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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q/A

|ý                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended:September 30, 2002
|OR                                               
|o                                                 | 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(State or other jurisdiction of
incorporation or organization)                                                                    |  | 94-2790442(I.R.S. Employer
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 ý    No o

Number
of shares outstanding of the issuer's Common Stock, as of October 24, 2002: 91,480,777.

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INDEX

|              |  |                       |  |                                                                                                                                                         |  | Page No.
|------------- |  | --------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|PART I.       |  | FINANCIAL INFORMATION |  |                                                                                                                                                        
|              |  | Item 1.               |  | Financial Statements                                                                                                                                    |  |         
|              |  |                       |  | Condensed Consolidated Balance Sheets at September 30, 2002 (unaudited) and December 31, 2001                                                           |  | 3       
|              |  |                       |  | Condensed Consolidated Statements of Operations for the Three and Nine-Month Periods Ended September 30, 2002 and 2001 (unaudited)                      |  | 4       
|              |  |                       |  | Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine-Month Periods Ended September 30, 2002 and 2001 (unaudited) |  | 5       
|              |  |                       |  | Condensed Consolidated Statements of Cash Flows for the Nine-Month Period Ended September 30, 2002 and 2001 (unaudited)                                 |  | 6       
|              |  |                       |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                                                          |  | 7       
|              |  | Item 2.               |  | Management's Discussion and Analysis of Financial Condition And Results of Operations                                                                   |  | 12      
|              |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                              |  | 21      
|              |  | Item 4.               |  | Controls and Procedures                                                                                                                                 |  | 22      
|PART II.      |  | OTHER INFORMATION     |  |                                                                                                                                                        
|              |  | Item 1.               |  | Legal Proceedings                                                                                                                                       |  | 23      
|              |  | Item 2.               |  | Change in Securities                                                                                                                                    |  | 23      
|              |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                                                         |  | 23      
|              |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                                                     |  | 23      
|              |  | Item 5.               |  | Other Information                                                                                                                                       |  | 23      
|              |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                                                                        |  |         
|              |  |                       |  | (a)  Exhibits                                                                                                                                           |  | 23      
|              |  |                       |  | (b)  Reports on Form 8-K                                                                                                                                |  | 23      
|Signatures    |  | 24                   
|Certification |  | 24                   

2

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

|                                     |                                           | September 30,
2002                         |       | December 31,
2001 |      
|------------------------------------ | ----------------------------------------- | ------------------------------------------ | ----- | ----------------- | -----
|
|Assets                               |                                           |                                            |       |                   |      
|Current assets:                      |                                           |                                            |       |                   |      
|                                     | Cash and cash equivalents                 |                                            | $     | 1,246             |      
|                                     | Accounts receivable, net                  |                                            |       | 748               |      
|                                     | Inventories                               |                                            |       | 149               |      
|                                     | Prepaid expenses and other current assets |                                            |       | 229               |      
|                                     |                                           |                                            |       |                   |      
|                                     |                                           | Total current assets                       |       |                   | 2,372
|Property and equipment, net          |                                           |                                            | 156   |                   |      
|Capitalized software costs           |                                           |                                            | 16    |                   |      
|Patents and trademarks               |                                           |                                            | 5,515 |                   |      
|Other assets                         |                                           |                                            | 88    |                   |      
|                                     |                                           |                                            |       |                   |      
|                                     |                                           | Total assets                               |       | $                 | 8,147
|                                     |                                           |                                            |       |                   |      
|Liabilities and Stockholders' equity |                                           |                                            |       |                   |      
|Current liabilities:                 |                                           |                                            |       |                   |      
|                                     | Short-term debt                           |                                            | $     |                  |      
|                                     | Accounts payable                          |                                            |       | 109               |      
|                                     | Accrued compensation                      |                                            |       | 211               |      
|                                     | Other accrued liabilities                 |                                            |       | 470               |      
|                                     | Deferred revenue                          |                                            |       | 123               |      
|                                     | Capital Lease Obligations                 |                                            |       | 40                |      
|                                     |                                           |                                            |       |                   |      
|                                     |                                           | Total current liabilities                  |       |                   | 953  
|Notes payablenoncurrent             |                                           |                                            | 3,000 |                   |      
|Minority interest                    |                                           |                                            | 133   |                   |      
|Commitments                          |                                           |                                            |       |                   |      
|Stockholders' equity:                |                                           |                                            |       |                   |      
|                                     | Common stock                              |                                            |       | 914               |      
|                                     | Additional paid-in capital                |                                            |       | 82,026            |      
|                                     | Accumulated deficit                       |                                            |       | (78,687           | )    
|                                     | Cumulative translation adjustment         |                                            |       | (192              | )    
|                                     |                                           |                                            |       |                   |      
|                                     |                                           | Total stockholders' equity                 |       |                   | 4,061
|                                     |                                           |                                            |       |                   |      
|                                     |                                           | Total liabilities and stockholders' equity |       | $                 | 8,147
|                                     |                                           |                                            |       |                   |      

See
accompanying notes.

3

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

|                                           |                                                                 | Three Months Ended
September 30,   |        | Nine Months Ended
September 30, |       
|------------------------------------------ | --------------------------------------------------------------- | ---------------------------------- | ------ | ------------------------------- | ------
|
|Revenues:                                  |                                                                 |                                    |        |                                 |       
|                                           | Online                                                          |                                    | $      | 83                              |       
|                                           | Corporate                                                       |                                    |        | 132                             |       
|                                           | Nonrecurring maintenance fees (net) M10 (previously PenOp Inc.) |                                    |        |                                |       
|                                           | China                                                           |                                    |        | 310                             |       
|                                           |                                                                 |                                    |        |                                 |       
|                                           |                                                                 | Total revenues                     |        |                                 | 525   
|Operating costs and expenses:              |                                                                 |                                    |        |                                 |       
|                                           | Cost of sales:                                                  |                                    |        |                                 |       
|                                           |                                                                 | Online                             |        |                                 | 13    
|                                           |                                                                 | Corporate                          |        |                                 | 15    
|                                           |                                                                 | China                              |        |                                 | 176   
|                                           | Research and development                                        |                                    |        | 367                             |       
|                                           | Sales and marketing                                             |                                    |        | 367                             |       
|                                           | General and administrative                                      |                                    |        | 583                             |       
|                                           |                                                                 |                                    |        |                                 |       
|                                           |                                                                 | Total operating costs and expenses |        |                                 | 1,521 
|                                           |                                                                 |                                    |        |                                 |       
|Loss from operations                       |                                                                 |                                    | (996   | )                               |       
|Interest and other income (expense), net   |                                                                 |                                    | (19    | )                               |       
|Interest expense                           |                                                                 |                                    | (53    | )                               |       
|Minority interest                          |                                                                 |                                    | (2     | )                               |       
|                                           |                                                                 |                                    |        |                                 |       
|                                           |                                                                 | Net loss                           |        |                                 | (1,070
|                                           |                                                                 |                                    |        |                                 |       
|Basic and diluted loss per common share    |                                                                 | $                                  | (0.01  | )                               | $     
|                                           |                                                                 |                                    |        |                                 |       
|Weighted average common shares outstanding |                                                                 |                                    | 91,481 |                                 |       
|                                           |                                                                 |                                    |        |                                 |       

See
accompanying notes.

4

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

|                                                   |  | Common
Stock |     | Additional
Paid-In
Capital |   | Accumulated
Deficit |  | Accumulated
Other
Comprehensive
Gain (Loss) |         | Total |  
|-------------------------------------------------- |  | ------------ | --- | -------------------------- | - | ------------------- |  | ------------------------------------------- | ------- | ----- | -
|Balances as of December 31, 2001                   |  | $            | 909 |                            | $ | 81,605              |  | $                                           | (76,258 | )     | $
|                                                   |  |              |     |                            |   |                     |  |                                             |         |       |  
|Exercise of options for 148 shares of Common Stock |  |              | 1   |                            |   | 109                 |  |                                             |        |       |  
|Foreign currency translation adjustment            |  |              |    |                            |   |                    |  |                                             |        |       |  
|Net loss                                           |  |              |    |                            |   |                    |  |                                             | (688    | )     |  
|                                                   |  |              |     |                            |   |                     |  |                                             |         |       |  
|Balances as of March 31, 2002                      |  | $            | 910 |                            | $ | 81,714              |  | $                                           | (76,946 | )     | $
|                                                   |  |              |     |                            |   |                     |  |                                             |         |       |  
|Exercise of options for 420 shares of Common Stock |  |              | 4   |                            |   | 312                 |  |                                             |        |       |  
|Foreign currency translation adjustment            |  |              |    |                            |   |                    |  |                                             |        |       |  
|Net loss                                           |  |              |    |                            |   |                    |  |                                             | (671    | )     |  
|                                                   |  |              |     |                            |   |                     |  |                                             |         |       |  
|Balances as of June 30, 2002                       |  | $            | 914 |                            | $ | 82,026              |  | $                                           | (77,617 | )     | $
|                                                   |  |              |     |                            |   |                     |  |                                             |         |       |  
|Foreign currency translation adjustment            |  |              |    |                            |   |                    |  |                                             |        |       |  
|Net loss                                           |  |              |    |                            |   |                    |  |                                             | (1,070  | )     |  
|                                                   |  |              |     |                            |   |                     |  |                                             |         |       |  
|Balance as of September 30, 2002                   |  | $            | 914 |                            | $ | 82,026              |  | $                                           | (78,687 | )     | $
|                                                   |  |              |     |                            |   |                     |  |                                             |         |       |  

Total shares outstanding as of: December 31, 2001, 90,911, March 31, 2002, 91,060, June 30, 2002, 91,471 and September 30, 2002, 91,481.

See
accompanying notes.

5

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

|                                                     |                                                                               | Nine Months Ended
June 30,                   |                                          
|---------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------------------------------- | -----------------------------------------
|
|Cash flows from operating activities:                |                                                                               |                                              |                                          
|                                                     | Net loss                                                                      |                                              | $                                        
|                                                     | Adjustments to reconcile net loss to net cash (used) in operating activities: |                                              |                                          
|                                                     |                                                                               | Depreciation                                 |                                          
|                                                     |                                                                               | Patent amortization                          |                                          
|                                                     |                                                                               | Loan discount amortization                   |                                          
|                                                     |                                                                               | Non-cash compensation                        |                                          
|                                                     |                                                                               | Disposal of fixed assets                     |                                          
|                                                     |                                                                               | Changes in operating assets and liabilities: |                                          
|                                                     |                                                                               |                                              | Accounts receivable, net                 
|                                                     |                                                                               |                                              | Inventories                              
|                                                     |                                                                               |                                              | Prepaid expenses and other current assets
|                                                     |                                                                               |                                              | Other assets                             
|                                                     |                                                                               |                                              | Accounts payable                         
|                                                     |                                                                               |                                              | Accrued compensation                     
|                                                     |                                                                               |                                              | Other accrued liabilities                
|                                                     |                                                                               |                                              | Deferred revenue                         
|                                                     |                                                                               |                                              |                                          
|                                                     |                                                                               | Net cash (used in) operating activities      |                                          
|                                                     |                                                                               |                                              |                                          
|Cash flows from investing activity:                  |                                                                               |                                              |                                          
|                                                     | Acquisition of property and equipment                                         |                                              |                                          
|                                                     |                                                                               |                                              |                                          
|                                                     |                                                                               | Net cash used in investing activity          |                                          
|                                                     |                                                                               |                                              |                                          
|Cash flows from financing activities:                |                                                                               |                                              |                                          
|                                                     | Payments on short-term debt                                                   |                                              |                                          
|                                                     | Acquisition of property under capital lease                                   |                                              |                                          
|                                                     | Proceeds from acquisition of short-term debt                                  |                                              |                                          
|                                                     | Proceeds from acquisition of long-term debt                                   |                                              |                                          
|                                                     | Proceeds from exercise of stock options and warrants                          |                                              |                                          
|                                                     | Principal payments on capital lease obligations                               |                                              |                                          
|                                                     |                                                                               |                                              |                                          
|                                                     |                                                                               | Net cash provided by financing activities    |                                          
|                                                     |                                                                               |                                              |                                          
|Effect of exchange rate changes on cash              |                                                                               |                                              |                                         
|                                                     |                                                                               |                                              |                                          
|Net increase (decrease) in cash and cash equivalents |                                                                               |                                              | (1,342                                   
|Cash and cash equivalents at beginning of period     |                                                                               |                                              | 704                                      
|                                                     |                                                                               |                                              |                                          
|Cash and cash equivalents at end of period           |                                                                               | $                                            | 1,246                                    
|                                                     |                                                                               |                                              |                                          

See
accompanying notes.

6

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

The financial information contained herein should be read in conjunction with the Company's audited financial statements and notes thereto included in its Annual Report on
Form 10-K for the year ended December 31, 2001.

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

The
Company develops and markets software that can verify handwritten signatures delivered wirelessly and electronic signature and handwritten data entry software solutions aimed at
emerging, large potential markets such as e-commerce, corporate security, mobile voice/Internet devices including smartphones/communicators, PDAs, webpads and the Palm OS aftermarket.

The
Company's core software technologies include multilingual handwriting recognition systems (Jot®) and the Handwriter Recognition System, referred to as HRS,
electronic signature, handwritten
signature verification, writing with the aid of symbols, electronic ink recording tools (InkTools®), Sign-it®, iSign and
Sign-On, and operating systems extensions that enable pen input (PenX).

Other
consumer and original equipment manufacturer ("OEM") products include electronic notetaking (QuickNotes and InkSnap) and predictive text input,
(WordComplete®). CIC's products are designed to increase the ease of use, functionality and security of electronic devices with a primary focus on wireless internet and information devices
such as smartphones, electronic organizers ("PDA's") and portable web browsers.

The
Company offers a wide range of multi-platform software products that enable or enhance pen-based computing. The Company's core technologies are classified into two broad
categories: "natural input technologies" and "transaction and communication enabling technologies". Natural input technologies are designed to allow users to interact with a computer or handheld
device by using an electronic pen or "stylus" as the primary input device or in conjunction with a keyboard. CIC's natural input offerings include multilingual handwriting recognition systems,
software keyboards, predictive text entry, and electronic ink capture technologies. Many small handheld devices such as electronic organizers, pagers and smart cellular phones do not have a keyboard.
For such devices, handwriting recognition and software keyboards offer viable solutions for performing text entry and editing. CIC's predictive text entry technology simplifies data entry even further
by reducing the number of actual letters required to be entered. The Company's ink capture technologies facilitate the capture of electronic ink for notetaking, drawings or short handwritten messages.
The Company's transaction and communication enabling technologies are designed to provide a cost-effective means for securing electronic transactions, providing network and device access
control, and enabling workflow automation of traditional paper form processing. CIC believes that these technologies offer more efficient methods for conducting electronic transactions and provide
more functional user authentication and heightened

7

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data security. The Company's transaction and communication enabling technologies have been fundamental in its development of software for signature verification, data security, and data compression.

The Company was incorporated in Delaware in 1986 and the accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations that raise a doubt about its ability to continue as a going concern. The Company is in the process of filing a registration statement with the Securities and
Exchange Commission in order to obtain funding from equity financing. However, there can be no assurance that the Company will have adequate capital resources to fund planned operations or that any
additional funds will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company. If the Company is unable to obtain adequate
capital resources to fund operations, it may be required to delay, scale back or eliminate some or all of its operations, which may have a material adverse effect on the Company's business, results of
operations and ability to operate as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Equity Line of Credit Agreement

In September 2002, the Company negotiated a Line of Credit agreement expiring in two years with Cornell Capital Partners, LP. The Company may periodically
issue and sell shares of its common stock for a total purchase price of $15 million, subject to the number of shares available for issuance and the purchase price of such shares. If the Company
request an advance under the Line of Credit, Cornell Capital Partners, L.P. will purchase shares of common stock of the Company for 100% of the "Market Price" of its stock. Market Price is defined as
the lowest volume weighted average price of the Company's common stock as reported by Bloomberg, LP, calculated over four of the five trading days after the Company request an advance. The maximum
amount of each advance is equal to $1 million in any 30-day period. In addition, in no event shall the number of shares issuable to Cornell Capital Partners, LP cause Cornell to own
in excess of 9.9% of the then outstanding shares of our common stock. On each advance date, the Company must pay to Cornell Capital Partners, L.P. an Advance fee equal to 6.5% of the amount of each
advance. At the Company's option, Cornell Capital Partners, L.P. may withhold from the advance the fee described above. A closing will be held six (6) trading days after such written notice, at
which time the Company will deliver shares of common stock and Cornell Capital Partners, L.P. will pay the advance amount. Cornell Capital Partners, L.P. intends to sell any shares purchased under the
Equity Line of Credit at the market price. Cornell Capital Partners, L.P. cannot transfer its interest in the Equity Line of Credit to any other person and cannot engage in sales of shares of common
stock acquired under the Line of Credit. The effectiveness of the sale of the shares under the Equity Line of Credit is conditioned upon the Company registering the shares of common stock with the
Securities and Exchange Commission.

Recent Pronouncements

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred. EITF 94-3 allowed for an exit cost liability to be recognized at the date of an entity's commitment to an exit plan.
SFAS 146 also requires that liabilities recorded in connection with exit plans be initially measured at fair value. The provisions of SFAS 146 are effective for exit or disposal
activities that are initiated after December 31, 2002, with early adoption encouraged.

8

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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,
2002 |       | December 31,
2001
|---------------- |  | ------------------ | ----- | -----------------
|Cash in bank     |  | $                  | 1,135 |                  
|Commercial paper |  |                    |      |                  
|Money market     |  |                    | 111   |                  
|                 |  |                    |       |                  
|                 |  | $                  | 1,246 |                  
|                 |  |                    |       |                  

Inventories
are stated at the lower of cost or market, cost being determined using the first-in, first-out (FIFO) method. At September 30, 2002,
inventories consisted primarily of finished goods.

On August 23, 2001, the Company's 90% owned Joint Venture borrowed the aggregate equivalent of $181, denominated in Chinese currency, from a Chinese bank. The loan bore interest
at 5.37% per annum and was due August 23, 2002. The borrowing did not require the Joint Venture to deposit a compensating balance. In February 2002, the Joint Venture repaid $121 and in
August 2002, paid the remaining equivalent of $60 denominated in Chinese currency.

On
June 19, 2001, the Company consummated a three-year $3 million financing (the "Loan") with a charitable remainder annuity trust of which a former director
and officer of the Company is a trustee (the "Trust"). The proceeds of the Loan were used to refinance $1,500 of indebtedness outstanding to the Trust pursuant to a loan made by the Trust to the
Company in October 1999 and for working capital purposes.

The
Loan bears interest at the rate of 2% over the prime rate publicly announced by Citibank N.A. from time to time, which was 6.75% per annum at September 30, 2002, and is due
June 18, 2004. The Loan may be pre-paid by the Company in whole or in part at any time without penalty, subject to the right of the Trust to convert the outstanding principal amount
of the Loan into shares of common stock. Pursuant to the terms of the Loan, the Trust has the option, at any time prior to maturity, to convert all or any portion of the outstanding principal amount
of the Loan into shares of common stock of the Company at a conversion price of $2.00 per share, subject to adjustment upon the occurrence of certain events. If, prior to maturity of the Loan, the
Company consummates one or more financings providing $5 million or more in gross proceeds, the Company is required to apply 50% of the proceeds in excess of $5 million to the then
outstanding principal amount of the Loan. The Loan is secured by a first priority security interest in and lien on all of the Company's assets as now owned or hereafter acquired by the Company.

In
connection with the Loan, the Company entered into a registration rights agreement with the Trust which obligates the Company to file a registration statement with the
Securities and Exchange Commission covering the sale of the shares of the Company's common stock issuable upon conversion of the Loan if it receives a demand by the holder of the Loan to do so, and to
use its reasonable best efforts to cause such registration statement to become effective.

9

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Interest paid during the nine months ended September 30, 2002 and 2001 was $160 and $137, respectively.



During
the fourth quarter of 2000, the Company engaged in a transaction with PenOp to provide nonrecurring maintenance services from pre-existing PenOp contracts in the
aggregate amount of $1.5 million, of which a net amount of $877 was recorded as revenue during that quarter. At September 30, 2001, the Company recognized $325 of this contract revenue
net of related expenses of $48. The Company previously entered into a separate transaction, to acquire certain intellectual property rights from PenOp.

The Company calculates earnings per share under the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128
requires the disclosure of both basic earnings per share, which is based on the weighted average number of shares outstanding, and diluted earnings per share, which is based on the weighted average
number of shares and dilutive potential shares outstanding. For the three and nine month periods ended September 30, 2002 and 2001, potential equivalent shares excluded from the calculation of
diluted earnings per share, as their effect is not dilutive, include stock options of 6,688, and 7,443, respectively, of equivalent shares and warrants of 470 equivalent shares at September 30,
2001.

Total comprehensive (loss) was as follows:

|                                  |  | Nine month Ended
September 30, |       
|--------------------------------- |  | ------------------------------ | ------
|
|Net loss                          |  | $                              | (2,429
|Other comprehensive income:       |  |                                |       
|Cumulative translation adjustment |  |                                | 4     
|                                  |  |                                |       
|Total comprehensive loss          |  | $                              | (2,425
|                                  |  |                                |       

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. 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, as well as allocated costs charged
to each of the operating segments.

10

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

|                                                            |  | Nine month ended September 30, |       
|----------------------------------------------------------- |  | ------------------------------ | ------
|
|
|Revenues                                                    |  | $                              | 2,016 
|Loss from Operations                                        |  | $                              | (2,273
|Significant change in Total long lived assets from Year End |  | $                              |      

11

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

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

The following discussion and analysis should be read in conjunction with the Company's unaudited condensed consolidated financial statements and notes thereto included in Part 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, 2001.

Overview

History. 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, 2001, operating losses aggregated approximately $21 million and at December 31, 2001, the Company's accumulated deficit was
approximately $76 million.

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, the accounting for the 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.

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 101 ("SAB 101") and the interpretive guidance issued by the Securities and Exchange Commission and EITF issue 00-21 of the AICPA
Emerging Issues Task Force. We recognize revenues from sales of software products upon shipment, provided that persuasive evidence of an arrangement exists, collection is determined to be probable and
no significant obligations remain. Revenue from service subscriptions is recognized as costs are incurred or over the service period.

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. 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 persuasive evidence of an arrangement exists, that 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

12

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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 affects our patents, we then determine if an impairment of our assets has occurred.

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, 2002 and 2001, such costs were insignificant.

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

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

Net foreign currency transaction gains and losses are included as components of "interest income and other income (expense), net" in the Company's consolidated statements of operations.
Due to the stability of the currency in China, net foreign currency transaction gains and losses were not material for the nine months ended September 30, 2002 and 2001, 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 December 31, 2001 of $22 million based upon the Company's history of losses.

Segments

We report in two segments: handwriting recognition and systems integration. For purposes of Management Discussion and Analysis, handwriting recognition includes
online/retail revenues and





corporate sales, including enterprise and original equipment manufacturers ("OEM") revenues. All handwriting recognition software is developed around our core technology. Handwriting recognition

13

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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 solely accomplished through our Joint Venture.

Results of Operations

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

|                                        |                         | Three Months Ended
September 30,                           |        | Nine Months Ended
September 30, |    
|--------------------------------------- | ----------------------- | ---------------------------------------------------------- | ------ | ------------------------------- | ---
|
|Segment revenues:                       |                         |                                                            |        |                                 |    
|                                        | Handwriting recognition |                                                            |        |                                 |    
|                                        |                         | Online                                                     |        | $                               | 83 
|                                        |                         | Corporate                                                  |        |                                 | 132
|                                        |                         | Nonrecurring Maintenance fees (net)M10 (previously PenOp) |        |                                 |   
|                                        |                         | China                                                      |        |                                 | 90 
|                                        |                         |                                                            |        |                                 |    
|Total Handwriting recognition           |                         | $                                                          | 305    |                                 | $  
|Systems integration                     |                         |                                                            |        |                                 |    
|                                        |                         | China                                                      |        |                                 | 220
|                                        |                         |                                                            |        |                                 |    
|Total revenues                          |                         | $                                                          | 525    |                                 | $  
|                                        |                         |                                                            |        |                                 |    
|Cost of Sales                           |                         |                                                            |        |                                 |    
|                                        |                         | Handwriting recognition                                    |        | $                               | 64 
|                                        |                         | Systems integration                                        |        |                                 | 140
|                                        |                         |                                                            |        |                                 |    
|Total cost of sales                     |                         | $                                                          | 204    |                                 | $  
|                                        |                         |                                                            |        |                                 |    
|Operating cost and expenses             |                         |                                                            |        |                                 |    
|                                        |                         | Research and development                                   |        | $                               | 367
|                                        |                         | Sales and Marketing                                        |        |                                 | 367
|                                        |                         | General and administrative                                 |        |                                 | 583
|                                        |                         |                                                            |        |                                 |    
|Total operating costs and expenses      |                         | $                                                          | 1,317  |                                 | $  
|                                        |                         |                                                            |        |                                 |    
|Interest and other income (expense) net |                         | $                                                          | (74    | )                               | $  
|                                        |                         |                                                            |        |                                 |    
|Net loss                                |                         | $                                                          | (1,070 | )                               | $  
|                                        |                         |                                                            |        |                                 |    
|Amortization of intangible assets       |                         |                                                            |        |                                 |    
|                                        |                         | Cost of sales                                              |        | $                               | 3  
|                                        |                         | General and administrative                                 |        |                                 | 57 
|                                        |                         |                                                            |        |                                 |    
|Total amortization of intangible assets |                         | $                                                          | 60     |                                 | $  
|                                        |                         |                                                            |        |                                 |    

Revenues

Handwriting recognition.Revenues declined $221, or 42%, for the three months ended
September 30, 2002 as compared to $526 for the three months ended September 30, 2001. For the nine

14

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months ended September 30, 2002, handwriting recognition revenues declined 41% to $2,016, as compared to $3,436 during the nine months ended September 30, 2001.

Online revenues decreased $154, or 65%, to $83 for the three months ended September 30, 2002, as compared to $237 for the three months ended September 30, 2001. This
decrease was primarily due to the curtailment of the direct mail campaign during the three months ended September 30, 2002 due to the reduced availability of new names and poor sales close rate
compared to the three months ended September 30, 2001. For the nine months ended September 30, 2002, online revenues decreased $690, or



71%, to $287 from $977 in the nine months ended September 30, 2001. This decrease was due primarily to the same reasons discussed above.

Corporate revenue within handwriting recognition segment decreased $90, or 41%, for the three months ended September 30, 2002, as compared to $222 for the three months ended
September 30, 2001. For the nine months ended September 30, 2002, corporate revenue also declined $346, or 18%, as compared to $1,884 for the nine months ended September 30, 2001.
Corporate revenue includes revenues derived from sales to enterprises and OEM sales.

The decrease in total corporate revenue within the handwriting recognition segment was due primarily to a decrease in OEM sales. Enterprise sales increased in both comparable periods.

Corporate sales/enterprise sales, increased for the three months ended September 30, 2002, $40, or 44%, to $130, as compared to $90 in the three months ended September 30,
2002. The increase in enterprise sales for the three months ended September 30, 2002 was primarily due to a sale to a major construction company in the three months ended September 30,
2002. For the nine months ended September 30, 2002, enterprise sales increased $367, or 44%, to $1,199, compared to $832 for the nine months ended September 30, 2001. This increase was
primarily due to the increase in the number of sales of our software signature products over the nine months ended September 30, 2002 as compared to the nine months ended September 30,
2001.

OEM revenues included in corporate revenue decreased in both comparable periods. For the three months ended September 30, 2002 the decrease was $130, or 98%, to $2 from $132 in
the three months ended September 30, 2001. This decrease was due to a decrease in the amount of royalty reported by one of our licensees located in Japan and reduced development contract
revenue recognized as compared to the prior year. OEM revenues for the nine months ended September 30, 2002 decreased $713, or 68%, to $339 from $1,052 in the nine months ended
September 30, 2001. The decrease in OEM revenues for the nine months ended September 30, 2002 was due primarily to the same factors discussed for the three months ended
September 30, 2002. During the nine months ended September 30, 2001, we recognized $352 in nonrecurring maintenance fees net of expenses of $48. We engaged in a transaction with PenOp to
provide nonrecurring maintenance services from pre-existing PenOp contracts in the aggregate amount of $1.5 million, of which $877 was recorded (net) in the three months ended
December 31, 2000. That decrease in OEM sales caused an overall decrease in corporate sales in the handwriting recognition segment.

Handwriting recognition segment sales in China increased $23, or 34%, to $90 during the three months ended September 30, 2002, compared to $67 in the three months ended
September 30, 2001. Handwriting recognition segment revenues for the nine months ended September 30, 2002 $191, or 14%, as compared to $223 in the nine months ended September 30,
2001. The decline in revenue is due to closing fewer order during the nine months ended September 30, 2002 as compared to the prior year. We do not believe there is a declining revenue trend
developing in China and we expect that handwriting software sales will increase as the China market matures.

Systems Integration.China systems integration sales for the three months ended September 30,
2002 decreased $169, or 43%, to $220 from $389 in the three months ended September 30, 2001. For the nine months ended September 30, 2002, China revenues decreased $223, or 22%, to $777
from

15

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$1,000 for the nine months ended September 30, 2001. This decrease was due to a large sale to a single customer in the nine months ended September 30, 2001.

Cost
of Sales

Handwriting recognition.Cost of sales decreased for the three and nine months ended
September 30, 2002 $90 and $556, or 58% and 56%, respectively, to $64 and $443, respectively, compared to $154 and $999, respectively, in the three and nine months ended September 30,
2001, as discussed below.

Online cost of sales for the three and nine months ended September 30, 2002 decreased $119 and $509, or 90% and 72%, respectively, to $13 and $198, respectively, compared to $132
and $707, respectively, for the three and nine months ended September 30, 2001. The decrease during the three and nine month periods ended September 30, 2002 was due to the elimination
of direct mailing campaign and related costs as a result of reductions in the number of names available and a poor sales close rate experienced early in the nine months ended September 30, 2002
as compared to the three and nine months ended September 30, 2001.

Corporate and OEM sales costs for the three months ended September 30, 2002 increased $3 to $15 from $12 in the three months ended September 30, 2001. The increase was due
to an increase in third party hardware sold with our signature software solution products. For the nine months ended September 30, 2002, corporate cost of sales decreased $59, or 24%, to $185
from $244 in the nine months ended September 30, 2001. The decrease was due to the lower sales volumes of products requiring third party hardware and a reduction in OEM and development contract
revenues and the associated technology import tax and engineering costs for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001.

China handwriting recognition segment cost of sales for the three and nine months ended September 30, 2002 increased $26 and $12, or 260% and 25%, respectively, to $36 and $60,
respectively, compared to $10 and $48, respectively, in the three and nine months ended September 30, 2001. The increase is due to an increase in third party hardware costs.

Systems Integration.Cost of sales decreased for the three and nine months ended September 30,
2002 $162 and $276, or 54% and 35%, respectively, compared to the three and nine month periods ended September 30, 2001. The decrease is due to the decrease in system integration revenues over
the three





and nine months ended September 30, 2002 compared to the three and nine months ended September 30, 2001.

Gross
Margin

Handwriting recognition segment.Gross margin for the three and nine months ended
September 30, 2002 decreased $131 and $864, or 35% and 35%, respectively, to $241 and $1,573, respectively, from $372 and $2,437, respectively, for the three and nine months ended
September 30, 2001. Online gross margin for the three and nine months ended September 30, 2002 decreased $35 and $181, or 33% and 67%, respectively, to $70 and $89, respectively, from
$105 and $270, respectively, in the same three and nine months ended September 30, 2001. This decrease was due to lower sales during the three and nine months ended September 30, 2002 as
compared to the three and nine months ended September 30, 2001, offset by the elimination of the direct mail program and the associated costs. Online gross margins were 84% and 31%,
respectively, of sales for the three and nine months ended September 30, 2002, compared to 44% and 28%, respectively, for the three and nine months ended September 30, 2001.

Corporate sales gross margin for the three and nine months ended September 30, 2002 decreased $93 and $287, or 44% and 15%, respectively, to $117 and $1,353, respectively,
compared to $210 and $1,640, respectively, in the three and nine months ended September 30, 2001. This decrease was

16

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primarily due to the decrease in corporate sales. Corporate sales gross margin as a percentage of sales was 87% and 88% for the three and nine months ended September 30, 2002 compared to 95%
and 87%, respectively, for the three and nine months ended September 30, 2001. Gross margins related to nonrecurring maintenance fees from M10 (formerly PenOp) decreased for the nine months
ended September 30, 2002 to $0, compared to $352 for the nine months ended September 30, 2001. This decrease was due to the Company not recognizing nonrecurring maintenance fees during
the three and nine months ended September 30, 2002, compared to the three and nine months ended September 30, 2001.

China handwriting recognition segment gross margin for the three and nine months ended September 30, 2002 decreased to $54 and $132, or 5% and 23%, respectively, from $57 and $175
for the three and nine months ended September 30, 2001. The decrease in gross margin for the three and nine months ended September 30, 2002, resulted from lower sales volumes and
increased third party hardware costs.

Systems Integration.China systems integration segment gross margin for the three months ended
September 30, 2002 decreased to $80, or 8%, as compared to $87 in three months ended September 30, 2001. The decrease is due to the reduction in revenue during the comparable periods.
For the nine months ended September 30, 2002, systems integration gross margins increased to $272, or 24%, from $219 for the nine months ended September 30, 2001. The increase in gross
margin for the three and nine months ended September 30, 2002, is due to the increase in the higher margin software





components in the systems integration projects compared to three and nine months ended September 30, 2001.

17

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Operating expenses

Research and development expenses.Research and development expenses for the three and nine months ended September 30,
2002 decreased by $61 and $254, or 14% and 18%, respectively, to $367 and $1,145, respectively, as compared to $428 and $1,399, respectively, for the three and nine months ended September 30,
2001. The decrease was due primarily to the reduction of approximately $12 and $224, respectively, in outside engineering costs associated with the assimilation of the PenOp intellectual property into
our products. In addition, payroll and related costs decreased approximately $44 and $110, respectively, for the three and nine months ended September 30, 2002, compared to three and nine
months ended September 30, 2001. The reduction in payroll and related expenses was due to actions taken in the quarter ended December 31, 2001 to trim expenses in response to a weakening
economy. Other costs including facilities and shared engineering costs with the Joint Venture decreased $5, or 4%, for the three months ended September 30, 2002 compared to the three months
ended September 30, 2001 and increased $80, or 33%, compared to the nine months ended September 30, 2001. The increase over the nine month period was due to increases in facility
expenses. Expenses transferred to cost of sales for the nine months ended September 30 2002 decreased $40 compared to the nine months ended September 30, 2001. The fluctuations in
expenses for the three and nine month periods are due to the changes in the number of revenue generating nonrecurring engineering projects being worked on during a given period. We capitalized $20 in
software development costs associated with new products and enhancements during the nine months ended September, 2001. We did not capitalize any new product software development costs in the nine
months ending September 30, 2002.

Sales and marketing expenses.Sales and marketing expenses for the three and nine months ended September 30, 2002
decreased $103 and $423, or 22% and 26%, respectively, to $367 and $1,181, respectively, as compared to $470 and $1,604, respectively, for the three and nine months ended September 30, 2001.
Professional services and advertising expenses decreased $50, or 46%, to $42 from $92 for the three months ended September 30, 2002, as compared to the three months ended September 30,
2001. The decrease was due to the reduction in resource guide advertisements included in the box that accompanies the handheld devices. For the nine months ended September 30, 2002,
professional services and advertising fees decreased $160, or 52%, to $149 from $309, as compared to the nine months ended September 30, 2001. This decrease was due primarily to the reduction
in resource guide advertisements discussed above and to nonrecouring expenses of a marketing study completed in the prior year. Other costs, including salaries and related expenses and travel and
recruiting expenses, decreased $53, or 34%, for the three months ended September 30, 2002, compared to the three months ended September 30, 2001. For the nine months ended
September 30, 2002, other costs, including salaries and related expenses and travel and recruiting expenses decreased $263, or 46%, as compared to the nine months ended September 30,
2001. The reduction in other expenses was





due to actions taken in the three months ended December 31, 2001 year and again in the three months ended September 30, 2002 to trim expenses in response to a weakening economy.
The sales efforts have been directed towards customers that have previously purchased products and currently have pilot programs in process utilizing our software. These customers are expected to
purchase additional software once they have completed their studies and implement their software solution. We believe that an improving economy and the number of current customer pilot programs
nearing completion will provide future revenues over a period of time sufficient to allow us to timely expand our sales efforts to generate potential new demand.

General and administrative expenses.General and administrative expenses for the three and nine months ended
September 30, 2002 decreased $145 and $345, or 20% and 16%, respectively, to $583 and $1,762, respectively, from $728 and $2,107, respectively, for the three and nine months ended
September 30, 2001. Professional services decreased $64 and $243, or 32% and 38%, respectively, due to the reduction in legal fees and in financial service fees paid to our former chairman.
Payroll and

18

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related costs decreased approximately $12, or 7%, due to reductions in head count in the three months ended September 30, 2002 compared to the three months ended September 30, 2001.
Salaries and related expense increased approximately $8, or 20%, over the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 due to salary
increases. Other costs, including investor relations and facilities and related costs, decreased $63 and $96, or 21% and 11% respectively, as compared to the three and nine months ended
September 30, 2001. The reduction in other expenses was due to actions taken in the three months ended December 30, 2001 and again in the three months ended September 30, 2001 to
trim expenses in response to a weakening economy.

Interest and other income (expense), net.Interest and other income (expense), net for the three and nine months ended
September 30, 2002 decreased $24 and $47, respectively, to an expense of $19 and $28, respectively, compared to interest and other income of $5 and $19, respectively, for the three and nine
months ended September 30, 2001. Interest income from cash and cash equivalents decreased $15 and $31, or 88% and 78%, respectively, to $2 and $9 for the three and nine months ended
September 30, 2002 compared to $17 and $40 for the three and nine months ended September 30, 2001. This decrease was due to lower cash balances and reduction in interest rates during the
three and nine months ended September 30, 2002 as compared to the three and nine months ended September 30, 2001.. The interest income was offset by $3 and $15, respectively, of credit
card processing fees related to online sales and other expenses for the three and nine months ended September 30, 2002, compared to $9 and $30, respectively, for the three and nine months ended
September 30, 2001.

Interest expense.Interest expense decreased $13 to $53, or 20%, for the three months ended September 30, 2002,
compared to $66 for the three months ended September 30, 2001. The decrease was due to the reduction in the prime rate in the three months ended September 30, 2002 as compared to the
three months ended September 30, 2001. For the nine months ended September 30, 2002, interest expense decreased $70 to $155, or 31%, compared to $225 for the nine months ended
September 30, 2001. The decrease was primarily due to the write off in June 2001 of the loan discount as a result of the payment of the $1,500 note.

Liquidity and Capital Resources

At September 30, 2002, cash and cash equivalents totaled $1,246 compared to cash and cash equivalents of $2,588 at December 31, 2001. The decrease
was due primarily to cash used in operating activities of $1,569, and cash used in investing activities of $54. Cash provided by financing activities was $281, net. The $281 provided by financing
activities consists of $426 in proceeds from the exercise of stock options by the Company's employees and former chairman, the acquisition of capital equipment under capital lease of $40, reduced by
the repayment of the note by the Joint Venture of $181, and by payments of capital lease obligations of $4. Total current assets were $2,372 at September 30, 2002, compared to $3,899 at
December 31, 2001. As of September 30, 2002, the Company's principal source of funds was its cash and cash equivalents aggregating $1,246.

Accounts receivable declined $295 over the nine months ended September 30, 2002, due primarily to the lower sales during the period and collection of receivables outstanding at
December 31, 2001. We believe that the lower sales volumes are due to the reduced information technology spending in the handwriting segment as the result of the weakened economy, and does not
indicate non-acceptance of our products.

Prepaid expenses increased $90 during the period ended September 30, 2002, due to premiums paid for directors and officers insurance during the period.

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

19

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compensating balance. In February 2002, the Joint Venture repaid $121, and in June 2002 repaid the remaining balance of $60 denominated in Chinese currency.

Accounts payable declined $97 over the nine months ended September 30, 2002, due to the reduction in operating activities at the result of the slow economy. Other accrued
liabilities increased $274 as of September 30, 2002, due to various accruals that include professional services related to corporate filings and other legal matters. Deferred revenue, totaling
$123 at September 30, 2002, primarily reflects advance payments for products and maintenance fees from our licensees that we generally recognize as revenue when all obligations are met or over
the term of the maintenance agreement.

We have suffered recurring losses from operations that raise a substantial doubt about our ability to continue as a going concern. There can be no assurance that we will have adequate
capital resources to fund planned operations or that any additional funds will be available to us when needed, or if available, will be available on favorable terms or in amounts required by us. If we
are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back or eliminate



some or all of its operations, which may have a material adverse effect on our 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.

We intend to use the net proceeds from the issuance of the shares of our common stock under the Line of Credit to repay short term debt and working capital. In addition, fifty percent of
any such funds in excess of $5 million must be applied to the outstanding principal of our long-term debt. We believe the proceeds from the Line of Credit, when combined with cash
provided from operations, will be sufficient to meet our capital requirements for the foreseeable future. If we are unable to secure at least $5 million in funds under the Line of Credit or are
unable to increase substantially funds generated from operations, we would not be able to continue our operations in their current form and would not be a viable company on a going forward basis
without significant changes in our operations. Because we believe we will be able to raise the necessary funds under the Line of Credit and from operations, we have not formulated specific plans to
change our operations. Possible changes could include reduced personnel expenses to better match our revenue stream or licensing or selling our technology to a third party.

Current liabilities, which include deferred revenue, were $953 at September 30, 2002. Deferred revenue, totaling $123 at September 30, 2002, 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.

We have the following material commitments as of September 30, 2002:

Material commitment are presented below:

|                                   |  | Payments Due by Period
|---------------------------------- |  | ----------------------
|
|Long-term debt (1)                 |  | $                     
|Capital lease obligations          |  |                       
|Operating lease commitments (2)    |  |                       
|                                   |  |                       
|Total contractual cash obligations |  | $                     
|                                   |  |                       

---

20

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Forward Looking Statements

Certain statements contained in this quarterly report on Form 10-Q, including without limitation, statements containing the words "believes",
"anticipates", "hopes", "intends", "expects", and other words of similar import, constitute "forward looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements involve known and unknown risks, uncertainties and other factors which may cause actual events to differ materially from expectations. Such factors include the following:



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

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The Company has an investment portfolio of fixed income securities that are classified as cash equivalents. These securities, like all fixed income instruments,
are subject to interest rate risk and will fall in value if the market interest rates increase. The Company attempts to limit this exposure by investing primarily in short term securities. The Company
has not entered into any short-term security investments during the three months ended September 30, 2002.

Foreign Currency Risk

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

Future Results and Stock Price Risk

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

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Item 4.Controls and Procedures

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

22

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Part II-Other Information

Item 1.Legal Proceedings

The
Company was named as a defendant in a suit brought in U.S. District Court for the Southern District of New York, filed on August 5, 2002, case number
02-CV-6197. The plaintiffs, Richard M. Ross and Jane Spaulder Ross, brought claims for breach of contract, conversion, negligence and statutory violations, alleging that the
Company provided incorrect or false information to plaintiffs' stock broker, thereby delaying the sale of their shares in the Company and causing a loss in excess of $500,000. While the litigation is
in an early stage, based on the available information, we do not believe that the action will ultimately have a material financial impact on the Company. We believe that the claims are without merit,
and we intend to vigorously defend against them.

In
a separate arbitration proceeding the plaintiffs have brought similar claims for relief against Charles Schwab & Co., Inc., their broker during the period in question,
based upon other legal theories.

Item 2.Change in Securities

During
the three months ended September 30, 2002, the Company granted stock options to employees as follows:

|Grantees    |  | Grant
Date         |  | Number of
Options |  | Option
Price |      | Vesting
Period |                            | Expiration
Date
|----------- |  | ------------------ |  | ----------------- |  | ------------ | ---- | -------------- | -------------------------- | ---------------
|2 Employees |  | September 25, 2002 |  | 275,000           |  | $            | 0.28 |                | Quarterly over three years |                

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

Certification
of Chief Executive Officer and Chief Financial Officer

None

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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 CORPORATIONRegistrant                                                                                
|-------------------- |  | --------------------------------------------------------------------------------------------------------------------------------
|January 24, 2003Date |  | /s/ Francis V. DaneFrancis V. Dane
(Principal Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant)

CERTIFICATION PURSUANT TO  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Communication Intelligence Corporation (the "Company") on Form 10-Q/A for the quarterly period ended
September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Francis V. Dane, Principal Financial Officer, certify, pursuant to 18
U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes Oxley Act of 2002, that to the best of my knowledge:

|By: |  | /s/ Francis V. DanePrincipal Financial Officer |  | 
|--- |  | ---------------------------------------------- |  | 

In connection with the quarterly report of Communication Intelligence Corporation (the "Company") on Form 10-Q/A for the quarterly period ended September 30,
2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Guido DiGregorio, Chairman and Chief Executive Officer, certify, pursuant to 18 U.S.C. 1350, as adopted
pursuant to 906 of the Sarbanes Oxley Act of 2002, that to the best of my knowledge:

|By: |  | /s/ Guido DiGregorioChairman and Chief Executive Officer |  | 
|--- |  | -------------------------------------------------------- |  | 

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CERTIFICATION

I,
Francis V. Dane, certify that:

Date: January 24, 2003

| |  | By: |  | /s/ Francis V. DanePrincipal Financial Officer
| |  | --- |  | ----------------------------------------------

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CERTIFICATION

I,
Guido DiGregorio, certify that:

Date: January 24, 2003

| |  | By: |  | /s/ Guido DiGregorioChairman
Chief Executive Officer
| |  | --- |  | ----------------------------------------------------

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