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

                  For the quarterly period ended: June 30, 2004


                                       OR

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

                        For the transition period from to

                        Commission File Number: 0-19301


                     COMMUNICATION INTELLIGENCE CORPORATION
             (Exact name of registrant as specified in its charter)

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


         275 Shoreline Drive, Suite 500, Redwood Shores, CA 94065-1413
               (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:    (650) 802-7888

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

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

Number of shares  outstanding  of the issuer's  Common  Stock,  as of August 11,
2004: 101,374,876.

<PAGE>

                                      INDEX



PART I.  FINANCIAL INFORMATION


 Item 1.  Financial Statements                                          Page No.

 Condensed Consolidated Balance Sheets at June 30, 2004 (unaudited) and
 December 31, 2003...........................................................3

 Condensed Consolidated Statements of Operations for the Three
 and Six-Month Periods Ended June 30, 2004 and 2003 (unaudited)..............4

 Condensed Consolidated Statements of Changes in Stockholders' Equity
 for the Three and Six-Month Periods Ended June 30, 2004 (unaudited).........5

 Condensed Consolidated Statements of Cash Flows for the
 Six-Month Periods Ended June 30, 2004 and 2003 (unaudited)..................6

 Notes to Unaudited Condensed Consolidated Financial Statements..............7

 Item 2.  Management's Discussion and Analysis of Financial Condition and
          Results of Operations.............................................14

 Item 3.  Quantitative and Qualitative Disclosures About Market Risk........23

 Item 4A.  Controls and Procedures..........................................23

PART II.  OTHER INFORMATION

 Item 1.  Legal Proceedings.................................................23

 Item 2.  Change in Securities and Use of proceeds..........................24

 Item 3.  Defaults Upon Senior Securities...................................24

 Item 4.  Submission of Matters to a Vote of Security Holders...............24

 Item 5.  Other Information.................................................25

 Item 6.  Exhibits and Reports on Form 8-K.

          (a)      Exhibits.................................................25

          (b)      Reports on Form 8-K......................................25

 Signatures.................................................................26


                                      -2-
<PAGE>


                     Communication Intelligence Corporation
                                 and Subsidiary
                      Condensed Consolidated Balance Sheets
                                 (In thousands)

                                                      June 30,      December 31,
                                                        2004           2003
                                                    -----------    -------------
                                                     Unaudited
Assets
Current assets:
     Cash and cash equivalents..................... $   1,969         $   1,039
     Accounts receivable, net of allowances
     of $304 and $256 atJune 30, 2004 and
     December 31, 2003, respectively...............       499               742
     Inventories...................................         -                47
     Prepaid expenses and other current assets.....       150               177
                                                    -----------      -----------
         Total current assets......................     2,618             2,005

Property and equipment, net........................       147               138
Patents and trademarks.............................     4,853             5,042
Deposits...........................................        30                30
                                                    -----------      -----------

         Total assets.............................. $   7,648         $   7,215
                                                    ===========      ===========

Liabilities and Stockholders' equity
Current liabilities:
     Short-term debt - related party............... $   3,008         $   3,008
     Short-term debt - other.......................        37               750
     Accounts payable..............................       270               243
     Accrued compensation..........................       156               259
     Other accrued liabilities.....................       341               475
     Deferred revenue..............................       342               165
                                                    -----------      -----------
         Total current liabilities.................     4,154             4,900

Long-term debt - related party.....................         8                13

Minority interest..................................       107               115

Commitments and contingencies                               -                 -

Stockholders' equity:
     Common stock..................................     1,013             1,001
     Additional paid-in capital....................    84,216            83,528
     Accumulated deficit...........................   (81,675)          (82,164)
     Accumulated foreign currency translation
     adjustment....................................      (175)             (178)
                                                    -----------      -----------
         Total stockholders' equity................     3,379             2,187
                                                    -----------      -----------

         Total liabilities and stockholders'
         equity.................................... $   7,648         $   7,215
                                                    ===========      ===========

The accompanying notes form an integral part of these Condensed Consolidated
                              Financial Statements

                                      -3-
<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
                 Condensed Consolidated Statements of Operations
                                    Unaudited
                    (In thousands, except per share amounts)

                                        Three Months Ended     Six Months Ended
                                              June 30,             June 30,
                                          -------------------------------------
                                           2004      2003       2004      2003
                                          ---------------      ---------------
Revenues:
 Online/retail.......................... $   47    $   92     $   88    $  206
 Corporate..............................    468       288      2,820       955
 China    ..............................    115       192        151       519
                                         -------   -------    -------   -------

         Total revenues.................    630       572      3,059     1,680

Operating costs and expenses:
 Cost of sales:
    Online/retail.......................      -         -          -         1
    Corporate...........................      4        11         11        23
    China ..............................      7       111         33       331
 Research and development...............    273       303        592       643
 Sales and marketing  ..................    305       180        637       463
 General and administrative  ...........    654       619      1,158     1,131
                                         --------   -------    -------   -------

   Total operating costs and expenses..   1,243     1,224      2,431     2,592
                                         --------   -------    -------   -------

Income (loss) from operations  .........   (613)     (652)       628      (912)

Other income (expense)
 Interest and other income (expense),net     (3)       10          6         9

 Interest expense  .....................    (62)      (48)      (145)      (97)
                                         ---------  -------    --------  -------

         Net Income (loss)  ............   (678)     (690)       489    (1,000)
                                         =========  ========   ========  =======

Basic and diluted income (loss)
per common share  ...................... $(0.01)    $(0.01)     $ 0.01  $(0.01)
                                         =========  ========   ======== ========

Weighted average common shares
outstanding basic                        100,776    97,514     100,439   94,726
                                         ========   ========   ======== ========

Weighted average common shares
outstanding diluted                      100,776    97,514     100,842   94,726
                                         ========   ========   ======== ========

The accompanying notes form an integral part of these Condensed Consolidated
                              Financial Statements


                                   -4-
<PAGE>


                     Communication Intelligence Corporation
                                 and Subsidiary
           Consolidated Statements of Changes in Stockholders' Equity
                                    Unaudited
                      (In thousands, except share amounts)


                                                              Accumulated
                                      Additional                 Other
                     Shares    Common   Paid-In  Accumulated  Comprehensive
                   Outstanding  Stock   Capital    Deficit        Loss    Total

Balances as of
December 31, 2003.. 100,102    $1,001  $ 83,528  $(82,164)     $ (178)  $ 2,187
                   -------------------------------------------------------------
Foreign currency
translation
 adjustment.......       -         -         -           -          1         1

Net income for
the three months
ended March 31,
2004..............       -         -         -       1,167          -     1,167
                   -------------------------------------------------------------

Balances as of
March 31, 2004.... 100,102     $1,001   $ 83,528  $(80,997)    $ (177)  $ 3,355
                   -------------------------------------------------------------


Sale of Common
shares through
Cornell Capital
net of expenses.... 1,133          11       679          -          -       690

Exercise of
options for
shares of Common
stock..............    33           1         9          -          -        10

Foreign currency
translation
adjustment.........     -           -         -          -          2         2

Net loss for the
three months
ended June 30,
2004...............     -           -         -       (678)         -      (678)
                   -------------------------------------------------------------

Balances as of
 June 30,  2004.. 101,268      $1,013    $84,216  $(81,675)     $(175)  $ 3,379
                  ==============================================================

The accompanying notes form an integral part of these Condensed Consolidated
                              Financial Statements


                                   -5-
<PAGE>

                     Communication Intelligence Corporation
                                 and Subsidiary
                 Condensed Consolidated Statements of Cash Flows
                                    Unaudited
                                 (In thousands)

                                                           Six Months Ended
                                                               June 30,
                                                       -------------------------
                                                         2004            2003
                                                       ---------     -----------

Cash flows from operating activities:
  Net income (loss)..................................... $ 489       $  (1,000)
     Adjustments to reconcile net income
     (loss) to net cash provided.by/ (used for)
     operating activities:
        Depreciation....................................    28              47
        Patent and capitalized software amortization....   189             190
        Provision for doubtful accounts.................    48               -
        Loss on disposal of fixed assets................     3               8
        Changes in operating assets and liabilities:
           Accounts receivable, net.....................   195             (74)
           Inventories..................................    47              32
           Prepaid expenses and other current assets....   (32)             77
           Accounts payable.............................    27              27
           Accrued compensation.........................  (103)            (19)
           Other accrued liabilities....................  (146)            (39)
           Deferred revenue.............................   177             (86)
                                                        ---------     ----------
         Net cash provided by (used for)
          operating  activities..                          922            (837)
                                                        ---------     ----------

Cash flows from investing activity:
     Acquisition of property and equipment..............   (34)            (36)
                                                        ---------     ----------
         Net cash used in investing activity............   (34)            (36)
                                                        ---------     ----------

Cash flows from financing activities:
     Payments on long-term debt.........................    (2)              -
     Proceeds from issuance of short-term debt..........    37               -
     Proceeds from the exercise of stock options........    10               -
     Proceeds from the issuance of common stock.........     -           2,000
     Offering costs.....................................     -            (410)
     Principal payments on capital lease obligations....    (3)             (4)
                                                        ----------     ---------
         Net cash provided by (used for)
         financing activities...........................    42           1,586
                                                        ----------     ---------

Effect of exchange rate changes on cash.................     -               -
                                                        ----------     ---------

Net increase in cash and cash equivalents...............   930             713
Cash and cash equivalents at beginning of period........ 1,039             711
                                                        ----------     ---------
Cash and cash equivalents at end of period..............$1,969         $ 1,424
                                                        ==========     =========

Supplemental Disclosure of Non Cash Financing Activities

Pay off of short-term debt through
issuance of common stock.....                           $  750         $    -
                                                        ----------     ---------

Offering cost related to short-debt                     $   60         $    -
                                                        ----------     ---------

The accompanying notes form an integral part of these Condensed Consolidated
                              Financial Statements


                                   -6-
<PAGE>


                     Communication Intelligence Corporation
                                 And Subsidiary
         Notes to Unaudited Condensed Consolidated Financial Statements
                    (In thousands, except per share amounts)
                                    Form 10-Q


1.     Interim financial statements and basis of presentation

The financial  information  contained  herein should be read in conjunction with
the  Company's  consolidated  audited  financial  statements  and notes  thereto
included in its Annual Report on Form 10-K for the year ended December 31, 2003.

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
Communication  Intelligence  Corporation  and its  subsidiary  (the "Company" or
"CIC")  have  been  prepared  pursuant  to  the  rules  and  regulations  of the
Securities and Exchange Commission.  Accordingly, they do not include all of the
information and footnotes required by accounting  principles  generally accepted
in the United  States of America  ("GAAP") for complete  consolidated  financial
statements.  In the opinion of management,  the unaudited condensed consolidated
financial  statements  included in this quarterly report reflect all adjustments
(consisting only of normal recurring  adjustments)  which the Company  considers
necessary  for a  fair  presentation  of its  financial  position  at the  dates
presented and the Company's results of operations and cash flows for the periods
presented.  The Company's interim results are not necessarily  indicative of the
results to be expected for the entire year.

The  Company  develops  and markets  electronic  signature  software,  biometric
verification  software for  handwritten  signatures and  handwritten  data entry
software   solutions  aimed  at  emerging,   large  potential  markets  such  as
e-commerce, workflow automation, corporate security, smart handheld devices such
as handheld computers & smartphones and the Palm OS aftermarket.

The Company's core software technologies include electronic signature, biometric
signature   verification,   cryptography,   electronic   ink   recording   tools
(SignatureOneTM),  (InkTools(R)),  (Sign-it(R)),  (iSign(R))  and  (Sign-On(R)),
operating  systems  extensions that enable pen input (PenX(TM)) and multilingual
handwriting  recognition  systems  (Jot(R))  and the  Handwriter(R)  Recognition
System, referred to as HRS(TM).

Other consumer and original  equipment  manufacturer  ("OEM")  products  include
electronic notetaking  (QuickNotes(R) and InkSnap(R)) and predictive text input,
(WordComplete(R)).  CIC's  products  are  designed to increase  the ease of use,
functionality  and security of electronic  devices with a primary focus on smart
handheld devices such as handheld computers and smartphones.

The Company offers a wide range of multi-platform  software products that enable
or enhance pen-based  computing.  The Company's core technologies are classified
into two broad categories: "transaction and communication enabling technologies"
and "natural input technologies".

Transaction and communication enabling technologies have been fundamental to the
Company's  development  of  software  for  electronic  signatures,   handwritten
biometric  signature  verification,   data  security,   data  compression,   and
electronic  ink  capture.   These   technologies   are  designed  to  provide  a
cost-effective means for securing electronic transactions, providing network and
device access control,  and enabling  workflow  automation of traditional  paper
form  processing.  CIC believes  that these  technologies  offer more  efficient
methods for conducting  electronic  transactions while providing more functional
user authentication, heightened data security, and increased user productivity.

Natural input technologies are designed to allow users to interact with handheld
devices, including PDA's and smartphones, by using an electronic pen or "stylus"
as the primary  input device or in  conjunction  with a keyboard.  CIC's natural
input offerings include multilingual  handwriting recognition systems,  software
keyboards, and predictive text entry technologies.

Going Concern

The accompanying  condensed consolidated financial statements have been prepared
assuming  that the Company  will  continue as a going  concern.  The Company has
suffered  recurring losses from operations that raise a substantial  doubt about

                                      -7-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
         Notes to Unaudited Condensed Consolidated Financial Statements
                    (In thousands, except per share amounts)
                                    Form 10-Q

its ability to continue as a going  concern.  At June 30,  2004,  the  Company's
accumulated deficit was approximately  $81,675 and has a working capital deficit
of $1,536.  The Company filed a  registration  statement with the Securities and
Exchange  Commission that was declared effective February 2003,  pursuant to the
equity line of credit agreement with Cornell Capital  Partners,  LP ("Cornell").
However,  there can be no assurance that the Company will have adequate  capital
resources to fund planned  operations or that additional funds will be available
to the  Company  when  needed  under  the  equity  line of credit  agreement  or
otherwise,  or if available,  will be available on favorable terms or in amounts
required by the  Company.  If the Company is unable to obtain  adequate  capital
resources  to fund  operations,  it may be  required  to  delay,  scale  back or
eliminate  some or all of its  operations,  which  may have a  material  adverse
effect on the Company's  business,  results of operations and ability to operate
as a going concern. The accompanying condensed consolidated financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

2.     Cash and cash equivalents

          The Company  considers  all highly  liquid  investments  with original
          maturities of up to 90 days to be cash equivalents.

       Cash and cash equivalents consist of the following:

                                            June 30,              December 31,
                                              2004                    2003
                                    --------------------- -- -------------------

        Cash in bank                  $        148             $        110
        Money market                         1,821                      929
                                    ---------------------    -------------------
                                      $      1,969             $      1,039
                                    =====================    ===================

3.   Inventories

     Inventories  are  stated  at the  lower  of  cost  or  market,  cost  being
     determined  using  the  first-in,   first-out  (FIFO)  method.  Inventories
     consisted  primarily of finished  goods and are fully  reserved at June 30,
     2004.

4.   Short-term debt - other

     On April 20,  2004,  the  Company's  90% owned Joint  Venture  borrowed the
     aggregate  equivalent  of $37,  denominated  in  Chinese  currency,  from a
     Chinese bank.  The unsecured  loan bears  interest at 5.0% per annum and is
     due April 20,  2005.  The  borrowing  did not require the Joint  Venture to
     deposit a compensating balance. The note can be repaid at any time with out
     penalty.

     On December  19,  2003,  the Company  borrowed  $750 from  Cornell  Capital
     Partners,  LP.  The  proceeds  of the loan  were used for  working  capital
     purposes.  The loan was  secured by 4,621  shares of the  Company's  common
     stock  held in escrow.  The  promissory  note was due and  payable in seven
     installments,  commencing January 19, 2004 and ending on March 1, 2004, and
     could have been paid in cash or shares of the Company's  common stock.  The
     Company  had the  option  to  delay  the  commencement  of the  installment
     payments  for an  unlimited  number of 30 day  periods  upon  payment of an
     amount equal to 2% of the principal  amount owed on or before the beginning
     of the current option period.  Any delay in the commencement  date resulted
     in an equal delay in the due date of the note.

     The  Company  exercised  its  option  to  delay  the  commencement  of  the
     installment payments by paying the 2% fee discussed above, which was $38 in
     the aggregate for the six months ended June 30, 2004.  The Company chose to
     delay  commencement  of the  installment  payments  in  anticipation  of an
     increase in the price of the  Company's  stock based upon a  projection  of
     profitable  first  quarter  results.  Under the equity line of credit,  the
     higher the market value of the  Company's  stock the fewer number of shares
     are required to repay amounts  drawn on the line. As of June 30, 2004,  the

                                      -8-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
         Notes to Unaudited Condensed Consolidated Financial Statements
                    (In thousands, except per share amounts)
                                    Form 10-Q

     Company  has repaid  $750,000  of the loan  through  the  issuance of 1,133
     shares of common  stock and,  due to the delay in  commencement  of the due
     date, it had issued  approximately 21 fewer shares than it would have if it
     had not exercised  its option to defer the due date.  The company wrote off
     approximately $60 in unamortized  deferred  financing costs associated with
     the $750 loan against equity.

5.   Short-term debt - Related Party Transactions

     On June 19, 2001,  the Company  consummated a three-year  $3,000  financing
     (the "Loan") with a charitable  remainder  annuity  trust of which a former
     director  and  officer  of the  Company  is a trustee  (the  "Trust").  The
     proceeds  of the  Loan  were  used  to  refinance  $1,500  of  indebtedness
     outstanding  to the  Trust  pursuant  to a loan  made by the  Trust  to the
     Company in October 1999 and for working capital  purposes.  The Company has
     received a sixty day extension to pay the $3,000 Loan to the Trust that was
     due June 18,  2004.  In exchange for this sixty day  extension  the Company
     paid the Trust thirty days worth of interest ($15) calculated  according to
     the terms of the note. All other provisions of the Loan remain unchanged.

     The Loan  bears  interest  at the rate of 2% over the prime  rate  publicly
     announced by Citibank N.A. from time to time,  which was 6.00% per annum at
     June 30, 2004, and, due to the extension  granted,  is due August 18, 2004.
     The Loan may be  pre-paid  by the  Company  in whole or in part at any time
     without  penalty,  subject  to  the  right  of the  Trust  to  convert  the
     outstanding principal amount of the Loan into shares of common stock of the
     Company at a  conversion  price of $2.00 per share,  subject to  adjustment
     upon the occurrence of certain  events.  If, prior to maturity of the Loan,
     the Company consummates one or more financings  providing $5,000 or more in
     gross  proceeds,  the Company is  required to apply 50% of the  proceeds in
     excess of $5,000 to the then outstanding  principal amount of the Loan. The
     Loan is secured by a first priority security interest in and lien on all of
     the Company's assets as now owned or hereafter acquired by the Company.

     In the event the Company  exceeds  $5,000 in financing from its equity line
     of credit with Cornell Capital, LP, 50% of the proceeds in excess of $5,000
     would be required  to be used to reduce the amount of the loan.  As of June
     30, 2004, the Company has borrowed $2,750 under the equity line of credit.

     In connection with the Loan, the Company entered into a registration rights
     agreement with the Trust which obligates the Company to file a registration
     statement with the Securities and Exchange  Commission covering the sale of
     the shares of the Company's  common stock  issuable upon  conversion of the
     Loan if it receives a demand by the holder of the Loan to do so, and to use
     its reasonable best efforts to cause such registration  statement to become
     effective. As of June 30, 2004, no demand had been made upon the Company to
     file this registration statement.

     Interest paid during the three and six months ended June 30, 2004 was $100,
     and $184,  respectively,  and for the three and six  months  ended June 30,
     2003, $48 and $98,  respectively.  Interest  payments for the three and six
     months  ended  June 30,  2004  include  $84 paid to the Trust  representing
     interest  accrued at March 31, 2004 and interest  accrued  through June 18,
     2004 of $69, plus the $15 loan extension fee.

                                      -9-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
         Notes to Unaudited Condensed Consolidated Financial Statements
                    (In thousands, except per share amounts)
                                    Form 10-Q

6.   Net income (loss) per share

     The Company  calculates net income (loss) per share under the provisions of
     Statement of Financial  Accounting  Standards No. 128, "Earnings Per Share"
     ("SFAS  128").  SFAS 128 requires the  disclosure  of both basic net income
     (loss) per share,  which is based on the weighted  average number of shares
     outstanding,  and diluted  income  (loss) per share,  which is based on the
     weighted   average   number  of  shares  and  dilutive   potential   shares
     outstanding.  For the three  month  periods  ended June 30,  2004 and 2003,
     6,183  and  5,675,  respectively,  of shares of  common  stock  subject  to
     outstanding options were excluded from the calculation of dilutive earnings
     per share as the effect of these options is not dilutive.

     For the six month periods ended June 30, 2004 and 2003, the computation for
     basic and diluted weighted average shares outstanding is as follows:

                                            Six Months Ended
                                June 30, 2004              June 30, 2003
                        ------------------------------ -------------------------
                                   Weighted                 Weighted
                                   Average                   Average
                           Net      Shares   Per-Share  Net   Shares   Per-Share
                         Income  Outstanding  Amount   Loss Outstanding  Amount
   Basic income (loss)
    per share:Income
    available to        $  489     100,439   $  0.01  $(1,000) 94,726   $ (0.01)
    stockholders
   Effect of dilutive
    securitiesStock          -         403         -        -       -         -
    options             -------   ---------  -------- -------- -------  --------

   Diluted income
   (loss)               $  489     100,842   $  0.01  $(1,000) 94,726   $ (0.01)
                        =======   =========  ======== ======== =======  ========

     For the six  months  ended  June 30,  2004,  5,392  shares of common  stock
     subject to  outstanding  options,  , were excluded from the  calculation of
     dilutive  earnings per share because the exercise price of such options was
     greater than the average  market price of the Company's  common stock.  For
     the six months ended June 30, 2003,  stock  options of 5,675 were  excluded
     from the  calculation of diluted  earnings per share as the effect of these
     options is not dilutive.


7.   Common Stock Options

     The Company has adopted  Statement of Financial  Accounting  Standards  No.
     123,  "Accounting for Stock-Based  Compensation" ("SFAS 123") as amended by
     Financial  Accounting  Standards  Board  Statement No. 148. The Company has
     elected to continue to use the  intrinsic  value based method of Accounting
     Principles  Board Opinion No. 25, as allowed under SFAS 123, to account for
     its  employee  stock-based  compensation  plans.  No stock  based  employee
     compensation  expense  is  reflected  in  the  consolidated   statement  of
     operations as all options granted had an exercise price equal to the market
     value of the  Company's  common  stock on the date of  grant.  The  Company
     complies with the disclosure provisions of SFAS 123.

                                      -10-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
         Notes to Unaudited Condensed Consolidated Financial Statements
                    (In thousands, except per share amounts)
                                    Form 10-Q

7.   Common Stock Options (continued)

     Had compensation  cost for the Company's option plans been determined based
     on the fair value of the  options at the date of grant,  as  prescribed  by
     SFAS 123, the Company's net income (loss) available to common  stockholders
     and basic and diluted net income (loss) per share available to stockholders
     would have been as follows:

                                                          Six Months Ended
                                                   -----------------------------
                                                      June 30,        June 30,
                                                        2004           2003
                                                   -----------------------------

      Net income (loss) available to
        stockholders:
        As reported..............................  $      489     $  (1,000)

                                                   ------------   ------------
       Add: Stock-based employee compensation
        expense included in reported results of
        operations, net of related tax effect....           -             -

       Deduct: Total stock based employee
         compensation expense determined under
         fair value based method, net of tax......       (111)         (190)
                                                   ------------   -------------
               Pro forma.......................... $      378     $  (1,190)
                                                   ============   =============

        Basic and diluted net income (loss) per
          share available to stockholders:
          As reported............................. $     0.01     $   (0.01)
                                                   ============   =============

          Pro forma............................... $     0.01     $   (0.01)
                                                   ============   =============

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes  option pricing model with the following weighted average
     assumptions used for grants during the applicable periods:
       o    risk-free interest rate of 2.37% and 2.11% for 2004 and 2003;
       o    an  expected  life of 6.6  years  for  2004,  6.4 years for 2003;
            respectively;
       o    expected volatility of 100% for all periods; and
       o    dividend yield of 0% for all periods.

     The Company expects to make additional option grants.  The Company believes
     the above pro forma  disclosures may not be representative of the pro forma
     effects on reported  results of operations to be expected in future periods
     due to changes in  interest  rates,  expected  lives of current  and future
     option  grants and changes in the  volatility of the price of the Company's
     common stock in the market.

8.     Comprehensive income (loss)

       Total comprehensive income (loss) was as follows:

                                          ------------------   -----------------
                                          Three Months Ended   Six Months Ended
                                               June 30,            June 30,

                                            -------- -------   -------  --------
                                              2004    2003      2004       2003
                                            -------- -------   -------  --------

        Net income (loss)                   $ (678)  $ ( 690)  $   489  $(1,000)
        Other comprehensive income:
        Cumulative translation adjustment        2         2         3        4
                                            -------- --------  -------  --------

        Total comprehensive income (loss)   $ (676)  $  (688)  $   492  $  (996)
                                            ======== ========  =======  ========

                                      -11-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
         Notes to Unaudited Condensed Consolidated Financial Statements
                    (In thousands, except per share amounts)
                                    Form 10-Q

9.   Segment Information

     The Company identifies reportable segments by classifying revenues into two
     categories:  handwriting  recognition and system  integration.  Handwriting
     recognition   software  is  an  aggregate  of  three  revenue   categories;
     online/retail, enterprise and original equipment manufacturers ("OEM"). All
     handwriting  recognition  software is developed  around the Company's  core
     technology.  System  integration  represents the sale and  installation  of
     third party  computer  equipment  and systems  that  utilize the  Company's
     products. All sales represent sales to external customers.

     The  accounting  policies  followed by the  segments  are the same as those
     described in the  "Critical  Accounting  Policies."  Segment data  includes
     revenues and allocated costs charged to each of the operating segments.

     The table below  presents  information  about  reporting  segments  for the
     periods indicated:

                                 Six Months Ended June 30,
                            2004                          2003
             -------------------------------------------------------------------
             Handwriting   Systems           Handwriting    Systems
             Recognition Integration   Total Recognition   Integration    Total
             ----------- ----------- ------- ------------ ------------- --------

Revenues         $ 3,022    $  37  $  3,059   $  1,284     $    396    $  1,680

Income (loss)
from Operations  $   620    $   8  $    628   $   (888)    $    (24) $     (912)

Significant
change in total
long lived assets
from year end    $     -    $   -  $      -   $    (36)    $      -    $    (36)

     For the three months ended June 30, 2004, one customer accounted for 29% of
     total handwriting  recognition segment revenue.  For the three months ended
     June  30,  2003,  no one  customer  accounted  for  more  than 10% of total
     handwriting  recognition segment revenue. For the six months ended June 30,
     2004 and 2003, one customer  accounted for 66% and 36% of total handwriting
     recognition segment revenue, respectively.

     For the three months ended June 30, 2004 and 2003,  one customer  accounted
     for 70% and 55% of system integration revenues,  respectively.  For the six
     months ended June 30, 2004 and 2003, one customer accounted for 40% and 27%
     of system integration revenues, respectively.


10.  Commitments and contingencies

     On June 7, 2004, (amended July 7, 2004) Topaz Systems, Inc. ("Topaz") filed
     a complaint,  against the Company,  with the United States  District  Court
     Northern  District of California San Francisco  Division alleging breach of
     contract,  breach of covenant of good faith and fair dealing and asking for
     a  declaratory  judgment  that it had not breached the  September  29, 2000
     License  agreement  between it and the Company (the "License"),  that Topaz
     had not infringed  certain of the  Company's  patents and that such patents
     were invalid and/or unenforceable.  No monetary damages were specified. The
     Company  believes  that the  complaint  is  without  merit and  intends  to
     vigorously  defend  against  the  claims.  On July 26,  2004,  the  Company
     responded to the complaint and filed  counterclaims  against Topaz alleging
     that Topaz had breached the License, had infringed certain of the Company's
     patents and was engaging in unfair  competition.  On July, 22, 2004,  Topaz
     filed a complaint against the Company with the United States District Court

                                      -12-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
         Notes to Unaudited Condensed Consolidated Financial Statements
                    (In thousands, except per share amounts)
                                    Form 10-Q

     Central  District of California  Western  Division  requesting  declaratory
     judgment that it did not infringe certain of CIC's patents (not included in
     the  other   complaint)   and  that  such  patents   were  invalid   and/or
     unenforceable. The Company believes that the complaint is without merit and
     intends to vigorously  defend against the claims.  The ultimate  outcome of
     this litigation  cannot presently be determined.  However,  in management's
     opinion,  the  likelihood of a material  adverse  outcome is remote and any
     liability that might be incurred  would not have a material  adverse effect
     on  the  Company's   financial  position  or  its  results  of  operations.
     Accordingly,  adjustments, if any, that might result from the resolution of
     this matter have not been reflected in the financial statements.

11.  Subsequent event: Retirement of $3 Million Debt

     On August 5, 2004,  CIC paid a $3 million  note due August 18,  2004,  to a
     charitable  remainder  annuity  trust ("the Trust") the trustee of which is
     Mr. Philip Sassower, a former officer and director of the Company (See Note
     5).  The  funds to retire  the debt  were  obtained  from  Cornell  Capital
     Partners LP ("Cornell")  pursuant to an unsecured  $3.5 million  promissory
     note dated August 4, 2004 (the  "Note").  The Note provides for a per annum
     interest rate of 5% and is scheduled to be paid, in ten equal  installments
     with the first  installment  due November 29, 2004 and the last on February
     7, 2005.  The  Company  intends to pay the  amounts due under the Note with
     funds  generated  from  operations,  alternative  financings  or  through a
     combination of those  sources.  Payment of the $3 million debt released the
     lien on the Company's intellectual property that has caused concern, and in
     fact  inhibited,  certain  licensing  negotiations.  The new debt  does not
     require such a lien.

                                      -13-
<PAGE>

                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q


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

     The following  discussion and analysis  should be read in conjunction  with
the Company's unaudited condensed  consolidated  financial  statements and notes
thereto  included  in Part 1, Item 1 of this  quarterly  report on Form 10-Q and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  set  fourth  in the  Company's  Annual  report on Form 10-K for the
fiscal year ended December 31, 2003.

Overview

     The Company was initially incorporated in Delaware in October 1986. In each
year since its  inception,  the Company has incurred  losses.  For the five-year
period ended  December  31,  2003,  operating  losses  aggregated  approximately
$13,000  and at  December  31,  2003,  the  Company's  accumulated  deficit  was
approximately  $82,000. At June 30, 2004, the Company's accumulative deficit was
approximately $82,000.

     Total  revenue of $630 for the quarter  ended June 30, 2004  increased  10%
compared to revenues of $572 in the corresponding quarter of the prior year. The
first six months of 2004 was the most  profitable in the history of the Company.
Total  revenues of $3,059 for the six months ended June 30, 2004,  increased 82%
compared  to  revenues  of $1,680 in the  corresponding  six months of the prior
year. Total revenue for eSignature  solutions of $2,493 for the six months ended
June 30, 2004,  more than doubled  compared to eSignature  revenue of $ 1,059 in
the  corresponding  six months of the prior year,  increasing 135%. This revenue
growth  reflects  increasing  adoption  of our  eSignature  solutions  in target
markets and is primarily attributable to Wells Fargo, which chose CIC eSignature
technology for use in all of its full-service bank locations,  and also revenues
from  Charles  Schwab,   Duncan  Management,   IA  Systems,   Misys  Healthcare,
PalmSource,  Prudential,  Saytek  and TVA.  The  increasing  focus on  corporate
accountability,  including  a growing  demand for  auditable  business  approval
processes,  is driving many  enterprises to add  eTransactions to their priority
deployments in 2004.

     The net loss for the  quarter  ended June 30,  2004 was $678,  on  slightly
higher sales,  compared with a net loss of $690 in the corresponding  prior year
period.  Operating  expenses  increased  approximately 12% ($130) from $1,102 to
$1,232 for the three  months  ended June 30,  2004,  compared  to the prior year
period.  The increase  primarily  reflects the  required  investment  in selling
expenses to insure  future  revenue  growth.  The net income of $489 for the six
months ended June 30, 2004, represents an increase of $1,489 compared to the net
loss of $1,000 incurred in the corresponding six months of the prior year.

     Key growth  drivers have merged to accelerate  the deployment of electronic
transactions  worldwide,  including both the increasing awareness and reality of
the significant benefits of the paperless  environment,  increasing  competitive
and cost pressures on companies and government agencies,  and most recently, the
emerging economic recovery increasing pent-up IT expenditures.   The intuitively
obvious,  non-intrusive  nature of handwritten  eSignatures has emerged as a key
factor in achieving  the  significant  benefits that can be derived from secure,
signature  dependent,  legally binding  eTransactions  in the financial  service
industry  and is beginning to  penetrate  Healthcare,  ePrescriptions  and other
industry  segments.   The  introduction  of  SignatureOne  and  updated  Sign-it
products,  in the first  quarter of 2004,  significantly  expands  CIC's market
coverage providing unique and patented  technology that supports a wide range of
electronic signing methods including other biometric verification  alternatives.
Deploying  and  maintaining  the worldwide  market  presence and sales coverage
necessary  to  achieve  sustained  sales and  earnings  growth is the  company's
primary challenge.

Critical Accounting Policies

     The  preparation  of  financial   statements  and  related  disclosures  in
conformity with accounting principles generally accepted in the United States of
America  requires  management to make judgments,  assumptions and estimates that
affect the amounts  reported in our  consolidated  financial  statements and the
accompanying  notes.  The  amounts of assets  and  liabilities  reported  in our
balance sheets and the amounts of revenues and expenses reported for each period
presented are affected by these  estimates and  assumptions  which are used for,
but not limited to,  accounting  for product  returns,  allowance  for  doubtful

                                      -14-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q

accounts, intangible asset impairments, and inventory. Actual results may differ
from  these  estimates.   The  following   critical   accounting   policies  are
significantly  affected by  judgments,  assumptions  and  estimates  used by our
management in the preparation of the consolidated financial statements.

     Revenue is recognized when earned in accordance with applicable  accounting
standards,  including  AICPA  Statement of Position  ("SOP") No. 97-2,  Software
Revenue Recognition,  as amended, Staff Accounting Bulletins 104 ("SAB 104") and
the interpretive  guidance issued by the Securities and Exchange  Commission and
EITF issue 00-21 of the FASB Emerging Issues Task Force.  We recognize  revenues
from sales of software products upon shipment, provided that persuasive evidence
of an  arrangement  exists,  collection  is  determined  to be  probable  and no
significant obligations remain. Revenue from service subscriptions is recognized
as costs are incurred or over the service period, which ever is longer.

     In December 2003, the  Securities  and Exchange  Commission  ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 104,  "Revenue  Recognition." The adoption
of SAB 104 did not impact the consolidated financial statements.

     Revenue from software license agreements is recognized upon delivery of the
software provided that persuasive evidence of an arrangement exists,  collection
is determined to be probable and no  significant  obligations  remain.  Deferred
revenue is recorded for  post-contract  support and is  recognized  as costs are
incurred  or over the  support  period  which  ever is longer.  Vendor  specific
objective evidence of the fair value of the elements contained in these software
license  agreements is based on the price  determined  by management  having the
relevant authority when the element is not yet sold separately.

     Revenue from system integration  activities is recognized upon installation
provided that  persuasive  evidence of an  arrangement  exists,  no  significant
obligations remain and the collection of the resulting receivable is probable.

     The  allowance  for  doubtful  accounts is based on our  assessment  of the
collectibility of specific customer accounts and an assessment of international,
political and economic risk as well as the aging of the accounts receivable.  If
there  is a change  in  actual  defaults  from our  historical  experience,  our
estimates of recoverability of amounts due us could be affected and we will
adjust the allowance accordingly.

     We perform  intangible  asset  impairment  analysis on a quarterly basis in
accordance with the guidance in Statement of Financial  Accounting  Standard No.
142,  Goodwill  and Other  Intangible  Assets  ("SFAS  No.  142") and  Financial
Accounting  Standard No. 144,  Accounting for the Impairment or Disposal of Long
Lived  Assets  ("SFAS  No.  144").  We use SFAS 144 in  response  to  changes in
industry and market conditions that affect our patents,  we then determine if an
impairment of our assets has occurred.  Based on the impairment  analysis of the
intangible assets, no impairment existed as of June 30, 2004.

     Sources of Revenues.  To date,  the  Company's  revenues  have been derived
principally  from  end-users,  manufacturers,   retailers  and  distributors  of
computer  products in North  America,  Europe and the Pacific  Rim.  The Company
performs  periodic  credit  evaluations  of its  customers  and does not require
collateral.   The  Company  maintains  reserves  for  potential  credit  losses.
Historically,  such  losses  have been  insignificant  and  within  management's
expectations.

     Software Development Costs. Software development costs are accounted for in
accordance with Statement of Financial  Accounting Standards No. 86, "Accounting
for the Costs of Computer  Software to be Sold,  Leased or  Otherwise  Marketed"
("SFAS 86"). Under SFAS 86,  capitalization of software development costs begins
upon the establishment of technological  feasibility,  subject to net realizable
value considerations.  In the Company's case,  capitalization commences upon the
completion  of a  working  model and  generally  ends  upon the  release  of the
product. The capitalized costs are amortized to cost of sales on a straight line
basis over the estimated life of the product,  generally three years. As of June
30, 2004 and 2003, such costs were insignificant.

     Research and  Development.  Research and  development  costs are charged to
expense as incurred.

                                      -15-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q

     Foreign Currency  Translation.  We consider the functional  currency of the
Joint Venture to be the respective  local currency and,  accordingly,  gains and
losses from the translation of the local foreign currency  financial  statements
are included as a component of  "accumulated  other  comprehensive  loss" in our
consolidated  balance  sheets.  Foreign  currency  assets  and  liabilities  are
translated  into U.S.  dollars at exchange  rates  prevailing  at the end of the
period,  except for  non-monetary  assets and liabilities that are translated at
historical  exchange rates.  Revenues and expenses are translated at the average
exchange rates in effect during each period,  except for those expenses included
in balance sheet accounts, which are translated at historical exchange rates.

     Net  foreign  currency   transaction  gains  and  losses  are  included  as
components of "interest income and other income (expense), net" in the Company's
consolidated  statements of operations.  Due to the stability of the currency in
China, net foreign currency  transaction  gains and losses were not material for
the three and six months ended June 30, 2004 and 2003, respectively.

     Net  Operating  Loss  Carryforwards.   Utilization  of  the  Company's  net
operating  losses may be subject to an annual  limitation  due to the  ownership
change  limitations  provided by the  Internal  Revenue Code of 1986 and similar
state  provisions.  As a result,  a portion of the Company's net operating  loss
carryforwards may not be available to offset future taxable income.  The Company
has provided a full valuation allowance for deferred tax assets at June 30, 2004
based upon the Company's history of losses.

Segments

     We report in two segments: handwriting recognition and systems integration.
Handwriting  recognition  includes  online/retail  revenues and corporate sales,
including  enterprise and original  equipment  manufacturers  ("OEM")  revenues.
Handwriting   recognition   represents  the  sale  of  software  for  electronic
signatures,  handwritten biometric signature  verification,  data security, data
compression,  and electronic  ink capture.  It also includes the sale of natural
input  technologies  that are designed to allow users to interact  with handheld
devices.  All  handwriting  recognition  software is  developed  around our core
technology.  Handwriting  recognition product revenues are generated through our
web site and a direct sales force to individual or enterprise end users. We also
license  a  version  of our  handwriting  recognition  software  to  OEM's.  The
handwriting  recognition  software  is  included  as part of the  OEM's  product
offering.  From time to time, we are required to develop an interface (port) for
our  software  to  run on a new  customer's  hardware  platform  or  within  the
customer's  software  operating  system.  The development  contract revenues are
included in the handwriting recognition segment.

     System  integration  represents  the sale and  installation  of third party
computer  equipment  and systems that utilize our products.  System  integration
sales are derived  through a direct sales force which then  develops a system to
utilize our software based on the customers  requirements.  Systems  integration
sales are accomplished solely through our Joint Venture.

                                      -16-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q

Results of Operations

The following table provides unaudited financial information for each of our two
segments.


                                  Three Months Ended       Six Months Ended
                                        June 30,                 June 30,
                                   2004         2003         2004        2003
                                ---------    ---------   ----------   ----------

Segment revenues:
  Handwriting recognition
    Online/retail              $     47      $    92     $      88    $    206
    Corporate                       468          288         2,820         955
    China                           109           75           114         123
                               ----------    ---------   ----------   ----------
Total handwriting recognition  $    624      $   455     $   3,022    $  1,284

Systems integration                   6          117            37         396
                               ----------    ---------   ----------   ----------

Total revenues                 $    630      $   572     $   3,059    $  1,680
                               ----------    ---------   ----------   ----------
Cost of Sales
    Handwriting recognition    $      8      $    23     $      15    $     37
    Systems integration               3           99            29         318
                               ----------    ---------   ----------   ----------
Total cost of sales            $     11      $   122     $      44    $    355
                                ---------    ---------   ----------   ----------

Operating cost and expenses
   Research and development    $    273      $   303     $     592    $    643
   Sales and Marketing              305          180           637         463
   General and administrative       654          619         1,158       1,131
                               ----------    ---------   ----------   ----------
Total operating costs and
 expenses                      $  1,232      $ 1,102     $   2,387    $  2,237
                               ----------    ---------   ----------   ----------

Interest and other income
 (expense), net                $     (3)     $    10     $       6    $      9
Interest expense                    (62)         (48)         (145)        (97)
                               ----------    ---------   ----------   ----------

Net income (loss)              $   (678)     $  (690)    $     489    $ (1,000)
                               ==========    =========   ==========   =========

Amortization of intangible assets
   Cost of sales               $      -      $     4     $       -    $      7
   General and administrative        94           94           189         189
                               ----------    ---------   ----------   ----------

Total amortization of
 intangible assets             $     94      $    98     $     189    $    196
                               ==========    ==========  ==========   ==========


Revenues

Handwriting recognition.

     Handwriting  recognition segment revenues include online/retail,  corporate
and China software sales. Handwriting recognition segment revenues increased 37%
($169) and 135% ($1,738), from $455 and $1,284 to $624 and $3,022, respectively,
for the three and six months ended June 30, 2004,  as compared to the same prior
year periods.

     Online/retail  revenues  decreased  49% ($45) and 57% ($118),  from $92 and
$206 to $47 and $88,  for the three  and six  months  ended  June 30,  2004,  as
compared to the same prior year periods.  The Company expects that online/retail
sales  from the  internet  will  continue  to decline  as the  shipments  of the
PalmSource  operating system embedded with the Company's Jot software  increase.
The Company  believes the increases in PalmSource OS shipments and the resulting
increased  royalties,  included in Corporate revenues,  will offset the declines
experienced in online/retail internet sales.

                                      -17-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q

     Corporate  revenues  increased 63% ($180) and 195% ($1,865),  from $288 and
$955 to $468 and  $2,820 for the three and six months  ended June 30,  2004,  as
compared to the same prior year periods.

     OEM and channel partner sales included in corporate revenues, increased 88%
($120) and 196% ($354),  from $137 and $181 to $257 and $535,  for the three and
six months ended June 30, 2004, as compared to the same prior year periods.  The
increase in OEM and  channel  partner  sales for the three and six months  ended
June 30, 2004,  is due  primarily to  increased  royalties  from the shipment by
PalmSource of its operating  system  containing  the Company' Jot software.  The
Company  expects  channel partner and OEM sales to increase in the future as new
channel partners and OEM customers are identified and new agreements are signed.
eSignature  included in corporate  sales  increased 42% ($62) and 196% ($1,511),
from $149 and $774 to $211 and $2,285,  for the three and six months  ended June
30, 2004, as compared to the same prior year periods.  The increase in sales for
the three  months  ended June 30, 2004 was due  primarily  to an increase in the
number of sales to  individual  customers  and not dependent on any one customer
sale.  The  increase  in sales for the six months  ended  June 30,  2004 was due
primarily to the sale of the Company's  eSignature  products to Wells Fargo Bank
in the first quarter ended March 31, 2004.  The Company  believes that the sales
of smaller pilot deployments to customers, of its products, will lead to greater
sales in future periods as the customers roll out their  applications on a wider
scale. The Company believes that corporate  eSignature revenues will increase in
the near term as the  customers  begin their roll out and  corporate IT spending
increases  as the economy  strengthens.  However the timing of customer  product
roll out is  difficult  to project  due to many  factors  beyond  the  Company's
control.  The Company views  eSignature as a high  potential  revenue market and
intends to continue to place increasing focus on this market.

     Software  sales in China  increased  45% ($34),  from $75 to $109,  for the
three  months  ended June 30,  2004,  as compared to the same prior year period.
This increase  reflects the increases revenue  generation  through the Company's
channel strategy,  which began in May of 2003. The Company's channel strategy is
aimed at achieving  accelerated and sustained sales growth by leveraging channel
partners to gain  China-wide  market  coverage.  The channel  strategy  involves
training the partners' sales forces and CIC China's engineering efforts to embed
CIC eSignature software into the partners' total application solutions.  For the
six  months  ended  June 30,  2004,  software  sales in China  declined  7% ($9)
compared to the same prior year period.  The Company  believes  that the channel
partner strategy will deliver  increasing and sustained sales growth through the
third quarter of 2004 and beyond.  As of June, 2004, CIC China has approximately
$104 of channel  partner related backlog which is forecasted to be recognized in
the third quarter of 2004.

Systems Integration.

     System integration segment revenue declined 95% ($111) and 91% ($359), from
$117 and $396 to $6 and $37,  for the three and six months  ended June 30, 2004,
as compared to the same prior year periods.  Over the prior two years, CIC China
has emerged as the leading supplier in Jiangsu Province to a fast-growing mobile
industry  application for regulated  goods,  with an estimated 70% market share.
However the decision not to expand this business to other provinces, which would
require  significant  increases in base costs to provide turn-key  capabilities,
but rather to focus on the emerging high potential eSignature/office  automation
market  in China,  leveraging  channel  partners  capabilities  resulted  in the
decline in system integration revenue.  System integration revenues are expected
to continue to be below the prior year amounts in future quarters.

Cost of Sales

Handwriting recognition.

     Handwriting  recognition  segment  cost of  sales  includes  online/retail,
corporate and China  software  sales costs.  Such costs are comprised of royalty
and  import tax  payments,  third  party  hardware  costs,  direct  mail  costs,
engineering  direct  costs  and  amortization  of  intangible  assets  excluding
patents.  Cost of sales for the handwriting  recognition  segment  decreased 65%

                                      -18-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q

($15)  and 59%  ($22),  from $23 and $37 to $8 and $15,  for the  three  and six
months  ended June 30,  2004,  as compared to the same prior year  periods.  The
decline is primarily due to the sale of less third party hardware along with the
Company's software products.  Cost of sales may increase in the future depending
on the customers decision to purchase from the Company its software solution and
third  party  hardware  as a complete  package  rather  than  buying  individual
components from separate vendors.

     Online/retail  cost of sales  remained  flat during the three and six month
periods ended June 30, 2004 compared to the prior year period.  The Company does
not anticipate a material  increase is costs  associated with the  online/retail
sales.

     Enterprise and OEM cost of sales decreased 64% ($7) and 52% ($12), from $11
and $23, to $4 and $11,  for the three and six months  ended June 30,  2004,  as
compared  to the same  prior year  periods.  The  decrease  was due to the lower
volume of third party hardware sales and engineering  development costs over the
comparable three month period of the prior year. Any increases in corporate cost
of sales in the future will be driven by the amount of third party hardware that
is sold with the Company's software solutions.

     China handwriting  recognition segment cost decreased 67% ($8) and 69% ($9)
during the three and six month periods ended June 30, 2004 compared to the prior
year  period.  The  decrease is due to less third party  hardware  sold with the
Company's  software  products  during the quarter and six months  ended June 30,
2004.  It is  expected  that cost of sales will  remain low for the  foreseeable
future as the current trend has been in the sale of software  solutions  through
channel partners with little third party hardware costs.

Systems Integration.

     China Systems integration segment cost of sales decreased 97% ($96) and 91%
($289),  from $99 and $318,  to $3 and $29 for the  three  and six month  period
ended June30,  2004, as compared to the same prior year periods. The decrease in
costs was due primarily to the reduction in sales during the three and six month
periods  ended June 30,  2004  compared to the prior year  periods.  The Company
expects that system  integration  cost of sales will  decrease  over time as the
Company  continues  to  increase  its  focus  on  the  emerging  high  potential
eSignature/office automation market in China.

Operating expenses

     Research  and  development  expenses.  Research  and  development  expenses
decreased 10% ($30) and 8% ($51),  from $303 and $643 to $273 and $592,  for the
three and six months  ended June 30,  2004,  as  compared to the same prior year
periods.  Engineering  expenses consist primarily of salaries and related costs,
outside engineering, maintenance items, and allocated facilities expenses. These
expenses  are offset by the  capitalization  of software  development  costs and
direct costs associated with nonrecurring  engineering contracts charged to cost
of sales. Salaries and related expenses increased 8% ($16) and 3% ($11), for the
three and six months  ended June 30,  2004,  as  compared to the same prior year
periods.  The  increase  is  due  primarily  to the  salary  increases  for  the
engineering staff on US side. Other engineering  administrative  costs including
allocated facilities expenses declined 87% ($46) and 58% ($62), during the three
months and six months  ended June 30,  2004,  as compared to the same prior year
period.  The reduction in other cost occurred  primarily in the Joint venture in
China due to the  curtailment of the SI segment.  Currently the Company does not
anticipate  reductions  in  personnel  nor does it  anticipate  an  increase  in
personnel as the Company maintains its relationship with an outside  engineering
group  familiar  with its products  and, if  required,  can engage them on an as
needed basis to fill future  engineering  requirements.  In addition the Company
draws on the  engineering  capabilities  of the Joint Venture as required.  This
reliance on the Joint Venture and outside parties allows the Company to maintain
lower  base  costs and to  increase  engineering  cost on a  temporary  basis in
response to specific revenue opportunities.

     Sales and marketing  expenses.  Sales and marketing  expenses increased 69%
($125) and 38%  ($174),  from $180 and $463 to $305 and $637,  for the three and
six months  ended June 30,  2004,  as compared  to the same prior year  periods.
Sales and  marketing  expenses  consist of  salaries,  commissions  and  related
expenses,  professional services,  advertising and promotion, general office and
allocated  facilities  expenses.  Salaries and related  expenses  increased 128%
($83) and 39% ($73),  for the three and six month  periods  ended June 30, 2004,
compared to the prior year periods. The increase is salaries and related expense
is primarily due to the increase in the headcount in the Sales  department after
the second  quarter of 2003.  Recruiting  expense  increased 100% ($14) and 100%
($34) in both the three and six months  ended June 30,  2004,  as compared to no

                                      -19-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q

recruiting  expense in the same prior year  periods.  The increase is due to the
hiring of one sales person of executive  level in the second  fiscal  quarter of
2004.  Commissions expense increased 8% ($1) and 198% ($85) in the three and six
months  ended June 30,  2004,  as compared to the same prior year  periods.  The
increase in commission  expense in comparable  periods is due to the increase in
revenues.  Other expenses including facilities and other office related expenses
increased  26% ($27) for the three months  ended June 30, 2004 and  decreased 8%
($18) in the six months ended June 30, 2004,  as compared to the same prior year
periods.  These  increases in other  expenses  were  realized in both the US and
China operations and were primarily related to travel expenses, depreciation and
allocated  facility costs.  The Company expects these costs may increase at such
time in the future as the sales  force is  expanded  to  respond  to  increasing
revenue opportunities.  The Company believes that the current cost structure can
support  significantly  higher  revenue  without  significant  increases in base
costs.

     General and Administrative  Expenses.  General and administrative  expenses
increased 6% ($35) and 2% (27), from $619 and $1,131 to $654 and $1,158, for the
three and six months  ended June 30,  2004,  as  compared to the same prior year
periods.  General and administrative expense consists of salaries,  professional
fees, investor relations expenses,  patent amortization and office and allocated
facilities  costs.  Salaries and wages  increased  4% ($7) and 1% ($5),  for the
three and six month periods ended June 30, 2004, compared to the same prior year
periods.  These  increases are due primarily to salary  increases.  Professional
service  expenses which include  consulting,  legal and outside  accounting fees
decreased 3% ($4) and 16% ($41) for the three and six months ended June 30, 2004
as compared to the same prior year  periods.  The decrease was  primarily due to
lower legal and accounting fees associated with the Company's 2003 annual report
during the three months and six months  ended June 30, 2004,  as compared to the
same prior year periods. The Company anticipates that legal fees may increase in
future quarters due to pending contract litigation.  Bad debt expenses increased
467%  ($28),  for the three and six  months  periods  ended  June 30,  2004,  as
compared to the same prior year  period.  The  increase in bad debt  expense was
primarily due to provisions  made to cover the aged  receivable of the CIC Joint
Venture  in  China.  The  Company  believes  that its  accounts  receivable  are
adequately  reserved at June 30, 2004 and does not anticipate further provisions
in the future. Other administrative expenses increased 1% ($4) and 7% ($35), for
the three and six months ended June 30, 2004, as compared to the same prior year
periods.  The increases are primarily due to an increase in shareholder  related
expenses  compared to the prior year  periods.  The Company  believes that these
increase,  recorded in the first  quarter,  will not  continue  into  subsequent
quarters.

Interest and other income (expense), net

     Interest and other income (expense), net decreased $13 and $3 for the three
and six months ended June 30, 2004,  compared to the same prior year period. The
decrease was due to the change in minority interest  resulting from an operating
profit by the Company's  Joint Venture  during the three months and an operating
loss for the six months ended June 30, 2004.

Interest expense

     Interest  expense  increased 29% ($14) and 49% ($48),  to $62 and $145 from
$48 to $97 for the three and six months ended June 30, 2004 compared to the same
prior year period.  The increase in interest  expense for the three months ended
June 30, 2004 is due to the fee paid to extend the $3,000 Loan until  August 18,
2004.  The increase in interest  expense over the six months ended June 30, 2004
was primarily due to interest paid to Cornell  Capital  Partners,  LC during the
first quarter ($38)  associated  with the $750 in short-term debt (See Note 4 of
the condensed consolidated financial statements).

Liquidity and Capital Resources

     At June 30, 2004, cash and cash equivalents totaled $1,969 compared to cash
and cash  equivalents  of $1,039 at December 31, 2003.  The increase in cash was
primarily  due to cash provided by operating  activities of $922,  offset by the

                                      -20-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q

acquisition  of property  and  equipment  amounting to $34, and payments of long
term debt,  $2, and capital lease  obligations  of $3. Total current assets were
$2,618 at June 30, 2004, compared to $2,005 at December 31, 2003. As of June 30,
2004,  the  Company's  principal  sources  of funds  included  its cash and cash
equivalents  aggregating  $1,969, its accounts receivable and the Equity Line of
Credit through Cornell Capital Partners LP.

     Accounts  receivable  decreased  $195, net of $48 provided for  potentially
uncollectable  accounts,  for the six months  ended June 30,  2004  compared  to
December  31, 2003,  due  primarily to the  collections  during the period.  The
Company  expects the  development of the  eSignature  market will result in more
consistent revenue on a quarter to quarter basis and therefore, less fluctuation
in accounts  receivable  from quarter to quarter.  For the six months ended June
30, 2004, one customer accounted for 31% of net accounts receivable.


     Prepaid  expenses  and other  current  assets  increased by $32 for the six
months ended June 30, 2004,  compared to December 31, 2003.  The increase is due
to the increase in prepaid D&O insurance premiums, to be charged to expense over
the subsequent twelve months,  offset by the non cash reduction of approximately
$60 in prepaid  financing costs  associated  with the $750 advanced  against the
equity line of credit. Prepaid expenses generally fluctuate due to the timing of
annual insurance  premiums and maintenance and support fees which are prepaid in
December and June of each year.

     During the three months ended June 30, 2004,  the Company  received a sixty
day  extension  to pay the  $3,000  note  that  was due June  18,  2004,  to the
charitable remainder annuity trust of which a former director and officer of the
Company is a trustee (the "Trust"). In exchange for this sixty day extension the
Company paid the Trust thirty days worth of interest ($15) calculated  according
to the terms of the note. All other  provisions of the note remained  unchanged.
On  August  5,  2004,  the  Company  paid all  amounts  due  under the Loan with
proceeded from a loan from Cornell Capital Partners LP. The Company is currently
investigating  and  considering  various  methods to pay off the Cornel  Capital
Partner's loan. Alternatives being considered include: paying the loan from cash
generated by operations,  refinancing the loan with a different lender either as
straight  debt or as  convertible  debt,  refinancing  the loan with a different
lender  with terms  that allow the  Company,  at its  option,  to repay the loan
through  issuance of stock or with available cash, and of course,  if necessary,
the Company's  existing Equity Line of Credit could be used to pay the loan. Any
of the preceding  alternatives  may be used  individually or in combination with
any other  stated  alternative.  The Company  continues to  investigate  various
methods of payment and other alternatives may become available which the Company
may determine are preferable to the above.

     On April 20, 2004, the Joint Venture  borrowed the aggregate  equivalent of
$37,  denominated in Chinese currency,  from a Chinese bank. The proceeds of the
loan are to be used  for  working  capital  purposes  until  the  channel  sales
strategy is fully  implemented  and sales  increase.  The loan bears interest at
5.0% per annum and is due April 20,  2005.  The  borrowing  did not  require the
Joint Venture to deposit a compensating  balance.  The note can be repaid at any
time with out penalty.

     During the three  months ended June 30,  2004,  the Company  repaid $750 to
Cornell Capital Partners,  LP through the issuance of approximately 1,133 shares
of its common stock.  The Company may use the Equity line of Credit with Cornell
Capital Partners, LP in the future, until February 12, 2005 when the Equity Line
of Credit expires on its own terms, for working capital or other purposes.

     Accounts  payable  decreased  $27 for the six months  ended June 30,  2004,
compared to December 31, 2003, due to fewer materials  purchased and used by the
Joint Venture in cost of sales.  Accounts payable balances typically increase in
the second and fourth  quarters when the insurance  and annual  maintenance  and
support fees are incurred.  Materials used in cost of sales may impact  accounts
payable  depending  on the amount of third  party  hardware  sold as part of the
software solution. Accrued compensation decreased $103 due to the payment in the
second quarter ended June 30, 2004 of  commissions  accrued in the first quarter
and the early funding of the Company's July 5, 2004 payroll  through its outside
service.

     Current  liabilities,  which include deferred revenue,  were $4,154 at June
30, 2004 compared to $4,900 at December 31, 2003. Deferred revenue,  was $342 at
June 30, 2004,  compared to $165 at December 31, 2003.  This increase  primarily
reflects  advance  payments for products and maintenance fees from the Company's

                                      -21-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q

licensees,  which are  generally  recognized  as revenue by the Company when all
obligations are met or over the term of the maintenance agreement.

     The Company has  suffered  recurring  losses from  operations  that raise a
substantial  doubt  about  its  ability  to  continue  as a going  concern.  The
Company's accumulated deficit remained at approximately $82,000 at June 30, 2004
compared  to  approximately  $82,000  at  December  31,  2003.  There  can be no
assurance  that the Company will continue to reduce the  accumulated  deficit or
have  adequate  capital  resources  to  fund  planned  operations  or  that  any
additional funds will be available to it when needed,  or if available,  will be
available  on  favorable  terms or in amounts  required by it. If the Company is
unable  to obtain  adequate  capital  resources  to fund  operations,  it may be
required to delay, scale back or eliminate some or all of its operations,  which
may have a material  adverse  effect on its business,  results of operations and
ability to operate as a going concern.  The financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.

     CIC  believes  the  proceeds  from the Equity Line of Credit,  and or other
potential   sources  of  financing,   when  combined  with  cash  provided  from
operations,  will  be  sufficient  to  meet  its  capital  requirements  for the
foreseeable  future. If the Company is unable to secure sufficient funds through
financing,  or is  unable  to  sustain  the  increase  in funds  generated  from
operations,  the  Company may not be able to continue  its  operations  in their
current form and may not be a viable  company on a going  forward  basis without
significant  changes in its  operations.  Since  February  2002, the Company has
raised, net of costs and expenses,  approximately $2,300 from the Equity Line of
Credit.  The Company believes it will be able to raise the necessary funds under
the  Equity  Line of  Credit,  through  February  2005,  and or other  alternate
financing, and from operations. The Company has not formulated specific plans to
change its operations. Possible changes could include reduced personnel expenses
to better match its revenue streams.

We have the following material commitments as of June 30, 2004:

                                           Payments due by periods
--------------------------     -------------------------------------------------
                                         Less      One to     Four to     After
                                         than       three      five       five
Contractual obligations         Total   one year    years      years      years
--------------------------      -----   ---------  --------  --------   --------
 Short-term debt related
  party (1)                     $ 3,008   $ 3,008    $   -      $  -     $   -
 Short-term debt, other              37        37
 Long-term debt                       8                  8         -         -
 Capital Lease Obligations           25        25        -         -         -
 Operating lease commitments (2)    975       419      556         -         -
                                --------   --------  -------    ------   ------
 Total contractual cash
 obligations                    $ 4,053   $ 3,489    $ 564      $  -     $   -
                                ========   ========  ========   ======   =======

1.   The $3,000  Short-term  debt related party was paid on August 5, 2004,  and
     replaced by a new note (See Note 11).

2.   The operating  lease  commenced on November 1, 2001.  The cost of the lease
     will increase  approximately 3% per annum over the term of the lease, which
     expires on October 31, 2006.

Forward Looking Statements

     Certain  statements  contained  in this  quarterly  report  on  Form  10-Q,
including  without  limitation,  statements  containing  the  words  "believes",
"anticipates", "hopes", "intends", "expects", and other words of similar import,
constitute  "forward  looking"  statements  within the  meaning  of the  Private
Securities  Litigation  Reform Act of 1995.  Such  statements  involve known and
unknown risks,  uncertainties and other factors which may cause actual events to
differ materially from expectations. Such factors include those set forth in the
Company's  Annual  Report on Form 10-K for the year ended  December 31, 2003 and
delineated as follows:

o    Technological,   engineering,   manufacturing,  quality  control  or  other
     circumstances which could delay the sale or shipment of products;

                                      -22-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q

o    Economic,  business,  market and  competitive  conditions  in the  software
     industry and  technological  innovations  which could affect the  Company's
     business;
o    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
o    General economic and business conditions and the availability of sufficient
     financing.

     The Company  undertakes  no  obligation  to  publicly  update or revise any
forward-looking  statements,  as a result of new  information,  future events or
otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

     The Company has an investment portfolio of fixed income securities that are
classified  as  cash  equivalents.  These  securities,  like  all  fixed  income
instruments,  are  subject to  interest  rate risk and will fall in value if the
market interest rates increase.  The Company  attempts to limit this exposure by
investing primarily in short term securities. The Company did not enter into any
short-term  security  investments during the three and six months ended June 30,
2004.

Foreign Currency Risk

     From time to time,  the Company  makes certain  capital  equipment or other
purchases  denominated in foreign  currencies.  As a result,  the Company's cash
flows and earnings  are exposed to  fluctuations  in interest  rates and foreign
currency  exchange rates. The Company attempts to limit these exposures  through
operational strategies and generally has not hedged currency exposures.

Future Results and Stock Price Risk

     The Company's  stock price may be subject to  significant  volatility.  The
public stock markets have experienced  significant volatility in stock prices in
recent  years.  The  stock  prices  of  technology  companies  have  experienced
particularly high volatility, including, at times, severe price changes that are
unrelated or  disproportionate  to the operating  performance of such companies.
The  trading  price of the  Company's  common  stock  could be  subject  to wide
fluctuations in response to, among other factors,  quarter-to-quarter variations
in operating results, announcements of technological innovations or new products
by the Company or its competitors,  announcements of new strategic relationships
by the Company or its competitors,  general  conditions in the computer industry
or the  global  economy  in  general,  or  market  volatility  unrelated  to the
Company's business and operating results.

Item 4A. Controls and Procedures

     Under  the  supervision  and  with  the   participation  of  the  Company's
management,  including the Company's Chief Executive Officer and Chief Financial
Officer, the Company has evaluated the effectiveness of the design and operation
of its disclosure  controls and procedures  pursuant to Exchange Act Rule 13a-15
within  90 days of the  filing  date of this  quarterly  report.  Based  on that
evaluation,  the Chief  Executive  Officer  and  Chief  Financial  Officer  have
concluded that these  disclosure  controls and  procedures are effective.  There
were no  significant  changes in the  Company's  internal  controls  or in other
factors that could significantly affect internal controls subsequent to the date
of their evaluation.

Part II-Other Information

Item 1. Legal Proceedings

     On June 7, 2004, (amended July 7, 2004) Topaz Systems, Inc. ("Topaz") filed
a complaint, against the Company, with the United States District Court Northern

                                      -23-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q

District of  California  San  Francisco  Division  alleging  breach of contract,
breach of covenant of good faith and fair  dealing and asking for a  declaratory
judgment  that it had not breached  the  September  29, 2000  License  agreement
between it and the Company (the "License"), that Topaz had not infringed certain
of  the   Company's   patents  and  that  such  patents   were  invalid   and/or
unenforceable. No monetary damages were specified. The Company believes that the
complaint is without merit and intends to vigorously  defend against the claims.
On July 26, 2004, the Company responded to the complaint and filed counterclaims
against  Topaz  alleging  that Topaz had  breached the  License,  had  infringed
certain of the  Company's  patents and was  engaging in unfair  competition.  On
July,  22,  2004,  Topaz filed a complaint  against the Company  with the United
States District Court Central District of California Western Division requesting
declaratory  judgment that it did not infringe certain of the Company's  patents
(not included in the other  complaint) and that such patents were invalid and/or
unenforceable.  The Company  believes  that the  complaint is without  merit and
intends to vigorously  defend against the claims.  The ultimate  outcome of this
litigation cannot presently be determined. However, in management's opinion, the
likelihood of a material  adverse outcome is remote and any liability that might
be incurred would not have a material adverse effect on the Company's  financial
position or its results of operations.  Accordingly,  adjustments,  if any, that
might result from the  resolution of this matter have not been  reflected in the
financial statements.

Item 2. Change in Securities and Use of Proceeds

        None

Item 3. Defaults Upon Senior Securities

        None

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

     The Company held its Annual Meeting of  Stockholders  on June 21, 2004. The
number of shares  of common  stock  with  voting  rights as of the  record  date
represented  at the meeting  either in person or by proxy was 100,205  shares or
99.7% of the eligible  outstanding  Common Stock of the Company.  two  proposals
were voted  upon by the  stockholders.  The  proposals  and the  voting  results
follow:

Proposal 1

     Each of the five  persons  listed  below were elected as directors to serve
until the next Annual  Meeting or until his  successor is elected or  appointed.
The number of votes for and withheld for each  individual  is listed next to his
name.
                                                               Broker
                                                      --------------------------
         Name              For           Withheld      Non-votes      Abstain
------------------- ------------------  ------------- -----------  -------------
Guido DiGregorio          99,867              338         -               -
Michael Farese            99,905              300         -               -
Louis P. Panetta          99,904              301         -               -
C. B. Sung                98,904            1,301         -               -
David E. Welch            99,914              291         -               -

Proposal 2

     To ratify the  appointment  of Stonefield  Josephson,  Inc. as  independent
accountants  of the Company for the fiscal year ending  December 31,  2004.  The
number of votes for, against and abstaining on this proposal was as follows:

                                                              Broker
                                                     ---------------------------
                 For         Against      Abstain      Non-votes       Abstain
             ----------- ------------ -------------- ------------  -------------
-
All Classes    100,018         97           90             -               -

                                      -24-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q

Item 5. Other Information

        None

Item 6. Exhibits and Reports on Form 8-K

(a)     Exhibits

          EXHIBIT  31 -  Certification  of Chief  Executive  Officer  and  Chief
          Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
          2002.

          EXHIBIT  32 -  Certification  of Chief  Executive  Officer  and  Chief
          Financial  Officer pursuant to Section 18 USC Section 1750, as adopted
          pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)     Reports on Form 8-K

        1.Current Report on Form 8-K, Items 12 and 7, dated April 22, 2004, with
          respect to the Company's first quarter 2004 financial results.

        2.Current Report on Form 8-K, Item 5, dated June 16, 2004,  with respect
          to a sixty day extension to pay a $3 million note due June 18, 2004.

                                      -25-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
                    (In thousands, except per share amounts)
                                    Form 10-Q


                                   SIGNATURES

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





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



    August 11, 2004                              /s/ Francis V. Dane
-------------------------         ----------------------------------------------
         Date                                        Francis V. Dane
                                  (Principal Financial Officer and Officer Duly
                                  uthorized to Sign on Behalf of the Registrant)











                                      -26-