UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                    FORM 10-Q


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


                  For the quarterly period ended: June 30, 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
        August 6, 2001: 90,721,024.

<PAGE>
                                      INDEX



PART I.  FINANCIAL INFORMATION


 Item 1.  Financial Statements                                          Page No.
          --------------------                                          --------

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

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

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

  Condensed Consolidated Statements of Cash Flows for the Three and
      Six-Month Periods Ended June 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................................................17
          -----------------

 Item 2.  Change in Securities.............................................17
          --------------------

 Item 3.  Defaults Upon Senior Securities..................................18
          -------------------------------

 Item 4.  Submission of Matters to a Vote of Security Holders..............18
          ---------------------------------------------------

 Item 5.  Other Information................................................19
          -----------------

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

            (a)      Exhibits..............................................19

            (b)      Reports on Form 8-K...................................19

         Signatures........................................................20

<PAGE>

                     Communication Intelligence Corporation
                                 and Subsidiary
                      Condensed Consolidated Balance Sheets
                                 (In thousands)
<TABLE>
<CAPTION>
                                                 June 30,        December 31,
                                                   2001             2000
                                               ------------     -------------
                                                                  Unaudited
<S>                                           <C>               <C>
Assets
Current assets:
     Cash and cash equivalents.............     $   3,618         $   2,349
     Accounts receivable, net,
     includes $250 at 12/31/00 from
     M10 (previously PenOp Inc.)...........         1,555             1,760
     Inventories...........................            85               171
     Prepaid expenses and other
      current assets.......................           244               270
                                                 ----------       -----------
         Total current assets..............         5,502             4,550

Note receivable from officer...............             -                46
Property and equipment, net................           239               262
Patents and trademarks.....................         6,027             6,234
Other assets...............................           226               210
                                                 ----------       -----------

         Total assets......................      $ 11,994         $  11,302
                                                 ==========       ===========

Liabilities and Stockholders'
     equity Current liabilities:
     Short-term debt.......................      $    181         $     120
     Accounts payable......................           387               679
     Accrued compensation..................           261               263
     Other accrued liabilities.............           215               318
     Deferred revenue......................           130                61
                                                 ----------       -----------
         Total current liabilities.........         1,174             1,441

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

Minority interest..........................           129               127

Commitments

Stockholders' equity:
     Common stock..........................           907               897
     Additional paid-in capital............        81,462            80,656
     Accumulated deficit...................       (74,477)          (73,043)
     Cumulative translation adjustment.....          (201)             (203)
                                                 ----------       -----------
         Total stockholders' equity........         7,691             8,307
                                                 ----------       -----------

         Total liabilities and stockholders'
          equity...........................      $ 11,994          $ 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  Six Months Ended
                                                 June 30,          June 30,
                                           ------------------- -----------------
                                              2001     2000      2001     2000
                                           --------  --------  -------- --------
<S>                                       <C>      <C>       <C>      <C>
Revenues:
 Online................................... $   348  $   430   $   740  $   729
 Corporate................................   1,183      449     1,662    1,162
  Nonrecurring maintenance
  fees (net) - M10(previously PenOp Inc.)..      -        -       352        -
 China    .................................    372      371       767      736
                                            -------  -------   -------  -------

        Total revenues.....................  1,903    1,250     3,521    2,627

Operating costs and expenses:
 Cost of sales:
     Online................................    306      400       575      671
     Corporate.............................    157      138       232      340
     China ................................    239      270       517      526
  Research and development.................    494      388       971      817
  Sales and marketing  ....................    573      588     1,134    1,180
  General and administrative  .............    736      571     1,379    1,041
                                            ------   ------    ------   ------

       Total operating costs and expenses     2,505    2,355     4,808    4,575
                                             ------   ------    ------   ------

Loss from operations  .....................    (602)  (1,105)   (1,287)  (1,948)

Interest and other income
  (expense), net  .........................       9       33        14       46

Interest expense  .........................     (98)     (55)     (159)    (114)

Minority interest  ........................      (2)       -        (2)       1
                                             -------  -------   -------  -------
         Net loss  ........................    (693)  (1,127)   (1,434)  (2,015)
                                             =======  =======   =======  =======

Basic loss per common share  ..............  $(0.01)  $(0.01)   $(0.02)  $(0.02)
                                             =======  =======   =======  =======

Diluted loss per common share  ............  $(0.01)  $(0.01)   $(0.02)  $(0.02)
                                             =======  =======   =======  =======
Weighted average common
     shares outstanding  ..................  90,542   84,370    90,384   83,684
                                             =======  =======   =======  =======
</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     Accum. Comprehensive
                                 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
                                 ===============================================
</TABLE>

                            See accompanying notes.

                                      -5-

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

<TABLE>
<CAPTION>
                                                           Six Months Ended
                                                               June 30,
                                                         ----------   ---------
                                                            2001         2000
                                                         ----------   ---------

<S>                                                     <C>          <C>
Cash flows from operating activities:
 Net loss.................................................$(1,434)     $(2,015)
 Adjustments to reconcile net loss to net cash
 provided by (used) in operating activities:
   Depreciation...........................................     75           96
   Patent amortization....................................    208            5
   Loan discount amortization.............................     74           32
   Non-cash compensation..................................     46           40
   Changes in operating assets and liabilities:
      Accounts receivable, net............................    205          653
      Inventories.........................................     86          (36)
      Prepaid expenses and other current assets...........     26          (70)
      Other assets........................................    (16)          69
      Accounts payable....................................   (292)         127
      Accrued compensation................................     (2)          (5)
      Other accrued liabilities...........................    (99)        (225)
      Deferred revenue....................................     69        1,078
                                                           -------      -------

   Net cash used in operating  activities................. (1,054)        (251)
                                                           -------      -------

Cash flows from investing activity:
  Acquisition of property and equipment...................    (50)         (43)
                                                           -------      -------

     Net cash used in investing activity..................    (50)         (43)
                                                           -------      -------

Cash flows from financing activities:
    Principal payments on short-term debt................. (1,620)         (60)
    Principal payments on capital lease obligations.......     (4)          (4)
    Proceeds from acquisition of short term debt..........    181            -
    Proceeds from exercise of stock options and warrants..    816        1,617
    Proceeds from acquisition of long-term debt...........  3,000            -
                                                           -------      -------

       Net cash provided by financing activities..........  2,373        1,553
                                                           -------      -------

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

Net increase in cash and cash equivalents.................  1,269        1,259
Cash and cash equivalents at beginning of period..........  2,349        2,374
                                                           -------      -------

Cash and cash equivalents at end of period................$ 3,618     $  3,633
                                                           =======      =======
</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 such 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 six  months  ended  June  30,  2001,  the  Company's  cash and cash
     equivalents  increased by $1,269 from $2,349 at the beginning of the period
     to $3,618.  The increase is due  primarily to $2,373  provided by financing
     activities.  This increase was  partially  offset by cash used in operating
     activities  of $1,054 and cash used in  investing  activities  of $50.  The
     $2,373  provided by  financing  activities  consists  primarily  of $816 in
     proceeds  from the  exercise of stock  options by certain of the  Company's
     employees,  net proceeds  from  short-term  debt  acquired by the Company's
     Joint Venture of $61, and $3,000 of long-term debt incurred by the Company.

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

     These  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 $120 of short term loans by the  Company's  Joint
     Venture and  capital  lease  obligations  of $4. As of June 30,  2001,  the
     Company's  principal  source  of funds  were its cash and cash  equivalents
     aggregating  $3,618.  The Company  anticipates  that it will have  adequate
     capital to fund its planned operations for the foreseeable 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, 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.

       Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
                                          June 30,              December 31,
                                            2001                    2000
                                   ---------------------    -------------------

<S>                                  <C>                      <C>
         Cash in bank                $      2,719             $      1,332
         Commercial paper                     684                      687
         Money market                         215                      330
                                    ---------------------   -------------------
                                     $      3,618             $      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 June 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.
     Under 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
     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 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 bears interest at 5.12% and is due August 19, 2001.

                                      -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 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%.  The  borrowings  did not  require 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 from time to time, which amounts to 8.75% at June 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 six months ended June 30, 2001, the Company  recognized  $325 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 the intellectual
     property rights from PenOp.

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

     Online 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 six months ended June 30, 2001,  potential  common shares
     excluded from the calculation of diluted earnings per share as their effect
     is  anti-dilutive,  include  7,168,070 stock options and 469,833  warrants.
     Potential common shares excluded from the calculation for the three and six
     months  ended June 30, 2000  include  8,818,152  stock  options and 469,833
     warrants.

9.   Comprehensive income

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

                                                  Six Months Ended June 30,
                                             ----------------------------------
                                                  2001                 2000
                                             -------------        -------------

<S>                                          <C>                  <C>
          Net loss                           $     (1,434)        $     (2,015)
          Other comprehensive income:
          Cumulative translation adjustment             2                    4
                                             -------------        -------------
          Total comprehensive loss           $     (1,432)        $     (2,011)
                                             =============        =============

</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"), 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." 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 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>
                                  Six Months ended June 30,
                  -------------------------------------------------------------
                                 2001                         2000
                  ------------------------------- -----------------------------
                   Handwriting  Systems           Handwriting  Systems
                   Recognition Integration  Total Recognition Integration Total
                   ----------- -----------  ----- ----------- ----------- -----

<S>                  <C>        <C>       <C>        <C>        <C>     <C>
   Revenues          $ 2,912    $  609    $ 3,521    $ 1,891    $ 736   $ 2,627

   Loss from
   Operations       $(1,236)    $  (51)   $(1,287)   $(1,942)   $  (6)  $(1,948)

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













                                      -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, CIC Acquisition Corp., 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  agreed to purchase  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 six months ended June 30, 2001, total revenues
increased $653 and $894, respectively,  or 52% and 34%, respectively,  to $1,903
and $3,521 from $1,250 and $2,627,  respectively,  for the comparable  three and
six month periods ended June 30, 2000 as discussed below:
<TABLE>
<CAPTION>

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

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

<S>                                 <C>       <C>           <C>        <C>
Revenues:
 Online                              $  348    $  430        $   740    $   729
 Corporate                            1,183       449          1,662      1,162
  Nonrecurring maintenance
  fees (net) - M10 (previously PenOp)     -         -            352          -
 China                                  372       371            767        736
                                    -------    ------       --------   --------

           Total revenues            $1,903    $1,250        $ 3,521    $ 2,627
                                    =======   =======       ========   ========
</TABLE>

     Online  revenues  decreased  $82 or 19% to $348 for the three  months ended
June 30, 2001 as compared to $430 in the prior year  period.  This  decrease was
primarily due to a less than anticipated  close rate on the available names used
in the Company's direct mail campaign compared to the same period last year. For
the six months ended June 30, 2001, Online revenues  increased $11 or 2% to $740
from $729 in the same six month  period  last year.  This  increase is due to an
increase in available names used in the Company's direct mail campaign  compared
to the same six month period in the prior year.

Corporate sales, which includes  Enterprise sales, OEM and Development  contract
revenues,  increased  for the three and six month  periods  ended June 30, 2001,
$734 and $500, respectively, or 164% and 43%, respectively to $1,183 and $1,662,
respectively,  from $449 and $1,162, respectively, as compared to the same prior
year periods.  Enterprise sales and maintenance contract fees from sources other
than M10 increased $465 or 196% to $703 for the three months ended June 30, 2001
compared to $238 in the same prior year period.  This  increase is primarily due
to a  sale  to a  major  insurance  company  (Prudential  Insurance  Company  of
America). For the six months ended June 30, 2001, enterprise sales increased 27%
or $180 to $850 from $670 in the same prior year period.  The six month increase
is  primarily  due to the reasons  mentioned  above.  OEM and  license  revenues
included in corporate sales increased $282 and $296,  respectively,  or 182% and
87%, respectively,  to $437 and $635, respectively,  for the three and six month
periods ended June 30, 2001 compared to $155 and $339, respectively,

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

for the  comparable  prior year  periods.  This  increase  was due  primarily to
license fees paid by a hardware  manufacturer , and to an increase in the amount
of royalty  revenues  recognized  from OEMs  compared to the prior year periods.
Revenues from development contracts decreased $13 or 22% to $44 from $57 for the
three  months ended June 30, 2001  compared to the same prior year  period.  The
decrease is due  primarily  to  decreases  in revenue  generating  non-recurring
engineering  ("NRE") projects compared to the same three month period last year.
For the six months  ended June 30, 2001,  revenues  from  development  contracts
increased  16% or $24 to $176  from $152 in the same  prior  year  period.  This
increase was  primarily due to the increase in NRE  activities  during the first
quarter of 2001 compared to the prior year. NRE activities for the three and six
months ended June 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.

     During the six months ended June 30, 2001, the Company  recognized  $325 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 the intellectual  property rights
from PenOp.

     China sales for the three months  ended June 30, 2001  increased $1 to $372
from $371 in the same prior year period.  For the six months ended June 30, 2001
China  revenues  increased  4% or $31 to $767 from $736 in the same  prior  year
period.  This  increase  was due to  increased  sales  activity  in 2001 and not
related to any one time large sale to a single customer.

     Cost of Sales.  Cost of sales  decreased for the three and six months ended
June 30, 2001 $106 and $213, respectively, or 13% and 14%, respectively, to $702
and $1,324, respectively compared to $808 and $1,537, respectively,  in the same
prior year periods.

     Online  cost of sales for the  three and six  months  ended  June 30,  2001
decreased $94 and $96, respectively,  or 24% and 14%, respectively,  to $306 and
$575, respectively,  compared to $400 and $671, respectively,  in the same prior
year  periods.  This  decrease  is 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 June 30, 2001  increased
$19 or 14% to $157 from $138 in the same prior year  period.  For the six months
ended  June 30,  2001,  corporate  cost of sales  decreased  $108 or 32% to $232
compared  to $340 in the  same  prior  year  period.  Enterprise  cost of  sales
increased  $119 or 1,101% to $129 for the three  months ended June 30, 2001 from
$11 in the comparable prior year period.  The increase in was due to third party
hardware costs sold with the Company's  corporate  signature  software  solution
products,  and  amortization of capitalized  software costs.  For the six months
ended  June  30,  2001,  enterprise  cost of  sales  declined  $13 or 9% to $130
compared to $143 in the  comparable  prior year period.  The decrease was due to
sales requiring fewer third party hardware devices.  OEM and licensing costs for
the  three  and six month  periods  ended  June 30,  2001  decreased  $1 and $3,
respectively,  or 6% and 10%, respectively,  to $13 and $24, respectively,  from
$14 and $27, respectively,  in the prior year periods. The decrease was due to a
decrease in revenues and the associated technology import tax from the Company's
Japanese OEM customers. Costs of development contract revenues decreased $99 and
$92, respectively,  or 88% and 55%, respectively,  to $14 and $79, respectively,
from $113 and $171, respectively,  in the same prior year periods. This decrease
was due to the  decrease in NRE  projects  during the three and six months ended
June 30, 2001 as compared to the same prior year periods.

     China  cost of sales for the  three  and six  months  ended  June 30,  2001
decreased  $31  and  $9,  respectively,   or  11%  and  2%  to  $239  and  $517,
respectively,  compared to $270 and $526,  respectively,  in the same prior year
periods.  The decrease was due to a reduction in system integration sales and an
increase in higher margin sales of the Company's software products.

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

     Gross Margin. Gross margin for the three and six months ended June 30, 2001
increased  $780 and $1,108,  respectively,  or 172% and 102%,  respectively,  to
$1,202 and $2,197, respectively, from $422 and $1,089, respectively, in the same
prior year periods.

     Online  gross  margin  for the three and six  months  ended  June 30,  2001
increased $12 and $106, respectively,  or 45% and 184%, respectively, to $42 and
$164,  respectively,  from $30 and $58,  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 11% and 22%, respectively,  of sales for the
three and six months ended June 30, 2001 compared to 7% and 8%, respectively, in
the same prior year periods.

     Corporate  sales gross  margin for the three and six months  ended June 30,
2001 increased $715 and $608,  respectively,  or 229% and 74%, respectively,  to
$1,027 and $1,430, respectively, compared to $312 and $822, respectively, in the
same prior year  periods.  This  increase was  primarily  due to the increase in
Corporate  sales.  Corporate sales gross margin as a percentage of sales was 87%
and 86% for the three and six month  periods ended June 30, 2001 compared to 69%
and 70% for the same three and six month periods of the prior year.

     China sales gross margin for the three and six month periods ended June 30,
2001 increased $32 and $40, respectively,  or 31% and 19%, respectively, to $133
and $250, respectively, from $101 and $210, respectively, in the same prior year
periods.  This increase is due to the increase in sales, and change in the sales
mix from system  integration sales to software sales as. China gross margin as a
percentage of sales  increased to 35% and 32% for the three and six months ended
June 30, 2001 compared to 27% and 29%,  respectively,  for the comparable  three
and six month periods in the prior year periods.

     Research and development  expenses.  Research and development  expenses for
the  three  and six  months  ended  June 30,  2001  increased  by $106 and $154,
respectively,  to $494 and $971,  respectively,  as  compared  to $388 and $817,
respectively,  in the comparable  three and six month periods of the prior year.
These increases were due primarily to approximately $44 and $184,  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 $34
and $54,  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  decreased $96 and $44,  respectively,  compared to
the same periods last year. The Company capitalized $20 in software  development
costs associated with new products and enhancements  during the six months ended
June 30, 2001. The Company did not capitalize any software  development costs in
the six month period ending June 30, 2000.

     Sales and marketing  expenses.  Sales and marketing  expenses for the three
and six months ended June 30, 2001 decreased $15 and $46, respectively,  to $573
and $1,134, respectively,  as compared to $588 and $1,180, respectively,  in the
comparable  periods of the prior year.  Professional  services  and  advertising
expenses  increased  $8 to $100 from $92 for the three month ended June 30, 2001
as compared with the same period last year.  For the six month period ended June
30, 2001,  professional services and advertising fees decreased $64 to $217 from
$281 as compared with the same period last year. This decrease was due primarily
to the one-time cost of  development of a media campaign in the prior year aimed
at  significantly  increasing  Online  sales via  CIC's  website.  Other  costs,
including  salaries  and related  expenses and travel and  recruiting  expenses,
decreased  $23 for the three  months  ended June 30,  2001  compared to the same
period in the prior year.  For the six months  ended June 30, 2001 other  costs,
including  salaries  and related  expenses  and travel and  recruiting  expenses
increased $18 as compared to the same six month period last year.

     General and administrative  expenses.  General and administrative  expenses
for the three and six months ended June 30, 2001 increased $165 and $338 to $736
and $1,379, respectively,  from $571 and $1,041, respectively, in the comparable
period of the  prior  year.  This  increase  was  attributable  primarily  to an
increase in patent amortization expense of $112 and $206,  respectively,  due to
the acquision of the PenOp intellectual  property in the fourth quarter of 2000.

                                      -14-
<PAGE>

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

Professional services increased $68 and $128, respectively,  due to the reversal
in the prior year of expenses  accrued in 1999 in  connection  with  anticipated
audit expenses related to the change in the Company's  outside  accounting firm.
Payroll and related costs increased approximately $11 and $31, respectively, due
to an increase in  personnel.  Other  costs,  including  facilities  and related
costs,  decreased $26 and $27,  respectively,  over the comparable three and six
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 six months ended June 30, 2001  decreased  $24
and $32,  respectively,  to $9 and $14,  respectively,  compared to $33 and $46,
respectively,  in the comparable periods of the prior year. Interest income from
cash and cash equivalents  decreased $28 and $36,  respectively,  to $17 and $34
for the three and six months ended June 30, 2001, compared to $44 and $70 in the
same periods of the prior year.  This  decrease  was due to lower cash  balances
during the three and six month periods ended June 30, 2001. The interest  income
was offset by $8 and $20, respectively, of credit card processing and other fees
compared  to $12 and $24,  respectively,  in the same  period of the prior  year
related to Online sales.

     Interest expense. Interest expense increased $43 and $45, respectively,  to
$98 and $159 for the three and six month periods ended June 30, 2001 compared to
$55 and $114, respectively, in the same prior year periods. The increase was due
to the  write off of the loan  discount  as a result  of the  settlement  of the
$1,500 note in June 2001. Interest expense decreased $3 and $4, respectively, to
$17 and $91,  respectively,  for the three and six months  ended June 30,  2001,
compared  to $55 and $95,  respectively,  in the same prior year  periods.  This
decrease was due to lower interest rates compared to last year.


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

     At June 30, 2001, cash and cash equivalents totaled $3,618 compared to cash
and cash  equivalents  of $2,349 at  December  31,  2000.  The  increase  is due
primarily  to  $2,373  provided  by  financing  activities.  This  increase  was
partially offset by cash used in operating activities of $1,054 and cash used in
investing  activities  of $50.  The  $2,373  provided  by  financing  activities
consists  primarily of $816 in proceeds  from the  exercise of stock  options by
certain of the Company's  employees,  net proceeds from short-term debt acquired
by the Company's  Joint Venture of $61 and $3,000 of long-term  debt incurred by
the Company in June 2001. 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 $120 of short term loans by the Company's Joint
Venture and capital lease obligations of $4. Total current assets were $5,502 at
June 30, 2001 compared to $4,550 at December 31, 2000.

     As of June 30, 2001,  the Company's  principal  source of liquidity was its
cash and cash  equivalents of $3,618.  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 the
foreseeable future.  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 revenues,  were $1,174 at June
30, 2001. Deferred revenues,  totaling $130 at June 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

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

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 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  loans  bear  interest  at 5.12%  and is due  August  19,  2001.  The
borrowings did not require a compensating balance.

     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%.  The borrowings did not require 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  from time to time,  which  amounts to 8.75% at June 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
approximately $487, excluding sub-lease income for the years 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;

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

Forward Looking Statements (continued)
--------------------------------------

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

o  General economic and business conditions and the availability of sufficient
   financing.

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk
------------------

         The Company has an investment portfolio of fixed income securities that
are classified as cash equivalents. These securities, like all fixed income
instruments, are subject to interest rate risk and will fall in value if the
market interest rates increase. The Company attempts to limit this exposure by
investing primarily in short term securities. The Company has not entered into
any short-term security investments during the three months ended June 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
by the Company or its competitors, announcements of new strategic relationships
by the Company or its competitors, general conditions in the computer industry
or the global economy 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 June 30, 2001, the Company granted stock
options to employees and directors as follows:
<TABLE>
<CAPTION>

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

<S>               <C> <C>    <C>          <C>      <C>            <C>
  3 Directors May 11, 2001   65,505       $1.11    Quarterly over  May 11, 2012
                                                     three years
  ------------------------------------------------------------------------------
</TABLE>


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

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>
 17 Employees May 11, 2001   184,490       $1.11    Quarterly over  May 11, 2012
                                                     three years
  1 Director  June 11, 2001   15,000       $1.06    Quarterly over June 11, 2012
                                                     three years
  3 Directors June 18, 2001   75,000       $1.01     Immediately   June 18, 2012
  ------------------------------------------------------------------------------
</TABLE>

Item 3.  Defaults Upon Senior Securities
         -------------------------------

         None

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

     The Company held its Annual Meeting of  Stockholders  on June 18, 2001. The
number of shares  of common  stock  with  voting  rights as of the  record  date
represented at the meeting either in person or by proxy was 83,468 shares or 92%
of the eligible  outstanding  Common Stock of the Company.  Three proposals were
voted upon by the stockholders. The proposals and the voting results follow:

Proposal 1
----------

     Each of the five  persons  listed  below were elected as directors to serve
until the next Annual  Meeting or until his  successor is elected or  appointed.
The number of votes for and withheld for each  individual  is listed next to his
name.
<TABLE>
<CAPTION>

                                                           Broker
                                               -------------------------------
   Name                For         Withheld      Non-votes         Abstain
 ---------------- -------------  ------------- ---------------  --------------

<S>                   <C>             <C>          <C>               <C>
 Guido DiGregorio     82,848          619           None              None
 Louis Panetta        82,779          688           None              None
 Philip Sassower      82,306        1,162           None              None
 Jeffrey Steiner      82,269        1,199           None              None
 C. B. Sung           82,867          601           None              None
</TABLE>

Proposal 2
----------

     To ratify the  appointment  of Stonefield  Josephson,  Inc. as  independent
accountants  of the Company for the fiscal year ending  December 31,  2001.  The
number of votes for, against and abstaining on this proposal was as follows:
<TABLE>
<CAPTION>

                                                              Broker
                                                      -------------------------
                  For         Against      Abstain     Non-votes     Abstain
               ----------   ----------   -----------  ----------- -------------


<S>              <C>           <C>           <C>         <C>           <C>
All Classes      82,001        1,282         186          None         None
</TABLE>


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

Proposal 3
----------

     To ratify the amendment to the Company's 1999 Stock Option Plan  increasing
the number of shares of the Company's common stock available for grants of stock
options under the plan. The number of votes for,  against and abstaining on this
proposal was as follows:
<TABLE>
<CAPTION>

                                                                Broker
                                                      --------------------------
                 For         Against       Abstain      Non-votes      Abstain
            -----------  --------------   ---------   ------------   -----------


<S>            <C>            <C>            <C>           <C>          <C>
All Classes    78,021         5,010          437           None         None
</TABLE>

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 dated May 3, 2001, with respect to the Company's
unaudited financial results for the three months ended March 31, 2001.

     Current  Report on Form 8-K dated June 22,  2001,  with  respect to the new
$3,000 refinancing with a charitable remainder annuity trust.


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




                                   SIGNATURES

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





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



    August 6, 2001                           /s/ Marjorie L. Bailey
----------------------------      ---------------------------------------------
         Date                                   Marjorie L. Bailey
                                  (Principal Financial Officer and Officer Duly
                                   thorized to Sign on Behalf of the Registrant)



                                      -20-