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: March 31, 2004


                                       OR

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


                        For the transition period from to

                       Commission File Number: 000-19301


                     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 May 10, 2004:
100,516,848.




<PAGE>

                                      INDEX



PART I.  FINANCIAL INFORMATION


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

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

Condensed Consolidated Statements of Operations for the Three-Month
Period Ended March 31, 2004 and 2003 (unaudited)...............................4

Condensed Consolidated Statements of Changes in Stockholders' Equity for the
Three-Month Period Ended March 31, 2004 (unaudited)............................5

Condensed Consolidated Statements of Cash Flows for the Three-Month Period
Ended March 31, 2004 and 2003 (unaudited)......................................6

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


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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk...........21
         ----------------------------------------------------------

Item 4A. Controls and Procedures..............................................22
         -----------------------

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings....................................................22
         -----------------

Item 2.  Change in Securities and Use of proceeds.............................22
         ----------------------------------------

Item 3.  Defaults Upon Senior Securities......................................22
         -------------------------------

Item 4.  Submission of Matters to a Vote of Security Holders..................22
         ---------------------------------------------------

Item 5.  Other Information....................................................22
         -----------------

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

         (a)      Exhibits....................................................22

         (b)      Reports on Form 8-K.........................................22

         Signatures...........................................................23


                                      -2-
<PAGE>

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

                                                     March 31,      December 31,
                                                       2004            2003
                                                    ---------        -----------
                                                    Unaudited
Assets
Current assets:
 Cash and cash equivalents...................       $     390        $   1,039
 Accounts receivable, net....................           2,695              742
 Inventories.................................              24               47
 Prepaid expenses and other current assets...             161              177
                                                    ----------       ----------
     Total current assets....................           3,270            2,005

Property and equipment, net..................             124              138
Patents and trademarks.......................           4,947            5,042
Other assets.................................              30               30
                                                    ----------       ----------

     Total assets............................        $  8,371        $   7,215
                                                    ==========       ==========

Liabilities and Stockholders' equity
Current liabilities:
 Short-term debt - related party.............        $  3,008        $   3,008
 Short-term debt - other.....................             750              750
 Accounts payable............................              85              243
 Accrued compensation........................             312              259
 Other accrued liabilities...................             375              475
 Deferred revenue............................             369              165
                                                     ---------       ----------
     Total current liabilities...............           4,899            4,900

Long-term debt - related party...............              11               13

Minority interest............................             106              115

Commitments                                                 -                -

Stockholders' equity:
 Common stock.................................          1,001            1,001
 Additional paid-in capital...................         83,528           83,528
 Accumulated deficit..........................        (80,997)         (82,164)
 Accumulated foreign currency translation
  adjustment..................................           (177)            (178)
                                                     ----------      ----------
     Total stockholders' equity...............          3,355            2,187
                                                     ----------      ----------

     Total liabilities and stockholders' equity....  $  8,371        $   7,215
                                                     ==========      ==========

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

                                      -3-

<PAGE>

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

                                                    Three Months Ended
                                                          March 31,
                                               -----------------------------
                                                   2004               2003
                                               ---------          ----------

Revenues:
     Online/retail......................       $      41          $     114
     Corporate..........................           2,352                667
     China..............................              36                327
                                               ----------         ----------

         Total revenues.................           2,429              1,108

Operating costs and expenses:
     Cost of sales:
         Online.........................               -                  1
         Corporate .....................               7                 12
         China..........................              26                220
     Research and development...........             319                340
     Sales and marketing................             332                283
     General and administrative.........             504                512
                                               ----------         ----------

    Total operating costs and expenses..           1,188              1,368
                                               ----------         ----------

Income (loss) from operations...........           1,241               (260)

Other income (expense):
 Interest and other income
 (expense), net.........................               9                 (1)
 Interest expense.......................             (83)               (49)
                                               -----------        -----------

         Net Income (loss) .............       $   1,167          $    (310)
                                               ===========        ===========

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

Weighted average common shares
 outstanding basic......................         100,102             91,907
                                               ===========        ===========

Weighted average common shares
 outstanding diluted....................         102,618             91,907
                                               ===========        ===========

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

                                      -4-
<PAGE>

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


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

Balances as of
 December31, 2003...  100,102  $  1,001  $ 83,528  $(82,164) $ (178)    $ 2,187
                     -----------------------------------------------------------


Foreign currency
 translation
  adjustment........        -        -          -         -       1           1
  Net income                -        -          -     1,167       -       1,167
                     -----------------------------------------------------------

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

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

                                      -5-
<PAGE>

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

                                                             Three Months Ended
                                                                  March 31,
                                                            --------   ---------
                                                              2004        2003
                                                            --------   ---------

Cash flows from operating activities:
 Net income (loss)..........................................$  1,167   $  (310)
 Adjustments to reconcile net income (loss) to net cash
 (used) in operating activities:
     Depreciation...........................................      15        27
     Patent and capitalized software amortization...........      98        98
     Changes in operating assets and liabilities:
        Accounts receivable, net............................  (1,953)     (414)
        Inventories.........................................      23        19
        Prepaid expenses and other current assets...........      16        47
        Other assets........................................       -         1
        Accounts payable....................................    (158)      185
        Accrued compensation................................      53       (27)
        Other accrued liabilities...........................    (108)      (13)
        Deferred revenue....................................     204       (98)
                                                             --------   --------

     Net cash (used in) operating  activities...............    (643)     (485)
                                                             --------   --------

Cash flows from investing activity:
 Acquisition of property and equipment......................      (3)        -
                                                             --------   --------

     Net cash used in investing activity....................      (3)        -
                                                             --------   --------

Cash flows from financing activities:
 Payments on long-term debt.................................      (2)        -
 Proceeds from acquisition of short term debt...............       -       600
 Proceeds from the issuance of common stock.................       -       400
 Offering costs.............................................       -      (287)
 Principal payments on capital lease
    obligations.............................................      (1)       (3)
                                                             --------   --------
    Net cash provided (used) by financing
     activities.............................................      (3)      710
                                                             --------   --------

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

Net increase (decrease) in cash and
 cash equivalents...........................................    (649)      225
Cash and cash equivalents at beginning
 of period..................................................   1,039       711
                                                             --------   --------

Cash and cash equivalents at end of period.................. $   390    $  936
                                                             ========   ========

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

                                      -6-

<PAGE>

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


1. Interim financial statements and basis of presentation

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

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

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

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

Other consumer and original  equipment  manufacturer  ("OEM")  products  include
electronic  notetaking  (QuickNotes(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
smart handheld devices such as handheld computers and smartphones.

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

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

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

                                      -7-
<PAGE>

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

Going Concern

The accompanying  condensed consolidated financial statements have been prepared
assuming  that the Company  will  continue as a going  concern.  The Company has
suffered  recurring losses from operations that raise a substantial  doubt about
its ability to continue as a going  concern.  At March 31, 2004,  the  Company's
accumulated  deficit was  approximately  $81  million and has a working  capital
deficit of $1.6 million.  The Company filed a  registration  statement  with the
Securities and Exchange  Commission that was declared  effective  February 2003,
pursuant to the line of credit  agreement  with  Cornell  Capital  Partners,  LP
("Cornell").  However,  there can be no  assurance  that the  Company  will have
adequate capital  resources to fund planned  operations or that additional funds
will be available to the Company when needed, or if available, will be available
on  favorable  terms or in amounts  required by the  Company.  If the Company is
unable  to obtain  adequate  capital  resources  to fund  operations,  it may be
required to delay, scale back or eliminate some or all of its operations,  which
may have a  material  adverse  effect  on the  Company's  business,  results  of
operations and ability to operate as a going concern. The accompanying condensed
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

2. Cash and cash equivalents

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

       Cash and cash equivalents consist of the following:

                                           March 31,              December 31,
                                             2004                    2003
                                    --------------------- -- -------------------

        Cash in bank                  $         79             $        110
        Money market                           311                      929
                                    ---------------------    -------------------
                                      $        390             $      1,039
                                    =====================    ===================

3. Inventories

Inventories  are  stated at the lower of cost or market,  cost being  determined
using the first-in,  first-out  (FIFO)  method.  At March 31, 2004,  inventories
consisted primarily of finished goods.

4. Short-term debt - other

On December 19, 2003, the Company  borrowed $750 from Cornell Capital  Partners,
LP. The proceeds of the loan were used for working capital purposes. The loan is
secured by 4,621  shares of the  Company's  common  stock  held in  escrow.  The
promissory note is due and payable in seven installments, commencing January 19,
2004 and  ending  on March 1,  2004,  and may be paid in cash or  shares  of the
company's  common stock. The Company has the option to delay the commencement of
the installment payments for an unlimited number of 30 day periods for an amount
equal to 2% of the  principal  amount  owed on or before  the  beginning  of the
current  option  period.  The 2% payment may be made in cash or shares of common
stock. Any delay in the  commencement  date will result in an equal delay in the
due date of the note. If the note is not paid in full when due, the  outstanding
principal  owed shall be due and payable in full  together  with interest at the
rate of 2% per annum commencing from the due date.

Subsequent to December 19, 2003,  the Company  exercised its option to delay the
commencement of the installment  payments by paying the 2% fee discussed  above,
which was $38 in the  aggregate  for the three months ended March 31, 2004.  The
Company chose to delay commencement of the installment  payments in anticipation
of an increase in the price of the  Company's  stock based upon a projection  of
profitable  first quarter results.  Under the equity line of credit,  the higher
the market value of the Company's  stock the fewer number of shares are required

                                      -8-
<PAGE>

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

to repay amounts  drawn on the line. As of May 10, 2004,  the Company has repaid
$400,000 of the loan  through the issuance of common stock and, due to the delay
in  commencement  of the due date, it has issued  approximately  21 fewer shares
than it would have if it had not exercised its option to defer the due date.

5.Short-term debt - related party transactions

   Short-term debt

On June 19, 2001, the Company consummated a three-year $3 million financing (the
"Loan") with a charitable remainder annuity trust of which a former director and
officer of the Company is a trustee (the "Trust"). The proceeds of the Loan were
used to refinance $1.5 million of indebtedness outstanding to the Trust pursuant
to a loan made by the  Trust to the  Company  in  October  1999 and for  working
capital purposes.

The Loan bears interest at the rate of 2% over the prime rate publicly announced
by Citibank  N.A.  from time to time,  which was 6% per annum at March 31, 2004,
and is due by 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.

The  loan  is due and  payable  by June  18,  2004.  The  Company  is  currently
investigating and considering various methods to pay off the loan.  Alternatives
being  considered  include:  paying the loan from cash  generated by operations,
refinancing  the loan with a  different  lender  either as  straight  debt or as
convertible  debt,  refinancing the loan with a different lender with terms that
allow the Company, at its option, to repay the loan through issuance of stock or
with available cash, and of course, if necessary,  the Company's existing equity
line of credit  agreement  could be used to pay the loan.  Any of the  preceding
alternatives  may be used  individually or in combination  with any other stated
alternative. The Company continues to investigate various methods of payment and
other  alternatives  may become  available  which the Company may  determine are
preferable to the above.

In the event the Company exceeds $5 million in financing from its equity line of
credit with  Cornell  Capital,  LP, 50% of the  proceeds in excess of $5 million
would be required  to be used to reduce the amount of the loan.  As of March 31,
2004,  the Company has raised  $2,750  gross,  under the line of credit of which
$750 was classified as a note payable.

In connection  with the Loan,  the Company  entered into a  registration  rights
agreement  with the Trust which  obligates  the  Company to file a  registration
statement with the Securities and Exchange  Commission  covering the sale of the
shares of the Company's  common stock issuable upon conversion of the Loan if it
receives a demand by the holder of the Loan to do so, and to use its  reasonable
best efforts to cause such  registration  statement to become  effective.  As of
March  31,  2004,  no  demand  had been  made  upon  the  Company  to file  this
registration statement.

Total interest paid for all outstanding debt during the three months ended March
31, 2004 and 2003 was $83, and $49, respectively.

                                      -9-
<PAGE>

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

6. Net income (loss) per share

The  Company  calculates  net income  (loss) per share under the  provisions  of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128").  SFAS 128 requires  the  disclosure  of both basic net income  (loss) per
share, which is based on the weighted average number of shares outstanding,  and
diluted income (loss) per share,  which is based on the weighted  average number
of shares and dilutive potential shares outstanding.  For the three month period
ended March 31, 2004 and 2003, the  computation  for basic and diluted  weighted
average shares outstanding is as follows:

                                         Three Months Ended
                              March 31, 2004               March 31, 2003
                      ------------------------------- --------------------------

                                   Weighted                  Weighted
                                    Average                   Average
                           Net      Shares   Per-Share  Net   Shares   Per-Share
                         Income  Outstanding  Amount   Loss Outstanding  Amount
Basic income (loss)
 per share:
  Income available to
  stockholders          $ 1,167    100,102   $  0.01  $(310)  91,907    $(0.01)

Effect of dilutive
securities:
  Stock options               -       529          -      -        -         -
  Note payable to
  Cornell                     -     1,987          -      -        -         -
                         -------- -------    -------   -----  ------    -------

  Diluted income (loss) $ 1,167   102,618      $0.01  $(310)  91,907    $(0.01)
                          ======= =======    =======  ======  ======   ========

For the three  months ended March 31, 2004,  4,813 stock  options were  excluded
from the  calculation of dilutive  earnings per share because the exercise price
of such  options was  greater  than the average  market  price of the  Company's
common stock.  For the three months ended March 31, 2003, stock options of 6,358
were excluded from the  calculation of diluted  earnings per share as the effect
of these options is not dilutive.

7. Common Stock Options

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

                                      -10-
<PAGE>

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

7. Common Stock Options (continued)

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

                                                       Three Months Ended
                                                   March 31,        March 31,
                                                     2004             2003
                                                --------------   ---------------
  Net income (loss) available to stockholders:
   As reported..............................  $     1,167     $      (310)

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

  Deduct: Total stock based employee
   compensation expense determined under
   fair value based method net of tax.......          (38)            (95)

  Total stock based employee compensation
   expense determined under fair value
   based method net of tax                   -----------------------------------

   Pro forma................................  $     1,129     $      (405)
                                             ===================================

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

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

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

8. Comprehensive income (loss)

       Total comprehensive (loss) was as follows:

                                                 Three month Ended March 31,
                                         ---------------- ------ ---------------
                                               2004                  2003
                                         ----------------        ---------------

  Net income (loss)                        $      1,167           $       (310)
  Other comprehensive income:
  Foreign currency translation adjustment             1                      2
                                         ----------------        ---------------

         Total comprehensive income (loss) $      1,168           $       (308)
                                         ================        ===============

                                      -11-
<PAGE>

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

9. Segment Information

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

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

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

                                    Three months ended March 31,
                               2004                             2003
                  ------------------------------- ------------------------------
                  Handwriting   Systems           Handwriting   Systems
                  Recognition Integration  Total  Recognition Integration  Total
                  ----------- ----------- ------- ----------- ----------- ------

Revenues            $  2,398     $  31     $  2,429     $  829   $  279  $1,108

Income (loss) from
operations          $  1,286     $ (45)    $  1,241     $ (221)  $  (39) $ (260)

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

For the three months ended March 31, 2004 and 2003,  one customer  accounted for
83% and 40% respectively, of total handwriting recognition segment revenue.

For the three months ended March 31, 2004 and 2003,  one customer  accounted for
47% and 23% of system integration revenues, respectively.

                                      -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 1, Item 1 of this  quarterly  report on Form 10-Q and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  set  fourth  in the  Company's  Annual  report on Form 10-K for the
fiscal year ended December 31, 2003.

Overview

     The Company was initially incorporated in Delaware in October 1986. In each
year since its  inception,  the Company has incurred  losses.  For the five-year
period ended December 31, 2003,  operating losses  aggregated  approximately $13
million  and at  December  31,  2003,  the  Company's  accumulated  deficit  was
approximately $82 million. At March 31, 2004, the Company's accumulative deficit
was approximately $81 million.

     The first quarter of 2004 was the most profitable quarter in the history of
the Company.  Total  revenues of $2.43  million for the quarter  ended March 31,
2004,  more  than  doubled   compared  to  revenues  of  $1.11  million  in  the
corresponding  quarter of the prior year increasing 119%.  Revenue for the first
quarter reflects increasing  adoption of our eSignature  solutions in our target
markets and is primarily attributable to Wells Fargo, which chose CIC eSignature
technology for use in all of its full-service bank locations,  and also revenues
from Charles Schwab, IA Systems,  Misys Healthcare,  PalmSource,  Prudential and
TVA.  The  increasing  focus on  corporate  accountability,  including a growing
demand for auditable business approval processes, is driving many enterprises to
add eTransactions to their priority deployments in 2004.

     The net income of $1.17  million  for the  quarter  ended  March 31,  2004,
represents  an  increase  of  $1.48  million  compared  to the net  loss of $310
incurred in the  corresponding  quarter of the prior year. Both the magnitude of
the profit and the 48% Return on Sales is significant  and reflects a high level
of effective integration of human resources, including product development, with
our  China  operation,   resulting  in  significantly  lower  base  costs.  Most
impressive   is  our  belief  that  the  current  cost   structure  can  support
significantly higher revenue without significant increases in base costs.

     Securing  adoption  of  signature  verification,   as  the  best  biometric
solution,  across multiple vertical markets to insure longer-term revenue growth
is our primary  challenge.  Key growth  drivers  have merged to  accelerate  the
deployment of eTransactions  worldwide,  including both the increasing awareness
and reality of the significant benefits of the paperless  environment,  together
with increasing  competitive pressures.  The intuitively obvious,  non-intrusive
nature of handwritten  eSignatures  has emerged as a key factor in achieving the
significant  benefits  that can be derived  from  secure,  signature  dependent,
legally binding eTransactions in the financial service industry and is beginning
to penetrate the Healthcare industry.  However,  signature  verification is only
one of the several biometric technologies that are being evaluated and signature
verification has yet to be accepted as the biometric of choice across sufficient
vertical markets to insure sustained sales and earnings growth.

Critical Accounting Policies

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

                                      -13-
<PAGE>

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

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

     In December 2003, the  Securities  and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin  ("SAB") No.  104,  "Revenue  Recognition."  SAB 104
supersedes SAB 101,  "Revenue  Recognition in Financial  Statements."  SAB 104's
primary purpose is to rescind  accounting  guidance contained in SAB 101 related
to multiple element revenue arrangements, superseded as a result of the issuance
of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables."
Additionally,  SAB 104  rescinds  the SEC's  Revenue  Recognition  in  Financial
Statements  Frequently  Asked  Questions and Answers ("the FAQ") issued with SAB
101 that had been  codified  in SEC  Topic  13,  Revenue  Recognition.  Selected
portions of the FAQ have been  incorporated  into SAB 104.  While the wording of
SAB  104 has  changed  to  reflect  the  issuance  of EITF  00-21,  the  revenue
recognition  principles of SAB 101 remain  largely  unchanged by the issuance of
SAB 104,  which was  effective  upon  issuance.  The adoption of SAB 104 did not
impact the consolidated financial statements.

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

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

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

     We perform  intangible  asset  impairment  analysis on a quarterly basis in
accordance with the guidance in Statement of Financial  Accounting  Standard No.
142,  Goodwill  and Other  Intangible  Assets  ("SFAS  No.  142") and  Financial
Accounting  Standard No. 144,  Accounting for the Impairment or Disposal of Long
Lived  Assets  ("SFAS  No.  144").  We use SFAS 144 in  response  to  changes in
industry and market conditions that affect our patents,  we then determine if an
impairment of our assets has occurred.  Based on the impairment  analysis of the
intangible assets, no impairment existed as of March 31, 2004.

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

     Software Development Costs. Software development costs are accounted for in
accordance with Statement of Financial  Accounting Standards No. 86, "Accounting
for the Costs of Computer  Software to be Sold,  Leased or  Otherwise  Marketed"
("SFAS 86"). Under SFAS 86,  capitalization of software development costs begins
upon the establishment of technological  feasibility,  subject to net realizable
value considerations.  In the Company's case,  capitalization commences upon the

                                      -14-
<PAGE>

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

completion  of a  working  model and  generally  ends  upon the  release  of the
product. The capitalized costs are amortized to cost of sales on a straight line
basis over the estimated life of the product, generally three years. As of March
31, 2004 and 2003, such costs were insignificant.

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

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

     Net  foreign  currency   transaction  gains  and  losses  are  included  as
components of "interest income and other income (expense), net" in the Company's
consolidated  statements of operations.  Due to the stability of the currency in
China, net foreign currency  transaction  gains and losses were not material for
the three months ended March 31, 2004 and 2003, respectively.

     Net  Operating  Loss  Carryforwards.   Utilization  of  the  Company's  net
operating  losses may be subject to an annual  limitation  due to the  ownership
change  limitations  provided by the  Internal  Revenue Code of 1986 and similar
state  provisions.  As a result,  a portion of the Company's net operating  loss
carryforwards may not be available to offset future taxable income.  The Company
has  provided a full  valuation  allowance  for deferred tax assets at March 31,
2004 based upon the Company's history of losses.

Segments

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

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

                                      -15-
<PAGE>

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

Results of Operations

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

                                                Three Months Ended
                                                     March 31,

                                           2004                       2003
                                  -------------------         ------------------
Segment revenues:
  Handwriting recognition
    Online/retail                        $      41                   $     114
    Corporate                                2,352                         667
    China                                        5                          48
                                  -------------------         ------------------
Total Handwriting recognition            $   2,398                   $     829

Systems integration
    China                                       31                         279
                                  -------------------         ------------------
  Total revenues                         $   2,429                   $   1,108
                                  -------------------         ------------------

Cost of Sales
    Handwriting recognition              $       7                   $      16
    Systems integration                         26                         217
                                  -------------------         ------------------
  Total cost of sales                    $      33                   $     233
                                  -------------------         ------------------

   Other operating cost and expenses
   Research and development              $     319                   $     340
   Sales and Marketing                         332                         283
   General and administrative                  504                         512
                                  -------------------         ------------------
   Total other operating costs
   and expenses                          $   1,155                   $   1,135
                                  -------------------         ------------------

Interest and other income
  (expense) net                          $     (74)                  $     (50)
                                  -------------------         ------------------

Net income (loss)                        $   1,167                   $    (310)
                                  ===================         ==================

Amortization of intangible assets
   Cost of sales                         $       3                   $       3
   General and administrative                   95                          95
                                  -------------------         ------------------
 Total amortization of intangible
   assets                                $      98                   $      98
                                  ===================         ==================

Revenues

Handwriting recognition.

     Handwriting  recognition segment revenues include online/retail,  corporate
and China software sales.  Handwriting  recognition  segment revenues  increased
189% ($1,569),  from $829 to $2,398,  for the three months ended March 31, 2004,
as compared to the same prior year period.

     Online/retail revenues decreased 64% ($73), from $114 to $41, for the three
months  ended March 31, 2004,  as compared to the same prior year period.  . The
Company  expects that  online/retail  sales from the internet  will  continue to
decline as the shipments of the PalmSource  operating  system  embedded with the
Company's  Jot  software  increase.   The  Company  believes  the  increases  in
PalmSource  OS shipments  and the  resulting  increased  royalties,  included in
Corporate revenues, will offset the decline in online/retail internet sales.

                                      -16-
<PAGE>

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

     Corporate  revenues  increased 253%  ($1,685),  from $667 to $2,352 for the
three months  ended March 31,  2004,  as compared to the same prior year period.
OEM and channel partner sales  increased 532% ($234),  from $44 to $278, for the
three months  ended March 31,  2004,  as compared to the same prior year period.
The increase in sales is due primarily to increased  royalties from the shipment
by PalmSource of its OS containing the CIC's Jot software.  The Company  expects
channel partner and OEM sales to increase in the future as new channel  partners
and OEM customers are identified and new agreements are signed.  Corporate sales
increased 231% ($1,449),  from $625 to $2,074,  for the three months ended March
31,  2004,  as  compared to the same prior year  period.  The  increase  was due
primarily to the sale of the Company's  eSignature  products to Wells Fargo Bank
in the three  months  ended March 31,  2004.  The Company has been  working with
other customers that have been developing internal applications that utilize the
Company's  eSignature  products.  The Company believes that corporate eSignature
revenues will  increase in the near term as the  customers  begin their roll out
and  corporate  IT spending  increases as the economy  strengthens.  However the
timing of customer  product roll out is difficult to project due to many factors
beyond the Company's  control.  The Company views eSignature as a high potential
revenue market and intends to continue to place increasing focus on this market.

     Software sales in China decreased 90% ($43),  from $48 to $5, for the three
months  ended March 31, 2004,  as compared to the same prior year  period.  This
decrease reflects the inherent delay in revenue  generation while establishing a
channel strategy, which began in May of 2003, aimed at achieving accelerated and
sustained sales growth by leveraging  channel partners to gain China-wide market
coverage.  The channel strategy involves training the partners' sales forces and
CIC  Chinas'  engineering  efforts  to embed CIC  eSignature  software  into the
partners' total application  solutions.  We believe the channel partner strategy
will begin  delivering  increasing and sustained  sales growth  beginning in the
second quarter of 2004. As of March 31, 2004, CIC China has  approximately  $110
of channel  partner  related backlog which is forecasted to be recognized in the
second quarter of 2004.

Systems Integration.

     System integration  segment revenue declined 89% ($248),  from $279 to $31,
for the three months  ended March 31,  2004,  as compared to the same prior year
period.  Over the prior two years, CIC China has emerged as the leading supplier
in Jiangsu Province to a fast-growing mobile industry  application for regulated
goods,  with an estimated  70% market share.  The decline in system  integration
revenue  reflects the decision not to expand this  business to other  provinces,
which would  require  significant  increases  in base costs to provide  turn-key
capabilities,   but   rather   to  focus   on  the   emerging   high   potential
eSignature/office  automation  market  in  China,  leveraging  channel  partners
capabilities.  System integration  revenues are expected to continue to be below
the prior year amounts in future quarters.

Cost of Sales

Handwriting recognition segment.

     Handwriting  recognition  segment  cost of  sales  includes  online/retail,
corporate and China  software  sales costs.  Such costs are comprised of royalty
and  import tax  payments,  third  party  hardware  costs,  direct  mail  costs,
engineering  direct  costs  and  amortization  of  intangible  assets  excluding
patents.  Cost of sales for the handwriting  recognition  segment  decreased 56%
($9),  from $16 to $7, for the three months ended March 31, 2004, as compared to
the same prior year  period.  The decline is  primarily  due to the sale of less
third party hardware along with the Company's software  products.  Cost of sales
may increase in the future depending on the customers  decision to purchase from
the Company its software solution and third party hardware as a complete package
rather than buying individual components from separate vendors.

     Online/retail  cost of sales  remained  flat during the three month  period
ended March 31, 2004  compared to the prior year  period.  The Company  does not
anticipate a material increase is costs associated with the online/retail sales.

                                      -17-
<PAGE>

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

     Enterprise  and OEM cost of sales  decreased 56% ($9),  from $16 to $7, for
the three  months  ended  March 31,  2004,  as  compared  to the same prior year
period.  The decrease was due to the lower volume of third party  hardware sales
and engineering  development costs over the comparable three month period of the
prior year. Any increases in Enterprise and OEM cost of sales in the future will
be driven by the amount of third party  hardware that is sold with the Company's
software solutions.

     China handwriting  recognition segment cost remained flat, during the three
month  period  ended March 31, 2004  compared  to the prior year  period.  It is
expected  that cost of sales will remain low for the  foreseeable  future as the
current  trend  has  been in the  sale of  software  solutions  through  channel
partners with little third party hardware.

Systems Integration.

     China Systems  integration segment cost of sales decreased 88% ($191), from
$217 to $26, for the three month period ended March 31, 2004, as compared to the
same prior year period. The decrease in costs was due primarily to the reduction
in sales during in the current three months ended March 31, 2004 compared to the
prior year period.  The Company  expects that system  integration  cost of sales
will  decrease  over time as the Company  continues to increase its focus on the
emerging high potential eSignature/office automation market in China.

Operating expenses

     Research  and  development  expenses.  Research  and  development  expenses
decreased  6% ($21),  from $340 to $319,  for the three  months  ended March 31,
2004, as compared to the same prior year period.  Engineering  expenses  consist
primarily of salaries and related costs, outside engineering, maintenance items,
and  allocated   facilities   expenses.   These   expenses  are  offset  by  the
capitalization  of software  development  costs and direct costs associated with
nonrecurring  engineering  contracts  charged  to cost of  sales.  Salaries  and
related  expenses  decreased  2%, or $5, during the three months ended March 31,
2004 due primarily to the reduction of one of the engineering  staff as compared
to the same prior year period. Other engineering  administrative costs including
allocated  facilities expenses declined 14% ($16), during the three months ended
March 31, 2004, as compared to the same prior year period.  The Company believes
that the  reductions  in  engineering  head count and expenses  will not have an
adverse effect on its ability to handle the current requirements.  Currently the
Company  does  not  anticipate  further  reductions  in  personnel  nor  does it
anticipate an increase in personnel as the Company  maintains  its  relationship
with an outside  engineering  group familiar with its products and, if required,
can engage them on an as needed basis to fill future  engineering  requirements.
In  addition  the Company  draws on the  engineering  capabilities  of the Joint
Venture as  required.  This  reliance on the Joint  Venture and outside  parties
allows the Company to maintain lower base costs and to increase engineering cost
on a temporary basis in response to specific revenue opportunities.

     Sales and marketing  expenses.  Sales and marketing  expenses increased 17%
($49), from $283 to $332, for the three months ended March 31, 2004, as compared
to the same prior year period. Sales and marketing expenses consist of salaries,
commissions  and  related  expenses,   professional  services,  advertising  and
promotion,  general  office and  allocated  facilities  expenses.  Salaries  and
related expenses declined 8%, or $10, for the three months ended March 31, 2004,
as  compared  to the prior year  period.  The  decline is  salaries  and related
expense is due to the net  reduction of one sales  person  compared to the three
months in the prior year period.  Recruiting expense was $20 in the three months
ended March 31,  2004,  as compared to no  recruiting  expense in the same prior
year period. Commissions expense increased 280% or $84 in the three months ended
March 31,  2004,  as compared  to the same prior year  period.  The  increase in
commission  expense is due to the  increase in revenues  between the  comparable
periods.  Other expenses including  facilities and other office related expenses
decreased  35% or $45 for the three months ended March 31, 2004,  as compared to
the same prior year period.  These reductions in other expenses were realized in
both the US and China operations and were primarily  related to travel expenses,
depreciation and allocated facility costs. The Company expects these costs would
increase at such time in the future as the sales force is expanded to respond to
increasing  revenue  opportunities.  The Company  believes that the current cost
structure can support significantly higher revenue without significant increases
in base costs.

                                      -18-
<PAGE>

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

     General and Administrative  Expenses.  General and administrative  expenses
decreased 2% ($8), from $512 to $504, for the three months ended March 31, 2004,
as compared to the same prior year period.  General and  administrative  expense
consists of salaries,  professional fees,  investor relations  expenses,  patent
amortization  and office and  allocated  facilities  costs.  Salaries  and wages
remained  flat,  for the three months ended March 31, 2004  compared to the same
prior year period. Professional service expenses which include consulting, legal
and outside accounting fees decreased 38%, or $38, as compared to the same prior
year period.  The decrease was primarily due to lower legal and accounting  fees
associated  with the Company's  2003 annual report during the three months ended
March 31, 2004, as compared to the same prior year period.  Other administrative
expenses increased 13%, or $30, for the three month period ended March 31, 2004,
as compared to the same prior year period.  The increase was primarily due to an
increase in the reserve for uncollected  accounts  receivable of $16 an increase
in insurance of $3 and a $11 increase in other administrative expenses including
facilities  expenses allocation and allocated expenses associated with the Joint
Venture. The Company does not anticipate significant increases in administrative
expense in the near future.

Interest and other income (expense), net

     Interest  and other  income  (expense),  net  increased  $10, for the three
months  ended  March 31,  2004,  compared  to the same  prior year  period.  The
increase  in was  due to the  change  in  minority  interest  resulting  from an
operating loss by the join venture.

Interest expense

     Interest expense  increased 69% ($34), from $49 to $83 for the three months
ended March 31, 2004  compared to the same prior year  period.  The increase was
primarily due to interest paid to Cornell Capital  Partners,  LC associated with
the $750 in short-term debt (See Note 4 of the condensed  consolidated financial
statements).  Interest  paid on the  Company's  $3,000 debt over the  comparable
three month periods was unchanged.

Liquidity and Capital Resources

     At March 31, 2004, cash and cash equivalents  totaled $390 compared to cash
and cash  equivalents  of $1,039 at December 31, 2003.  The decrease in cash was
primarily  due to cash used in  operating  activities  of $643,  acquisition  of
property  and  equipment  amounting  to $3 and  payments  of long  term debt and
capital lease  obligations  of $3. Total current assets were $3,270 at March 31,
2004,  compared  to $2,005 at  December  31,  2003.  As of March 31,  2004,  the
Company's  principal  sources of funds  included  its cash and cash  equivalents
aggregating  $390,  accounts  receivable  and the Equity Line of Credit  through
Cornell Capital Partners LP.

     Accounts  receivable  increased $1,953 for the three months ended March 31,
2004 compared to December 31, 2003,  due primarily to the sale during the period
to Wells Fargo Bank.  The  receivable,  approximating  $2,200 was collected four
days  subsequent to March 31, 2004. The Company  expects the  development of the
eSignature market will result in more consistent revenue on a quarter to quarter
basis and therefore,  less  fluctuation in accounts  receivable  from quarter to
quarter.

     Prepaid  expenses and other  current  assets  declined by $16 for the three
months  ended March 31, 2004,  compared to December  31, 2003,  due to expensing
more annual fees or  maintenance  and support  costs than added to prepaids over
the three months ended March 31, 2004. Generally,  annual insurance premiums and
maintenance  and support  fees are prepaid in December and June of each year and
therefore  the  balances  typically  begin to  decrease  in the  first and third
quarters as the balances are amortized.

     Accounts payable  decreased $158 for the three months ended March 31, 2004,
compared to December 31,  2003,  due to the  payments  made on annual  insurance
premiums,  maintenance  and support fees and materials used by the Joint Venture
in cost of sales and purchased in the fourth quarter of 2003.  Accounts  payable
balances typically increase in the second and fourth quarters when the insurance
and annual maintenance and support fees are incurred.  Materials used in cost of
sales may  impact  accounts  payable  depending  on the  amount  of third  party


                                      -19-
<PAGE>

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

hardware sold as part of the software solution.  Accrued compensation  increased
$53 due to the accrual of commissions based on the increase in revenues over the
three  months  ended March 31, 2004  compared  to the prior year  period.  These
commissions are expected to be paid in the second quarter of 2004.

     The Company has  suffered  recurring  losses from  operations  that raise a
substantial  doubt  about  its  ability  to  continue  as a going  concern.  The
Company's  accumulated deficit was reduced to approximately $81 million at March
31, 2004 from  approximately  $82 million at December 31, 2003.  There can be no
assurance that the Company will continue to reduce the  accumulative  deficit or
have  adequate  capital  resources  to  fund  planned  operations  or  that  any
additional funds will be available to it when needed,  or if available,  will be
available  on  favorable  terms or in amounts  required by it. If the Company is
unable  to obtain  adequate  capital  resources  to fund  operations,  it may be
required to delay, scale back or eliminate some or all of its operations,  which
may have a material  adverse  effect on its business,  results of operations and
ability to operate as a going concern.  The financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.

     The Company intends to use the net proceeds from the issuance of the shares
of its common stock under the Equity Line of Credit to repay short term debt and
for working capital.  In addition,  fifty percent of any such funds in excess of
$5  million  must be  applied  to the  outstanding  principal  of the  Company's
short-term  debt,  related party. CIC believes the proceeds from the Equity Line
of Credit, when combined with cash provided from operations,  will be sufficient
to meet its capital  requirements for the foreseeable  future. If the Company is
unable to secure at least $5 million in funds under the Equity Line of Credit or
is unable to sustain  the  increase  in funds  generated  from  operations,  the
Company may not be able to continue its operations in their current form and may
not be a viable company on a going forward basis without  significant changes in
its operations. The Company has raised, net of costs and expenses, approximately
$2,300 from the equity line of credit.  The Company  believes it will be able to
raise the necessary  funds under the Equity Line of Credit and from  operations.
The Company has not formulated specific plans to change its operations. Possible
changes could  include  reduced  personnel  expenses to better match its revenue
streams.

     Current liabilities,  which include deferred revenue,  were $4,899 at March
31, 2004  compared to $4,900 at December 31, 2003.  Deferred  revenue,  totaling
$369 at March  31,  2004,  compared  to $165 at  December  31,  2003,  primarily
reflects  advance  payments for products and maintenance fees from the Company's
licensees  which are  generally  recognized  as revenue by the Company  when all
obligations are met or over the term of the maintenance agreement.

     The  $3,000  loan is due and  payable  by June 18,  2004.  The  Company  is
currently  investigating  and  considering  various methods to pay off the loan.
Alternatives  being considered  include:  paying the loan from cash generated by
operations, refinancing the loan with a different lender either as straight debt
or as convertible debt,  refinancing the loan with a different lender with terms
that allow the Company,  at its option,  to repay the loan  through  issuance of
stock or with  available  cash,  and of  course,  if  necessary,  the  Company's
existing  equity line of credit  agreement could be used to pay the loan. Any of
the preceding  alternatives may be used  individually or in combination with any
other stated  alternative.  The Company continues to investigate various methods
of payment and other  alternatives  may become  available  which the Company may
determine are preferable to the above.

We have the following material commitments as of March 31, 2004:

                                             Payments due by periods
--------------------------------  ----------------------------------------------
                                          Less than    One to   Four to   After
Contractual obligations             Total   One year    three     five     five
                                                         years    years    years
--------------------------------  -------   --------   -------- --------  ------

 Short term debt (1)              $ 3,750   $  3,750   $     -   $   -    $   -
 Long term-debt                        19          8        11       -        -
 Capital Lease Obligations             28         28         -       -        -
 Operating lease commitments (2)    1,068        419       649       -        -
                                  -------   --------   -------   ------   ------

  Total contractual cash
   obligations                    $ 4,865   $  4,205   $   660   $   -    $   -
                                  =======   ========   ========  ======   ======

                                      -20-
<PAGE>

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

1.   The  Short-term  debt related party may be pre-paid by the Company in whole
     or in part at any time without penalty, subject to the right to convert the
     outstanding  principal  amount into shares of common  stock at a conversion
     price of $2.00 per share,  subject to  adjustment  upon the  occurrence  of
     certain events.

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

Forward Looking Statements

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

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

o    Economic,  business,  market and  competitive  conditions  in the  software
     industry and  technological  innovations  which could affect the  Company's
     business;

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

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

     The Company has an investment portfolio of fixed income securities that are
classified  as  cash  equivalents.  These  securities,  like  all  fixed  income
instruments,  are  subject to  interest  rate risk and will fall in value if the
market interest rates increase.  The Company  attempts to limit this exposure by
investing primarily in short term securities. The Company did not enter into any
short-term security investments during the three months ended March 31, 2004.

Foreign Currency Risk

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

                                      -21-
<PAGE>

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

Future Results and Stock Price Risk

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

Item 4A. Controls and Procedures

     Under  the  supervision  and  with  the   participation  of  the  Company's
management,  including the Company's Chief Executive Officer and Chief Financial
Officer, the Company has evaluated the effectiveness of the design and operation
of its  disclosure  controls  and  procedures  pursuant  to  Exchange  Act  Rule
13a-14(c) within 90 days of the filing date of this quarterly  report.  Based on
that evaluation,  the Chief Executive  Officer and Chief Financial  Officer have
concluded that these  disclosure  controls and  procedures are effective.  There
were no  significant  changes in the  Company's  internal  controls  or in other
factors that could significantly affect internal controls subsequent to the date
of their evaluation.

Part II-Other Information

Item 1. Legal Proceedings

        None

Item 2. Change in Securities and Use of Proceeds

        None

Item 3. Defaults Upon Senior Securities

        None

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

        None

Item 5. Other Information

        None

Item 6. Exhibits and Reports on Form 8-K

(a)     Exhibits

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

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

(b) Reports on Form 8-K

        Current Report on Form 8-K dated March 16, 2004, with respect to the
        appointment of David Welch to the Company's Board of Directors.


                                      -22-
<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



     May 12, 2004                        s/ Francis V. Dane
------------------------         ---------------------------------------------
         Date                               Francis V. Dane
                                  (Principal Financial Officer and Officer Duly
                                 Authorized to Sign on Behalf of the Registrant)


                                      -23-