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: September 30, 2001


                                       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 November 7, 2001: 90,734,016.

<PAGE>



                                      INDEX



PART I.  FINANCIAL INFORMATION


 Item 1.  Financial Statements                                          Page No.

  Condensed Consolidated Balance Sheets at September 30, 2001
  (unaudited) and  December 31, 2000........................................3

  Condensed Consolidated Statements of Operations for the Three and
  Nine-Month Periods Ended September 30, 2001 and 2000 (unaudited)..........4

  Condensed Consolidated Statements of Changes in Stockholders'
  Equity for the Three and Nine-Month Periods Ended September 30, 2001
  and 2000 (unaudited)......................................................5

  Condensed Consolidated Statements of Cash Flows for the
  Nine-Month Period Ended September 30, 2001 and 2000 (unaudited)...........6

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


  Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations.......................................12
           --------------------------
  Item 3.  Quantitative and Qualitative Disclosures About Market Risk......17
           ----------------------------------------------------------
PART II.  OTHER INFORMATION

  Item 1.  Legal Proceedings...............................................18
           -----------------
  Item 2.  Change in Securities............................................18
           --------------------
  Item 3.  Defaults Upon Senior Securities.................................18
           -------------------------------
  Item 4.  Submission of Matters to a Vote of Security Holders.............18
           ---------------------------------------------------
  Item 5.  Other Information...............................................18
           -----------------
  Item 6.  Exhibits and Reports on Form 8-K
           --------------------------------
           (a) Exhibits....................................................18

           (b) Reports on Form 8-K.........................................18

  Signatures...............................................................19


                                      -2-

<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
                      Condensed Consolidated Balance Sheets
                                 (In thousands)
<TABLE>
<CAPTION>

                                                     September 30,  December 31,
                                                         2001           2000
                                                     -------------  ------------
                                                       Unaudited
<S>                                                  <C>            <C>
Assets
Current assets:
     Cash and cash equivalents........................ $  3,053      $  2,349
     Accounts receivable, net, includes $250
     at 12/31/00 from M10 (previously PenOp Inc.).....      743         1,760
     Inventories......................................      215           171
     Prepaid expenses and other current assets........      246           270
                                                       --------     ---------
         Total current assets.........................    4,257         4,550

Note receivable from officer..........................        -            46
Property and equipment, net...........................      202           262
Patents and trademarks................................    5,913         6,234
Other assets..........................................      222           210
                                                       --------     ---------

         Total assets................................. $ 10,594      $ 11,302
                                                       ========     =========

Liabilities and Stockholders' equity Current liabilities:
     Short-term debt.................................. $    181      $    120
     Accounts payable.................................      138           679
     Accrued compensation.............................      220           263
     Other accrued liabilities........................      307           318
     Deferred revenue.................................      152            61
                                                       ---------     ---------
         Total current liabilities....................      998         1,441

Long-term debt - related party........................    3,000         1,427

Minority interest.....................................      130           127

Commitments

Stockholders' equity:
     Common stock.....................................      907           897
     Additional paid-in capital.......................   81,463        80,656
     Accumulated deficit..............................  (75,706)      (73,043)
     Cumulative translation adjustment................     (198)         (203)
                                                       ---------     ---------
         Total stockholders' equity...................    6,466         8,307
                                                       ---------     ---------

         Total liabilities and stockholders' equity... $ 10,594      $ 11,302
                                                       =========     =========
</TABLE>

                            See accompanying notes.

                                      -3-

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

                                          Three Months Ended  Nine Months Ended
                                             September 30,       September 30,
                                          ------------------  ------------------
                                             2001      2000      2001     2000
                                          --------   -------- --------  --------
<S>                                        <C>     <C>        <C>      <C>
Revenues:
     Online..............................  $  237   $  297     $  977  $ 1,026
     Corporate...........................     222    1,469      1,884    2,631
      Nonrecurring maintenance
      fees (net)- M10 (previously
      PenOp Inc.)........................       -        -        352        -
     China    ...........................     456      580      1,223    1,316
                                           -------  -------     ------- -------

         Total revenues..................     915    2,346      4,436    4,973

Operating costs and expenses:
     Cost of sales:
        Online...........................     132      226        707      897
        Corporate........................      12       38        244      378
        China ...........................     312      433        829      959
     Research and development............     428      399      1,399    1,216
     Sales and marketing  ...............     470      537      1,604    1,717
     General and administrative  ........     728      548      2,107    1,589
                                           -------  -------    -------  -------

       Total operating costs and expenses   2,082    2,181      6,890    6,756
                                           -------  -------    -------  -------

Income (Loss) from operations  ..........  (1,167)     165     (2,454)  (1,783)

Interest and other income
  (expense), net  .......................       5       20         19       66

Interest expense  .......................     (66)     (78)      (225)    (192)

Minority interest  ......................      (1)      (1)        (3)       -
                                           -------  -------     -------  ------

         Net income (loss)  .............  (1,229)     106     (2,663)  (1,909)
                                           =======  =======    =======  =======
Basic and diluted income (loss)
per common share  .......................  $(0.01)  $ 0.00     $(0.03)  $(0.02)
                                           =======  =======    =======  =======
Weighted average common
     shares outstanding  ................  90,715   84,538     90,495   83,970
                                           =======  =======    =======  =======
</TABLE>

                             See accompanying notes.

                                      -4-

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

<TABLE>
<CAPTION>

                                                               Accum
                                          Additional           Other
                                   Common   Paid-In    Accum  Comprehen
                                   Stock    Capital   Deficit Gain(Loss) Total
                                   ------ ----------  ------- ---------- -----
<S>                                <C>     <C>      <C>         <C>      <C>
Balances as
 of December 31, 2000............  $ 897  $ 80,656  $ (73,043)   $(203) $ 8,307
                                   --------------------------------------------

Exercise of options
 for 683 shares
  of Common Stock.................     7       561          -       -      568

Foreign currency translation
  adjustment......................     -         -          -       1        1

Net loss..........................     -         -       (741)      -     (741)
                                   --------------------------------------------

Balances as of March 31, 2001..... $ 904  $ 81,217  $ (73,784)  $(202) $ 8,135
                                   ============================================

Exercise of options for 331 shares
  of Common Stock.................     3       245          -       -      248

Foreign currency translation
  adjustment......................     -         -          -       1        1

Net loss..........................     -         -       (693)      -     (693)
                                   --------------------------------------------

Balances as of June 30, 2001...... $ 907  $ 81,462   $(74,477)  $(201) $ 7,691
                                   ============================================

Exercise of options for 40 shares
  of Common Stock................. $   -  $      1   $      -   $   -  $     1

Foreign currency translation
  adjustment......................     -         -          -       3        3

Net loss..........................     -         -     (1,229)      -   (1,229)
                                   --------------------------------------------

Balances as of September 30, 2001. $ 907  $ 81,463   $(75,706)  $(198) $ 6,466
                                   ============================================
</TABLE>

                            See accompanying notes.

                                      -5-

<PAGE>

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

                                                           Nine Months Ended
                                                              September 30,
                                                        -----------------------
                                                           2001          2000
                                                        ----------    ---------

<S>                                                      <C>        <C>
Cash flows from operating activities:
   Net loss.............................................  $ (2,663)   $ (1,909)
   Adjustments to reconcile net loss to net cash
   provided by (used) in operating activities:
       Depreciation.....................................       125         143
       Patent amortization..............................       322           4
       Loan discount amortization.......................        74          60
       Non-cash compensation............................        46          61
       Changes in operating assets and liabilities:
           Accounts receivable, net.....................     1,018         408
           Inventories..................................       (44)        (54)
           Prepaid expenses and other current assets....        24        (143)
           Other assets.................................       (12)         69
           Accounts payable.............................      (541)        (14)
           Accrued compensation.........................       (43)        (49)
           Other accrued liabilities....................       (11)        (99)
           Deferred revenue.............................        91          13
                                                         ---------    ---------

         Net cash used in operating  activities.........    (1,614)     (1,510)
                                                         ---------    ---------

Cash flows from investing activity:
     Acquisition of property and equipment..............       (53)        (50)
                                                         ---------    ---------

         Net cash used in investing activity............       (53)        (50)
                                                         ---------    ---------

Cash flows from financing activities:
   Principal payments on short-term debt................    (1,802)        (60)
   Principal payments on capital lease obligations......        (6)         (6)
   Proceeds from acquisition of short term debt.........       362         121
   Proceeds from exercise of stock options and warrants.       817       1,744
   Proceeds from acquisition of long-term debt.........      3,000          -
                                                         ----------   ---------

         Net cash provided by financing activities.....      2,371       1,799
                                                         ----------   ---------

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

Net increase in cash and cash equivalents.............         704         239
Cash and cash equivalents at beginning of period......       2,349       2,374
                                                         ----------   ---------

Cash and cash equivalents at end of period............   $   3,053    $  2,613
                                                         ==========   =========
</TABLE>

                            See accompanying notes.

                                      -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
     ----------------------------
     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 GAAP for  complete  financial
     statements. In the opinion of management, the 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   biometric   electronic   signature
     verification and natural input software  solutions aimed at emerging,  fast
     growth,  large potential  markets such as e-commerce,  corporate  security,
     mobile voice/Internet  devices including  smartphones/communicators,  PDAs,
     webpads and the Palm OS aftermarket.

     The Company's core software  technologies include multilingual  handwriting
     recognition  systems  (Jot(R))  and  the  Handwriter   Recognition  System,
     referred  to  as  HRS(TM),   electronic   signature,   biometric  signature
     verification,  cryptography,  electronic ink capture tools  (InkTools(TM)),
     Sign-it(R),  iSign(TM) and Sign-On(TM),  and operating  systems  extensions
     that enable pen input  (PenX(TM)).  Other  consumer and original  equipment
     manufacturer ("OEM") products include electronic notetaking (QuickNotes(TM)
     and  InkSnap(TM))  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 wireless  internet
     and  information  devices  such  as  smartphones,   electronic   organizers
     ("PDA's") and portable web browsers.

     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:  "natural input  technologies"  and
     "transaction  and  communication  enabling  technologies".   Natural  input
     technologies  are  designed to allow  users to interact  with a computer or
     handheld device 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,
     predictive text entry, and electronic ink capture technologies.  Many small
     handheld devices such as electronic  organizers,  pagers and smart cellular
     phones do not have a keyboard. For these devices,  handwriting  recognition
     and software keyboards offer viable solutions for performing text entry and
     editing.  CIC's predictive text entry technology simplifies data entry even
     further by reducing  the number of actual  letters  required to be entered.
     The Company's ink capture technologies facilitate the capture of electronic
     ink for notetaking,  drawings or short handwritten messages.  The Company's
     transaction and communication enabling 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  and
     provide more functional user  authentication  and heightened data security.
     The Company's transaction and communication enabling technologies have been
     fundamental in its development of software for signature verification, data
     security, and data compression.

     For the nine months ended  September 30, 2001,  the Company's cash and cash
     equivalents increased by $704 from $2,349 at the beginning of the period to
     $3,053.  The increase was due  primarily to $2,371 in net cash  provided by
     financing  activities.  This increase was partially  offset by cash used in
     operating  activities  of $1,614 and cash used in investing  activities  of
     $53.  The $2,371 in net cash  provided  by  financing  activities  consists
     primarily of $3,000 in proceeds from a long-term  loan  obtained  through a
     charitable  remainder  annuity  trust  controlled  by an  affiliate  of the
     Company,  $817 in proceeds from the exercise of stock options by certain of
     the Company's  employees and proceeds from  short-term debt acquired by the
     Company's Joint Venture of $362.  These proceeds from investing  activities


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

     were offset by the payment of $1,500 in  short-term  debt from the proceeds
     of the new $3,000 long-term loan, the repayment of $302 of short term loans
     by the Company's  Joint Venture and capital lease  obligations of $6. As of
     September 30, 2001, the Company's  principal  source of funds were its cash
     and cash equivalents  aggregating  $3,053. The Company  anticipates that it
     will have adequate capital to fund its planned  operations for at least the
     next twelve  months.  However,  there can be no assurance  that the Company
     will not require  additional  capital resources to fund planned  operations
     prior  to such  time or that  additional  funds  will be  available  to the
     Company when needed, 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 prospects.

     The financial  information  contained  herein should be read in conjunction
     with the  Company's  audited  financial  statements  included in its Annual
     Report on Form 10-K for the year ended December 31, 2000.

2.   Cash and cash equivalents
     -------------------------

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

       Cash and cash equivalents consist of the following:
                                       September 30,            December 31,
                                           2001                    2000
                                  ---------------------    -------------------
<S>                                <C>                      <C>
         Cash in bank              $      2,337             $      1,332
         Commercial paper                     -                      687
         Money market                       716                      330
                                  ---------------------    -------------------
                                   $      3,053             $      2,349
                                  =====================    ===================
</TABLE>

3.   Inventories
     -----------

     Inventories  are  stated  at the  lower  of  cost  or  market,  cost  being
     determined using the first-in,  first-out  (FIFO) method.  At September 30,
     2001, inventories consisted primarily of finished goods.

4.   Note receivable from officer
     ----------------------------

     In  April  1994,  the  Company  loaned  $210 to the  Company's  then  Chief
     Executive  Officer  in  exchange  for a  note,  secured  by  shares  of the
     Company's Common Stock. The note bore interest at the lesser of the highest
     marginal  rate per annum  applicable  to the  Company's  borrowings  or the
     highest rate allowable by law. On August 14, 1998, the Company entered into
     an agreement  (the  "Agreement")  with the former Chief  Executive  Officer
     pursuant to which the former officer agreed to provide consulting  services
     to the Company  through  December 15, 2001. In exchange for these services,
     $110 of the note  receivable from the officer will be forgiven on a monthly
     basis over the period  commencing  August 15, 1998 and ending  December 15,
     2001.  The remaining $100 of the note  receivable  from the officer will be
     forgiven on December 15, 2001 if the officer has performed all the required
     services under the Agreement.  The Agreement will terminate on December 15,
     2001.

5.   Short-term debt
     ---------------

     On August 23, 2001,  the  Company's  90% owned Joint  Venture  borrowed the
     aggregate  equivalent  of $181,  denominated  in Chinese  currency,  from a
     Chinese bank.  The loan bears interest at 5.37% per annum and is due August
     23,  2002.  The  borrowing  did not require the Joint  Venture to deposit a
     compensating balance.

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

5.   Short-term debt (continued)
     ---------------------------

     On March 19,  2001,  the  Company's  90% owned Joint  Venture  borrowed the
     aggregate  equivalent  of $181,  denominated  in Chinese  currency,  from a
     Chinese bank.  The loan bore interest at 5.12% per annum and was due August
     19, 2001.  The  borrowings  did not require the Joint  Venture to deposit a
     compensating balance. This loan was repaid on August 19, 2001.

     On September 1, and  September  19, 2000,  respectively,  the Company's 90%
     owned Joint Venture borrowed, in two transactions, the aggregate equivalent
     of $121,  denominated in Chinese  currency,  from a Chinese bank. The loans
     bore interest at 5.12% per annum.  The borrowings did not require the Joint
     Venture to deposit a compensating  balance.  The loans were paid in full in
     March 2001.

6.   Related Party Transactions:

     A. Long-term debt related party
        ----------------------------

     On June 19, 2001, the Company consummated a three-year $3 million financing
     (the "Loan") with a charitable  remainder annuity trust of which a 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 Loan  bears  interest  at the rate of 2% over the prime  rate  publicly
     announced by Citibank N.A. from time to time,  which was 8.00% per annum at
     September 30, 2001,  and is due June 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.  Pursuant to the terms of the Loan,  the Trust
     has the  option,  at any time  prior to  maturity,  to  convert  all or any
     portion  of 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 million or more in gross proceeds,  the Company is required to
     apply 50% of the  proceeds in excess of $5 million 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 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.

     B. Transactions with PenOp
        -----------------------

     During the nine months ended  September  30, 2001,  the Company  recognized
     $352 in nonrecurring  maintenance  fees net of expenses of $48. The Company
     engaged in a  transaction  with PenOp to provide  nonrecurring  maintenance
     services from pre-existing  PenOp contracts in the aggregate amount of $1.5
     million,  of which $877 was recorded  (net) in the fourth  quarter of 2000.
     The  Company  previously  entered  into a separate  transaction  to acquire
     intellectual property rights from PenOp.

7.   Revenue recognition
     -------------------

     Online/Retail  Revenue - Revenue from retail  product  sales is  recognized
     upon sell  through,  while  revenue from other  product sales is recognized
     upon  shipment  provided  that no  significant  obligations  remain and the
     collection of the resulting  receivable is probable.  The Company  provides
     for estimated sales returns at the time of shipment.

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


7.   Revenue recognition (continued)
     -------------------------------

     Corporate  Revenue - License and product  revenues are recognized  when the
     software has been delivered and when all significant  obligations have been
     met  in  accordance  with  the  American   Institute  of  Certified  Public
     Accountants   Statement  of  Position   Number  97-2,   "Software   Revenue
     Recognition"  and the Securities and Exchange  Commission  Staff Accounting
     Bulletin Number 101, "Revenue Recognition in Financial Statements". Royalty
     revenues  are  recognized  as  products  are  licensed/sold  by  licensees.
     Development  contracts  revenue is generated  primarily from  non-recurring
     engineering activities.  Revenue is recognized in accordance with the terms
     of the agreements,  generally when collection is probable and related costs
     have been incurred.

     China  Revenue - Revenue  from system  integration  activities  and product
     sales are recognized upon shipment provided that no significant obligations
     remain and the collection of the resulting receivable is probable.

8.   Net loss per share
     ------------------

     The Company calculates earnings 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 earnings per share,
     which is based on the weighted average number of common shares outstanding,
     and diluted  earnings  per share,  which is based on the  weighted  average
     number of common shares and dilutive  potential common shares  outstanding.
     For the three and nine months ended  September 30, 2001,  potential  common
     shares  excluded from the  calculation  of diluted  earnings per share,  as
     their effect is not dilutive,  include  7,416,070 stock options and 469,833
     warrants.  Potential  common shares  excluded from the  calculation for the
     three and nine months  ended  September  30, 2000 include  8,700,001  stock
     options and 469,833 warrants.

9.   Comprehensive income
     --------------------
<TABLE>
<CAPTION>

       Total comprehensive income (loss) was as follows:

                                               Nine Months Ended September 30,
                                            ------------- ------ --------------
                                                 2001                 2000
                                             ------------        -------------

<S>                                           <C>                 <C>
        Net loss                              $   (2,663)         $   (1,909)
        Other comprehensive income:
        Cumulative translation adjustment              5                   6
                                             ------------        -------------
          Total comprehensive loss            $   (2,658)         $   (1,903)
                                             ============        =============
</TABLE>


10.  Segment Information
     -------------------

     The Company's segment information under the Financial  Accounting Standards
     Board  Statement of Financial  Accounting  Standards No. 131,  "Disclosures
     About Segments of An Enterprise and Related  Information"  ("SFAS 131"), is
     comprised of two segments -  handwriting  recognition  software and systems
     integration.

     The  accounting  policies  followed by the  segments  are the same as those
     described in the "Summary of Significant Accounting Policies." Segment data
     includes revenues as well as allocated corporate-headquarters costs charged
     to each of the operating segments.

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


10.  Segment Information (continued)
     -------------------------------

     The Company identifies reportable segments by classifying revenues into two
     categories:  handwriting  recognition and system  integration.  Handwriting
     recognition   software  is  an   aggregate   of  six  revenue   categories:
     multilingual   handwriting   recognition  systems,   electronic  signature,
     biometric  signature  verification,  cryptography,  electronic  ink capture
     tools,  and  operating  systems  extensions  that  enable  pen  input.  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 above represent sales to external customers.

     The table below  presents  information  about  reporting  segments  for the
     periods indicated:
<TABLE>
<CAPTION>

                                  Nine Months ended September 30,
                   -------------------------------------------------------------
                              2001                            2000
                   ------------------------------- -----------------------------
                    Handwriting  Systems           Handwriting Systems
                    Recognition  Integration Total Recognition Integration Total
                    -----------  ----------- ----- ----------- ----------- -----

<S>                   <C>          <C>      <C>      <C>      <C>       <C>
    Revenues          $ 3,439      $ 997    $ 4,436  $ 3,657  $ 1,316   $ 4,973

    Loss from
    Operations       $(2,368)      $(86)    $(2,454) $(1,779) $    (4)  $(1,783)

    Significant change
    in   Total assets
    from Year End        $     -   $  -     $     -  $     -  $     -   $    -
</TABLE>


11. Subsequent Event
    ----------------

     On  October  2, 2001 the  Company  entered  a new five  year  lease for its
     existing  principal  offices at 275  Shoreline  Drive,  Suite 500,  Redwood
     Shores  California  for  approximately  9,634 square  feet.  The lease will
     commence  November  1, 2001 with first year  lease  costs of  approximately
     $347,000.  The cost of the lease will increase  approximately  3% per annum
     over the term of the lease which  expires  October 31, 2006. In addition to
     the base rent the Company will pay a percentage of the increase, if any, in
     operating  cost  incurred by the  landlord in such year over the  operating
     expenses  incurred by the landlord in the base year.  The Company  believes
     the offices will be adequate for its needs over the term of the lease.

                                      -11-
<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
               (In thousands, except share and 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 I - Item 1 of this  Quarterly  Report on Form 10-Q and
"Management`s  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" set forth in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.

     On October 6, 2000, a wholly-owned  subsidiary of the Company ("Acquisition
Corp.")  acquired  certain assets of PenOp Limited and its subsidiary PenOp Inc.
for 4.7  million  shares of common  stock of the  Company  pursuant  to an Asset
Purchase  Agreement,  dated as of September 29, 2000,  by and among  Acquisition
Corp.,  PenOp  Limited and PenOp Inc. At the  closing of this  transaction,  Mr.
Philip  Sassower,  the  Company's  Chairman  of the  Board,  and  his  designees
purchased  from PenOp  Limited  and PenOp  Inc.,  in a private  transaction,  an
aggregate of  1,713,728  shares of common  stock  received by PenOp  Limited and
PenOp Inc. in connection with the acquisition for $3,300.

Results of Operations
---------------------

     Revenues.  For the three and nine months ended  September  30, 2001,  total
revenues decreased $1,431 and $537, respectively,  or 61% and 11%, respectively,
to $915 and $4,436  from  $2,346 and $4,973,  respectively,  for the  comparable
three and nine month periods ended September 30, 2000 as discussed below:
<TABLE>
<CAPTION>

                                    Three Months Ended     Nine Months Ended
                                       September 30,         September 30,
                                    ------------------    --------------------

                                      2001      2000        2001        2000
                                    --------  --------    --------    --------

<S>                                 <C>       <C>        <C>         <C>
Revenues:
 Online.........................     $ 237     $  297      $  977      $ 1,026
 Corporate......................       222      1,469       1,884        2,631
  Nonrecurring maintenance
  fees (net) - M10 (previously
  PenOp)........................         -          -         352            -
 China..........................       456        580       1,223        1,316
                                    -------    -------     -------     --------

           Total revenues            $ 915     $2,346      $4,436       $4,973
                                    =======    =======     =======     ========
</TABLE>

     Online  revenues  decreased  $60 or 20% to $237 for the three  months ended
September  30, 2001 as compared to $297 in the prior year period.  This decrease
was  primarily  due to a lower  sales  rate on the  available  names used in the
Company's  direct mail campaign  compared to the same period last year.  For the
nine months ended  September 30, 2001,  Online  revenues  decreased $49 or 5% to
$977 from $1,026 in the same nine month period last year.  This decrease was due
primarily to a decrease in  available  names used in the  Company's  direct mail
campaign and to a lower sales rate on the available  names  compared to the same
nine month period in the prior year.

     Corporate  sales,  which includes  Enterprise  sales,  OEM and  Development
contract  revenues,  decreased  for the  three  and  nine  month  periods  ended
September 30, 2001, $1,247 and $747, respectively,  or 85% and 28%, respectively
to $222 and  $1,884,  respectively,  from $1,469 and  $2,631,  respectively,  as
compared to the same prior year periods as discussed below.

     OEM and license  revenues  included in corporate sales decreased $1,198 and
$902,   respectively,   or  90%  and  54%,  respectively,   to  $131  and  $766,
respectively,  for the three and nine month  periods  ended  September  30, 2001
compared  to $1,329 and  $1,668,  respectively,  for the  comparable  prior year
periods.  This  decrease was due primarily to the  recognition  during the prior
period of $1 million in license fees paid by a hardware  manufacturer,  and to a
decrease in the amount of royalty  revenues  recognized from OEMs as compared to

                                      -12-
<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
               (In thousands, except share and per share amounts)
                                    FORM 10-Q

the comparable prior year periods. Revenues from development contracts decreased
$53 or 100% to $0  from  $53 for the  three  months  ended  September  30,  2001
compared  to the same prior year  period.  The  decrease  was due  primarily  to
decreases  in revenue  generating  non-recurring  engineering  ("NRE")  projects
compared to the same three month  period  last year.  For the nine months  ended
September 30, 2001, revenues from development  contracts decreased 14% or $29 to
$177 from $206 in the same prior year period. This decrease was primarily due to
the decrease in NRE activities  during the third quarter of 2001 compared to the
prior year.  NRE  activities  for the three and nine months ended  September 30,
2001 and 2000,  respectively,  were  primarily  attributable  to  porting of the
Company's  software to third party products such as PDA's,  smartphones  and web
browsers.

     Enterprise  sales and  maintenance  contract  fees from sources  other than
nonrecurring  maintenance  fees - M10  increased  $4 or 5% to $91 for the  three
months ended  September  30, 2001 compared to $87 in the same prior year period.
This increase was primarily due to a sale to a major insurance company.  For the
nine months ended September 30, 2001,  enterprise sales increased 24% or $184 to
$941 from  $757 in the same  prior  year  period.  The nine  month  increase  is
primarily due to the reasons mentioned above.

     During the nine months ended  September  30, 2001,  the Company  recognized
$352 in  nonrecurring  maintenance  fees net of  expenses  of $48.  The  Company
engaged in a transaction with PenOp to provide nonrecurring maintenance services
from  pre-existing  PenOp contracts in the aggregate amount of $1.5 million,  of
which $877 was recorded (net) in the fourth quarter of 2000. As stated  earlier,
on October 6, 2000 the Company  completed a separate  transaction to acquire the
intellectual property rights from PenOp.

     China sales for the three months ended September 30, 2001 decreased $124 or
21% to $456 from $580 in the same prior year  period.  For the nine months ended
September 30, 2001, China revenues  decreased 7% or $93 to $1,223 from $1,316 in
the same prior year  period.  This  decrease was due to a large sale to a single
customer in the comparable period in the prior year.

     Cost of Sales.  Cost of sales decreased for the three and nine months ended
September 30, 2001 $241 and $454, respectively, or 35% and 20%, respectively, to
$456 and $1,780, respectively compared to $697 and $2,234, respectively,  in the
same prior year periods.

     Online cost of sales for the three and nine months ended September 30, 2001
decreased $94 and $190, respectively,  or 42% and 21%, respectively, to $132 and
$707, respectively,  compared to $226 and $897, respectively,  in the same prior
year  periods.  This  decrease  was  due to the  elimination  of  mailing  costs
associated with follow-up  mailers sent after initial contact with the potential
customer via direct mail.

     Corporate  sales  costs for the  three  months  ended  September  30,  2001
decreased $26 or 68% to $12 from $38 in the same prior year period. For the nine
months ended  September 30, 2001,  corporate cost of sales decreased $134 or 35%
to $244 compared to $378 in the same prior year period as discussed below.

     Enterprise  cost of sales for the three and nine months ended September 30,
2001 decreased $9 and $21,  respectively or 68% and 14%,  respectively to $3 and
$133, respectively from $12 and $154, respectively, in the comparable prior year
periods.  The  decrease in costs in the three and nine month  periods was due to
lower sales volumes of products  requiring  third party hardware costs sold with
the Company's corporate signature software solution products.  OEM cost of sales
for the three months ended  September 30, 2001 increased $2 or 21% to $9 from $7
in the same period of the prior year.  This  increase  was due  primarily  to an
increase in revenues and the associated technology import tax from the Company's
Japanese OEM customers. For the nine months ended September 30, 2001 OEM cost of
sales  decreases $1 to $33 from $34 in the comparable  period of the prior year.
Costs of development contract revenues decreased $19 and $112, respectively,  or
100% and 59%,  respectively,  to $0 and $78,  respectively,  from $19 and  $190,
respectively,  in the same  prior year  periods.  This  decrease  was due to the
decrease in NRE projects  during the three and nine months ended  September  30,
2001 as compared to the same prior year periods.

     China cost of sales for the three and nine months ended  September 30, 2001
decreased  $121  and  $130,  respectively,  or 28% and 14%,  to $312  and  $829,

                                      -13-
<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
               (In thousands, except share and per share amounts)
                                    FORM 10-Q

respectively,  compared to $433 and $959,  respectively,  in the same prior year
periods.  The decrease in the three months ended  September  30, 2001 was due to
lower sales as compared to the same three month  period last year.  The decrease
in the nine month  period  ended  September  30, 2001 was due to a reduction  in
system integration sales and an increase in higher margin sales of the Company's
software products.

     Gross  Margin.  Gross margin for the three and nine months ended  September
30, 2001 decreased $1,190 and $83, respectively, or 72% and 3%, respectively, to
$459 and $2,656, respectively, from $1,649 and $2,739, respectively, in the same
prior year periods.

     Online gross margin for the three and nine months ended  September 30, 2001
increased $34 and $141, respectively, or 48% and 109%, respectively, to $105 and
$270,  respectively,  from $71 and $129,  respectively,  in the same  prior year
periods.  This increase was due to the  elimination  of the  follow-up  mailers,
primarily  used to attempt to convert long time users of PDA's to the  Company's
products. Online gross margins were 44% and 28%, respectively,  of sales for the
three  and  nine  months  ended  September  30,  2001  compared  to 24% and 13%,
respectively, in the same prior year periods.

     Corporate  sales gross margin for the three and nine months ended September
30, 2001 decreased $1,221 and $613, respectively,  or 85% and 27%, respectively,
to $210 and $1,640,  respectively,  compared to $1,431 and $2,253, respectively,
in the same prior year periods.  This decrease was primarily due to the decrease
in Corporate  sales.  Corporate  sales gross margin as a percentage of sales was
94% and 87% for the  three and nine  month  periods  ended  September  30,  2001
compared  to 97% and 86% for the same three and nine month  periods of the prior
year.

     Gross margins related to nonrecurring  maintenance  fees from M10 increased
for the nine months ended September 30, 2001 by $352 compared to $0 in the prior
year period. This increase is due to no recognition of nonrecurring  maintenance
fees during the comparable nine month period in the prior year.

     China sales gross  margin for the three month period  ended  September  30,
2001  decreased only $3 or 2% to $144 from $147 in the same prior year period on
a 21%  decrease in revenues.  This minor  decrease in gross margin for the three
months ended  September  30, 2001  resulted  from a change in the sales mix from
lower margin system  integration  sales to higher  margin  software  sales.  The
change in  revenue  mix for the nine  month  period  ended  September  30,  2001
increased China gross margins $37 or 10% on 11% less revenue. As a percentage of
sales  China  gross  margins  were to 32% and 32% for the three and nine  months
ended  September  30,  2001  compared  to 25%  and  27%,  respectively,  for the
comparable three and nine month periods in the prior year periods.

     Research and development  expenses.  Research and development  expenses for
the three and nine months ended  September  30, 2001  increased by $29 and $183,
respectively,  to $428 and $1,399, respectively, as compared to $399 and $1,216,
respectively,  in the comparable three and nine month periods of the prior year.
These  increases  were due primarily to $39 and $223,  respectively,  in outside
engineering  costs  associated with the  assimilation of the PenOp  intellectual
property into the Company's  products and continued  support for new engineering
projects.  This increase was offset by decreases of  approximately  $11 and $65,
respectively,  in payroll and related costs  including  training and  facilities
costs  attributable  to  reductions  in the  number of  personnel.  Other  costs
including expense transferred to cost of sales and shared engineering costs with
the Joint  Venture  increased  $1 and $45,  respectively,  compared  to the same
periods last year. The Company  capitalized  $20 in software  development  costs
associated  with new  products  and  enhancements  during the nine months  ended
September  30, 2001.  The Company did not  capitalize  any software  development
costs in the nine month period ending September 30, 2000.

     Sales and marketing  expenses.  Sales and marketing  expenses for the three
and nine months ended  September 30, 2001 decreased $67 and $113,  respectively,
to $470 and $1,604, respectively,  as compared to $537 and $1,717, respectively,
in  the  comparable  periods  of  the  prior  year.  Professional  services  and
advertising  expenses  increased  $11 to $92 from $81 for the three  month ended
September  30,  2001 as compared  with the same  period last year.  For the nine
month period ended  September 30, 2001,  professional  services and  advertising
fees decreased $53 to $309 from $362 as compared with the same period last year.
This  decrease was due primarily to the one-time  cost of the  development  of a
media campaign in the prior year aimed at significantly  increasing Online sales

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

via CIC's  website.  Other costs,  including  salaries and related  expenses and
travel  and  recruiting  expenses,  decreased  $78 for the  three  months  ended
September 30, 2001  compared to the same period in the prior year.  For the nine
months  ended  September  30, 2001 other costs,  including  salaries and related
expenses and travel and  recruiting  expenses  decreased  $60 as compared to the
same nine month period last year.

     General and administrative  expenses.  General and administrative  expenses
for the three and nine months ended  September 30, 2001  increased $180 and $518
to $728 and $2,107,  respectively,  from $548 and $1,589,  respectively,  in the
comparable period of the prior year. This increase was attributable primarily to
an increase in patent amortization expense of $113 and $319,  respectively,  due
to the  acquision of the PenOp  intellectual  property in the fourth  quarter of
2000.  Professional  services increased $60 for the three months ended September
30, 2001 as compared to the prior year period due primarily to professional fees
associated  with the  Company's  stock  option  plan.  For the nine months ended
September  30,  2001  professional  fees  increased  $186 due  primarily  to the
reversal in the prior year of expenses  accrued in 1999 in anticipation of audit
expenses related to the change in the Company's outside  accounting firm and the
fees associated with the Company's stock option plan.  Payroll and related costs
increased  approximately  $34  and  $65,  respectively,  due to an  increase  in
personnel  during the first quarter of 2001. Other costs,  including  facilities
and related  costs,  decreased $27 and $52,  respectively,  over the  comparable
three and nine  month  periods  of the prior  year.  The  decrease  in  expenses
discussed above were due primarily to a decrease in investor related expenses as
a result of the reduction in costs associated with information  disseminated via
the wire services.

     Interest  and other  income  (expense),  net.  Interest  and  other  income
(expense),  net for the three and nine months ended September 30, 2001 decreased
$15 and $47, respectively, to $5 and $19, respectively, compared to $20 and $66,
respectively,  in the comparable periods of the prior year. Interest income from
cash and cash equivalents  decreased $14 and $50,  respectively,  to $17 and $50
for the three and nine months ended  September 30, 2001 compared to $31 and $100
in the same  periods  of the prior  year.  This  decrease  was due to lower cash
balances  during the three and nine month periods ended  September 30, 2001. The
interest  income  was  offset  by $12 and  $31,  respectively,  of  credit  card
processing  fees  related to Online  sales and other  expenses for the three and
nine  month  periods  ended   September  30,  2001  compared  to  $11  and  $34,
respectively, in the same periods of the prior year.

     Interest expense. Interest expense decreased $12 to $66 for the three month
period ended  September  30, 2001 compared to $78 in the same prior year period.
The  decrease  was due to the write off in June 2001 of the loan  discount  as a
result of the payment of the $1,500 note.  For the nine months  ended  September
30, 2001,  interest  expense  increased $33 to $225 compared to $192 in the same
prior year  period.  This  increase was due to the increase in long term debt to
$3,000 in June of 2001.


Liquidity and Capital Resources
-------------------------------

     At September 30, 2001, cash and cash equivalents totaled $3,053 compared to
cash and cash  equivalents  of $2,349 at December 31, 2000. The increase was due
primarily  to $2,371 in net cash  provided by  financing  activities  consisting
primarily  of  $3,000 in  proceeds  from a long  term  loan  obtained  through a
charitable  remainder  annuity trust  controlled by an affiliate of the Company,
$817 in proceeds  from the exercise of stock options by certain of the Company's
employees and proceeds  from  short-term  debt  acquired by the Company's  Joint
Venture of $362..  The proceeds  from  investing  activities  were offset by the
payment  of  $1,500  in  short-term  debt from the  proceeds  of the new  $3,000
long-term loan, the repayment of $302 of short term loans by the Company's Joint
Venture and capital lease obligations of $6. Total current assets were $4,257 at
September 30, 2001 compared to $4,550 at December 31, 2000.

     As of September 30, 2001, the Company's  principal  source of liquidity was
its cash and cash equivalents of $3,053. Although there can be no assurance, the
Company believes that its cash and cash equivalents  together with cash provided
from  projected  revenues will be sufficient to fund planned  operations  for at
least the next  twelve  months.  However,  if the  Company is unable to generate
adequate  cash flows from  sales,  or if  expenditures  required  to achieve the
Company's  plans are  greater  than  expected,  the  Company  may need to obtain
additional  funds earlier than  anticipated  or reduce  discretionary  spending.
There can be no assurance that  additional  funds will be available when needed,
or if available, will be available on favorable terms or in the amounts required

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

by the Company. If adequate funds are not available when needed, the Company may
be required to delay,  scale back or  eliminate  some or all of its  operations,
which will have a material adverse effect on the Company's business,  results of
operations and prospects.

     Current  liabilities,   which  include  deferred  revenues,  were  $998  at
September  30, 2001.  Deferred  revenues,  totaling  $152 at September 30, 2001,
primarily  reflects  advance  payments and  maintenance  fees from the Company's
licensees which are generally recognized as revenue by the Company over the term
of the maintenance agreement.

     The Company  currently  owns 90% of a joint  venture  with the  Information
Industry  Bureau,  a provincial  agency of the  People's  Republic of China (the
"Agency").  The Company's investment in the Joint Venture is subject to risks of
doing business abroad, including fluctuations in the value of currencies, export
duties,  import controls and trade barriers (including quotas),  restrictions on
the transfer of funds,  longer payment  cycles,  greater  difficulty in accounts
receivable collections, burdens of complying with foreign laws and political and
economic instability.

     On  October  2, 2001 the  Company  entered  a new five  year  lease for its
existing  principal  offices at 275 Shoreline  Drive,  Suite 500, Redwood Shores
California for approximately 9,634 square feet. The lease will commence November
1, 2001 with a first year lease costs of approximately $347,000. The cost of the
lease will increase  approximately 3% per annum over the term of the lease which
expires  October 31,  2006.  In addition to the base rent the Company will pay a
percentage of the increase,  if any, in operating  cost incurred by the landlord
in such year over the  operating  expenses  incurred by the landlord in the base
year.  The Company  believes the offices will be adequate for its needs over the
term of the lease.

     On August 23, 2001,  the  Company's  90% owned Joint  Venture  borrowed the
aggregate  equivalent of $181,  denominated in Chinese currency,  from a Chinese
bank. The loan bears interest at 5.37% per annum and is due August 23, 2002. The
borrowing did not require the Joint Venture to deposit a compensating balance.

     On March 19,  2001,  the  Company's  90% owned Joint  Venture  borrowed the
aggregate  equivalent of $181,  denominated in Chinese currency,  from a Chinese
bank. The loan bore interest at 5.12% per annum and was due August 19, 2001. The
borrowings did not require the Joint Venture to deposit a compensating  balance.
This loan was repaid on August 19, 2001.

     On September 1, and  September  19, 2000,  respectively,  the Company's 90%
owned Joint Venture borrowed,  in two transactions,  the aggregate equivalent of
$121,  denominated  in Chinese  currency,  from a Chinese  bank.  The loans bore
interest at 5.12% per annum. The borrowings did not require the Joint Venture to
deposit a compensating balance. The loans were paid in full in March 2001.

     On June 19, 2001, the Company consummated a three-year $3 million financing
(the "Loan") with a charitable  remainder  annuity trust of which a 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 Loan bears interest at the rate of 2% over the prime rate publicly
announced  by  Citibank  N. A. from  time to time,  which was 8.00% per annum at
September  30, 2001,  and is due June 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.  Pursuant to the terms of the Loan,  the Trust has the option,  at
any time prior to  maturity,  to convert all or any  portion of 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  million or more in gross  proceeds,  the
Company is required to apply 50% of the  proceeds in excess of $5 million 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 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.

     The  Company  leases  facilities  in the United  States  and China.  Future
minimum lease payments under non-cancelable  operating leases are expected to be

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

approximately $487, excluding sub-lease income, for the year ending December 31,
2001. The Company's rent expense is expected to be reduced by approximately  $24
in 2001 in  connection  with the  subleases on excess office space in the United
States.

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 the following:

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

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  ability 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 from time to time primarily in short term securities.  The Company has
not entered into any  short-term  security  investments  during the three months
ended September 30, 2001.

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

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

by the  Company,  its  competitors  or others,  announcements  of new  strategic
relationships  by the  Company or its  competitors,  general  conditions  in the
computer  industry  or  the  global  economy  generally,  or  market  volatility
unrelated to the Company's business and operating results.

Part II-Other Information.
        ------------------

Item 1.  Legal Proceedings
         -----------------

         None

Item 2.  Change in Securities
         --------------------

         During the three months ended September 30, 2001, the Company granted
common stock options to employees and consultants as follows:
<TABLE>
<CAPTION>

  ------------------------------------------------------------------------------
                  Grant       Number of   Option    Vesting      Expiration
  Grantees        Date         Options    Price     Period          Date
  ------------------------------------------------------------------------------

<S>             <C>            <C>         <C>    <C>            <C>
  1 Consultant July 2, 2001      38,385    $0.99  Immediately    July 2, 2012

  1 Employee   August 7, 2001     75,000   $0.94  Quarterly over August 7, 2012
                                                                 three years
  1 Employee   August, 13 2001   100,000   $0.91  Quarterly over August 13, 2012
                                                                 three years
  1 Employee   August 22, 2001    75,000   $0.93  Immediately    August 22, 2012
  ------------------------------------------------------------------------------
</TABLE>

Item 3.  Defaults Upon Senior Securities
         -------------------------------
         None

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------
         None

Item 5.  Other Information
         -----------------
         None

Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------
(a)      Exhibits

         None

(b)      Reports on Form 8-K

     Current  Report  on  Form  8-K  filed  with  the  Securities  and  Exchange
Commission on August 1, 2001, with respect to the Company's  unaudited financial
results for the six months ended June 30, 2001.


                                      -18-
<PAGE>


                                   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



      November 7, 2001                           /s/ Francis V. Dane
-----------------------------      ---------------------------------------------
            Date                                     Francis V. Dane
                                   (Principal Financial Officer and Officer Duly
                                 Authorized to Sign on Behalf of the Registrant)



                                      -19-