<PAGE>

                                  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, 2000

                                       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 10, 2000: 89,648,437.

This Quarterly Report on Form 10-Q contains 19 pages of which this is page 1.


<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
                                    FORM 10-Q


                                      INDEX



PART I.  FINANCIAL INFORMATION


 Item 1.  Financial Statements                                        Page No.

 Condensed Consolidated Balance Sheets at
     September 30, 2000 (unaudited) and December 31,1999....................3

 Condensed Consolidated  Statements of Operations  for
     the Three and Nine month periods ended
     September 30, 2000 and 1999(unaudited).................................4

 Condensed Consolidated  Statements  of Changes
     in  Stockholders' Equity for the Nine month period
     Ended September 30, 2000(unaudited)....................................5

 Condensed Consolidated  Statements  of Cash  Flows
     for the Nine month periods ended
     September 30, 2000 and 1999(unaudited).................................6

 Notes to Unaudited Condensed Consolidated Financial
     Statements.............................................................8


Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations.............................................13

Item 3.  Quantitative and Qualitative Disclosures About Market Risk........18

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,
                                                 2000                1999
                                             -------------       ------------
                                               Unaudited
<S>                                        <C>                <C>
Assets
Current assets:
     Cash and cash equivalents               $   2,613           $   2,374
     Accounts receivable, net                    1,167               1,575
     Inventories                                   135                  81
     Prepaid expenses and other
     current assets                                318                 175
                                             -------------       ------------
         Total current assets                    4,233               4,205

Note receivable from former officer                 74                 135
Property and equipment, net                        267                 344
Other assets                                       200                 279
                                             -------------       ------------

         Total assets                        $   4,774           $   4,963
                                             =============       ============

Liabilities and stockholders' equity
Current liabilities:
     Short-term debt                         $     121           $      60
     Accounts payable                              275                 288
     Accrued compensation                          218                 268
     Other accrued liabilities                     400                 500
     Deferred revenue                               48                  35
                                             ------------        ------------
         Total current liabilities               1,062               1,151

Long-term debt - related party                   1,398               1,338

Minority interest                                  125                 125

Commitments

Stockholders' equity:
     Common stock                                  846                 822
     Additional paid-in capital                 74,702              72,983
     Accumulated deficit                       (73,153)            (71,244)
     Cumulative translation adjustment            (206)               (212)
                                             ------------        ------------
         Total stockholders' equity              2,189               2,349
                                             ------------        ------------

         Total liabilities and
          stockholders' equity               $   4,774           $   4,963
                                             ============        ============

</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,
                                    ---------------------  -------------------
                                     2000       1999        2000        1999
                                    ------     ------      ------      ------
<S>                              <C>        <C>         <C>         <C>
Revenues:
     Product                       $   968    $ 1,200     $ 3,042     $ 2,760
     License and royalty             1,318        717       1,636       1,527
     Development contracts              60         49         295         362
                                   --------   --------    --------    --------

               Total revenues        2,346      1,966       4,973       4,649

Operating costs and expenses:
     Cost of sales:
        Product                        660      1,113       1,992       2,078
        License and royalty             18         12          52          44
        Development contracts           19         10         190         176
     Research and development          399        333       1,216       1,014
     Sales and marketing               537        504       1,717       1,335
     General and administrative        548        419       1,589       1,321
                                   --------    --------    --------    --------

            Total operating costs
                and expenses         2,181      2,391       6,756       5,968
                                   --------   --------    --------    --------

Income (loss) from operations          165       (425)     (1,783)     (1,319)

Interest income and other income
  (expense), net                        20          9          66          41

Interest expense                       (78)       (14)       (192)        (16)

Minority interest                       (1)         -           -           -
                                   --------   ---------   --------    --------

Net income (loss)                  $   106    $  (430)    $(1,909)    $(1,294)
                                   ========   =========   ========    ========

Income (loss) per share, basic     $  0.00    $ (0.01)    $ (0.02)    $ (0.02)
                                   ========   =========   ========    ========

Income (loss) per share, diluted   $  0.00    $ (0.01)    $ (0.02)    $ (0.02)
                                   ========   =========   ========    ========

Weighted average
     shares outstanding, basic      84,538     79,586      83,970      79,410
                                   ========   ========    ========    ========

Weighted average
     shares outstanding, diluted    90,759     79,586      83,970      79,410
                                   ========   ========    ========    ========
</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>

                                                           Accumulated
                                  Additional                  Other
                            Common  Paid-In   Accumulated  Comprehensive
                            Stock   Capital     Deficit       Loss       Total
                            ------  --------  ------------ ------------- ------
<S>                        <C>    <C>         <C>          <C>       <C>
Balances as of
December 31, 1999........   $ 822  $ 72,983    $(71,244)    $ (212)   $  2,349
Cashless Exercise of
 300 warrants for 250
 shares of Common Stock..       3         -           -          -           3
Exercise of options
 for 1,596  shares of
 Common Stock...........       16     1,439           -           -      1,455
Exercise of 106 warrants
 for 106 shares of
 Common Stock...........        1         -           -           -          1
Foreign currency
 translation adjustment.        -         -           -           2          2
Net loss................        -         -        (888)          -       (888)
                            ---------------------------------------------------
Balances as
  of March 31, 2000.....    $ 842  $ 74,422    $(72,132)     $ (210)   $ 2,922
                            ---------------------------------------------------

Exercise of options
 for 208 shares of
 Common Stock...........        2       156           -           -        158
Foreign currency
 translation adjustment.        -         -           -           2          2

Net loss................        -         -      (1,127)          -     (1,127)
                           ----------------------------------------------------
Balances as
 of June 30, 2000......    $  844  $ 74,578    $(73,259)     $ (208)   $ 1,955
                           ====================================================

Exercise of options
 for 188 shares of
 Common Stock..........         2       124           -           -        126
Foreign currency
 translation adjustment.        -         -           -           2          2

Net income..............        -         -         106           -        106
                           ----------------------------------------------------
Balances as of
 September 30, 2000.....   $  846  $ 74,702    $(73,153)     $ (206)   $ 2,189
                           ====================================================
</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,
                                             ----------------------------------
                                                  2000               1999
                                             ---------------    ---------------

<S>                                           <C>              <C>
Cash flows from operating
 activities:
 Net loss                                      $  (1,909)       $   (1,294)
 Adjustments to reconcile net loss
 to net cash provided by (used) in
 operating activities:
     Depreciation and amortization                   207               188
     Non-cash compensation                            61                62
     Changes in operating assets
      and liabilities:
        Accounts receivable                          408               235
        Inventories                                  (54)               15
        Other current assets                        (143)              (91)
        Other assets                                  69               (56)
        Accounts payable                             (14)                8
        Accrued compensation                         (49)               21
        Other accrued liabilities                    (99)              (56)
        Deferred revenue                              13              (573)
                                              ---------------    --------------

     Net cash used in operating activities        (1,510)           (1,541)
                                              ---------------    --------------

Cash flows from investing activities:
  Acquisition of property and equipment              (50)              (54)
                                              ---------------    --------------

    Net cash used in investing activities            (50)              (54)
                                              ---------------    --------------

Cash flows from financing activities:
  Principal payments on short-term debt              (60)             (145)
  Principal payments on capital
    lease obligations                                 (6)               (2)
  Proceeds from issuance of short-term debt          121               847
  Proceeds from issuance of common stock           1,744               618
  Restricted cash related to short-term debt           -               250
                                              ---------------    --------------

    Net cash provided by financing activities      1,799             1,568
                                              ---------------    --------------

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

Net increase (decrease) in cash
 and cash equivalents                                239               (27)
Cash and cash equivalents at beginning
 of period                                         2,374               795
                                              ===============    ==============

Cash and cash equivalents at end of period    $    2,613         $     768
                                              ===============    ==============

Interest paid in the period                   $      132         $       3
                                              ===============    ==============
</TABLE>

                            See accompanying notes.

                                      -6-

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

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

<S>                                                  <C>              <C>
                                                      2000             1999
                                               ---------------- ---------------
Schedule of non-cash transactions, Investing
and financing activities

Acquisition of property under capital lease             3               12
                                               ================ ===============
</TABLE>

                            See accompanying notes.

                                      -7-

<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
         Notes to Unaudited Condensed Consolidated Financial Statements
                (Dollars 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 natural input and electronic  signature
       solutions  for  wireless  internet  information  devices  and  enterprise
       applications  including  e-commerce,  document  automation  and corporate
       security.  The Company's core software  technologies include multilingual
       handwriting recognition systems (Jot(R) and the Handwriter(R) Recognition
       System,  referred to as  HRS(TM)),  dynamic  signature  verification  and
       capture  tools   (InkTools(TM),   Sign-it(TM),   and  Sign-On(TM)),   ink
       compression  (INKshrINK(R))  and operating system  extensions that enable
       pen input  (PenX(TM)  and  PenX(TM)  VC).  Other  consumer  and  original
       equipment  manufacturer  ("OEM") products include  electronic  notetaking
       (QuickNotes(TM)    and    InkSnap(TM))   and   predictive   text   input,
       (WordComplete(TM)).  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 types
       of devices, handwriting recognition and software keyboards offer the most
       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, 2000, the Company's cash and cash
       equivalents  increased by $239 from $2,374 at the beginning of the period
       to $2,613 at September 30, 2000. The increase is due primarily to cash of
       $1,799 provided by financing activities. This increase was offset by cash
       used in  operating  activities  of  $1,510  and  cash  used in  investing
       activities of $50. The $1,799 provided by financing  activities  consists
       primarily of $1,744 in proceeds  from the  exercise of stock  options and
       warrants by the  Company's  employees  and others,  and by proceeds  from
       short-term  debt of $121.  These  proceeds  were  offset by  payments  on
       capital lease obligations of $6 and payment of short term debt of $60. As
       of September 30, 2000, the Company's

                                      -8-

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

       Interim financial statements (continued)
       ----------------------------------------

       principal source of funds were its cash and cash equivalents  aggregating
       $2,613.  The Company  anticipates  that it will have adequate  capital to
       fund its planned operations in the forseeable future.  However, there can
       be no assurance that the Company will have adequate capital  resources to
       fund planned operations or that any 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, 1999.

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:
<TABLE>
<CAPTION>

                                       September 30,            December 31,
                                           2000                    1999
                                    -------------------- -- -------------------

<S>                                 <C>                      <C>
         Cash in bank               $        550             $     1,705
         Commercial paper                    644                      11
         Money market accounts             1,419                     658
                                    --------------------     ------------------
                                    $      2,613             $     2,374
                                    ====================     ==================
</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,
       2000, 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  with the former Chief  Executive  Officer (the
       "Agreement"). Under the terms of the Agreement, 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 former officer will be forgiven on December 15,
       2001, if the former officer has performed all the required services under
       the Agreement. The Agreement will terminate on December 15, 2001.

                                      -9-

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

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

       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  bear  interest  at 5.12% and are due on March 2, and March 19,
       2001, respectively. The borrowings do not require a compensating balance.

6.     Long-term debt related party
       ----------------------------

       On October 20, 1999,  the Company  entered into a loan  agreement  with a
       charitable  remainder  annuity trust,  of which a director and officer of
       the Company is a trustee,  which provided for borrowings in the aggregate
       amount of $1,500 (the "1999  Loan").  The 1999 Loan is secured by a first
       priority security interest in all of the Company's assets as now owned or
       hereafter  acquired by the Company.  The 1999 Loan bears  interest at the
       rate of 2% over the prime  rate as  published  by  Citibank  from time to
       time,  11.5% at  September  30,  2000.  The note is due January 31, 2002.
       Interest  on  the  principal  amount  under  the  1999  Loan  is  payable
       quarterly.  The 1999 Loan can be  re-paid in whole at any time or in part
       at any time without penalty. Any partial payment must be in the principal
       amount of $100 or a multiple thereof.

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

       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.

       License  revenues are recognized when the software has been delivered and
       when all  significant  obligations  have been met.  Royalty  revenues are
       recognized as products are licensed/sold by licensees.

       Development  contracts revenue is generated  primarily from non-recurring
       engineering  activities  and research  grants from  government  agencies.
       Revenue  is  recognized  in  accordance  with the terms of the grants and
       agreements,  generally when collection is probable and related costs have
       been  incurred.  Deferred  revenue  in the  accompanying  balance  sheets
       reflects advance service and non-recurring engineering fees received from
       the Company's licensees in advance of revenue recognition.

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

       Basic net loss per  share,  is based on the  weighted  average  number of
       common  shares  outstanding  during the period.  The diluted net loss per
       share calculation includes common stock equivalents  consisting of common
       shares  issuable upon the exercise of stock  options and warrants  (using
       the treasury  stock method).  For the three month period ended  September
       30, 2000,  common stock equivalents are included as their effect upon net
       loss per common  share is  dilutive.  For the three  month  period  ended
       September 30, 1999,  and the nine month periods ended  September 30, 2000
       and 1999,  respectivley,  potential common shares, including stock, stock
       options and warrants,  have been excluded from the calculation of diluted
       earnings per share as their effect is anti-dilutive.

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


9.     Comprehensive income
       --------------------

       Total comprehensive income (loss) was as follows:
<TABLE>
<CAPTION>

                                            Nine months ended September 30,
                                            -------------------------------
                                               2000                   1999
                                            -----------           -------------

<S>                                        <C>                   <C>
         Net loss                          $   (1,909)           $    (1,294)
         Other comprehensive income:
         Cumulative translation adjustment          6                    (54)
                                            -----------           -------------
         Total comprehensive loss          $   (1,903)           $    (1,348)
                                            ===========           =============
</TABLE>

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

       In June 1997, the Financial  Accounting  Standards Board issued Statement
       of Financial Accounting Standards No. 131, "Disclosures About Segments of
       An Enterprise  and Related  Information"  ("SFAS 131").  SFAS 131 revises
       information  regarding  the  reporting  of  operating  segments  and  was
       required to be adopted in periods  beginning  after December 15, 1997. It
       also  establishes  standards for related  disclosures  about products and
       services,  geographic areas and major customers. The Company adopted SFAS
       131 for the year ended  December 31, 1998 and the  Company's  information
       has been broken down into 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" set forth
       in the Company's  Annual Report on Form 10-K for the year ended  December
       31,  1999.  Segment  data  includes   revenues,   as  well  as  allocated
       corporate-headquarters costs charged to each of the operating segments.

       The Company identifies  reportable segments by classifying  revenues into
       two  categories:   handwriting   recognition   and  system   integration.
       Handwriting   recognition  software  is  an  aggregate  of  five  revenue
       categories.  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,
                   ------------------------------------------------------------
                              2000                           1999
                   ----------------------------- ------------------------------
                   Handwriting   Systems         Handwriting   Systems
                   Recognition Integration Total Recognition Integration Total
                   ----------- ----------- ----- ----------- ----------- -----

<S>                   <C>       <C>       <C>       <C>       <C>      <C>
      Revenues        $ 3,657   $ 1,316   $ 4,973   $ 3,372   $ 1,277  $  4,649
      Loss from
       Operations     $(1,779)  $   (4)   $(1,783) $(1,305)   $  (14)  $ (1,319)
      Significant
       change in
       Total assets
       from Year End  $     -   $    -    $     -  $     -    $    -   $      -
</TABLE>

                                      -11-

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


11.    Subsequent event - Acquisition Of PenOp Assets
       ----------------------------------------------

       On October 6, 2000, the Company  acquired certain assets of PenOp Limited
       ("PenOp UK") and its subsidiary  PenOp Inc.  ("PenOp US" and collectively
       with PenOp UK, "PenOp") pursuant to an asset purchase  agreement dated as
       of September 29, 2000, by and among Buyer and the Sellers in exchange for
       4.7 million  shares  (the  "Transaction  Shares") of common  stock of the
       Company  (the  "Acquisition").  Out of the 4.7 million  shares  issued to
       PenOp in connection with the  Acquisition,  approximately  940,000 shares
       are being held in escrow to cover indemnification claims.

       The acquired assets will be stated at cost and cost will be determined by
       the  fair-value of the  consideration  given or by the  fair-value of the
       property acquired,  which ever is more clearly evident. As of the date of
       this  filing,  the  Company has not  determined  the  purchase  price for
       accounting purposes.  However, the subsequent  accounting for the assets,
       will be to depreciate,  amortize,  or otherwise match the asset cost with
       revenues.

       In connection  with the  Acquisition,  the Company  filed a  Registration
       Statement  with the SEC covering the sale of the  Transaction  Shares and
       agreed  to use  reasonable  efforts  to have the  Registration  Statement
       declared effective as soon as practicable thereafter.

       In  connection  with the  Acquisition,  a  director  and  officer  of the
       Company,  and  his  designees,  purchased  in a  private  transaction  an
       aggregate  of  1,713,728  shares of  common  stock  received  by PenOp in
       connection with the Acquisition for $3.3 million.

                                      -12-


<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 I - Item  1 of  this  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 year ended  December
31, 1999.

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

Revenues.  The Company's  revenues are derived from product  sales,  license and
royalty fees and development contracts. For the three months ended September 30,
2000,  total revenues  increased by 19% to $2,346 from $1,966,  and for the nine
months revenue  increased 7% to $4,973 from $4,649 for the comparable  three and
nine month periods ended September 30, 1999 as discussed below:
<TABLE>
<CAPTION>

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

                              2000         1999           2000          1999
                           ----------   ----------     ----------    ----------

<S>                        <C>          <C>             <C>           <C>
Revenues:
 Product sales              $   968      $ 1,200         $ 3,042       $ 2,760
 License and royalty fees     1,318          717           1,636         1,527
 Development contracts           60           49             295           362
                            ---------    --------       ---------      --------
     Total revenues         $ 2,346      $ 1,966         $ 4,973       $ 4,649
                            =========    ========       =========      ========
</TABLE>


Product sales for the three months ended  September 30, 2000  decreased  $232 or
19% to $968 from $1,200 in the  comparable  prior year period.  This decrease is
due to a decrease of $216 or 42% in aftermarket  consumer software sales via the
Company's  website to $297  compared to $513 in the prior year.  The decrease in
aftermarket consumer software sales resulted from decreased  availability of new
names to be used in direct mail  campaigns  as  compared to the 1999  comparable
quarter.  Product sales by the Company's 90% owned joint venture in The People's
Republic of China (the "Joint  Venture")  decreased  $103 or 15% to $580 for the
three month period  ended  September  30, 2000  compared to $683 during the same
period  last year.  The  decrease  is  primarily  due to one time  large  orders
received  during  the  prior  year  period.  The sales of  electronic  signature
software  increased  $87 to $91  compared to $3 the same three month period last
year.

Product sales for the nine months ended September 30, 2000 increased $282 or 10%
to $3,042 from $2,760 in the comparable prior year period. This increase was due
to the increase of $622 or 809% in the Company's  electronic signature software.
The  product  revenue  increase  reflects a  breakthrough  order for  electronic
signature  software  from  Charles  Schwab  & Co in 2000.  Aftermarket  consumer
software sales via the Company's website declined $387 or 27% to $1,026 compared
to $1,413 in the prior year. The decrease in aftermarket consumer software sales
resulted from decreased  availability  in names used in direct mail campaigns as
compared  to the 1999 nine  month  period.  Product  sales by the Joint  Venture
increased  $47 or 4% to $1,316  from  $1,269  for the nine  month  period  ended
September  30,  2000  compared to the same  period  last year.  The  increase is
primarily  due to  increased  sales  activity  during the nine months of 2000 as
compared to the prior year period.

Revenues  from  license  and  royalty  fees for the  three  month  period  ended
September 30, 2000  increased  $601 or 84% to $1,318 from $717 in the comparable
prior year period. This increase is primarily attributable to the recognition of
$1,000 in the third quarter of 2000 in connection with a license  agreement with
Ericsson.  For the nine month period ended  September  30, 2000,  revenues  from

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

license  and  royalty  fees  increased  $109 or 7% to $1,636  from $1,527 in the
comparable  prior year period.  This  increase was  primarily  the result of the
event  described  above,  and was offset by the decrease in reported OEM product
shipments  bundling the Company's  handwriting  recognition  software during the
nine months ended September 30, 2000 compared to the same period last year.

Development  contract  revenues for the three month period ended  September  30,
2000 increased $11 or 22% to $60 from $49 in the  comparable  prior year period.
This  increase  resulted  from non  recurring  engineering  fees  received  from
Ericsson and others for porting of the  Company's  software to their  respective
operating  platforms  and grant  revenue  from the National  Science  Foundation
("NSF").  For the nine months ended  September  30, 2000,  development  contract
revenue  decreased  $67 or 19% to $295 from $362 in the  comparable  prior  year
period. The decrease is due to the higher engineering  revenues  recognized from
Ericsson during the same nine month period in the prior year.

Cost of sales.  Cost of total product sales for the three and nine month periods
ended September 30, 2000 decreased 41% and 4%, respectively, to $660 and $1,992,
respectively, from $1,113 and $2,078, respectively, in the comparable prior year
periods.  Cost of  product  sales  for the three and nine  month  periods  ended
September  30,  2000  includes  approximately  $433 and $959,  respectively,  of
hardware and software components related to the system integration activities of
the Joint Venture compared to approximately $541 and $922, respectively,  in the
prior year periods.  The decrease in systems  integration costs of product sales
for the three month  period ended  September  30, 2000 is due to the decrease in
sales of such products as discussed above.  The increase in systems  integration
costs of product sales for the nine month period ended September 30, 2000 is due
to the  increase  in sales of such  products.  Web sale costs over the three and
nine  month  periods  ending   September  30,  2000  decreased  $346  and  $234,
respectively, to $226 and $897, respectively, compared to $572 and $1,131 in the
comparable  period of the prior year.  The decrease in web product cost of sales
is due to elimination of certain non productive banner advertising on the web as
well as a decrease in direct mail  campaign  costs due the fewer number of names
available  over the  three and nine  month  periods  ended  September  30,  2000
compared to the same prior year periods. No banner advertising was done over the
three and nine months ended September 30, 1999.

License  and royalty  cost of sales  increased  approximately  $6 to $18 for the
three  months  ended  September  30, 2000  compared to $12 during the prior year
period.  For the nine months ended September 30, 2000,  license and royalty cost
of sales increased $8 to $52 compared to $44 in the comparable 1999 period.  The
change  is due to the  technology  import  tax  on the  Company's  Japanese  OEM
shipments bundling the Company's handwriting recognition software.

Costs incurred in connection with development contract revenues increased 90% to
$19 for the three  months  ended  September  30,  2000 as compared to $10 in the
prior  period,  due to the costs  associated  with the NSF  grant.  For the nine
months ended September 30, 2000, contract development costs increased 8% to $190
as compared to $176 in the prior period. The increase is due to the higher costs
associated  with the NSF grant over the nine  months  ended  September  30, 2000
compared to the same period last year.

Gross  profit.  Gross  profit  increased  to $1,649 and $2,739 or 70% and 55% of
sales,  respectively,  for the three and nine month periods ended  September 30,
2000 compared to $831 and $2,351 or 42% and 51% of sales, respectively,  for the
comparable  period in the prior year.  This  increase  was due  primarily to the
increase  in  licensing  and  royalty  revenues  compared to the prior year as a
result of the  recognition  of $1,000 of revenues in  connection  with a license
agreement  with  Ericsson.  Product gross  margins  increased to $308 and $1,050
compared  to $86 and  $681  in the  prior  year.  This  increase  was due to the
breakthrough  order of the Company's  electronic  signature solution software to
Charles  Schwab & Co in 2000.  License and royalty  gross  profit  increased  to
$1,300 and $1,584 for the three and nine month period ended  September  30, 2000
compared to $705 and 1,483 for the same period last year. The higher license and
royalty  gross  margins  were  primarily  due to the  recognition  of  licensing
revenues from Ericsson of $1,000. Development contract gross profit increased to
$41 for the three  months  ended  September  30,  2000  compared  to $39 for the
comparable  periods  last year.  For the nine months ended  September  30, 2000,

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

development  contract  gross  margins  decreased to $105 compared to $186 in the
comparable  prior year period.  The changes are due to costs associated with the
NSF grant, and lower revenues as discussed above.

Research and development  expenses.  Research and development  expense increased
$66 or 20% to $399 for three months ended  September  30, 2000  compared to $333
for the same period last year. The increase is primarily due to the reduction in
direct  expenses  transferred  to  costs of sales  associated  with  development
contract  revenue during the three months ended September 30, 2000 which was $19
compared to $76 in the comparable  prior year period.  Other  engineering  costs
increased $21,  including costs  associated  with the engineering  effort at the
Company's  Joint Venture.  These  increases were offset by a reduction of $12 in
engineering  salaries  and  related  expenses to during the three  months  ended
September  30,  2000 to $283  compared  to $295 in the prior  year.  Transfer of
personnel  and  attrition is the reason for the  reduction in salary and related
costs.

Research and  development  expense for the nine months ended  September 30, 2000
increased 20% or $202 to $1,216 compared to $1,014 during the prior year period.
Salaries and related  expenses  increased  $43 or 5% compared to the prior year.
Other costs including facilities expenses,  travel, and other services increased
$117  compared  to the  prior  year.  These  expenses  are  associated  with the
development  of  products  by the  Company's  Joint  venture.  In  addition  the
reduction in the transferred costs associated with development  contract revenue
discussed above accounted for $42 of the increase.

Sales and marketing  expenses.  Sales and marketing expenses increased $33 or 7%
to $537 for the three months ended  September  30, 2000  compared to $504 in the
prior year  period.  Salaries  and wages  increased  $26 during the three months
ended  September  30, 2000  compared to last year.  This  increase is due to the
hiring of a marketing executive late in the second quarter of 2000. Other costs,
including travel and related, dues and advertising and promotion,  increased $80
compared to the same period last year. These increases were offset by reductions
primarily in professional services and recruiting of $73.

Sales and marketing expenses increased $382 or 29% to $1,717 for the nine months
ended September 30, 2000 compared to $1,335 in the comparable  period last year.
Salaries and related  expenses  increased  $117 compared to the same period last
year.  This  increase  was due to  additions  to the  marketing  and sales force
personal since the fourth  quarter of 1999.  Other costs  including  recruiting,
travel and related expense and professional  services  increased $128 during the
nine months ended September 30, 2000.  These increases are due to the additional
marketing  personal  hired  since the fourth  quarter of 1999.  Advertising  and
promotion  expense  increased  $141  compared to the same nine month period last
year.  The  increase is primarily  due to increased  presents at trade shows and
improvements  to the Company's  promotional  literature.  These  increases  were
offset by net  reductions  in other  expenses,  primarily  outside  service  and
support,  over the nine months ended September 30, 2000 of $4 as compared to the
same nine month period last year.

General and administrative expenses. General and administrative expenses for the
three and nine month period ended  September 30, 2000  increased  $129 and $268,
respectively,  or 31% and 20% to $548 and $1,589 as  compared to $419 and $1,321
in the comparable  three and nine month period of the prior year.  This increase
was  primarily  attributable  to an increase of $87 and $205,  respectively,  in
investor  relations  and  legal  expenses  due  to  the  costs  associated  with
disseminating  information to the substantially increased number of shareholders
over the prior year period.  In addition,  salaries and related expenses for the
three and nine month period, increased $36 and $90, respectively.  This increase
was due to an increase  in the number of  administrative  personnel  late in the
fourth quarter of 1999. Other costs such as recruiting, professional service and
facilities  related costs  increased $6 during the three months ended  September
30,  2000  compared  to the same  period of the prior  year.  For the nine month
period ended September 30, 2000, other net costs,  primarily patent amortization
cost and professional services,  decreased $27 compared to the nine month period
in the prior year.

Interest and other income  (expense),  net. Interest and other income (expense),
net, increased $11 and $25, respectivley, to $20 and $66, respectively,  for the

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

three  and  nine  months  ended  September  30,  2000  compared  to $9 and  $41,
respectively,  in the comparable  prior year period.  The increase is due to the
increase in interest income from the higher cash and equivalents compared to the
prior year. The increase in interest  income is offset by credit card processing
fees associated with internet sales.

Interest expense. Interest expense increased $64 and $176, respectively,  to $78
and $192,  respectively  over the three and nine months ended September 30, 2000
compared to $14 and $16,  respectively,  in the  comparable  period of the prior
year. The increase is the due to interest on the $1,500 long term note issued in
October of the prior year and the  amortization of the loan discount  associated
with warrants issued in connection with the long term loan.

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

At September 30, 2000, cash and cash equivalents totaled $2,613 compared to cash
and cash  equivalents  of $2,374 at  December  31,  1999.  The  increase  is due
primarily to cash of $1,799 provided by financing activities.  This increase was
offset by cash used in operating activities of $1,510 and cash used in investing
activities  of  $50.  The  $1,799  provided  by  financing  activities  consists
primarily of $1,744 in proceeds  from the exercise of stock options and warrants
by the Company's  employees and others,  and by proceeds from short-term debt of
$121. These proceeds were off set by payments on capital lease obligations of $6
and  payment of short term debt of $60.  Total  current  assets  were  $4,233 at
September 30, 2000 compared to $4,205 at December 31, 1999.

As of September 30, 2000,  the Company's  principal  source of liquidity was its
cash and cash  equivalents of $2,613.  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 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 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 revenue,  were $1,062 at September
30,  2000.  Deferred  revenue,  totaling $48 at  September  30, 2000,  primarily
reflects  advance service and  non-recurring  engineering fees for the Company's
licensees which are generally recognized as revenue by the Company in the period
in which the related service and engineering work is completed.

On October 20, 1999, the Company entered into a loan agreement with a charitable
remainder  annuity  trust,  of which a director  and officer of the Company is a
trustee,  which provides for  borrowings in the aggregate  amount of $1,500 (the
"1999  Loan").  Borrowings  under the 1999 Loan is secured  by a first  priority
security  interest  in all of the  Company's  assets as now  owned or  hereafter
acquired by the Company. The 1999 Loan bears interest at the rate of 2% over the
prime rate as  published by Citibank  from time to time,  and is due January 31,
2002. Interest on the principal amount under the 1999 Loan is payable quarterly.
The 1999 Loan can be re-paid in whole at any time or in part at any time without
penalty.  Any  partial  payment  must be in the  principal  amount  of $100 or a
multiple  thereof.  The interest rate at September  30, 2000 was 11.5%,  and the
outstanding amount was $1,500.

On October 6, 2000, the Company acquired certain assets of PenOp Limited ("PenOp
UK") and its subsidiary PenOp Inc.  ("PenOp US" and collectively  with PenOp UK,
"PenOp") pursuant to an asset purchase agreement dated as of September 29, 2000,
by and among  Buyer and the  Sellers in  exchange  for 4.7  million  shares (the
"Transaction Shares") of common stock of the Company (the "Acquisition"). Out of
the 4.7  million  shares  issued to PenOp in  connection  with the  Acquisition,
approximately  940,000 shares are being held in escrow to cover  indemnification
claims.

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

The acquired  assets will be stated at cost and cost will be  determined  by the
fair-value  of the  consideration  given or by the  fair-value  of the  property
acquired, which ever is more clearly evident. As of the date of this filing, the
Company has not determined the purchase price for accounting purposes.  However,
the subsequent  accounting for the assets, will be to depreciate,  amortize,  or
otherwise match the asset cost with revenues.

In connection with the Acquisition,  the Company filed a Registration  Statement
with the SEC  covering  the sale of the  Transaction  Shares  and  agreed to use
reasonable efforts to have the Registration Statement declared effective as soon
as practicable thereafter.

In connection with the Acquisition,  a director and officer of the Company,  and
his  designees,  purchased  in a private  transaction  an aggregate of 1,713,728
shares of common stock received by PenOp in connection  with the Acquisition for
$3.3 million.

The Company  leases  facilities in the United States and China.  Future  minimum
lease  payments  under  non-cancelable  operating  leases  are  expected  to  be
approximately $517, and $431,  respectivley,  excluding sub-lease income for the
years ending December 31, 2000, and 2001. The Company's rent expense is expected
to be reduced by  approximately  $98 in 2000 in connection with the subleases on
excess office space in the United States.

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.

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
-------------------------------

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 technology sector or the
economy generally,  or market volatility unrelated to the Company's business and
operating results.

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 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 (1) technological, engineering,
manufacturing, quality control or other circumstances which could delay the sale
or  shipment  of  products;  (2)  economic,  business,  market  and  competitive
conditions in the software  industry and  technological  innovations which could
affect the Company's business;  (3) 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 (4)  general  economic  and  business
conditions and the availability of sufficient financing.

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

         None

Part II-Other Information

Item 1.  Legal Proceedings

         None

Item 2.  Change in Securities

         During the three  months  ended  September  30,  2000,  the Company has
         granted  stock  options to employees  and  directors  for  services
         rendered as follows:


Item 2.  Change in Securities (continued)
<TABLE>
<CAPTION>

 ------------------------------------------------------------------------------
                  Grant      Number of    Option     Vesting        Expiration
  Grantees        Date        Options      Price     Period            Date
 ------------------------------------------------------------------------------
<S>         <C>   <C>          <C>       <C>       <C>             <C>
  Employees (1)   07/13/00      10,000   $ 3.5625   Quarterly        07/13/10
                                                    over three
                                                    years

  Employees (1)   07/31/00      10,000   $ 3.7188   Quarterly        07/31/10
                                                    over three
                                                    years

  Employees (1)   09/29/00      50,000   $ 2.2500   Monthly over     09/29/10
                                                    six months
 ------------------------------------------------------------------------------
</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

         Exhibit 27, Financial Data Schedule.

(b)      Reports on Form 8-K

         None

                                      -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 10, 1999                       /S/ Guido Di Gregorio
-----------------------       -----------------------------------------------
       Date                                  Guido DiGregorio
                               (Principal Financial Officer and Officer Duly
                               Authorized to Sign on Behalf of the Registrant)


                                      -19-