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


                                    FORM 10-Q


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

               For the quarterly period ended: September 30, 2004


                                       OR

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

                For the transition period from         to
                                               -------     -------

                        Commission File Number: 0-19301


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

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


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

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

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

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

Number of shares  outstanding of the issuer's  Common Stock,  as of November 15,
2004: 101,374,876.



<PAGE>


                                                                 INDEX



PART I.  FINANCIAL INFORMATION


         Item 1.  Financial Statements                                 Page No.

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

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

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

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

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

         Item 2.  Management's Discussion and Analysis
                  of Financial Condition and Results of Operations...........15

         Item 3.  Quantitative and Qualitative Disclosures
                  About Market Risk..........................................24

         Item 4A.  Controls and Procedures...................................24

PART II.  OTHER INFORMATION

         Item 1.  Legal Proceedings..........................................25

         Item 2.  Change in Securities and Use of proceeds...................25

         Item 3.  Defaults Upon Senior Securities............................25

         Item 4.  Submission of Matters to a Vote of Security Holders........25

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

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

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

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

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


                                      -2-
<PAGE>

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

                                                  September 30,    December 31,
                                                       2004            2003
                                                  -------------    ------------
                                                    Unaudited
Assets
Current assets:
     Cash and cash equivalents.................    $    1,549        $   1,039
     Accounts receivable, net of
      allowances of $435 and $256 at
      September 30, 2004 and
      December 31, 2003, respectively..........         3,863              742
     Inventories...............................             -               47
     Prepaid expenses and other
      current assets...........................           302              177
                                                   ------------      ----------
         Total current assets.................          5,714            2,005

Property and equipment, net...................            141              138
Patents and trademarks........................          4,758            5,042
Deposits .....................................             30               30
                                                   ------------      ----------

         Total assets.........................     $   10,643        $   7,215
                                                   ============      ==========

Liabilities and Stockholders' equity
Current liabilities:
     Short-term debt - related party..........     $        8        $   3,008
     Short-term debt - other..................          3,537              750
     Accounts payable.........................            157              243
     Accrued compensation.....................            399              259
     Other accrued liabilities................            362              475
     Deferred revenue.........................            507              165
                                                   ------------      ----------
         Total current liabilities............          4,970            4,900

Long-term debt - related party................              6               13

Minority interest.............................            100              115

Commitments and contingencies                               -                -

Stockholders' equity:
     Common stock.............................          1,014            1,001
     Additional paid-in capital...............         84,245           83,528
     Accumulated deficit......................        (79,530)         (82,164)
     Accumulated foreign currency
     translation adjustment...................           (162)            (178)
                                                   ------------      ----------
         Total stockholders' equity...........          5,567            2,187
                                                   ------------      ----------

  Total liabilities and stockholders' equity..     $   10,643        $   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   Nine Months Ended
                                             September 30,      September 30,
                                         ------------------   ------------------
                                             2004      2003       2004     2003
                                         ---------   -------  --------   ------
Revenues:
     Online/retail........................  $   21   $   54     $  109   $  260
     Corporate............................   3,645      480      6,465    1,435
     China    ............................       3      402        154      921
                                            -------  -------    -------  -------

         Total revenues...................   3,669      936      6,728    2,616

Operating costs and expenses:
     Cost of sales:
        Online/retail.....................       -        2          -        3
        Corporate.........................       6        4         17       27
        China ............................       -      226         33      557
     Research and development.............     326      324        918      967
     Sales and marketing  ................     394      233       1,031     696
     General and administrative  .........     690      569       1,848   1,700
                                            -------  -------    --------  ------

    Total operating costs and expenses       1,416    1,358       3,847   3,950
                                            -------  -------    --------  ------

Income (loss) from operations  ...........   2,253     (422)      2,881  (1,334)

Other income (expense)
     Interest and other income (expense),        2       (2)          -       3
net
     Interest expense  ...................    (117)     (46)       (262)   (143)

     Minority interest....................       7       (2)         15       2
                                            -------   -------    -------  ------

         Net Income (loss)  ..............   2,145     (472)      2,634  (1,472)
                                            =======   =======   ======== =======

Basic income (loss) per common share  ....  $ 0.02   $(0.01)     $ 0.03  $(0.02)
                                            =======  ========   =======  =======

Diluted income (loss) per common share ...  $ 0.02   $(0.01)     $ 0.03  $(0.02)
                                            =======  ========   =======  =======

Weighted average common shares
 outstanding basic                         101,368  100,101     100,751  96,537
                                           =======  =======     =======  =======

Weighted average common shares
 outstanding diluted                       101,819  100,101     101,202  96,537
                                           =======  =======     =======  ======

             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 Comprehen.
                     Outstanding   Stock    Capital   Deficit    Loss     Total

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

  Foreign currency
  translation adjustment.       -        -         -         -       1        1

  Net income for the three
  months ended March 31,
  2004....................      -        -         -     1,167       -    1,167
                          -----------------------------------------------------
 Balances as of March 31,
  2004................... 100,102  $ 1,001  $ 83,528  $(80,997) $ (177)  $3,355
                          -----------------------------------------------------

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

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

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

  Net loss for the three
  months ended June 30,
  2004....................      -        -         -      (678)      -     (678)
                          -----------------------------------------------------
 Balances as of June 30,
  2004................... 101,268  $ 1,013  $ 84,216  $(81,675) $ (175)  $3,379
                          =====================================================

Exercise of options for
  shares of Common stock.     108        1        29         -       -       30

  Foreign currency
  translation adjustment...     -        -         -         -      13       13

  Net income for the three
  months ended September
  30, 2004...............       -        -         -     2,145       -    2,145
                          -----------------------------------------------------
Balances as of September
  30, 2004............... 101,376  $ 1,014  $ 84,245   $(79,530) $ (162) $5,567
                          =====================================================

             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)
                                                            Nine Months Ended
                                                               September 30,
                                                            --------------------
                                                              2004        2003
                                                            -------     -------
Cash flows from operating activities:
  Net income (loss).........................................$ 2,634    $(1,472)
  Adjustments to reconcile net income (loss) to net cash
  provided by/ (used for) operating activities:
     Depreciation...........................................     39         62
     Patent and capitalized software amortization...........    294        284
     Provision for doubtful accounts........................    178         (6)
     Loss on disposal of fixed assets.......................      4          8
     Changes in operating assets and liabilities:
        Accounts receivable, net............................ (3,299)      (326)
        Inventories.........................................     47         27
        Prepaid expenses and other current assets...........   (125)        45
        Other assets........................................      -         (2)
        Accounts payable....................................    (86)         7
        Accrued compensation................................    140         12
        Other accrued liabilities...........................   (128)       (92)
        Deferred revenue....................................    342        (76)
                                                             --------   --------
     Net cash provided by (used for) operating  activities..     40     (1,529)
                                                             --------   --------

Cash flows from investing activity:
     Acquisition of property and equipment..................    (32)       (16)
                                                             --------   --------
         Net cash used in investing activity................    (32)       (16)
                                                             --------   --------

Cash flows from financing activities:
     Payments on short term debt related party.............. (3,000)         -
     Payments on long-term debt.............................     (7)         -
     Proceeds from issuance of short-term debt..............  3,537          -
     Proceeds from the exercise of stock options............     40          -
     Proceeds from the issuance of common stock.............      -      2,000
     Offering costs.........................................    (60)      (412)
     Principal payments on capital lease obligations........     (6)        (7)
                                                             --------   --------
         Net cash provided by financing activities..........    504      1,581
                                                             --------   --------

Effect of exchange rate changes on cash.....................     (2)         -
                                                             --------   --------

Net increase in cash and cash equivalents...................    510         36
Cash and cash equivalents at beginning of period............  1,039        711
                                                             --------   --------
Cash and cash equivalents at end of period..................$ 1,549   $    747
                                                            =========  =========

Supplemental Disclosure of Cash Flow Information
Interest Paid..........................................     $   262   $    143
Income taxes Paid......................................           1          1
Pay off of short-term debt through issuance
 of common stock.......................................         750          -

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

                                      -6-
<PAGE>


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


1.   Interim financial statements and basis of presentation

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

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

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

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

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

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

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

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

     Going Concern

     The  accompanying  condensed  consolidated  financial  statements have been
     prepared  assuming that the Company will continue as a going  concern.  The


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

     Company  has  suffered  recurring  losses  from  operations  that  raise  a
     substantial  doubt about its ability to  continue  as a going  concern.  At
     September 30, 2004,  the Company's  accumulated  deficit was  approximately
     $79,530 and has working  capital of $744.  The Company filed a registration
     statement  with the Securities  and Exchange  Commission  that was declared
     effective  February 2003,  pursuant to the equity line of credit  agreement
     with Cornell Capital  Partners,  LP ("Cornell").  However,  there can be no
     assurance  that the Company will have  adequate  capital  resources to fund
     planned  operations  or that  additional  funds  will be  available  to the
     Company when needed under the equity line of credit agreement or otherwise,
     or if  available,  will be  available  on  favorable  terms  or in  amounts
     required  by the  Company.  If the  Company  is unable  to obtain  adequate
     capital  resources to fund operations,  it may be required to delay,  scale
     back or eliminate some or all of its operations,  which may have a material
     adverse effect on the Company's business, results of operations and ability
     to operate as a going  concern.  The  accompanying  condensed  consolidated
     financial  statements do not include any adjustments that might result from
     the outcome of this uncertainty. See "Subsequent events, Note".

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:
                                         September 30,          December 31,
                                              2004                  2003
                                    --------------------- -- -------------------

        Cash in bank                  $         82             $        110
        Money market                         1,467                      929
                                    ---------------------    -------------------
                                      $      1,549             $      1,039
                                    =====================    ===================

3.   Account receivable consentration

     For the nine months ended  September 30, 2004,  one customer  accounted for
     91% of net accounts receivable.  The accounts  receivable,  which accounted
     for 91% of net accounts  receivable  at September  30, 2004,  was collected
     subsequent to the balance sheet date.

4.   Inventories

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

5.   Short-term debt - other

     On April 20,  2004,  the  Company's  90% owned Joint  Venture  borrowed the
     aggregate  equivalent  of $37,  denominated  in  Chinese  currency,  from a
     Chinese bank.  The unsecured  loan bears  interest at 5.0% per annum and is
     due April 20,  2005.  The  borrowing  did not require the Joint  Venture to
     deposit a compensating  balance. The note can be repaid at any time without
     penalty.

     On December  19,  2003,  the Company  borrowed  $750 from  Cornell  Capital
     Partners,  LP.  The  proceeds  of the loan  were used for  working  capital
     purposes.  The loan was  secured by 4,621  shares of the  Company's  common
     stock  held in escrow.  The  promissory  note was due and  payable in seven
     installments,  commencing January 19, 2004 and ending on March 1, 2004, and
     could have been paid in cash or shares of the Company's  common stock.  The
     Company  exercised  its  option,   provided  in  the  note,  to  delay  the
     commencement  of the  installment  payments by paying the 2% fee, which was
     $38 in the  aggregate  for the six months ended June 30, 2004.  The Company
     chose to delay commencement of the installment  payments in anticipation of
     an increase in the price of the Company's  stock based upon a projection of
     profitable  first  quarter  results.  Under the equity line of credit,  the
     higher the market value of the  Company's  stock the fewer number of shares
     are required to repay amounts drawn on the line. The Company had repaid the
     $750,000  loan  through the  issuance of 1,133 shares of common stock as of
     June 30,  2004.  Due to the  delay in  commencement  of the due  date,  The
     Company had issued  approximately  21 fewer shares than it would have if it
     had not exercised  its option to defer the due date.  The company wrote off
     approximately $60 in unamortized  deferred  financing costs associated with
     the $750 loan against equity.

                                      -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 - other (continued)

     On August 4, 2004 the Company  borrowed an additional  $3,500 from Cornell,
     the  proceeds  of which  were  used to  extinguish  short-term  debt with a
     related party. See Note 6,  "Short-term debt - Related Party  Transaction".
     The Cornell  short-term  debt accrues  interest at the rate of 5% per annum
     and is  scheduled  to be paid,  in ten  equal  installments  with the first
     installment  due  December 6, 2004 and the last on  February  7, 2005.  The
     Company had the option to repay the note by issuing shares of the Company's
     common stock.  The Cornell debt was repaid in full, in cash, on November 8,
     2004. See Note 13 - "Subsequent events".

6.   Short-term debt - Related Party Transactions

     On June 19, 2001,  the Company  consummated a three-year  $3,000  financing
     (the "Loan") with a charitable  remainder  annuity  trust of which a former
     director  and  officer  of the  Company  is a trustee  (the  "Trust").  The
     proceeds  of the  Loan  were  used  to  refinance  $1,500  of  indebtedness
     outstanding  to the  Trust  pursuant  to a loan  made by the  Trust  to the
     Company in October 1999, and for working  capital  purposes.  The Loan bore
     interest  at the rate of 2% over  the  prime  rate  publicly  announced  by
     Citibank  N.A.  from time to time,  and was due June 18, 2004.  The Company
     received  a sixty  day  extension  to pay the  $3,000  Loan to the Trust in
     exchange for thirty days worth of interest  ($15)  calculated  according to
     the terms of the note. The extended due date was August 18, 2004. All other
     provisions of the Loan remained unchanged.

     On August 5, 2004,  CIC paid the $3,000  note due August 18,  2004,  to the
     Trust. The funds to retire the debt were obtained from Cornell on August 4,
     2004, (See Note 5 - "Short-term debt - other"). The Cornell debt was repaid
     on November 8, 2004, See Note 13, "Subsequent events".

     Interest paid during the three and nine months ended September 30, 2004 was
     $117,  and $262,  respectively,  and for the three  and nine  months  ended
     September 30, 2003, $46 and $143,  respectively.  Interest payments for the
     three and nine months  ended  September  30,  2004  include $84 paid to the
     Trust representing  interest accrued at March 31, 2004 and interest accrued
     through June 18, 2004 of $69, plus the $15 loan extension fee.

7.   Deferred revenue

     Deferred revenue is recorded for post-contract support and is recognized as
     revenue  when costs are  incurred  or over the  support  period,  generally
     twelve months, whichever is longer.

8.   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  September 30, 2004,  4,937
     shares of common stock subject to outstanding  options,  were excluded from
     the  calculation of dilutive  earnings per share because the exercise price
     of such options was greater than the average  market price of the Company's
     common stock.  For the three-month  period ended September 30, 2003,  5,856
     shares of common stock  subject to  outstanding  options were excluded from
     the  calculation  of  dilutive  earnings  per share as the  effect of these
     options is not dilutive.

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

8.     Net income (loss) per share (continued)

                                                Three Months Ended
                                   September 30, 2004       September 30, 2003
                              -------------------------  -----------------------
                                      Weighted                 Weighted
                                       Average     Per         Average     Per
                                 Net    Shares    Share  Net   Shares     Share
                               Income Outstanding Amount Loss Outstanding Amount
  Basic income (loss) per share:
    Income available to
    stockholders                $2,145  101,368  $ 0.02  $ (472) 100,101 $0.01)

  Effect of dilutive securities
     Stock options                   -      451       -       -        -     -
                                ------ --------- ------- ------- -------- ------

         Diluted income (loss)  $2,145  101,819   $0.02  $ (472) 100,101 $(0.01)
                                ======  =======   ====== ======= ======= ======

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

                                            Three Months Ended
                                   September 30, 2004       September 30, 2003
                              -------------------------  -----------------------
                                      Weighted                 Weighted
                                       Average     Per         Average     Per
                                 Net    Shares    Share  Net   Shares     Share
                               Income Outstanding Amount Loss Outstanding Amount
   Basic income (loss) per share:
    Income available to
    stockholders                $2,634  100,751  $ 0.03 $ (1,472) 96,537  $0.02)

  Effect of dilutive securities
     Stock options                   -      451       -       -        -     -
                                ------ --------- ------- ------- -------- ------

         Diluted income (loss)  $2,634  101,202   $0.03  $(1,472) 96,537 $(0.02)
                                ======  =======   =====  ======== ====== =======

     For the nine months ended September 30, 2004,  4,937 shares of common stock
     subject to  outstanding  options,  were  excluded from the  calculation  of
     dilutive  earnings per share because the exercise price of such options was
     greater than the average  market price of the Company's  common stock.  For
     the nine months  ended  September  30,  2003,  stock  options of 5,856 were
     excluded from the  calculation of diluted  earnings per share as the effect
     of these options is not dilutive.

9.   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

9.   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:

                                                         Nine Months Ended
                                                 -------------------------------
                                                  September 30,    September 30,
                                                       2004             2003
                                                 -------------------------------
  Net income (loss) available to stockholders:
    As reported...................................  $     2,634     $    (1,472)

                                                     ---------------------------
  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................         (219)           (306)
                                                      --------------------------

        Pro forma.................................  $     2,415     $    (1,778)
                                                     ===========================

          Basic and diluted net income (loss) per
            share available to stockholders:
            As reported...........................  $       0.03     $    (0.02)
                                                     ===========================
                                                     ===========================
              Pro forma...........................  $       0.02     $    (0.02)
                                                     ===========================

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 2.93% and 2.11% for 2004 and 2003;
o    an expected life of 6.2 years for 2004, 6.4 years for 2003; respectively;
o    expected volatility of 100% for all periods; and
o    dividend yield of 0% for all periods.

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

10.     Comprehensive income (loss)

       Total comprehensive income (loss) was as follows:

                                        ------------------   ------------------
                                        Three Months Ended    Nine Months Ended
                                            September 30,       September 30,
                                        --------- ---------  --------- ---------
                                          2004       2003      2004       2003
                                        --------- ---------  --------- ---------

     Net income (loss)                 $  2,145  $ ( 472 )  $  2,634  $ (1,472)
     Other comprehensive income:
     Cumulative translation adjustment       13        2          16         6
                                        --------- ---------  --------- ---------

     Total comprehensive income (loss) $  2,158  $  (470)   $  2,650  $  (1,466)
                                        ========= =========  ========= ========

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

11.  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 tables  below  present  information  about  reporting  segments for the
     periods indicated:

                                Three Months Ended September 30,
                              2004                            2003
                    ----------------------------- ------------------------------
                    Handwriting  Systems           Handwriting  Systems
                    Recognition Integration Total  Recognition Integration Total
                    ----------- ----------- ------ ----------- ----------- -----

  Revenues              $ 3,669   $   -    $ 3,669    $   731   $   205  $  936

  Income (loss) from
  Operations            $ 2,253   $   -    $ 2,253    $  (437)  $    15  $ (422)

  Significant change
  in total long
  lived assets from
  year end              $     -   $   -    $     -    $     41   $     -  $   41

                                Nine Months Ended September 30,
                              2004                            2003
                    ----------------------------- ------------------------------
                    Handwriting  Systems           Handwriting  Systems
                    Recognition Integration Total  Recognition Integration Total
                    ----------- ----------- ------ ----------- ----------- -----

  Revenues              $ 6,691   $  37    $ 6,728    $ 2,015   $  601  $ 2,616

  Income (loss) from
  Operations            $ 2,873   $   8    $ 2,881    $(1,325)  $   (9) $(1,134)

  Significant change
  in total long
  lived assets from
  year end              $     -   $   -    $     -    $     5   $     -  $    5

     For the three months ended  September 30, 2004, one customer  accounted for
     96% of total handwriting  recognition segment revenue. For the three months
     ended  September  30,  2003,  one  customer  accounted  for  35%  of  total
     handwriting   recognition  segment  revenue.  For  the  nine  months  ended
     September  30, 2004 and 2003,  one  customer  accounted  for 49% and 22% of
     total handwriting recognition segment revenue, respectively.

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

11.  Segment Information (continued)

     For the  three  months  ended  September  30,  2004  there  were no  system
     integration  revenues  recorded.  For the three months ended  September 30,
     2003, one customer  accounted for 37% of system integration  revenues.  For
     the nine months ended  September 30, 2004 and 2003, one customer  accounted
     for 40% and 25% of system integration revenues, respectively.


12.  Commitments and contingencies

     On June 7, 2004, (amended July 7, 2004) Topaz Systems, Inc. ("Topaz") filed
     a complaint,  against the Company,  with the United States  District  Court
     Northern  District of California San Francisco  Division alleging breach of
     contract,  breach of covenant of good faith and fair dealing and asking for
     a  declaratory  judgment  that it had not breached the  September  29, 2000
     License  agreement  between it and the Company (the "License"),  that Topaz
     had not infringed  certain of the  Company's  patents and that such patents
     were invalid and/or unenforceable.  No monetary damages were specified. The
     Company  believes  that the  complaint  is  without  merit and  intends  to
     vigorously  defend  against  the  claims.  On July 26,  2004,  the  Company
     responded to the complaint and filed  counterclaims  against Topaz alleging
     that Topaz had breached the License, had infringed certain of the Company's
     patents and was engaging in unfair  competition.  On July, 22, 2004,  Topaz
     filed a complaint against the Company with the United States District Court
     Central  District of California  Western  Division  requesting  declaratory
     judgment that it did not infringe certain of CIC's patents (not included in
     the  other   complaint)   and  that  such  patents   were  invalid   and/or
     unenforceable. The Company believes that the complaint is without merit and
     intends to vigorously  defend against the claims.  The ultimate  outcome of
     this litigation  cannot presently be determined.  However,  in management's
     opinion,  the  likelihood of a material  adverse  outcome is remote and any
     liability that might be incurred  would not have a material  adverse effect
     on  the  Company's   financial  position  or  its  results  of  operations.
     Accordingly,  adjustments, if any, that might result from the resolution of
     this matter have not been reflected in the financial statements.

13.  Subsequent Events:

     $4.2 Million Financing

     On November 1, 2004, the Company  entered into a Note and Warrant  Purchase
     Agreement (the "Purchase  Agreement") and a Registration  Rights  Agreement
     (the  "Registration  Rights Agreement,  each dated as of October 28, 2004).
     The financing,  a combination of debt and equity,  closed November 2, 2004.
     The Company raised  approximately $4 million,  net of commissions and legal
     expenses,  in the  financing.  H.C.  Wainwright & Co., Inc.  ("Wainwright")
     acted as the Company's  exclusive  placement  agent in connection  with the
     financing.  The Company  expects to use the proceeds of the  financing  for
     additional  working  capital  as it  continues  to further  strengthen  its
     leadership position.

     Under  the terms of the  financing,  the  Company  has  issued  to  certain
     accredited  investors   convertible   promissory  notes  in  the  aggregate
     principal  amount of $4,195 and  warrants to acquire  3,632,  shares of the
     Company's  common stock at an exercise price of $0.508 per share. The notes
     accrue interest at the rate of 7% per annum, payable semi-annually, and are
     convertible into shares of the Company's common stock at the rate of $0.462
     per share.  If the  aggregate  principal  amount  owing  under the notes is
     converted, the Company will issue 9,080, shares of its common stock. If the
     notes are not converted, all principal and accrued but unpaid interest will
     be due October 28, 2007. The Company may pay accrued interest in cash or in
     shares of Company  common stock,  issued at the market price for the common
     stock  calculated  prior to the  interest  payment.  The  Company  does not
     currently intend to pay accrued interest with shares of its common stock.

                                      -13-
<PAGE>
                     Communication Intelligence Corporation
                                 And Subsidiary
         Notes to Unaudited Condensed Consolidated Financial Statements
                    (In thousands, except per share amounts)
                                    Form 10-Q

13.  Subsequent Events (continued):

     $4.2 Million Financing (continued)

     The warrants  expire on October 28, 2009. The Company may call the warrants
     if the Company's  common stock trades at $1.00 or above for 20  consecutive
     trading days after the date that is 20 days following the  effectiveness of
     a registration statement providing for the resale of the shares issued upon
     the conversion of the notes and exercise of the warrants.

     As placement agent for the Company,  at closing  Wainwright was paid a cash
     commission  of  approximately  $281 and issued  warrants  to acquire  1,233
     shares of the Company's  common stock at $0.508 per share.  These  warrants
     expire  on  October  28,  2009.  In  addition,   Wainwright  will  be  paid
     approximately  $28 in the  aggregate  if all of the  investor  warrants are
     exercised.

     The Company also is required to file a registration statement providing for
     the resale of the shares  issued upon the  conversion  of the notes and the
     exercise of the warrants.

     Payment of $3.5 Million outstanding short-term debt

     On  November  8, 2004,  the Company  paid $3.5  million to Cornell  Capital
     Partners LLC in satisfaction of a note in the same amount.  The payment was
     required under certain  provisions of a Note and Warrant Purchase Agreement
     between  the  Company  and the  Purchasers  identified  therein.  (See $4.2
     million financing note above).

                                      -14-
<PAGE>

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


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

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

Overview

     The Company was initially incorporated in Delaware in October 1986. In each
     year  since  its  inception,  the  Company  has  incurred  losses.  For the
     five-year  period  ended  December 31, 2003,  operating  losses  aggregated
     approximately  $13,000 and at December 31, 2003, the Company's  accumulated
     deficit was  approximately  $82,000.  At September 30, 2004,  the Company's
     accumulative deficit was approximately $79,500.

     Total revenue of $3,669 for the quarter ended  September 30, 2004 increased
     391% compared to revenues of $936 in the corresponding quarter of the prior
     year.  The third quarter of 2004,  and the first nine months of 2004,  were
     the most profitable in the history of the Company. Total revenues of $6,728
     for the nine months ended  September 30, 2004,  increased  257% compared to
     revenues  of $2,616 in the  corresponding  nine  months of the prior  year.
     Total revenue for eSignature  solutions of $5,935 for the nine months ended
     September 30, 2004, more than tripled (354%) compared to eSignature revenue
     of $ 1,678 in the corresponding  nine months of the prior year. The Company
     believes the revenue  growth  reflects the  positive  impact of  increasing
     adoption of its  eSignature  solutions  in target  markets and is primarily
     attributable  to Wells  Fargo,  a large  national  insurance  company,  and
     revenues  from  Charles  Schwab,  Duncan  Management,   IA  Systems,  Misys
     Healthcare,  PalmSource,  Prudential, Saytek and TVA., The increasing focus
     on  corporate  accountability,  including  a growing  demand for  auditable
     business   approval   processes,   is  driving  many   enterprises  to  add
     eTransactions to their priority deployments in 2004.

     The net income for the quarter  ended  September  30,  2004 was $2,145,  on
     significantly  higher  sales,  compared  with a net  loss  of  $472  in the
     corresponding prior year period. Operating expenses increased approximately
     4% ($58) from $1,358 to $1,416 for the quarter  ended  September  30, 2004,
     compared to the prior year  period.  The  increase  primarily  reflects the
     required  investment in selling  expenses to insure future revenue  growth.
     Net  income  of  $2,634  for the nine  months  ended  September  30,  2004,
     represents  an  increase  of  $4,106  compared  to the net  loss of  $1,472
     incurred in the corresponding nine months of the prior year.

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

Critical Accounting Policies

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

                                      -15-
<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 FASB Emerging  Issues Task Force. We
     recognize revenues from sales of software products upon shipment,  provided
     that persuasive evidence of an arrangement exists, collection is determined
     to be probable and no significant  obligations remain. Revenue from service
     subscriptions  is  recognized  as costs are  incurred  or over the  service
     period, whichever is longer.

     In December 2003, the  Securities  and Exchange  Commission  ("SEC") issued
     Staff  Accounting  Bulletin  ("SAB") No. 104,  "Revenue  Recognition."  The
     adoption  of SAB 104 did not impact the  Company's  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  whichever 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
     September 30, 2004.

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

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

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

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

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

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

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

Segments

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

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

                                      -17-
<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         Nine Months Ended
                                     September 30,             September 30,
                                   2004        2003          2004        2003
                                 -------     --------      --------     -------

Segment revenues:
  Handwriting recognition
    Online/retail                 $    21     $    54       $   109    $   260
    Corporate                       3,645         480         6,465      1,435
    China                               3         197           117         320
                                  --------    --------      --------   ---------
 Total handwriting recognition    $ 3,669     $   731       $ 6,691    $ 2,015

Systems integration                     -         205            37        601
                                  --------    --------      --------   ---------
 Total revenues                   $ 3,669     $   936       $ 6,728    $ 2,616
                                  --------    --------      --------   ---------
 Cost of Sales
    Handwriting recognition       $     6     $    51       $    21    $    88
    Systems integration                 -         181            29        499
                                  --------    --------      --------   ---------
    Total cost of sales           $     6     $   232       $    50    $   587
                                  --------    --------      --------   ---------

Operating cost and expenses
   Research and development       $   326     $   324       $   918    $   967
   Sales and Marketing                394         233         1,031        696
   General and administrative         690         569         1,848      1,700
                                  --------    --------      --------   ---------
    Total operating costs
    and expenses                  $ 1,410     $ 1,126       $ 3,797    $ 3,363
                                  --------    --------      --------   ---------

Minority interest, interest
 and other income (expense), net  $     9     $    (4)      $    15    $     5
Interest expense                     (117)        (46)         (262)      (143)
                                  --------    --------      --------   ---------

Net income (loss)                 $ 2,145     $  (472)      $ 2,634    $ (1,472)
                                  ========    ========      ========   =========

Amortization of intangible assets
   Cost of sales                  $     9     $     3       $     9    $    10
   General and administrative          95          95           284         284
                                  --------    --------      --------   ---------
 Total amortization of
 intangible assets                $   104     $    98       $   293    $   294
                                 =========    ========      ========   =========

Revenues

Handwriting recognition.

     Handwriting  recognition segment revenues include online/retail,  corporate
and China software sales.  Handwriting  recognition  segment revenues  increased
402%  ($2,938)  and 232%  ($4,676),  to $3,669 and $6,691,  from $731 and $2015,
respectively,  for the  three and nine  months  ended  September  30,  2004,  as
compared to the same prior year periods.

     Online/retail  revenues  decreased  61% ($33) and 58% ($151),  from $54 and
$260 to $21 and $109, for the three and nine months ended September 30, 2004, as

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

compared to the same prior year periods.  The Company expects that online/retail
sales  from the  internet  will  continue  to decline  as the  shipments  of the
PalmSource  operating system embedded with the Company's Jot software  increase.
The Company  believes the increases in PalmSource OS shipments and the resulting
increased  royalties,  included in Corporate revenues,  will offset the declines
experienced in online/retail internet sales.

     Corporate revenues increased 657% ($3,165) and 351% ($5,030), to $3,645 and
$6,465 from $480 and $1,435 for the three and nine months  ended  September  30,
2004, as compared to the same prior year periods.

     OEM and channel partner sales included in corporate revenues, decreased 35%
($136) for the  three-month  period ended September 30, 2004, from $387 to $251.
The  decrease  in OEM and  channel  partner  sales  for the three  months  ended
September  30,  2004,  is due  primarily  to a larger  order  from one  customer
received in the third quarter of the prior year.  Royalties from the shipment by
PalmSource  of  its  operating  system  containing  the  Company'  Jot  software
increased  250% ($148) which helped to offset a non  repetitive  order.  For the
nine months ended  September 30, 2004, OEM and channel  partner sales  increased
38% ($218) to $786,  as  compared  to $568 in the same prior  year  period.  The
Company  expects  channel partner and OEM sales to increase in the future as new
channel partners and OEM customers are identified and new agreements are signed.
eSignature  included in corporate  sales increased for the three and nine months
ended  September  30, 2004 by 3473%  ($3,299) and 554%  ($4,810),  to $3,394 and
$5,679  from $95 and $869,  as  compared  to the same  prior year  periods.  The
increase  in  sales  for the  three  months  ended  September  30,  2004 was due
primarily  to a sale to a large  national  insurance  company.  The  increase in
revenue for the three and nine months  ended  September  30, 2004 was  primarily
attributable  to sales to large national  customers in the insurance and banking
industries.  The Company believes that the sales of smaller pilot deployments to
large national customers,  of its products, will lead to greater sales in future
periods as the  customers  roll out their  applications  on a wider  scale.  The
Company  believes that corporate  eSignature  revenues will increase in the near
term as the customers  begin their roll out and corporate IT spending  increases
as the economy  strengthens.  However the timing of customer product roll out is
difficult  to project due to many  factors  beyond the  Company's  control.  The
Company  views  eSignature  as a high  potential  revenue  market and intends to
continue to place increasing focus on this market.

     China  software  sales  declined  $192 (98%) to $3 during the three  months
ended September 30, 2004 compared to $195 in the prior year period. For the nine
months ended  September 30, 2004,  China  software  sales declined $203 (63%) to
$117  compared to $320 in the prior year  period.  This  decrease  reflects  the
unpredictable   nature  of  revenue  generation  while  establishing  a  channel
strategy,  which  began  in the  second  quarter  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.  A  second  factor
expected  to  impact  near  term  revenue  is the  passing,  in  August,  of the
Electronic Signature Law in China. This is overall a very positive event in that
it provides an impetus for our  technology  by providing a framework for product
functionality and standards that are required for accelerated  market growth. It
has, however,  necessitated the need to focus  engineering  effort on developing
product  functionality  that  is  consistent  with  the new  guidelines  thereby
delaying further our sales efforts with channel  partners.  The Company believes
the channel  partner  strategy,  coupled with the passing of the new  eSignature
Law,  provides the framework for increasing and sustained sales growth in China,
however,  attaining  predictable  and sustained  revenue  growth on a quarter to
quarter basis may not occur until the first half of 2005 and beyond.

Systems Integration.

     System integration  segment revenue declined 100% ($205) and 94% ($564), to
$0 and $37 from $205 and $601, for the three and nine months ended September 30,
2004, as compared to the prior year periods. Over the prior two years, CIC China
had emerged as the leading supplier in Jiangsu Province to a fast-growing mobile
industry  application for regulated  goods,  with an estimated 70% market share.
However the decision not to expand this business to other provinces, which would
require  significant  increases in base costs to provide turn-key  capabilities,
but rather to focus on the emerging high potential eSignature/office  automation
market  in China,  leveraging  channel  partners  capabilities  resulted  in the
decline in system integration revenue.  System integration revenues are expected
to continue to be below the prior year amounts in future quarters.

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

Cost of Sales

Handwriting recognition.

     Handwriting  recognition  segment  cost of  sales  includes  online/retail,
corporate and China  software  sales costs.  Such costs are comprised of royalty
and  import tax  payments,  third  party  hardware  costs,  direct  mail  costs,
engineering  direct  costs  and  amortization  of  intangible  assets  excluding
patents.  Cost of sales for the handwriting  recognition  segment  decreased 88%
($45)  and 76%  ($67),  to $6 and  $21,  for the  three  and nine  months  ended
September  30, 2004,  as compared to $51 and $88 in the same prior year periods.
The decline is primarily due to the sale of less third party hardware along with
the  Company's  software  products.  Cost of sales may  increase  in the  future
depending on the  customers  decision to purchase  from the Company its software
solution  and third  party  hardware  as a complete  package  rather than buying
individual components from separate vendors.

     Online/retail cost of sales decreased 100% ($2) and 100% ($3), to $0 during
the three and nine months  ended  September  30, 2004  compared to $2 and $3 the
prior year  periods,  respectively.  The Company does not  anticipate a material
increase in costs associated with the online/retail sales.

     Enterprise  and OEM cost of sales  increased  50% ($2) to $6 for the  three
months ended September 30, 2004, from $4 in the prior year period.  For the nine
months ended September 30, 2004,  enterprise and OEM cost of sales decreased 37%
($10), to $17 compared to $27 in the prior year period.  The decrease was due to
the lower volume of third party hardware sales and engineering development costs
over the  comparable  three  and nine  month  periods  of the  prior  year.  Any
increases in corporate  cost of sales in the future will be driven by the amount
of third party hardware that is sold with the Company's software solutions.

     China  handwriting  recognition  segment  has no cost for the three  months
ended September 30, 2004 compared to $45 in the prior year period.  For the nine
months ended September 30 2004, China  handwriting  recognition  segment cost of
sales  decreased  93% ($54) to $4 compared to $58 in the prior year period.  The
decrease  is due to the  reduction  in  revenues  over the three and nine months
ended September 30, 2004 compared to the prior year periods. It is expected that
cost of sales will remain low for the  foreseeable  future as the current  trend
has been in the sale of software  solutions through channel partners with little
third party hardware costs.

Systems Integration.

     China  Systems  integration  segment has no cost for the three months ended
September  30,  2004  compared  to $181 in the prior year  period.  For the nine
months ended September 30, 2004 system  integration  segment revenues  decreased
94% ($470) to $29  compared to $499 in the prior year  period.  The  decrease in
costs was due  primarily  to the  reduction  in sales  during the three and nine
month periods ended  September 30, 2004 compared to the prior year periods.  The
Company expects that system integration cost of sales will decrease over time as
the Company  continues  to increase  its focus on the  emerging  high  potential
eSignature/office automation market in China.

Operating expenses

     Research and development  expenses.  Research and development  expenses for
the three months ended September 30, 2004,  increased 1% ($2), to $326 from $324
in the  prior  year  period.  For the  nine  months  ended  September  30,  2004
engineering  expenses  decreased  5% ($49) to $918 from  $967 in the 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 increased 9% ($18) and 5% ($29), for the
three and nine  months  ended  September  30,  2004,  compared to the prior year
periods.  The  increase  is  due  primarily  to the  salary  increases  for  the
engineering  staff in the US. Other engineering  administrative  costs including
allocated  facilities  expenses declined 13% ($16) and 22% ($78),  respectively,
during the three and nine months ended September 30, 2004, compared to the prior
year  periods.  The  reduction  in other costs  occurred  primarily in the Joint
venture in China due to the curtailment of the SI segment. Currently the Company


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

does not  anticipate  reductions in personnel nor does it anticipate an increase
in  personnel  as  the  Company  maintains  its  relationship  with  an  outside
engineering  group familiar with its products and, if required,  can engage them
on an as-needed basis to fill future engineering  requirements.  In addition the
Company draws on the engineering  capabilities of the Joint Venture as required.
This  reliance on the Joint  Venture and outside  parties  allows the Company to
maintain lower base costs and to increase  engineering cost on a temporary basis
in response to specific revenue opportunities.

     Sales and marketing  expenses.  Sales and marketing  expenses increased 69%
($161) and 49% ($335), to $394 and $1,031, respectively,  for the three and nine
months ended  September 30, 2004 as compared to $233 and $696, in the prior year
periods.  Sales and  marketing  expenses  consist of salaries,  commissions  and
related  expenses,  professional  services,  advertising and promotion,  general
office  and  allocated  facilities  expenses.   Salaries  and  related  expenses
increased 77% ($51) and 49% ($124),  respectively,  for the three and nine month
periods  ended  September  30,  2004,  compared to the prior year  periods.  The
increase in salaries and related  expense is primarily due to an increase in the
headcount  by one in the Sales  department  after the  second  quarter  of 2004.
Recruiting expense decreased 100% ($20) for the three months ended September 30,
2004 compared to the prior year period.  For the nine months ended September 30,
2004,  recruiting expense increased 72% ($14) compared to the prior year period.
The increase is due to the hiring of one sales person of executive  level in the
second fiscal  quarter of 2004.  Commissions  expense  increased 303% ($133) and
248%  ($218),  respectively,  in the three and nine months ended  September  30,
2004, compared to the prior year periods.  The increase in commission expense in
comparable periods is due to the increase in revenues.  Other expenses including
facilities  and other office  related  expenses  decreased 3% ($3) and 6% ($21),
respectively,  for the three and nine months ended September 30, 2004,  compared
to the prior year periods.  These  decreases in other  expenses were realized in
both the US and China operations and were primarily  related to travel expenses,
depreciation  and allocated  facility costs. The Company expects these costs may
increase at such time in the future as the sales force is expanded to respond to
increasing  revenue  opportunities.  The Company  believes that the current cost
structure can support significantly higher revenue without significant increases
in base costs.

     General and Administrative  Expenses.  General and administrative  expenses
increased  21% ($121) and 9% ($148),  to $690 and  $1,848,respectively,  for the
three and nine months ended  September 30, 2004,  compared to $569 and $1,700 in
the prior year periods. General and administrative expense consists of salaries,
professional fees, investor relations  expenses,  patent amortization and office
and allocated  facilities  costs.  Salaries and wages  increased 9% ($15) and 4%
($20),  respectively,  for the three and nine month periods ended  September 30,
2004,  compared to the prior year periods.  These increases are due primarily to
salary increases.  Professional service expenses which include consulting, legal
and outside  accounting  fees  increased 27% ($33) during the three months ended
September  30, 2004,  primarily  due to legal fees  associated  with the pending
contract  litigation.  Professional  services expense  decreased 2% ($8) for the
nine months ended  September  30, 2004  compared to the prior year  period.  The
decrease  was  primarily  due to lower legal and  accounting  fees over the nine
months ended September 30, 2004, compared to the prior year periods. The Company
anticipates  that  legal fees may  increase  in future  quarters  due to pending
contract  litigation.  Bad debt expenses increased $150 and $178,  respectively,
for the three and nine months periods ended September 30, 2004,  compared to the
prior year  period.  The  increase  in bad debt  expense  was  primarily  due to
provisions  made to cover the aged  receivables  of the CIC Joint  Venture.  The
Company  believes  that its  accounts  receivable  are  adequately  reserved  at
September  30, 2004 and does not  anticipate  further  provisions in the future.
Other  administrative  expenses decreased 28% ($77) and 5% ($42),  respectively,
for the three and nine months ended  September  30, 2004,  compared to the prior
year  periods.  The  increases  are  primarily  due to an increase in  allocated
expenses  compared  to the prior year  periods.  The Company  believes  that the
increase in the expenses allocated to administration will continue at the higher
rate through the end of the next quarter.

Interest and other income (expense), net

     Interest and other income  (expense),  net,  increased  $13 and $10 for the
three and nine months ended  September 30, 2004,  respectively,  compared to the
prior year  periods.  The  increase is  primarily  due to the change in minority
interest due to the operating losses incurred by the Company's Joint Venture.

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

Interest expense

     Interest expense increased 154% ($71) and 83% ($119), to $117 and $262 from
$46  and  $143  for  the  three  and  nine  months  ended  September  30,  2004,
respectively,  compared  to the prior year  periods.  The  increase  in interest
expense for the three  months  ended  September  30, 2004 is due to the interest
paid on the $3,500 Loan and the interest paid on the $3,000 loan through  August
18, 2004. The increase in interest  expense over the nine months ended September
30, 2004 was  primarily  due to interest paid to Cornell  Capital  Partners,  LC
associated  with the $750 in short-term  debt, the amounts paid  associated with
the $3,000 loan to the Trust,  and the $3,500 loan to Cornell Capital  Partners,
LP, (See Note 5 of the condensed consolidated financial statements).

Liquidity and Capital Resources

     At September 30, 2004, cash and cash equivalents totaled $1,549 compared to
cash and cash  equivalents  of $1,039 at December 31, 2003. The increase in cash
was  primarily  due to cash  provided by  operating  activities  of $40 and cash
provided  financing  activities  of $502.  These cash inflows were offset by the
acquisition  of property and equipment  amounting to $32.  Total current  assets
were $5,714 at September  30, 2004,  compared to $2,005 at December 31, 2003. As
of September 30, 2004,  the Company's  principal  sources of funds  included its
cash and cash equivalents  aggregating $1,549, its accounts receivable of $3,863
and the Equity Line of Credit through Cornell  Capital  Partners LP. On November
2,  2004,  the  Company  received   approximately  $4,000  in  proceeds  from  a
debt warrant  financing.   See  Note  13  to  Condensed  Consolidated  Financial
Statements - "Subsequent events."

     Accounts receivable  increased $3,121, net of $435 provided for potentially
uncollectable accounts, for the nine months ended September 30, 2004 compared to
December  31, 2003,  due  primarily  to the a large order  received  late in the
quarter.  The Company expects that the development of the eSignature market will
result in more  consistent  revenue on a quarter to quarter basis and therefore,
less  fluctuation in accounts  receivable from quarter to quarter.  For the nine
months ended September 30, 2004, one customer  accounted for 91% of net accounts
receivable. The account receivable accounting for 91% of net accounts receivable
was collected subsequent to the balance sheet date.

     Prepaid  expenses and other current  assets  increased by $125 for the nine
months ended September 30, 2004,  compared to December 31, 2003. The increase is
primarily  due to the  prepaid  interest on the $3,500  short term note  secured
through  Cornell  Capital  Partners  LP in August  2004,  offset by the non cash
reduction in prepaid financing and other prepaids associated with the operations
of the Company. Prepaid expenses generally fluctuate due to the timing of annual
insurance  premiums  and  maintenance  and  support  fees  which are  prepaid in
December and June of each year.

     During  the second  quarter  of,  2004,  the  Company  received a sixty day
extension to pay the $3,000 note that was due June 18, 2004,  to the  charitable
remainder annuity trust of which a former director and officer of the Company is
a trustee (the "Trust").  In exchange for this sixty day extension,  the Company
paid the Trust thirty days worth of interest ($15)  calculated  according to the
terms of the note.  All other  provisions  of the note  remained  unchanged.  On
August 5, 2004,  the Company  paid all amounts due under the note with  proceeds
from a loan from  Cornell  Capital  Partners  LP. The Cornel  loan was repaid on
November 8, 2004.

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

     During the nine months ended September 30, 2004, the Company repaid $750 to
Cornell Capital Partners,  LP through the issuance of approximately 1,133 shares
of its common stock. Under the terms of a debt-warrant  financing that closed on
November 2, 2004, the Company is prohibited from borrowing any additional  funds
under  the  Cornell  Equity  Line.  (See Note 13 to the  Condensed  Consolidated
Financial  Statements - "Subsequent  events").  The Company intends to terminate
the Equity Line within the next 30 days.

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

     Accounts  payable  decreased  $86 for the nine months ended  September  30,
2004,  compared to December 31, 2003, due to fewer materials  purchased and used
by the Joint  Venture  in cost of sales.  Accounts  payable  balances  typically
increase  in the  second  and  fourth  quarters  when the  insurance  and annual
maintenance  and support fees are incurred.  Materials used in cost of sales may
impact accounts payable  depending on the amount of third party hardware sold as
part of the software solution. Accrued compensation increased $140 due primarily
to the accrual in the third  quarter ended  September  30, 2004 of  commissions.
Commissions are paid after customer payment of the receivable amount.

     Current  liabilities,  which  include  deferred  revenue,  were  $4,970  at
September  30, 2004 compared to $4,900 at December 31, 2003.  Deferred  revenue,
was $507 at  September  30, 2004,  compared to $165 at December  31, 2003.  This
increase  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 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 approximately  $79,500 at September 30, 2004
compared  to  approximately  $82,000  at  December  31,  2003.  There  can be no
assurance  that the Company will continue to reduce the  accumulated  deficit or
have  adequate  capital  resources  to  fund  planned  operations  or  that  any
additional funds will be available to it when needed,  or if available,  will be
available  on  favorable  terms or in amounts  required by it. If the Company is
unable  to obtain  adequate  capital  resources  to fund  operations,  it may be
required to delay, scale back or eliminate some or all of its operations,  which
may have a material  adverse  effect on its business,  results of operations and
ability to operate as a going concern.  The financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.

     CIC believes the cash  provided  from  operations,  and or other  potential
sources of financing,  will be sufficient to meet its capital  requirements  for
the  foreseeable  future.  If the Company is unable to secure  sufficient  funds
through financing,  or is unable to sustain the increase in funds generated from
operations,  the  Company may not be able to continue  its  operations  in their
current form and may not be a viable  company on a going  forward  basis without
significant  changes in its  operations.  Since  February  2002, the Company has
raised,  net of costs and expenses,  approximately  $2,300 and borrowed,  net of
costs and  expenses  approximately  $3,273 from the Equity  Line of Credit.  The
Company  believes it will be able to raise the necessary  funds under the Equity
Line of Credit,  through  February 2005, and or other alternate  financing,  and
from  operations.  The Company has not  formulated  specific plans to change its
operations.  Possible changes could include reduced personnel expenses to better
match its revenue streams.

The following are material commitments as of September 30, 2004:

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

 Short-term debt related party        $     8   $     8  $    -  $  -   $   -
 Short-term debt, other                 3,537     3,537       -     -       -
 Long-term debt related party               6                 6     -       -
 Capital Lease Obligations                 24        24       -     -       -
 Operating lease commitments (1)          879       419     460     -       -
                                     ---------   -------  -------  ----- ------
 Total contractual cash obligations   $ 4,454   $ 3,988  $  466  $  -   $   -
                                     =========   ======== =======  ===== ======

1.   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,

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

constitute  "forward  looking"  statements  within the  meaning  of the  Private
Securities  Litigation  Reform Act of 1995.  Such  statements  involve known and
unknown risks,  uncertainties and other factors which may cause actual events to
differ materially from expectations. Such factors include those set forth in the
Company's  Annual  Report on Form 10-K for the year ended  December 31, 2003 and
are 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 and nine months ended September
30, 2004.

Foreign Currency Risk

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

Future Results and Stock Price Risk

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

Item 4A. Controls and Procedures

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

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

Part II-Other Information

Item 1. Legal Proceedings

     On June 7, 2004, (amended July 7, 2004) Topaz Systems, Inc. ("Topaz") filed
a complaint, against the Company, with the United States District Court Northern
District of  California  San  Francisco  Division  alleging  breach of contract,
breach of covenant of good faith and fair  dealing and asking for a  declaratory
judgment  that it had not breached  the  September  29, 2000  License  agreement
between it and the Company (the "License"), that Topaz had not infringed certain
of  the   Company's   patents  and  that  such  patents   were  invalid   and/or
unenforceable. No monetary damages were specified. The Company believes that the
complaint is without merit and intends to vigorously  defend against the claims.
On July 26, 2004, the Company responded to the complaint and filed counterclaims
against  Topaz  alleging  that Topaz had  breached the  License,  had  infringed
certain of the  Company's  patents and was  engaging in unfair  competition.  On
July,  22,  2004,  Topaz filed a complaint  against the Company  with the United
States District Court Central District of California Western Division requesting
declaratory  judgment that it did not infringe certain of the Company's  patents
(not included in the other  complaint) and that such patents were invalid and/or
unenforceable.  The Company  believes  that the  complaint is without  merit and
intends to vigorously  defend against the claims.  The ultimate  outcome of this
litigation cannot presently be determined. However, in management's opinion, the
likelihood of a material  adverse outcome is remote and any liability that might
be incurred would not have a material adverse effect on the Company's  financial
position or its results of operations.  Accordingly,  adjustments,  if any, that
might result from the  resolution of this matter have not been  reflected in the
financial statements.

Item 2. Change in Securities and Use of Proceeds

        None

Item 3. Defaults Upon Senior Securities

        None

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

        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

          1.   Current  Report on Form 8-K,  Items 7, 9 and 12, dated August 11,
               2004, with respect to the Company's second quarter 2004 financial
               results.



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

                                   SIGNATURES

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





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



   November 15, 2004                        /s/ Francis V. Dane
--------------------------         ------------------------------------------
          Date                                  Francis V. Dane
                                 (Principal Financial Officer and Officer Duly
                                 Authorized to Sign on Behalf of the Registrant)


                                      -26-