Communication Intelligence Corporation
                                 and Subsidiary
                                    FORM 10-Q

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



                                    FORM 10-Q


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


                 For the quarterly period ended: March 31, 1999

                                       OR

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

                        For the transition period from to

                        Commission File Number: 0-19301 


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

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


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

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

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

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

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

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

      Number of shares outstanding of the issuer's Common Stock, as of
      May 7, 1999: 79,550,807.

This Quarterly Report on Form 10-Q contains 17 pages of which this is page 1.


<PAGE>



                                      INDEX



PART I.  FINANCIAL INFORMATION


    Item 1.  Financial Statements                                       Page No.

    Condensed Consolidated Balance Sheets at March 31, 1999 (unaudited)
      and December 31, 1998.................................................3

    Condensed Consolidated Statements of Operations for the three-month
      periods ended March 31, 1999 and 1998 (unaudited).....................4

    Condensed Consolidated Statements of Cash Flows for the three-month
      periods ended March 31, 1999 and 1998 (unaudited).....................5

    Notes to Condensed Consolidated Financial Statements....................6


    Item 2.  Management's Discussion and Analysis of Financial 
             Condition and Results of Operations...........................11

    Item 3.  Quantitative and Qualitative Disclosures About Market Risk....15

PART II.  OTHER INFORMATION

    Item 1.  Legal Proceedings.............................................16

    Item 2.  Change in Securities..........................................16

    Item 3.  Defaults Upon Senior Securities...............................16

    Item 4.  Submission of Matters to a Vote of Security Holders...........16
             ---------------------------------------------------

    Item 5.  Other Information.............................................16

    Item 6.  Exhibits and Reports on Form 8-K

             (a)      Exhibits.............................................16

             (b)      Reports on Form 8-K..................................16

    Signatures.............................................................17

                            See accompanying notes.

                                      -2-
<PAGE>
        
                                                             
                     Communication Intelligence Corporation
                                 and Subsidiary
                      Condensed Consolidated Balance Sheets
                                 (In Thousands)

<TABLE>
<CAPTION>
                                           March 31,             December 31,
                                             1999                    1998

                                       -----------------      ------------------
                                                       Unaudited
<S>                                  <C>                    <C>
Assets
Current assets:
     Cash and cash equivalents         $      1,405            $        795
     Restricted cash                              -                     250
     Accounts receivable, net                   628                   1,146
     Inventories                                 74                      74
     Other current assets                       159                     103
                                      ------------------      ------------------
         Total current assets                 2,266                   2,368

Note receivable from officer                    180                     200
Property and equipment, net                     450                     539
Other assets                                    240                     247
                                      ------------------      ------------------

         Total assets                  $      3,136            $      3,354
                                      ==================      ==================

Liabilities and stockholders' equity Current liabilities:
     Short-term debt                   $          -            $        145
     Accounts payable                           393                     473
     Accrued compensation                       227                     229
     Other accrued liabilities                  661                     524
     Deferred revenue                           522                     651
                                       -----------------      ------------------
         Total current liabilities            1,803                   2,022

Commitments  (Note 5)

Stockholders' equity:
     Common stock                               795                     785
     Additional paid-in capital              70,702                  70,205
     Accumulated deficit                    (69,988)                (69,504)
     Cumulative translation adjustment         (176)                   (154)
                                       -----------------      ------------------
         Total stockholders' equity           1,333                   1,332
                                       =================      ==================

       Total liabilities and 
        stockholders' equity (Note 5)  $      3,136            $      3,354
                                       =================      ==================
</TABLE>

                            See accompanying notes.

                                      -3-

<PAGE>

                     Communication Intelligence Corporation
                                 and Subsidiary
                 Condensed Consolidated Statements of Operations
                                    Unaudited
                    (In Thousands, except per share amounts)
<TABLE>

<CAPTION>
                                               Three Months Ended
                                                   March 31,
                                      ------------------------------------------
                                      -----------------      -------------------
                                             1999                     1998
                                      -----------------      -------------------
<S>                                 <C>                     <C>

Revenues:
     Product                          $        773             $        675
     License and royalty                       218                      593
     Development contracts                     256                       98
                                     ------------------      -------------------
                                             1,247                    1,366

Operating costs and expenses:
     Cost of sales:
         Product                               471                      329
         License and royalty                    17                       15
         Development contracts                 142                       57
     Research and development                  297                      579
     Sales and marketing                       391                      547
     General and administrative                417                      500
                                    -------------------      -------------------
      Total operating costs
      and expenses                           1,735                    2,027
                                    -------------------      -------------------

Loss from operations                          (488)                    (661)

Interest and other income
 (expense), net (Note 5)                         4                       64

Interest expense                                 -                      (14)
                                    -------------------      -------------------

         Net loss                             (484)                    (611)

         Preferred stock dividend                -                     (167)
                                    ===================      ===================

Net loss applicable to
common stockholders                   $       (484)            $       (778)
                                    ===================      ===================

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

Diluted loss per common share         $      (0.01)            $      (0.02)
                                    ===================      ===================

Weighted average common 
shares outstanding                          79,111                   48,400
                                    ===================      ===================
</TABLE>
                            See accompanying notes.

                                      -4-
<PAGE>


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

<CAPTION>
                                                    Three Months Ended
                                                         March 31,
                                               ---------------------------------
                                               -------------      --------------
                                                    1999                1998
                                               -------------      --------------
<S>                                             <C>              <C>

Cash flows from operating activities:
  Net loss                                        $   (484)        $    (611)
  Adjustments to reconcile net loss to net cash
  provided by (used) in operating activities:
      Depreciation and amortization                     63                71
      Non-cash compensation                             20                 7
      Changes in operating assets and liabilities:
         Accounts receivable                           519              (236)
         Inventories                                     1                35
         Other current assets                          (57)             (147)
         Other assets                                    -               (12)
         Accounts payable                              (79)             (709)
         Accrued compensation                           (2)              (67)
         Other accrued liabilities                     162              (284)
         Deferred revenue                             (129)             (287)
                                               -------------      --------------
      Net cash provided by(used in)
       operating activities                             14            (2,240)
                                               -------------      --------------
Cash flows from investing activities:

     Acquisition of property and equipment             (16)                -
                                               -------------      --------------

         Net cash used in investing activities         (16)                -
                                               -------------      --------------

Cash flows from financing activities:
     Principal payments on short-term debt            (145)             (453)
     Proceeds from exercise of stock options           507               151
     Restricted cash related to short-term debt        250                 -
                                               -------------      --------------

         Net cash provided by (used in)
         financing activities                          612              (302)
                                               -------------      --------------

Net increase (decrease) in cash and
 cash equivalents                                      610            (2,542)
Cash and cash equivalents at 
 beginning of quarter                                  795             5,485
                                               -------------      --------------

Cash and cash equivalents at end of quarter       $  1,405          $  2,943
                                               ==============     ==============

Supplemental disclosures of cash flow information -

 Cash paid in the period for -
     Interest                                     $      -          $    14
                                               ===============    ==============
</TABLE>

                            See accompanying notes.

                                      -5-
<PAGE>


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


1.     Interim financial statements

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

       The  Company  develops,  markets and  licenses  pen-input  and  biometric
       security software and technologies for the computer, consumer electronics
       and  communication  markets.  The Company's  core  software  technologies
       include  multilingual  handwriting  recognition  systems  (Jot(R) and the
       Handwriter(R)  Recognition  System,  referred  to  as  HRS(TM)),  dynamic
       signature  verification and capture tools (InkTools(TM) and Sign-it(TM)),
       ink  compression  (INKshrINK(R))  and operating  system  extensions  that
       enable  pen input  (PenX(TM)).  Other  consumer  and  original  equipment
       manufacturer    ("OEM")    products   include    electronic    notetaking
       (QuickNotes(TM))  and spell checking utilities (CIC  Speller(TM)).  CIC's
       products  are  designed to increase  the ease of use,  functionality  and
       security of electronic  devices  ranging from PC  peripherals to cellular
       phones.

       The  Company  offers a wide  range of  software  products  for  pen-based
       computing,  based  on the  Company's  core  handwriting  recognition  and
       related technologies. 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 as the sole input device or in conjunction with a
       keyboard.  The pen  eliminates  the need  for a mouse  as a  navigational
       device.  The Company  believes that pen-input  enhances  productivity and
       creativity  because  it is a more  natural  means of  input,  facilitates
       editing and screen navigation,  and reduces the risk of repetitive stress
       illness.   The   Company's   transaction   and   communication   enabling
       technologies  are  designed  to  provide  a   cost-effective   means  for
       protecting   electronic   transactions,   electronic  files  and  private
       communications. CIC believes that these technologies offer more efficient
       methods  to  conduct   transactions  and  provide  more  functional  user
       authentication  and heightened data security.  The Company's  transaction
       and  communication  enabling  technologies  have been  fundamental in its
       development of software for signature  verification,  data security, data
       compression and pen-based operating environments.

       For the three months ended March 31, 1999,  the  Company's  cash and cash
       equivalents increased by $610 from $795 at the beginning of the period to
       $1,405.  The  increase is due  primarily  to cash  provided by  operating
       activities  of $14 and cash of $612  provided  by  financing  activities.
       These increases were offset by $16 used in investing activities. The $612
       provided by financing  activities  consists primarily of $507 in proceeds
       from the  exercise  of  stock  options  by the  Company's  employees.  In
       addition, $105 was provided by the release of restricted funds associated
       with the note payable  held by a Chinese  bank at December 31, 1998.  The
       note was repaid in February  1999.  As of March 31, 1999,  the  Company's
       principal  source of funds were its cash and cash  equivalents of $1,405.
       There can be no  assurance  that the Company will have  adequate  capital
       resources to fund planned  operations in the near future.  If the Company
       does not have adequate capital  resources to fund  operations,  it may be
       required to delay, scale back or eliminate some or all of its operations,
       which  may have a  material  adverse  effect on the  Company's  business,
       results of operations and prospects.

                                      -6-
<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
              Notes to Condensed Consolidated Financial Statements
                    (In thousands, except per share amounts)
                                    FORM 10-Q
                                   (Unaudited)

1.     Interim financial statements (continued)

       There can be no assurance 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.

       The financial  information contained herein should be read in conjunction
       with the Company's  audited financial  statements  included in its Annual
       Report on Form 10-K for the year ended December 31, 1998.

2.     Cash and cash equivalents

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

       Cash and cash equivalents consist of the following:

                                         March 31,              December 31,
                                           1999                    1998
                                    --------------------- -- -------------------

         Cash in bank                $      1,269             $       668
         Commercial paper                     110                     125
         Money market accounts                 26                       2
                                    =====================    ===================
                                     $      1,405             $       795
                                    =====================    ===================

3.     Inventories

       Inventories  are  stated  at the  lower  of cost or  market,  cost  being
       determined  using the first-in,  first-out  (FIFO)  method.  At March 31,
       1999, inventory was comprised primarily of finished goods.

4.     Note receivable from officer

       In April  1994,  the  Company  loaned  $210 to the  Company's  then Chief
       Executive  Officer  in  exchange  for a note,  secured  by  shares of the
       Company's  Common  Stock.  The note bore  interest  at the  lesser of the
       highest marginal rate per annum applicable to the Company's borrowings or
       the  highest  rate  allowable  by law.  On August 14,  1998,  the Company
       entered  into an  agreement  (the  "Agreement")  with  the  former  Chief
       Executive Officer. Under the Agreement,  the former officer has agreed to
       provide consulting  services to the Company through December 15, 2001. In
       exchange for these services,  $110of the note receivable from the officer
       will be forgiven on a monthly basis over the period commencing August 15,
       1998  and  ending  December  15,  2001.  The  remaining  $100of  the note
       receivable  from the officer will be forgiven on December 15, 2001 if the
       officer has performed all the required services under the Agreement.  The
       Agreement will terminate on December 15, 2001.

5.     Short-term debt

       In June  1998,  the  Company's  90%  owned  Joint  Venture  borrowed  the
       equivalent of $145, denominated in Chinese currency, from a Chinese bank.
       The loan bore  interest at 9% and is due on June 30,  1999.  The note was
       repaid in February 1999.  The borrowings  were secured by a $250US dollar
       denominated deposit held by the bank.

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

5.     Short-term debt (continued)

       In May 1997, the Company purchased office furniture and a security system
       with an  approximate  value of $209 from a third party.  The Company paid
       $100 in cash and  signed  an  unsecured  note  for  $109  due in  monthly
       installments  through  May 1998.  The note bore  interest  on the  unpaid
       balance  at a rate of 10% per  annum.  The  note  was paid in full in May
       1998.

       In  October  1997,  the  Company  entered  into  an  accounts  receivable
       financing   agreement   whereby  the  Company  may  factor  its  accounts
       receivable in  accordance  with the terms of the  agreement.  The maximum
       credit  available  to the Company  under the  agreement is $1,500 with an
       advance  rate of 80% of eligible  accounts  receivable  less than 90 days
       old. The term of the agreement is twelve months with annual  renewals.  A
       financing fee of 2.1% per month applies to the outstanding  balance based
       on the face  value of each  invoice.  The line of credit is  secured by a
       blanket first  priority lien on all Company  assets with the exception of
       intellectual property.  There were no amounts financed under the accounts
       receivable financing agreement at March 31, 1999. It is unlikely that the
       Company will finance additional accounts receivable under this agreement.

6.     Revenue recognition

       In October 1997, the American  Institute of Certified Public  Accountants
       (the "AICPA") issued  Statement of Position No. 97-2,  "Software  Revenue
       Recognition"  ("SOP  97-2"),  which  the  Company  has  adopted,  without
       material  effect,  for  transactions  entered into during the fiscal year
       beginning  January 1, 1998.  SOP 97-2 provides  guidance for  recognizing
       revenue on software transactions and supersedes Statement of Position No.
       91-1,  "Software  Revenue  Recognition".  In March 1998, the AICPA issued
       Statement  of Position No. 98-4,  "Deferral  of the  Effective  Date of a
       Provision of SOP 97-2,  Software Revenue  Recognition"  ("SOP 98-4"). SOP
       98-4 defers,  for one year, the  application  of certain  passages in SOP
       97-2 which limit what is considered  vendor-specific  objective  evidence
       ("VSOE")   necessary  to  recognize  revenue  for  software  licenses  in
       multiple-element   arrangements  when  undelivered   elements  exist.  In
       December  1998,  the AICPA  issued  Statement  of Position No. 98-9 ("SOP
       98-9")  Modifications  of SOP 97-2,  Software Revenue  Recognition,  With
       Respect to Certain  Transactions." SOP 98-9 extends the effective date of
       SOP 98-4 and provides  additional  interpretative  guidance.  SOP 98-9 is
       effective for fiscal years  beginning  after March 15, 1999.  The Company
       will  determine  the  impact,  if any,  of SOP  98-9 on  current  revenue
       recognition  practice when adopted.  Adoption of the remaining provisions
       of SOP 97-2  should  not have a material  impact on  revenue  recognition
       during 1999.

       Revenue from retail product sales is recognized upon sell through,  while
       revenue from other  product sales is  recognized  upon shipment  provided
       that  no  significant  obligations  remain  and  the  collection  of  the
       resulting  receivable  is probable.  The Company  provides for  estimated
       sales returns at the time of shipment.

       License  revenues are recognized when the software has been delivered and
       when all  significant  obligations  have been met.  Royalty  revenues are
       recognized as products are  licensed/sold by licensees.  Deferred revenue
       in the accompanying balance sheets reflects advance royalty fees received
       from the Company's licensees in advance of revenue recognition.

       Development  contracts revenue is generated  primarily from non-recurring
       engineering  activities  and research  grants from  government  agencies.
       Revenue  is  recognized  in  accordance  with the terms of the grants and
       agreements,  generally when collection is probable and related costs have
       been incurred.

                                      -8-
<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
              Notes to Condensed Consolidated Financial Statements
                    (In thousands, except per share amounts)
                                    FORM 10-Q
                                   (Unaudited)

7.     Convertible preferred stock

       In  December  1996,  the  Company  completed  a  private  placement  (the
       "December  Private  Placement")  of 450 shares of redeemable  convertible
       preferred  stock (the "Series A Preferred  Stock") at $25.00 per share to
       certain  institutional  and  other  investors.  On March  28,  1997,  and
       effective as of December 31, 1996, holders of 100% of the then issued and
       outstanding  Series  A  Preferred  Stock  executed  a waiver  of  certain
       provisions

       of the Registration  Rights Agreement (the  "Agreement")  entered into in
       connection with the December Private Placement.  Under the waiver,  these
       holders irrevocably waived any redemption obligations of the Company with
       respect to the Series A Preferred  Stock in exchange  for the issuance to
       such  holders of 300  warrants to purchase the  Company's  Common  Stock,
       allocated  amongst the holders on a pro-rata  basis.  The warrants expire
       five years from the effective date of issuance and have an exercise price
       of $2.00 per share, subject to adjustments for anti-dilution. On November
       26,  1997,  the Company  completed a private  placement  of 240 shares of
       Series B Preferred Stock (the "November Private Placement") at $25.00 per
       share to certain investors.

       Each holder of outstanding  shares of Series A Preferred Stock and Series
       B Preferred Stock was entitled to receive, out of funds legally available
       therefor,  cumulative  dividends  on each  share at the rate of $1.25 per
       share per annum,  compounded  semi-annually and quarterly,  respectively,
       when payable  (whether or not  declared).  The dividends  could have been
       paid  in  cash  or  additional  shares  of  preferred  stock  (with  each
       additional  share valued at $25.00 per share),  at the Company's  option.
       The Company paid the required dividends in additional shares of preferred
       stock.

       Each share of Series A Preferred  Stock and Series B Preferred  Stock was
       convertible  by the holders into shares of the Company's  Common Stock at
       any time. All of the  outstanding  shares of Series A Preferred Stock and
       Series B Preferred  Stock were  converted  into shares of common stock by
       November, 1998.

8.     Net loss per share

       Effective  December  31,  1997,  the Company  adopted the  provisions  of
       Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
       ("SFAS 128"). SFAS 128 requires the disclosure of both basic earnings per
       share,  which is based on the weighted  average  number of common  shares
       outstanding,  and  diluted  earnings  per  share,  which  is based on the
       weighted  average number of common shares and dilutive  potential  common
       shares  outstanding.  All prior  year  earnings  per share data have been
       restated to reflect the provisions of SFAS 128.  Potential common shares,
       including  outstanding  convertible  preferred  stock,  stock options and
       warrants, have been excluded from the calculation of diluted earnings per
       share for all periods  presented  as their effect is  anti-dilutive.  Per
       share  results  of  operations  are  reduced by the  amortization  of the
       beneficial  conversion  rate on the  Series  A  Preferred  Stock  and the
       cumulative dividend requirements earned by the preferred stockholders.

9.     Comprehensive income

       In June 1997, the Financial  Accounting  Standards Board issued Statement
       of  Financial  Accounting  Standards  No. 130,  "Reporting  Comprehensive
       Income" ("SFAS 130").  The Company adopted SFAS 130 effective  January 1,
       1998.  SFAS 130  requires  that all  items  recognized  under  accounting
       standards  as  components  of  comprehensive  earnings  be reported in an
       annual  statement  that is displayed  with the same  prominence  as other
       annual  financial  statements.  SFAS 130  also  requires  that an  entity
       classify items as

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

9.     Comprehensive income (continued)

       other  comprehensive  earnings  by their  nature in an  annual  financial
       statement.  For example, other comprehensive earnings may include foreign
       currency translation adjustments,  minimum pension liability adjustments,
       and unrealized  gains and losses on marketable  securities  classified as
       available-for-sale. Annual financial statements for prior periods will be
       reclassified, as required.

       Total comprehensive loss was as follows:
<TABLE>
<CAPTION>

                                                 Three Months Ended March 31,
                                              -------------      ---------------
                                                  1999               1998
                                              -------------      ---------------
      <S>                                    <C>                <C>

       Net loss                                $   (484)          $   (611)
       Other comprehensive income:
       Cumulative translation adjustment            (22)                66
                                              =============      ===============
         Total comprehensive loss              $   (506)          $   (624)
</TABLE>
                                              =============      ===============

10.    Segment Information

       In June 1997, the Financial  Accounting  Standards Board issued Statement
       of Financial Accounting Standards No. 131, "Disclosures About Segments of
       An Enterprise  and Related  Information"  ("SFAS 131").  SFAS 131 revises
       information  regarding  the  reporting  of  operating  segments  and  was
       required to be adopted in periods  beginning  after December 15, 1997. It
       also  establishes  standards for related  disclosures  about products and
       services,  geographic areas and major customers. The Company adopted SFAS
       131 for the year ended  December 31, 1998 and the  Company's  information
       concerning  segment  reporting  has been broken down into two  Segments -
       Handwriting recognition software and Systems integration.

       The  accounting  policies  followed by the segments are the same as those
       described in the "Summary of Significant  Accounting  Policies."  Segment
       data includes revenues, as well as allocated corporate-headquarters costs
       charged to each of the operating segments.

       The Company identifies  reportable segments by classifying  revenues into
       two   categories   Handwriting   recognition   and  system   integration.
       Handwriting   recognition  software  is  an  aggregate  of  five  revenue
       categories.  All Handwriting recognition software is developed around the
       company's core  technology.  System  integration  represents the sale and
       installation  of third party computer  equipment and systems that utilize
       the  Company's  products.  All sales  above  represent  sales to external
       customers.

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

<CAPTION>
                                 Three Months ended March 31,
                              1999                           1998
                  Handwriting  Systems            Handwriting Systems
                  Recognition  Integration Total Recognition Integration  Total
                    -------     -------     ---    --------   --------    -----
    <S>           <C>         <C>      <C>      <C>          <C>      <C>

      Revenues      $  943      $  304   $ 1,247   $  917       $ 449   $ 1,366
      Loss from
      Operations    $ (463)     $  (25)  $ (488)   $ (476)      $(185)  $  (661)
      Significant
      change in 
      Total assets
      from Year End $    -      $    -   $    -    $    -       $   -    $    -
</TABLE>

                                      -10-
<PAGE>


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

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

The following  discussion and analysis  should be read in  conjunction  with the
Company's  unaudited  condensed  consolidated  financial  statements  and  notes
thereto  included in Part I - Item 1 of this  Quarterly  Report on Form 10-Q and
"Management`s  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" set forth in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.

Results of Operations

Revenues.  The Company's  revenues are derived from product  sales,  license and
royalty revenues and development contracts. For the three months ended March 31,
1999,  total  revenues  decreased by 9% to $1,247 from $1,366 for the comparable
three month period ended March 31, 1998 as discussed below:
<TABLE>
<CAPTION>

                                                Three Months Ended
                                                     March 31,
                                 -----------------------------------------------
                                 ------------------        ---------------------
                                        1999                        1998
                                 ------------------        ---------------------
                                                   Unaudited
<S>                             <C>                      <C>
  Revenues:
    Product                       $       773               $         675
    License and royalty                   218                         593
    Development contract                  256                          98
                                 ==================        =====================
      Total revenues              $     1,247               $       1,366
                                 ==================        =====================
</TABLE>

Product sales increased to $773 or by 15% for the three month period ended March
31, 1999 from $675 in the  comparable  prior year period.  This increase was due
primarily to the increase of $377 or 902% in aftermarket consumer software sales
via the  Company's  website  to $419,  compared  to $42 in the prior  year.  The
increase in aftermarket  consumer  software sales resulted from increased Direct
Mail campaigns as compared to the 1998  comparable  quarter.  Handwriter(R)  and
other  product  sales  decreased  by 86% or $191 to $38 during the period  ended
March 31,  1999  compared  to $229 in the prior  year  period.  The  decline  in
Handwriter(R)  sales  resulted from the  Company's  decision in 1997 to focus on
software sales and discontinue  hardware  sales.  Product sales by the Company's
90% owned joint venture in The People's  Republic of China (the "Joint Venture")
were down 33% to $303 for the  period  ended  March 31,  1999  compared  to $449
during  the same  period  last  year.  The  decrease  was  primarily  due to the
completion  during  the first  quarter of 1998 of two major  system  integration
installations totaling approximately $112.

Revenues  from  license and royalty  fees for the three month period ended March
31, 1999 decreased by 63% to $218 from $593 in the comparable prior year period.
This decrease was primarily the result of deferred  revenue  recognition  during
the  three  months  ended  March 31,  1998 of  approximately  $404 of  licensing
agreements for which the Company had no further obligation to deliver additional
software or services.  Revenues from current  license and royalty fees increased
$29 or by15% to $218 for the three months ended March 31, 1999  compared to $189
in the comparable prior year period.

Development  contract  revenues  for the three month period ended March 31, 1999
increased $158 or by 161% to $256 from $98 in the comparable  prior year period.
This increase resulted  primarily from an increase in non-recurring  engineering
fees primarily associated with smart phone development of $78 and an increase of
$80 in grant revenue recognized from the National Science Foundation compared to
the prior year period.

Cost of sales.  Cost of product  sales for the three months ended March 31, 1999
increased  57% to $630 from $401 in the  comparable  prior year period.  Cost of
product  sales at March 31, 1999  comprises  approximately  $218 of hardware and

                                      -11-
<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
                    (In thousands, except per share amounts)
                                    FORM 10-Q
                                   (Unaudited)

software  components related to the system  integration  activities of the Joint
Venture,  compared to approximately  $304 in the prior year period. The decrease
in systems integration cost of product sales is due to the decrease in sales and
was offset by an increase of $252 in Direct Mail  programs  associated  with the
aftermarket  consumer  software  sales.  The  increase in  aftermarket  consumer
software  product cost of sales resulted from the increase in sales programs for
such  products for the three  months ended March 31, 1999  compared to the prior
year.  License and royalty cost of sales increased by 13% or approximately $2 to
$17 for the three months ended March 31, 1999 compared to $15 for the comparable
1998 period.  Costs incurred in connection with  development  contract  revenues
increased  149% for the three  months  ended  March 31,  1999 as compared to the
March 31, 1998 period,  commensurate  with the increase in contract  development
revenues in the first quarter of 1999.

Gross profit.  Product gross profit  declined to 39% for the first quarter ended
March 31, 1999 compared to 51% for the  comparable  period in the prior year. In
December 1997, the Company changed its strategy to focus on the sale of software
only, and accordingly wrote down its existing  Handwriter(R)  products inventory
of approximately  $1,600 in December 1997. The Company  continued its efforts to
sell the remaining  Handwriter  inventory  during 1998.  The lower product costs
resulting from the write-downs of  Handwriter(R)  product  inventory in December
1997  translated  into higher gross margins  during the three months ended March
31, 1998 as  compared to the three  months  ended  March 31,  1999.  License and
royalty gross profit  declined to 92% for the three month period ended March 31,
1999 compared to 97% for the same period last year.  This decrease was primarily
the result of deferred revenue  recognition  during the three months ended March
31, 1998 of approximately $404 of licensing agreements for which the Company had
no  further  obligation  to  deliver  additional  software  or  services  and no
associated  costs.  Development  contract gross profit  increased to 45% for the
three months ended March 31, 1999 compared to 42% for the same period last year.
This increase is primarily due to increased cost  efficiencies  brought about by
the similar nature of the contract projects.

Research and development  expenses.  Research and  development  expenses for the
three month period ended March 31, 1999  decreased by 49% to $297 as compared to
$579 in the comparable period of the prior year. This decrease was primarily due
to a decrease of approximately $204 in payroll and related costs attributable to
a reduction in the number of  personnel,  primarily in March 1998.  In addition,
engineering direct costs associated with development contract revenue charged to
cost of sales increased $85 or by 149% compared to $57 in the comparable  period
of the prior year. The Company did not capitalize any software development costs
during  the  three  months  ended  March 31,  1999  compared  to $7 in  software
development  costs  capitalized  during the three month  period  ended March 31,
1998.

Sales and marketing  expenses.  Sales and marketing expenses for the three month
period  ended  March 31, 1999  decreased  29% to $391 as compared to $547 in the
comparable  period  of the  prior  year.  This  decrease  was  primarily  due to
decreases of $117 in salaries and related  costs due to  reductions in personnel
associated with the Joint Venture operations in the first and second quarters of
1998.  Other  costs,  including  travel and  facilities  and  related  expenses,
decreased $39 commensurate with reductions in staffing.

General and administrative expenses. General and administrative expenses for the
three month  period  ended March 31, 1999  decreased  17% to $417 as compared to
$500 in the  comparable  period of the prior year.  This  decrease was primarily
attributable to a decrease in payroll and related costs of approximately $54 due
reductions  in personnel  associated  with the Joint  Venture  operations in the
first and second quarters of 1998. Other costs,  including professional service,
shareholder  related expenses,  and facilities and related costs,  decreased $26
commensurate with reductions in staffing.

Interest and other income  (expense),  net. Interest and other income (expense),
net  decreased  due the  extinguishment  of debt  related  to the  factoring  of
accounts  receivable and equipment  purchased in 1997.  The associated  debt was
paid off in January and June of 1998,  respectively.

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

Preferred  stock dividend.  The preferred  stock dividend  relates to cumulative
dividends of $1.25 per share, per annum, compounded quarterly and semi-annually,
respectively,  whether  or not  declared,  on the  convertible  preferred  stock
outstanding  during the three month period  ended March 31,  1998.  All Series A
Preferred and Series B Preferred Stock was converted into shares of common stock
by November 1998. Accordingly, no preferred stock dividends were paid in 1999.

Liquidity and Capital Resources

At March 31, 1999, cash and cash equivalents totaled $1,405 compared to cash and
cash  equivalents of $795 at December 31, 1998. The increase is due primarily to
cash  provided  by  operating  activities  of $14 and cash of $612  provided  by
financing  activities.  These  increases  were  offset by $16 used in  investing
activities.  The net  cash  of $14  provided  by  operating  activities  was due
primarily to the collection of accounts receivable  associated with the advanced
royalty fees and non-recurring  engineering pre-payments from Ericsson. The $612
provided by financing activities consists primarily of $507 in proceeds from the
exercise of stock options by the Company's employees.  Total current assets were
$2,266 at March 31, 1999 compared to $2,368 at December 31, 1998.

As of March 31, 1999, the Company's  principal  source of liquidity was its cash
and cash equivalents of $1,405. Although there can be no assurance,  the Company
believes  that its cash and cash  equivalents  together  with cash provided from
projected  revenues will be sufficient to fund planned  operations  for at least
the next twelve months.  However,  if, among other things, the Company is unable
to generate  adequate  cash flows from  sales,  or if  expenditures  required to
achieve the Company's  plans are greater than expected,  the Company may need to
obtain  additional  funds or  reduce  discretionary  spending.  There  can be no
assurance that additional funds will be available when needed,  or if available,
will be available on favorable terms or in the amounts  required by the Company.
If adequate funds are not available when needed,  the Company may be required to
delay, scale back or eliminate some or all of its operations,  which will have a
material  adverse  effect on the Company's  business,  results of operations and
prospects.

Current  liabilities,  which include deferred revenue,  were $1,803 at March 31,
1999.  Deferred  revenue,  totaling $522 at March 31, 1999,  primarily  reflects
nonrefundable  advance royalty fees received from the Company's  licensees which
are  generally  recognized  as  revenue  by the  Company  in the period in which
licensees report that products  incorporating  the Company's  software have been
shipped. As such, the period over which such deferred revenue will be recognized
as revenue is uncertain  because the Company cannot  presently  determine either
the timing or volume of future shipments by its licensees.

The  Company  currently  owns  90% of a  joint  venture  with  the  Ministry  of
Electronic  Industries  of the  Jiangsu  Province,  a  provincial  agency of the
People's Republic of China (the "Agency").  In June 1998, the registered capital
of the Joint Venture was reduced from $10,000to $2,550. As of December 31, 1998,
the Company had  contributed an aggregate of $1,800 in cash to the Joint Venture
and  provided  it  with  non-exclusive  licenses  to  technologies  and  certain
distribution  rights and the Agency had  contributed  certain  land use  rights.
Following the reduction in registered capital of the Joint Venture,  neither the
Company nor the Agency are required to make further  contributions  to the Joint
Venture.  Prior to the reduction in the amount of registered capital,  the Joint
Venture  was  subject  to the  annual  licensing  requirements  of  the  Chinese
government.  Concurrent  with the  reduction in  registered  capital,  the Joint
Venture's  business  license has been  renewed  through  October 18,  2043.  The
Company's  investment in the Joint Venture is subject to risks of doing business
abroad, including fluctuations in the value of currencies, export duties, import
controls and trade barriers (including quotas),  restrictions on the transfer of
funds,  longer  payment  cycles,   greater  difficulty  in  accounts  receivable
collections,  burdens of complying  with foreign laws and political and economic
instability.

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

In December  1996,  the Company  completed a private  placement  (the  "December
Private Placement") of 450 shares of redeemable convertible preferred stock (the
"Series A  Preferred  Stock") at $25.00 per share to certain  institutional  and
other  investors.  On March 28,  1997,  and  effective  as of December 31, 1996,
holders of 100% of the then  issued and  outstanding  Series A  Preferred  Stock
executed a waiver of certain  provisions of the  Registration  Rights  Agreement
(the  "Agreement")   entered  into  in  connection  with  the  December  Private
Placement.  Under the waiver,  these holders  irrevocably  waived any redemption
obligations  of the  Company  with  respect to the Series A  Preferred  Stock in
exchange  for the  issuance to such  holders of 300  warrants  to  purchase  the
Company's Common Stock,  allocated  amongst the holders on a pro-rata basis. The
warrants  expire  five years from the  effective  date of  issuance  and have an
exercise price of $2.00 per share, subject to adjustments for anti-dilution.  On
November 26, 1997,  the Company  completed a private  placement of 240 shares of
Series B Preferred Stock (the "November Private  Placement") at $25.00 per share
to certain investors.


Each  holder of  outstanding  shares of Series A  Preferred  Stock and  Series B
Preferred  Stock  was  entitled  to  receive,  out of  funds  legally  available
therefor,  cumulative dividends on each share at the rate of $1.25 per share per
annum,  compounded  semi-annually  and  quarterly,  respectively,  when  payable
(whether  or not  declared).  The  dividends  could  have  been  paid in cash or
additional  shares of  preferred  stock (with each  additional  share  valued at
$25.00 per  share),  at the  Company's  option.  The Company  paid the  required
dividends  in  additional  shares of  preferred  stock.  Each  share of Series A
Preferred Stock and Series B Preferred Stock was convertible by the holders into
shares of the Company's Common Stock at any time. All of the outstanding  shares
of Series A Preferred  Stock and Series B Preferred  Stock were  converted  into
shares of common stock by November 1998.

In October  1997,  the Company  entered  into an accounts  receivable  financing
agreement whereby the Company has the ability to factor its accounts  receivable
in accordance with the terms of the agreement.  The maximum credit  available to
the Company  under the  agreement is $1,500,  with an advance rate of 80% of the
eligible  accounts  receivable  which are less than 90 days old. The term of the
agreement is twelve  months with annual  renewals.  A financing  fee of 2.1% per
month  applies  to the  outstanding  balance  based  on the  face  value of each
invoice.  The line of credit is secured by a blanket first  priority lien on all
Company assets with the exception of its intellectual  property. As of March 31,
1999, the Company had no outstanding  financed  accounts  receivable  under this
agreement.  The amounts  financed under this agreement at December 31, 1997 were
repaid in January 1998. It is unlikely that the Company will finance  additional
accounts receivable under this agreement.

The Company  leases  facilities in the United States and China.  Future  minimum
lease  payments  under  non-cancelable  operating  leases  are  expected  to  be
approximately $603, $620, and $558 for the years ending December 31, 1999, 2000,
and 2001, respectively.  The Company's rent expense is expected to be reduced by
approximately  $129 in 1999 in  connection  with the  subleases on excess office
space in the United States.

The Company has an  investment  portfolio  of fixed income  securities  that are
classified  as  cash  equivalents.  These  securities,  like  all  fixed  income
instruments,  are  subject to  interest  rate risk and will fall in value if the
market interest rates increase.  The Company  attempts to limit this exposure by
investing primarily in short term securities.

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

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

Year 2000

Year 2000 issues arise because most computer  systems and programs were designed
to handle only a two-digit date code for the year, not a four-digit  code. Thus,
the Year 2000 could be interpreted as the year 1900 by such computer systems and
programs, resulting in the incorrect processing of data. CIC's software products
as developed and  distributed  by CIC are not date  sensitive and therefore Year
2000 issues are not applicable to such  products.  The Company has evaluated its
internal  software programs and equipment to ascertain the readiness of computer
software  and  operating  systems for the Year 2000.  Management  of the Company
believes  that its  internal  software  programs  are Year 2000  compliant.  The
Company is currently in the process of  replacing  older  desktop PC's which are
not, nor cannot be upgraded to be, Year 2000 compliant.  The replacement of such
older computer equipment has been completed. The cost of replacing these desktop
systems is not expected to be significant. The Company is not aware of any other
hardware related problems.

The Company is in the process of analyzing  the  readiness of third parties with
which  it  does  business.  The  Company  believes  that  the  only  potentially
significant  Year 2000  problems  it may  experience  will result from Year 2000
issues affecting its website or its banks.  The Company  generates a significant
percentage of revenues from sales made via its website. If the Company's website
were  to  go  off-line  for  an  extended  period  of  time,   income  would  be
significantly  impacted  until  service was  restored.  The Company has received
assurances that its website is Year 2000 compliant, however, it has not received
any information regarding the phone carrier that links the website server to the
internet.  The Company believes that it is not possible to develop a contingency
plan at this time for dealing with the  potential  effects of such an event.  If
banking  systems were to fail due to Year 2000 problems,  the Company may be cut
off from access to some of its funds for a period of time. The Company maintains
its cash with various financial institutions so that an incident at any one bank
would not have a materially adverse impact on the Company's cash availability.

Future Results and Stock Price

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

Certain  statements  contained in this Quarterly Report on Form 10-Q,  including
without limitation,  statements containing the words "believes",  "anticipates",
"hopes",  "intends",  "expects",  and other words of similar import,  constitute
"forward looking" statements within the meaning of the Private Litigation Reform
Act of 1995. Such statements involve known and unknown risks,  uncertainties and
other  factors  which  may  cause  actual  events  to  differ   materially  from
expectations. Such factors include the following (1) technological, engineering,
manufacturing, quality control or other circumstances which could delay the sale
or  shipment of the  Company's  products;  (2)  economic,  business,  market and
competitive  conditions in the software industry and  technological  innovations
which could  affect the  Company's  business;  (3) the  Company's  inability  to
protect  its  trade  secrets  or  other  proprietary  rights,   operate  without
infringing  upon the  proprietary  rights  of others  and  prevent  others  from
infringing on the proprietary  rights of the Company;  and (4) general  economic
and business conditions and the availability of sufficient financing.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

         None

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


Part II-Other Information
                           .........                                   Page
Item 1.  Legal Proceedings

         None

Item 2.  Change in Securities

         None

Item 3.  Defaults Upon Senior Securities

         None

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

         None

Item 5.  Other Information

         None

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

         Exhibit 27, Financial Data Schedule.                           18
                           .........
(b)      Reports on Form 8-K

         None

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

                                   SIGNATURES

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





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



            May 7, 1998                     /s/ Guido DiGregorio
-------------------------------    -------------------------------------------
                Date                            Guido DiGregorio
                                  (Principal Financial Officer and Officer Duly
                                 Authorized to Sign on Behalf of the Registrant)





























                                      -17-