2006 |   |
| Cash                flows from operating activities:                                                                  |   |                                                   |   |   |   |
| Net                loss                                                                                          |   | $                                                      | (1,650 | ) | $ | (1,736 | ) |
| Adjustments                to reconcile net loss to net cash used                for operating activities:  |   |                                                   |   |   |   |   |   |
| Depreciation                and amortization                                                                          |   |                                                   | 391    |   |   | 278 |   |
| Amortization                of discount on convertible notes                                                          |   |                                                   | 149    |   |   | 306 |   |
| Amortization                of discount on related party debt                                                         |   |                                                   | 197    |   |   |   |   |
| Amortization                of deferred financing costs                                                               |   |                                                   | 45     |   |   | 100 |   |
| Stock                based employee compensation                                                                      |   |                                                   | 60     |   |   | 105 |   |
| Stock                issued for services                                                                              |   |                                                   | -      |   |   | 6 |   |
| Minority                interest                                                                                      |   |                                                   | (5     | )  |   | (5 | ) |
| Provision                for doubtful accounts                                                                        |   |                                                   | 16     |   |   | - |   |
| Changes                in operating assets and liabilities:                                                           |   |                                                   |   |   |   |   |   |
| Accounts                receivable, net                                                                               |   |                                                   | 14     |   |   | 55 |   |
| Prepaid                expenses and other current assets                                                              |   |                                                   | 29     |   |   | 16 |   |
| Accounts                payable                                                                                       |   |                                                   | 13     |   |   | 73 |   |
| Accrued                compensation                                                                                   |   |                                                   | 38     |   |   | 8 |   |
| Other                accrued liabilities                                                                              |   |                                                   | -      |   |   | (24 | ) |
| Deferred                revenue                                                                                       |   |                                                   | 103    |   |   | 34 |   |
| Net                cash used for operating activities                                                                 |   |                                                   | (600   | ) |   | (784 | ) |
|                                                                                                                  |   |                                                   |   |   |   |   |   |
| Cash                flows from investing activities:Acquisition                of property and equipment         |   |                                                   | (3     | ) |   | (85 | ) |
| Capitalized                software development costs                                                            |   |                                                   | (373   | ) |   | (277 | ) |
| Net                cash used for investing activities                                                                 |   |                                                   | (376   | ) |   | (362 | ) |
|                                                                                                                  |   |                                                   |   |   |   |   |   |
| Cash                flows from financing activities:                                                                  |   |                                                   |   |   |   |   |   |
| Proceeds                from issuance of long-term debt                                                          |   |                                                   | 1,120  |   |   | - |   |
| Principal                payments on capital lease obligations                                                   |   |                                                   | (4     | ) |   | (5 | ) |
| Net                cash provided by (used for) financing activities                                              |   |                                                   | 1,116  |   |   | (5 | ) |
| Effect                of exchange rate changes on cash                                                           |   |                                                   | -      |   |   | - |   |
|                                                                                                                  |   |                                                   |   |   |   |   |   |
| Net                increase (decrease) in cash and cash equivalents                                              |   |                                                   | 140    |   |   | (1,151 | ) |
| Cash                and cash equivalents at beginning of period                                                  |   |                                                   | 727    |   |   | 2,849 |   |
| Cash                and cash equivalents at end of period                                                        |   | $                                                      | 867    |   | $ | 1,698 |   |

| Convertible                Notes converted to common stock         |   | $      | − |   | $      | 460     |   |
|-------------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
| Fair                value of beneficial conversion feature and warrants |   | $      | 546     |   | $      | − |   |
| Supplemental                disclosure of cash flow information    |   |   |    |   |   |    |   |
| Interest                paid                                       |   | $      | 82      |   | $      | 26      |   |

----

*Going      Concern*

----

*Fair      value of financial instruments*

*Recent      Pronouncements *

*Accounting      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109      ("FIN 48")*

----

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

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

| 4.   | Convertible                Notes |
|----------------|----------------------------------|

----

| 5.   | Long-term                Debt |
|----------------|-------------------------------|

----

----

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

| 7.   | Common                Stock Options |
|----------------|-------------------------------------|

*Share-Based      Payment”*

----

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

|                                         |   | Three                and Six Months EndedJune                30, 2007 |   | Three                and Six Months EndedJune                30, 2006 |
|----------------------------------------------|--------|-----------------------------------------------------------------------|--------|-----------------------------------------------------------------------|
|  Risk                free interest rate |   |  3.65%                - 5.11%                                    |   |  3.65%                - 5.11%                                    |
| Expected                life (years)         |   | 3.19                -7.00                                             |   | 3.66                -7.00                                             |
| Expected                volatility           |   | 51.68%                - 104.57%                                       |   | 82.1%                                                                 |
| Expected                dividends            |   | None                                                                  |   | None                                                                  |

|                                            |   |  Three                Months Ended June 30, |   |  Six                months Ended June 30, |   |
|-------------------------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|--------|
|                                            |   |  2007                                       |   |  2006                                     |   |  2007 |   |  2006 |   |
|  Research                and development   |   | $                                                | 3      |                                           | $      | 9 |   | $ | 6 |   | $ | 34 |   |
| Sales                and marketing              |   |                                             | 19     |                                           |   | 12 |   |   | 37 |   |   | 38 |   |
| General                and administrative       |   |                                             | 5      |                                           |   | 7 |   |   | 8 |   |   | 11 |   |
| Director                options                 |   |                                             | 9      |                                           |   | 21 |   |   | 9 |   |   | 21 |   |
| Stock-based                compensation expense |   | $                                                | 36     |                                           | $      | 49 |   | $ | 60 |   | $ | 104 |   |

----

|                                                        |   | As                of June 30, |    |
|-------------------------------------------------------------|--------|-------------------------------|---------|
|                                                        |   | 2007                          |    |   |   | 2006 |   |
|     Options                             |   |    Shares(000) |    |  Weighted                Average Exercise Price |   | Weighted                average Remaining Contractual Term |   |   Aggregate                Intrinsic Value |   |    Shares(000) |   |  Weighted                Average Exercise Price |   | Weighted                average Remaining Contractual Term |   |   Aggregate                Intrinsic Value |   |
|  Outstanding                at January 1,              |   |                          | 5,893   |   | $ | 0.69 |   |   |   |   |   |   |   |   | 8,591 |   | $ | 0.75 |   |   |   |   |   |
|  Granted                                               |   |                          | 325     |   | $ | 0.22 |   |   |   |   |   |   |   |   | 844 |   | $ | 0.58 |   |   |   |   |   |
|  Exercised                                             |   |                          | − |   |   |   |   |   |   |   |   |   |   |   | (19 | ) | $ | 0.42 |   |   |   |   |   |
|  Forfeited                or expired                   |   |                          | (577    | ) | $ | 0.95 |   |   |   |   |   |   |   |   | (3,015 | ) | $ | 0.77 |   |   |   |   |   |
|  Outstanding                at June 30                 |   |                          | 5,641   |   | $ | 0.63 |   |   | 4.79 |   | $ | − |   |   | 6,401 |   | $ | 0.73 |   |   | 5.59 |   |  $− |
|  Vested                and expected to vest at June 30 |   |                          | 5,641   |   | $ | 0.63 |   |   | 4.94 |   | $ | − |   |   | 5,537 |   | $ | 0.77 |   |   | 5.44 |   |   $− |
|  Exercisable                at June 30                 |   |                          | 4,978   |   | $ | 0.68 |   |   | 4.78 |   | $ | − |   |   | 5,537 |   | $ | 0.77 |   |   | 5.44 |   |  $− |

|                                                            |   | As                of June 30, 2007                  |   |
|-----------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                            |   | Options                Outstanding                  |   | Options                Exercisable |   |
|     Range                of Exercise Prices |   |    Number                Outstanding |   | Weighted                Average Remaining Contractual Life(in years) |   |  Weighted                Average Exercise Price |   |    Number                Outstanding |   |  Weighted                Average Exercise Price |   |
|  $                0.14 - $0.50                             |   |                                                | 2,059  |   |   | 5.5 |   | $ | 0.34 |   |   | 1,442 |   | $ | 0.36 |   |
| 0.51                - 1.00                                      |   |                                                | 3,341  |   |   | 4.8 |   | $ | 0.73 |   |   | 3,295 |   | $ | 0.73 |   |
| 1.01                - 2.00                                      |   |                                                | 176    |   |   | 2.5 |   | $ | 1.31 |   |   | 176 |   | $ | 1.31 |   |
| 2.01                - 3.00                                      |   |                                                | 50     |   |   | 0.3 |   | $ | 3.00 |   |   | 50 |   | $ | 3.00 |   |
| 3.01                - 7.50                                      |   |                                                | 15     |   |   | 2.9 |   | $ | 3.56 |   |   | 15 |   | $ | 3.56 |   |
|                                                            |   |                                                | 5,641  |   |   | 4.8 |   | $ | 0.63 |   |   | 4,978 |   | $ | 0.68 |   |

----

|                                                            |   | As                of June 30, 2006                  |   |
|-----------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                            |   | Options                Outstanding                  |   | Options                Exercisable |   |
|     Range                of Exercise Prices |   |    Number                Outstanding |   | Weighted                Average Remaining Contractual Life(in years) |   |  Weighted                Average Exercise Price |   |    Number                Outstanding |   |  Weighted                Average Exercise Price |   |
|  $                0.14 - $0.50                             |   |                                                | 2,111  |   |   | 6.0 |   | $ | 0.40 |   |   | 1,397 |   | $ | 0.39 |   |
| 0.51                - 1.00                                      |   |                                                | 3,636  |   |   | 5.7 |   | $ | 0.73 |   |   | 3,486 |   | $ | 0.74 |   |
| 1.01                - 2.00                                      |   |                                                | 562    |   |   | 4.1 |   | $ | 1.51 |   |   | 562 |   | $ | 1.51 |   |
| 2.01                - 3.00                                      |   |                                                | 50     |   |   | 1.3 |   | $ | 3.00 |   |   | 50 |   | $ | 3.00 |   |
| 3.01                - 7.50                                      |   |                                                | 42     |   |   | 2.0 |   | $ | 3.42 |   |   | 42 |   | $ | 3.42 |   |
|                                                            |   |                                                | 6,401  |   |   | 5.6 |   | $ | 0.73 |   |   | 5,537 |   | $ | 0.77 |   |

|    Non-vested                Shares |   |    Shares |   | Weighted                AverageGrant-DateFair                Value |   |
|----------------------------------------------------|--------|--------------------------|--------|--------------------------------------------------------------------|--------|
|  Non-vested                at January 1, 2007 |   |                     | 827    |                                                               | $      | 0.22 |   |
| Granted                                            |   |                     | 325    |                                                               | $      | 0.22 |   |
| Vested                                             |   |                     | (489   | )                                                                  | $      | 0.32 |   |
|  Non-vested                at June 30, 2007   |   |                     | 663    |                                                               | $      | 0.29 |   |

----

***Forward      Looking Statements***

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

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

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

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

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

***Overview***

----

**Critical      Accounting Policies and Estimates**

***Results      of Operations***

***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***

----

----

|                                              |   |   |   | Payments                due by period |   |
|---------------------------------------------------|--------|--------|--------|---------------------------------------|--------|
|  Contractual              obligations        |   |   |   | Total                                 |   | 2007 |   | 2008 |   | 2009 |   | 2010 |   | 2011 |   | Thereafter |   |
| Short-term                debt (1)                |   |   |   |                                  | $      | 1,382 |   | $ | 1,382 |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   |
| Short-term                debt related party (2)  |   |   |   |                                  |   | 600 |   |   |   |   |   | 600 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term                debt related party (3)   |   |   |   |                                  |   | 1,120 |   |   | - |   |   | 1,120 |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Operating                lease commitments (4)    |   |   |   |                                  |   | 1,184 |   |   | 128 |   |   | 264 |   |   | 272 |   |   | 280 |   |   | 240 |   |   | - |   |
| Total                contractual cash obligations |   |   |   |                                  | $      | 4,286 |   | $ | 1,510 |   | $ | 1,984 |   | $ | 272 |   | $ | 280 |   | $ | 240 |   | $ | - |   |

| 1.   | Short-term                debt reported on the balance sheet is net of approximately $91 in                discounts representing the fair value of warrants issued to the investors                and the beneficial conversion feature associated with the convertible                notes. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Short-term                debt related party reported on the balance sheet is net of approximately                $169 in discounts representing the fair value of warrants issued                to the                investors. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | Long-term                debt reported on the balance sheet is net of approximately $446 in                discounts representing the fair value of warrants issued to the                investors. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.   | 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                increases approximately 3% per annum over the term of the lease,                which                expires on October 31, 2011. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   |                            |   |         |   |
|--------|---------------------------------|--------|--------------|--------|
|   | Name                            |   | For          |   |
|   | Guido                DiGregorio |   |  96,954 |   |
|   | Louis                P. Panetta |   | 96,368       |   |
|   | C.                B. Sung       |   | 96,436       |   |
|   | David                E. Welch   |   | 94,530       |   |

|                              | FOR          |   | Against     |   | Abstain   |
|-----------------------------------|--------------|--------|-------------|--------|-----------|
|  Shares                voted |  91,875 |   |  8,528 |   |  431 |
| Percent                of voted   | 91.1%        |   | 8.45%       |   | 0.42%     |
| Percent                of total   | 85.4%        |   | 7.92%       |   | 0.40%     |

----

| 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).                                                                                                                                                                                                                                                                                       |
| 4.15  | 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 February 5, 2007.                                                                                                                                                                                                                                                                                        |
| 4.16  | Form                of Warrant issued by Communication intelligence Corporation, incorporated                herein by reference to Exhibit 10.37 to the Company's Form 8-K dated                February 5, 2007.                                                                                                                                                                                                                                                                                                               |
| 4.17  | 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 June 15, 2007.                                                                                                                                                                                                                                                                                           |
| 4.18  | Form                of Warrant issued by Communication intelligence Corporation, incorporated                herein by reference to Exhibit 10.37 to the Company's Form 8-K dated                June                15, 2007.                                                                                                                                                                                                                                                                                                   |
| 10.36 | Form                of Note and Warrant Purchase Agreement dated February 5, 2007, 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 February 5, 2007.                                                                                                                                                                            |
| 10.37 | Form                of Registration Rights Agreement dated February 5, 2007, 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 February 5, 2007.                                                                                                                                                                     |
| 10.38 | Amendment                to the Note and Warrant Purchase Agreement dated February 5, 2007,                among                Communication Intelligence Corporation and the parties identified                there                in,                incorporated herein by reference to Exhibit 99.1 to the Company's                Form 8-K                dated March 15, 2007.                                                                                                                                          |
| 10.39 | Form                of Note and Warrant Purchase Agreement dated June 15, 2007, 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 June 15, 2007.                                                                                                                                                                                  |
| 10.40 | Form                of Registration Rights Agreement dated June 15, 2007, 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 June 15, 2007.                                                                                                                                                                                                         |
| *31.1 | Certification                of Company’s Chief Executive Officer pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                 |
| *31.2 | Certificate                of Company’s Chief Financial Officer pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                   |
| *32.1 | Certification                of Chief Executive Officer pursuant to 18 USC Section 1750, as adopted                pursuant to Section 906 of the Sarbanes-Oxley Act of                2002                                                                                                                                                                                                                                                                                                                                      |
| *32.2 | Certification                of Chief Financial Officer pursuant to 18 USC Section 1750, as adopted                pursuant to Section 906 of the Sarbanes-Oxley Act of                2002                                                                                                                                                                                                                                                                                                                                      |

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

----

**SIGNATURES**

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

| August                14, 2007 |   | /s/                Francis V. Dane                                                                                                         |
|--------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|
| Date                           |   | Francis                V. Dane                                                                                                             |
|                           |   | (Principal                Financial Officer and Officer Duly Authorized to Sign on Behalf of                the                Registrant) |