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

                                   -----------

                                    FORM 10-K
 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
 of 1934

     For the Fiscal Year Ended December 31, 1999 Commission File No. 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          (650) 802-7888               94065
------------------------------     --------------------------    -------------
Redwood Shores, California         (Registrant's telephone         (Zip Code)
(Address of principal executive   number, including area code)
offices)

           Securities registered pursuant to Section 12(g) of the Act:


                          Common Stock, $.01 par value
                                (Title of Class)

        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 if disclosure of  delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  into  Part III of this Form 10-K or any
amendment to this Form 10-K. _____

        The aggregate  market value of the voting stock  (Common  Stock) held by
non-affiliates  of  the  registrant  as of  March  27,  2000  was  approximately
$526,497,030  based on the closing sale price of $6.75 on such date, as reported
by the Nasdaq SmallCap Market.

        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

               The number of shares of Common Stock  outstanding as of March 27,
2000 was 83,487,305.

   A list of Exhibits to this Annual Report on Form 10-K begins on page 23.

<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION

                           ANNUAL REPORT ON FORM 10-K

                      FOR THE YEAR ENDED DECEMBER 31, 1999

                                TABLE OF CONTENTS


                                                                           Page

PART I...................................................................     3
Item 1. Business.........................................................     3
Item 2. Properties.......................................................    12
Item 3. Legal Proceedings................................................    12
Item 4. Submission of Matters to a Vote of Security Holders..............    12
PART II..................................................................    13
Item 5. Market For Registrant's Common Equity and Related
        Stockholder Matters..............................................    13
Item 6. Selected Financial Data..........................................    14
Item 7. Management's Discussion and Analysis of Financial Condition
        and Results of Operations........................................    15
Item 8. Financial Statements and Supplementary Data......................    22
Item 9. Changes in and Disagreements with Accountants on Accounting
        and Financial Disclosure.........................................    22
PART III.................................................................    23
Item 10. Directors and Executive Officers of the Registrant..............    23
Item 11. Executive Compensation..........................................    23
Item 12. Security Ownership of Certain Beneficial Owners and Management..    23
Item 13. Certain Relationships and Related Transactions..................    23
PART IV..................................................................    24
Item 14. Exhibits, Financial Statement Schedules,
         and Reports on Form 8-K.........................................    24

-----------

CIC(R) and its logo,  Handwriter(R),  Jot(R),  and  INKshrINK(R)  are registered
trademarks  of  the  Company.  HRS(TM),  InkSnap(TM),   InkTools(TM),  PenX(TM),
QuickNotes(TM),   RecoEcho(TM),   Sign-it(TM),   Sign-On(TM),   Speller(TM)  and
WordComplete(TM) are trademarks of the Company. Applications for registration of
various  trademarks are pending in the United States,  France,  Germany,  Italy,
Japan,  Spain and the  United  Kingdom.  The  Company  intends to  register  its
trademarks  generally in those  jurisdictions  where its products are or will be
marketed in the foreseeable future.

Certain  statements  contained  in this  Annual  Report on Form 10-K,  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,  quality control or other  circumstances which could delay the sale
or  shipment  of  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  or  prevent  others  from  infringing  on  the
proprietary  rights  of the  Company;  and (4)  general  economic  and  business
conditions and the availability of sufficient financing.

                                       2
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

                                     PART I

Item 1. Business

General

     Communication  Intelligence  Corporation  (the  "Company"  or  "CIC")  is a
leading  supplier of natural input and electronic  signature  solutions aimed at
emerging,  fast growth,  large potential markets such as wireless  Internet/info
devices and enterprise  applications  including e-commerce,  document automation
and corporate security.  CIC is headquartered in Redwood Shores,  California and
has a joint  venture,  Communication  Intelligence  Computer  Corporation,  Ltd.
("CICC" or the "Joint  Venture"),  in Nanjing,  China.  Over the past two years,
industry  leaders  such  as  Compaq,  Ericsson,   Fujitsu,  Legend,   Microsoft,
Mitsubishi,  National  Semiconductor,  Wacom and  Symbian  chose to license  CIC
technologies.

     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),
Sign-it(TM),  and  Sign-On(TM)),  ink compression  (INKshrINK(R))  and operating
system  extensions  that  enable pen input  (PenX(TM)  and  PenX(TM)VC  ). Other
consumer and original equipment manufacturer ("OEM") products include electronic
notetaking   (QuickNotes(TM)   and   InkSnap(TM))   and  predictive  text  input
(WordComplete(TM)).  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,  electronics
organizers ("PDA'S") and portable web browsers.

     In the 4th  quarter  of  1997,  CIC's  newly  hired  President,  Mr.  Guido
DiGregorio,  developed and implemented a  comprehensive  plan that leveraged key
CIC  technologies  and  focused  on  specific  market  opportunities  with  both
near-term  sales and significant  growth  potential.  The plan included  actions
which  reduced  operating  costs  and  expenses  (excluding  cost of  sales)  to
approximately $6 million for 1998, 50% of 1997 levels, by focusing  primarily on
software  products.  This  "software  only"  strategy  enabled  the  Company  to
eliminate  expenses  related to hardware  products and direct retail sales.  The
benefits  of  this  strategy   continued  into  1999,  with  base  costs  levels
approximately $1 million lower than 1998, excluding cost of goods sold.

     The Company has a three-pronged channel strategy;

o    Accelerate  the growth of license  revenue  derived from software  products
     through wireless Internet/info device, smartphone and PC peripheral OEMs.

o    Accelerate  the sale of  aftermarket  consumer  software  offerings via the
     Company's website and selected on-line resellers.

o    Establish   enterprise  related  sales  growth  by  leveraging   electronic
     signature  technologies  focused on e-commerce,  document  automation,  and
     corporate security applications.

OEM Revenues

    The Company's OEM revenues in 1999 (new sales versus the recognition of past
years' deferred revenue) more than doubled over 1998 ($2,641,000 vs $1,300,000).
This  growth  was  driven  primarily  by  license  revenues  from  Ericsson  and
Microsoft, of $1,500,000 and $400,000,  respectively.  OEM revenues in 1998 (new
sales versus the recognition of past years' deferred  revenue) almost doubled as
compared to 1997.

     A key event in 1998 was the  consummation  of a  licensing  agreement  with
Ericsson  Mobile  Communications  AB  ("Ericsson")  which  resulted  in an order
received in January of 1999. The order covered non-recurring engineering ("NRE")
and  advanced  royalties  for  porting  several CIC  products to two  smartphone
reference  designs,  one of which ( the R380) is expected to begin  shipments in
the second  quarter of 2000.  The  Company  and Symbian  recently  announced  an
agreement  which makes Jot available to other  members of the Symbian  alliance,
(Symbian member

                                       3
<PAGE>
companies  include:   Ericsson,   Motorola,   Nokia,  Psion  &  Matsushita)  who
collectively  represent over 85% of worldwide  handset  shipments.  As a part of
this  agreement,  Jot will also be available to other EPOC platform  developers.
Industry  forecasts for sales of smartphones  and  communicators,  which combine
voice, personal information  management and Internet access,  project 60 million
units in 2001  growing  to 150  million  units by 2002.  (data  source:  Bank of
America-Equity  Research &  Symbian).  The  Company  believes  that  significant
royalty  revenues from this and subsequent  agreements will be generated  beyond
2000 based on these forecast smartphone shipments.

     In addition,  the Company believes that certain other OEM agreements/orders
consummated in 1999 represent  significant license revenue potential in 2000 and
beyond.  These include an order from  National  Semiconductor  covering  natural
input solutions for National's new Geode(TM) WebPAD(TM) product.  This portable,
wireless device allows full interaction with the Internet within 500 feet of the
PC or base station.  National  Semiconductor  intends to license this  reference
design to other major OEM's which should  significantly  enhance market coverage
and  shipment  potential.  In  addition,  Vtech,  who  licensed  Jot(R) in 1998,
forecasts  significant  demand  for its  new,  low  cost,  electronic  organizer
("PDA"). Vtech also intends to license their proprietary operating system called
the  VT-OS(TM) to other  organizer  manufacturers.  CIC  anticipates  additional
licensing agreements with OEM licensees of the VT-OS(TM),  the first of which is
the recently announced agreement with Top Technologies in Israel.

Key OEM licensing customers at December 31, 1999 include:

  Licensee              Product(s) licensed            Application of product
---------------     ----------------------------  ------------------------------

Compaq             Speller(TM) & QuickNotes(TM)  Handheld PC Pro
Ericsson           Jot(R), QuickNotes(TM) &      Smart Cellular Phone
                    Sign-it(TM)
Fujitsu            HRS(TM), PenX(TM),PenX(TM)VC  Windows & Windows CE Pen
                    & InkTools(TM)                Computers
Hitachi            Jot(R)& Speller(TM)           Handheld PC & Handheld PC Pro
Interlink          Sign-it(TM)for Acrobat(R)     Digitizer tablet
Intermec/Norand    HRS(TM)& PenX(TM)             Windows Pen Computers
Microsoft          Jot(R)                        Palm-size PC operating system
MiddleSoft         Jot(R)& InkTools(TM)          Linux offering to be announced
                                                  by MiddleSoft
Mitsubishi         PenX(TM)                      Windows Pen Computers
Mutoh              PenX(TM)                      Windows Pen Computers
National
Semiconductor      Jot(R)                        Wireless Internet Access Device
Telxon             CIC Soft Keyboard             Windows Pen Computers
Vtech              Jot(R)                        Electronic Organizer
Wacom              Chinese Handwriter(R)&        Digitizer tablet
                    Sign-it(TM)
 Walkabout          PenX(TM)                     Windows Pen Computers

Aftermarket Consumer Sales

     Consumer sales of the Company's  software sold primarily via CIC's website,
(www.cic.com),  increased  more than 400% in 1999 versus 1998,  from $341,000 to
$1,718,000.  In 1998,  sales increased  approximately  900% vs 1997. This growth
reflects  rapid and  effective  porting  of  Jot(R)  and  QuickNotes(TM)  to the
Palm(TM)  operating  system and new  products  introduced  for the  Palm(TM)  OS
including InkSnap, Word Complete,  RecoEcho and Sign-On(R),  the first biometric
signature  verification  security  utility  for  Palm  organizers.   Direct-mail
programs,  e-mail campaigns,  pricing promotions,  and website  enhancements are
utilized to drive web-based sales. A list of on-line resellers of CIC's products
as of December 31, 1999 include:

                Digital River.com            Beyond.com

                                       4
<PAGE>

                Handango.com                 Downloadwarehouse.com
                Releasesoft.com              Egghead.com
                Mobileplanet.com             SoftwareBuyLine.com
                Techwave.com                 CompuServ.com
                Palmgear.com

     CIC expects  significant  growth in aftermarket  consumer sales in 2000 and
beyond  based on the large and growing  installed  base of  handheld  electronic
organizers, estimated at over 5 million units, and projected to more than double
by the  end of  2000.  (Source:  Dataquest).  In  September  1999,  the  Company
commissioned  market  research which  confirmed that its products  significantly
increase the usability of electronic  organizers  suggesting  high adoption rate
potential.  The Company is developing a media campaign aimed at generating  high
levels of awareness of the Company's  products among current  organizer users in
order to bring potential customers to our website. The potential for aftermarket
software  sales has been  significantly  enhanced with the merger of smartphones
and the Internet. The Company believes that as the  telecommunications  industry
and its service  providers lay the foundation for e-commerce  done from the palm
of your hand  through the  wireless  Internet,  the  potential  for  downloading
software to ten's of millions of smartphones is nearing reality.

Enterprise Sales

     The Company's  sales efforts in 1999 focused on leveraging  its  electronic
signature solutions in emerging,  fast growth, large potential applications such
as e-commerce,  document automation and corporate security. This involved direct
business  development activity in signature dependent vertical markets including
financial  services,  insurance,  health  care,  and real estate in an effort to
secure  agreements  for initial  installations  of CIC  products  which have the
potential for  significant  rollout and follow-up  sales.  The Company  believes
meaningful  sales  will  result  in 2000 and  beyond  based  on the  substantive
progress  made with  target  accounts,  present  status of  agreements,  ongoing
negotiations and sales activity with strategic partners.

China

     The Company owns 90% of a Joint  Venture in the People's  Republic of China
(the  "PRC").  CICC was  established  in 1993 to respond to the large  potential
market for pen-computing  software in the PRC,  particularly Chinese handwriting
recognition.  Since the Chinese language has over 10,000 written characters,  it
is  extremely  difficult  and  inefficient  to  perform  computer  input  with a
keyboard. CICC introduced Chinese handwriting recognition for the desktop market
over two years ago. In January  1999,  CICC  introduced  a product  specifically
designed  for  Palm-sized  PCs which  combines  the most  frequently  used input
methods,  Chinese  handwritten  character  recognition,  handwritten Pin-Yin and
Roman character  recognition,  into one product.  The Company expects to receive
significant orders from Wacom, the largest digitizer tablet  manufacturer in the
world,  and from  Legend,  the largest  computer  manufacturer  in the PRC.  The
Company  believes  these orders will confirm the success and  acceptance  of the
Chinese versions of our core input technologies.

Three basic sales strategies have been established for CICC:

o    The  Systems  Integration  ("SI")  operation  provides  services to Chinese
     businesses,  government users and other joint ventures in the PRC involving
     the sale of  desktop  and other  computer  products  with a focus on office
     automation and Material Replenishment Planning ("MRP") software.

o    The Handwriter(R) operation focuses on the sale of Handwriter(R) tablets to
     both end users and dealers leveraging CICC's Chinese  recognizer  software.
     CICC  is a  leading  supplier  of  Handwriter(R)  products  to the  Chinese
     Government.

o    The OEM sales  strategy  involves  the sale and  licensing  of  handwriting
     recognition, electronic signature solutions, and other software products to
     the emerging Chinese computer and smart phone OEM market.

     Although  overall  1999  revenues  for CICC  were  down  14%  from  1998 to
$1,620,000 from $1,879,000, license revenue of CIC core technologies to OEMs and
enterprises doubled over 1998. The decline in sales reflected lower

                                       5
<PAGE>

revenues from the Systems  Integration  operation due to reduced spending on the
part of western  companies  located in China which represented 90% of historical
SI  revenues.  CICC  changed  its sales focus in 1999 to Chinese  companies  and
government facilities which increased sales to these customers by 41% offsetting
some of the reduced sales to ex-patriot companies.

     The Company  believes  that with the emerging  market in China for wireless
Internet/info  devices,  the  acceptance  of our products by leading  OEMs,  the
legitimacy and stability  provided by the Joint Venture and the explosive growth
potential  of the  China  market,  now  enhanced  by  World  Trade  Organization
membership, CICC will provide significant growth potential in 2000 and beyond.

Segments

     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  has  been  broken  down  into  two  Segments  -
Handwriting   recognition   software  and  Systems   integration.   For  further
information see Note 9 to the Company's Consolidated Financial Statements.

     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.

Core Technologies

     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.  CIC's 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 the most 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.

     Transaction  and  Communication   Enabling   Technologies.   The  Company's
transaction and  communication  enabling  technologies are designed to provide a
cost-effective means for securing electronic transactions, providing network and
device access control,  and enabling  workflow  automation of traditional  paper
form  processing.  CIC believes  that these  technologies  offer more  efficient
methods for conducting electronic  transactions and provide more functional user
authentication  and heightened  data  security.  The Company's  transaction  and
communication  enabling technologies have been fundamental in its development of
software for signature verification, data security, and data compression.

                                       6
<PAGE>
Products

Key CIC products include the following:

 Handwriter(R) and Jot(R)   Handwriting recognition software
 WordComplete(TM)           Predictive text entry software
 INKshrINK(R)               Electronic ink  data  compression  software
 QuickNotes(TM)             Electronic  notetaking software
 Sign-it(TM)                Digital signature support for Word '97 and
                            Acrobat(R)4.0
 Sign-On(TM)                Biometric  signature  verification  software
                            for device access
 InkTools(TM)               A  suite  of  application   development  tools
                            for electronic signatures
 PenX(TM) VC                Operating system extension for Windows NT
                            with Citrix Metaframe

Products that were introduced and first shipped in 1999 include:

 InkTools(TM)  1.0 for  Windows CE 2.11 or later
 Handwriter(R)  CE 1.0 for
 Windows  CE 2.11 or later
 PenX  VC(TM) 1.0 for  Windows  NT4 with  Citrix
   Metaframe
 PenX(TM) 1.7 for Windows 32 bit operating systems
 RecoEcho(TM)1.0 for  Palm
 InkSnap(TM)  1.0 for  Palm
 WordComplete(TM)  1.0 for  Palm
 Sign-On(TM) 1.0 for Palm
 CIC  Software  Keyboard  1.0 for  Windows CE 2.11,  Windows 95, 98 and NT4.0
 Jot(R)  for  EPOC
 Jot(R)  for  VT-OS(TM)
 Sign-it(TM)  1.0  for  Adobe(R) Acrobat(R)  4.0
 Sign-it(TM)  Secure  1.0  for  Adobe(R)   Acrobat(R)  4.0
 Sign-it(TM)  Plus 2.0 for Adobe(R)  Acrobat(R) 4.0
 Sign-it(TM) Pro 2.0 for Adobe(R) Acrobat(R) 4.0
 Sign-it(TM) Secure 2.0 for Adobe(R) Acrobat(R) 4.0

     Handwriting   recognition  software  analyzes  the  individual  strokes  of
characters  written with a pen/stylus  and converts these stokes into an "ASCII"
text  character.  This  software is  especially  useful for portable  electronic
devices  that  are too  small  to  employ  a  keyboard,  and for  the  input  of
ideographic  script  characters  such as  those  used  in  written  Chinese  and
Japanese.  The Company currently has two recognition  system offerings,  HRS(TM)
and Jot(R).

     CIC's  Handwriter(R)  Recognition  System  ("HRS(TM)") is an  award-winning
software  solution for  recognizing  handwritten  input on Windows(R)  based pen
computers and desktop PCs. HRS(TM) accurately recognizes  handwritten characters
with no recognizer training required,  so the user can write naturally.  HRS(TM)
is a full-context  recognizer that offers some unique features such as automatic
spacing  between words and automatic  capitalization  of the first letter of new
sentences.  HRS(TM)  software  is  currently  shipping  on many  of the  leading
Windows(R)  based pen computers.  Vertical  market  licensees of HRS(TM) who are
currently  shipping  devices using the  recognizer  include  Fujitsu,  Intermec,
Mitsubishi and  NEC/Philips.  The Chinese  version of the HRS(TM)  recognizer is
also available for OEM licensing worldwide.

     Jot(R) is a print-based  recognizer that is specifically designed for small
form factor  devices.  Unlike many  recognizers  that  compete in the market for
handheld data input  solutions,  Jot(R) offers a patented  user  interface  that
allows  for  the  input  of  natural  upper  and  lowercase  letters,   standard
punctuation and European languages without requiring the user to memorize unique
characters or symbols.  This  recognizer  offers rapid and accurate  recognition
without  requiring  the consumer to spend time  training  the system.  Jot(R) is
currently  licensed to Microsoft  and ships with every  Palm-size  PC.  Consumer
offerings of Jot(R) include  versions for Handheld PCs ("H/PCs"),  Palm-size PCs

                                       7
<PAGE>

(upgrade to bundled  version) and the  PalmPilot(TM)  and  Palm(TM)  organizers.
Jot(R) has been ported to many operating platforms including the PalmOS,  VT-OS,
EPOC,  QNX,  and  OS/9  for  the  Nortel  Smart  Phone  and is  currently  under
development  for others.  The  standard  version of Jot(R),  which is  available
through OEM, enterprise and consumer product offerings,  recognizes and supports
input of Roman-based Western European languages.

     InkTools(TM),  a dynamic signature verification software tool-kit, analyzes
the image,  speed,  stroke sequence and  acceleration of a person's  handwritten
electronic   signature.   InkTools(TM)   provides  an  extremely  effective  and
inexpensive biometric security check.  Commercial  applications for this type of
software  include  document  approval,  verification  of the  identity  of users
participating  in  electronic  transactions,  and,  securing  log-in  access  to
computer systems or protected networks. This software toolkit is used internally
by CIC as the underlying technology in its Sign-On and Sign-it products.

     Sign-On(TM) is a new product  offering that utilizes the Company's  dynamic
signature verification  technology to provide device access security on portable
devices.  This provides the additional level of security needed for devices that
are increasingly  being used in business and generally  contain  sensitive data.
Currently  available for the Palm  operating  system,  the product is also being
ported to EPOC and other platforms to meet the  specifications  of new licensees
and customers.

     Sign-it(TM)  is a family of  signature  products for enabling the real time
capture,  binding  and  verification  of  signatures  within  standard  consumer
applications. The Sign-it(TM) Secure version of the product enables the verified
signature to release a Verisign  Digital I.D.  Organizations  wishing to process
electronic  forms  requiring  varying levels of security can reduce the need for
paper forms by adding signature capture technologies to their workflow solution.
Current signature  capture  solutions  include  Sign-it(TM) for Word '97 and for
Adobe(R) Acrobat(R) 4.0.

     Electronic  inking  technologies are used to mark-up  electronic  documents
without  printing a hard copy,  and to make  electronic  sketches and  drawings.
Electronic  ink is a data type that is made up of pixels versus text  characters
and, unless  compressed,  takes up large amounts of computer memory.  Electronic
ink may also be used to capture  signatures or for short  handwritten  messages.
CIC's patented electronic ink compression software, INKshrINK(R), compresses and
decompresses  electronic  ink  quickly and  efficiently.  This  facilitates  the
storage and transmission of electronic ink in a compressed state,  which reduces
transmission time and the amount of computer memory necessary for storage,  thus
decreasing the cost of use. Decompression is almost instantaneous,  allowing for
accurate  visual  presentation on computer  display screens without  perceptible
delays.

     The Company's  products are marketed  through three sales  approaches:  OEM
Sales,  Enterprise Sales and Consumer Sales. Products sold through OEM Sales and
Consumer Sales are included in the Company's  Handwriting  Recognition  segment,
while  Enterprise  Sales  are  included  in  either  the  Company's  Handwriting
Recognition or System  integration  Segments  depending on the complexity of the
automation solution required.

     OEM  Licensed  Products.  CIC  currently  licenses  software  products  for
Windows(R)3.x,  Windows(R)'95,  Windows(R)'98, Windows(R)NT, Windows(R)CE, EPOC,
QNX,  VT-OS,  and Linux.  CIC also ports its products to other platforms to meet
the specifications of new licensees.  The Company's PenX(TM),  Sign-it(TM),  and
Handwriter(R)  Recognition  System are licensed for portable PCs  utilizing  the
Windows(R)'95,  Windows(R)'98,  Windows(R)NT, and Windows(R)CE operating systems
and is primarily used for field force automation and in pen-input PC peripherals
for desktop use. Jot(R), QuickNotes(TM),  Sign-On(TM),  WordComplete(TM) and the
CIC software  keyboard are licensed  primarily for the new,  smaller  classes of
Handheld  PCs and  Palm-size  PCs  such as  those  that  utilize  the  EPOC  and
Windows(R)CE  operating systems and handheld  communicators such as smart phones
and PDAs. New OEM licensing  growth is also expected from the licensing of CIC's
PenX(TM) pen operating system extensions.

                                       8
<PAGE>
     Enterprise  Solution  Products.  CIC offers several  products  targeted for
markets  in the  regulatory  and  security  sensitive  industries  that  require
workflow  automation  solutions,  such as  electronic  form  filing and  network
communication.   For  these  markets,  CIC  offers  several  products  including
InkTools(TM),  a high  performance  Windows(R)  (CE,  `95 ,`98 and NT)  software
developer's kit for  implementing  systems using  electronic ink and handwritten
signatures.  InkTools(TM) provides electronic ink capture and display, signature
verification and electronic ink compression. InkTools(TM) is a new release which
incorporates  ActiveX  technology  and enhanced  Visual Basic  support for CIC's
primary developer's tool kit, allowing signature capture and verification within
computer applications.

     New  developments  on CIC's  PenX(TM)VC,  pen  extensions  for  Windows(R),
technology have been directed at enabling our enterprise  applications to run in
a distributed network architecture.  The primary focus of these efforts has been
in the emerging Independent Computing Architecture ("ICA"), in which PenX(TM) VC
enables the full  functionality of pen-based clients including PCs with tablets,
handheld  devices,  and  Windows(R)  pen  computers.  PenX(TM)  VC is  currently
available and under evaluation in pilot programs at several key customers.

     Consumer  Product  Offerings.  The Company's  consumer sales  department is
charged  with the sale of the  Company's  aftermarket  software  offerings.  The
consumer product line currently consists of Jot(R),  RecoEcho(TM),  Sign-On(TM),
WordComplete(TM),  QuickNotes(TM)  and InkSnap(TM).  These product are sold over
the  Internet  on  CIC's  own  website  and by other  Internet-based  electronic
resellers.  Consumer  versions of these products are being sold for users of the
Palm connected  organizers  and  Windows(R) CE based  Palm-size PCs and Handheld
PCs. Much of the growth in consumer sales in 1999 was  attributable  to sales of
these  products  to users of Palm  Computing(R)  devices.  The  Company has also
registered two new domain names (Internet  website  addresses) for use in direct
mail  campaigns  and other  special  promotions  targeting  the handheld  device
installed base which is estimated to consist of more than 5 million users.

History

     The Company was  initially  incorporated  in Delaware in October  1986 as a
wholly owned  subsidiary of a predecessor  corporation  with the same name.  The
Company has a  90%-owned  joint  venture,  Communication  Intelligence  Computer
Corporation,  Ltd., with the Information  Industry Bureau a provincial agency of
the People's Republic of China. The Joint Venture was formed in September 1993.

     In each year since its inception,  the Company has incurred losses. In July
1994, the Company filed a voluntary  petition for  reorganization and protection
under  Chapter  11 of the United  States  Bankruptcy  Code in the United  States
Bankruptcy  Court for the District of San Francisco to  restructure  the Company
and its debt.  On  November  14,  1994,  the  Company's  pre-petition  creditors
approved,  and the United States Bankruptcy Court confirmed,  the Company's Plan
of  Reorganization  (the "Plan"),  and the Company emerged from bankruptcy.  The
Plan provided for the payment in full, in cash, of all allowed  unsecured claims
of creditors while leaving secured  creditors  unimpaired by providing for their
payment in  compliance  with the original  terms and  conditions of their loans.
Creditors were paid in three  approximately equal installments in February 1995,
1996,  and 1997,  respectively.  In addition,  under the Plan each holder of the
Company's  then  outstanding  shares of Common Stock and  Convertible  Preferred
Stock received one unit,  which  consisted of two shares of Common Stock and one
Common Stock purchase  warrant,  with an exercise  price of $0.50 per share,  in
exchange for two shares of  Convertible  Preferred  Stock or Common  Stock.  All
unexercised warrants issued pursuant to the Plan expired in December 1994. Since
July 1994, the Company has  consummated a number of debt and equity  financings.
For  further  information  concerning  these  transactions,   see  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations-
Liquidity and Capital Resources."

Copyrights, Patents and Trademarks

     The Company  relies on a combination  of patents,  copyrights,  trademarks,
trade secrets and contractual  provisions to protect its software  offerings and
technologies. There can be no assurance, however, that these protections will be
adequate  or that  the  Company's  competitors  will not  independently  develop
technologies  that are  substantially  equivalent  or superior to the  Company's
technologies.  In addition, the laws of certain countries in which the Company's
products are licensed may not protect the  Company's  products and  intellectual
property rights to the same extent as the laws of the United States.  Because of
the rapid evolution of technology and uncertainties in intellectual property law

                                       9
<PAGE>
in the United  States and  internationally,  there can be no assurance  that the
Company's  current or future  products  or  technologies  will not be subject to
infringement by others. The Company's  licensees and distributors have access to
proprietary information of the Company. In addition a substantial portion of the
Company's  technology and know-how are trade  secrets,  and are not protected by
patent,  trademark or copyright  laws. The Company has a policy of requiring its
employees and  contractors to respect  proprietary  information  through written
agreements.  The Company  also has a policy of  requiring  prospective  business
partners to enter into  non-disclosure  agreements  before any of the  Company's
proprietary  information is revealed to them. There can be no assurance that the
measures  taken by the Company to protect its  technologies,  products and other
proprietary rights will adequately protect it against improper use.

     Certain  technological  processes  originally  implemented in the Company's
software  offerings were developed and patented by Stanford  Research  Institute
("SRI") and SRI assigned  those  patents,  which  subsequently  expired,  to the
Company.  The  Company  has  made  significant   improvements  to  the  original
technologies and additional patents relating to such technological  improvements
have been  applied for or issued.  Therefore,  the Company does not believe that
the  expiration of the SRI patents has had or will have a significant  effect on
its  operations.  Other major elements of the Company's  software  offerings and
technologies  were developed by the Company and have been  patented.  Certain of
the  Company's  existing  patents  expire  between the years 2002 and 2005.  The
Company is unable to predict  at this time the impact to its  business,  if any,
from such expiration.

     CIC(R) and its logo, Handwriter(R), Jot(R), and INKshrINK(R) are registered
trademarks  of  the  Company.  HRS(TM),  InkSnap(TM),   InkTools(TM),  PenX(TM),
QuickNotes(TM),   RecoEcho(TM),   Sign-it(TM),   Sign-On(TM)   Speller(TM)   and
WordComplete(TM) are trademarks of the Company. Applications for registration of
various  trademarks are pending in the United States,  France,  Germany,  Italy,
Japan,  Spain and the  United  Kingdom.  The  Company  intends to  register  its
trademarks  generally in those  jurisdictions  where its products are or will be
marketed in the foreseeable future.

     The Company may be required or elect to take various  forms of legal action
from time to time to protect its proprietary  rights.  Any litigation  regarding
claims  against the Company or claims made by the Company  against  others could
result  in  significant  expense  to the  Company,  divert  the  efforts  of its
technical and  management  personnel and have a material  adverse  effect on the
Company,  whether or not such litigation is ultimately  resolved in favor of the
Company.  In the event of an adverse result in any such litigation,  the Company
may be  required  to expend  significant  resources  to  develop  non-infringing
technology or obtain licenses from third parties. There can be no assurance that
the Company would be successful  in such  development  or that any such licenses
would be available on commercially reasonable terms, if at all.

Seasonality of Business

     Historically,  The Company has not experienced  seasonal  trends  affecting
sales of its products or the development or licensing of its technologies.

Material Customers

     Historically,  the Company's Handwriting  recognition segment revenues have
been derived from a limited number of customers.  One customer accounted for 27%
and 7% of the Company's  Handwriting  recognition  segment  revenues in 1999 and
1998,  respectively.  Three customers  accounted for approximately 27%, 16%, and
15%, respectively,  of the Company's Handwriting recognition segment revenues in
1997. The loss of any significant customer or other source of revenue could have
a material adverse effect on the Company.

Backlog

     At  December  31,  1999,  backlog  approximated  $35,000  representing  NRE
associated  with  the  Middlesoft  and  National  Semiconductor  agreements.  At
December 31, 1998, backlog approximated  $782,000  representing NRE and pre-paid
royalties associated with the Ericsson agreement. The Company had no significant
backlog at December 31, 1997.

                                       10
<PAGE>
Competition

     The markets  for CIC's  offerings  are  competitive,  and have  attracted a
number of competitors within certain product markets.  The Company intends to be
responsive to emerging  market demands as well as  competitive  threats in those
specific markets where there is competition.  While these competitors may pose a
threat to the Company's efforts to gain market share within certain markets, the
Company  believes  these  competitors  also help  bring  attention  to and build
awareness  for  pen-input  solutions.  Certain  competitors  of the Company have
substantially  greater  financial and other  resources than that of the Company.
The Company faces  competition at different  levels.  Certain  competitors  have
developed or are developing  software  offerings which may compete directly with
the Company's offerings. Most of the direct competitors of CIC have focused only
on one element of such offerings,  such as handwriting  recognition  technology,
signature  capture/verification  or pen-based  operating  environments  or other
pen-based  applications.  While the Company  believes  that it has a competitive
advantage in some cases due to its range of product  offerings,  there can be no
assurance  that  competitors   will  not  succeed  in  developing   products  or
technologies  that are more effective,  easier to use or less expensive than the
Company's  products or technologies or that would render the Company's  products
or technologies obsolete or non-competitive.  Competitors of the Company include
certain of the Company's current and potential  strategic partners and customers
who are developing or acquiring  alternative  products and technologies to those
offered by the Company.  There can be no assurance that companies with which the
Company  has  established  or  will  establish  distribution,  license,  product
development  or  other  strategic   relationships  will  not  choose  to  market
competitive technologies or products developed internally or acquired from third
parties.  The Company's  strategic  partners also have had access to proprietary
information  of the Company,  and there can be no assurance  that the  Company's
confidentiality  agreements with its strategic  partners will adequately protect
it against the improper use of such proprietary information.

Joint Venture in the People's Republic of China

     The Company  currently  owns 90% of the Joint Venture with the  Information
Industry  Bureau of the Jiangsu  Province,  a provincial  agency of the People's
Republic of China (the  "Agency").  As of  December  31,  1998,  the Company had
contributed  an  aggregate  of $1.8  million  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.  In 1998, the
registered capital of the Joint Venture was reduced,  and as a result,  pursuant
to the  terms  and  provisions  of  the  Joint  Venture  agreement,  no  further
contributions  are  required  by either  party.  For  further  information,  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Joint Venture in the People's Republic of China."

Employees

     As of March 27,  2000,  the  Company  and the  Joint  Venture  employed  an
aggregate of 74 full-time employees, 29 of which are in the United States and 45
of which are in China.  From time to time,  the Company also engages  additional
personnel on an as needed basis. The Company believes it has good relations with
its  employees.  None of the  Company's  employees  is a party  to a  collective
bargaining agreement.

Geographic Areas

     For the years ended  December 31,  1999,  1998,  and 1997, , the  Company's
export sales as a percentage of total revenues were  approximately 36%, 16%, and
40%,  respectively.  The  increase  in  export  sales  in  1999  is  due  to the
recognition of licensing revenues from Ericsson. The decrease in export sales in
1998  was  due to the  recognition  in  1997  of  deferred  royalty  revenue  of
approximately  $1,424,000  from foreign  customers  for which the Company had no
further  obligation  to provide  additional  software  or  services  compared to
$403,000 in 1998. In conjunction with the Company's  current business  strategy,
all  licensing  activities  for  the  Company's  software  technologies  will be
conducted  from the United  States.  Accordingly,  in December 1997, the Company
closed its sales office in Japan. The Company maintains certain  agreements with
Japanese  customers;  however the revenues are derived from the  Company's  U.S.
operations.  Due to the volume of the  Company's  sales on its website,  and the
selling price of the products offered, it is not economically  feasible to track
individual sales by country.

                                       11
<PAGE>
     The  Company  is  subject to  various  risks in  connection  with the Joint
Venture  in the  People's  Republic  of  China,  including  the  risks  commonly
associated with doing business abroad. For further information see "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
Notes 2 and 9 to the Company's Consolidated Financial Statements.

Year 2000

     Year 2000 issues arose  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.

     Management  as a  whole  is  responsible  issues  arising  from  Year  2000
problems. 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 has not received any reports of
malfunctions or errors in any of its products  related to the change to the Year
2000.  The Company  does not  anticipate  that it will  experience  any material
difficulties  with  Year  2000  issues  in the  future,  and  therefore  has not
formalized any contingency  plan. The Company has been informed by third parties
which it does  business  with that they are Year  2000  compatible,  and has not
experienced  any  major  interuptions  or  difficulties  with  its  thirs  party
relationships.

Forward Looking Statements

     Certain statements  contained in this Annual Report on Form 10-K, 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,  quality control or other  circumstances which could delay the sale
or  shipment  of  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  or  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 2. Properties

     The Company  currently  leases its  principal  facilities  (the  "Principal
Offices"),  consisting of  approximately  11,717 square feet, in Redwood Shores,
California,  pursuant to a sub-lease  that  expires in 2001.  In  addition,  the
Company  sub-leases  to a third party  approximately  3,200 square feet of space
adjacent to the Principal  Offices.  The sub-lease  expires in 2001. The Company
originally  leased  the  additional  space  in  1997  in  order  to  accommodate
additional  personnel  hired by the Company in the last three  months of 1996 in
connection  with its increased  marketing  activities  at that time.  Due to the
Company's  current  business  strategy and other cost  reduction  programs,  the
additional  space  is not  required  at this  time.  The  Joint  Venture  leases
approximately 1,000 square feet in Nanjing,  China. The Company anticipates that
its  existing  leases will be  renegotiated  as they expire or that  alternative
properties can be leased on acceptable terms. The Company also believes that its
current  facilities  will  be  suitable  for it to  continue  operations  in the
forseeable future.

Item 3. Legal Proceedings

     As of March 15, 2000, the Company was not a party to any legal  proceeding,
which,  if adversely  determined,  would have a material  adverse  effect on its
business.  In July 1994,  the  Company  filed a petition  for  bankruptcy  under
Chapter 11 of the United  States  Bankruptcy  Code in order to  restructure  the
Company and its debt. In November 1994, the Plan was approved and confirmed, and
the Company emerged from bankruptcy. See "Item 1.Business-History."

                                       12
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders

     None
                                     PART II

Item 5. Market For Registrant's Common Equity and Related Stockholder Matters

     The  Company's  Common  Stock is  currently  listed on the Nasdaq  SmallCap
Market under the trading symbol CICI. In September  1991,  the Company's  Common
Stock was first listed on the Nasdaq  SmallCap  Market,  and in June 1993 it was
listed on the Nasdaq National Market. In July 1994 (during the Company's Chapter
11  reorganization  proceedings),  the  Company's  Common Stock was delisted for
failure to meet Nasdaq's continued listing requirements.  From July 1994 to July
1996,  quotations  concerning the Common Stock were reported on the OTC Bulletin
Board.  In July 1996,  the  Company's  Common  Stock was  relisted on The Nasdaq
SmallCap Market.  The following table sets forth the high and low sale prices of
the Common for the periods noted.

                                                                  Sale Price
                                                                  Per Share
     Year    Period                                             High      Low
<TABLE>
<CAPTION>
<S>  C>     <C>                                               <C>     <C>

     1998    First Quarter...................................   $ 1.75  $ 1.03
             Second Quarter..................................   $ 1.22  $ 1.00
             Third Quarter...................................   $ 1.19  $ 0.59
             Fourth Quarter..................................   $ 0.91  $ 0.41
     1999    First Quarter...................................   $ 2.50  $ 0.69
             Second Quarter..................................   $ 2.59  $ 0.97
             Third Quarter...................................   $ 1.47  $ 1.00
             Fourth Quarter..................................   $ 8.25  $ 0.88
     2000    First Quarter (through March 27, 2000)..........   $12.03  $ 6.19
</TABLE>


     As of March 27,  2000,  the closing  sale price of the Common  Stock on the
Nasdaq  SmallCap  Market  was $6.75 per share and there were  approximately  650
registered holders of the Common Stock.

     To date,  the Company has not paid any  dividends  on its Common  Stock and
does not anticipate paying dividends in the foreseeable  future. The declaration
and payment of dividends on the Common Stock is at the  discretion  of the Board
of Directors  and will depend on, among other things,  the  Company's  operating
results, financial condition, capital requirements,  contractual restrictions or
such other factors as the Board of Directors may deem relevant.

     During the three  months ended  December 31, 1999,  the Company has granted
stock options to employees and directors for services rendered as follows:

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

 One Employee   Nov. 22, 1999    400,000    $  1.1875   Quarterly  Nov. 22, 2006
                                                                   overthree
                                                                   years

                                       13
<PAGE>
Item 6. Selected Financial Data

     The selected consolidated financial data presented below as of December 31,
1999,  1998,  1997,  1996 and 1995  and for each of the  years in the  five-year
period  ended  December  31,  1999 are  derived  from the  audited  consolidated
financial statements of the Company. The consolidated financial statements as of
December 31, 1999 and 1998, and for each of the years in the  three-year  period
ended  December 31, 1999, are included in Item 8 of this Form 10-K. The selected
consolidated  financial  data should be read in  conjunction  with the Company's
audited  financial  statements  and the notes thereto and other portions of this
Form 10-K  including  "Business"  and  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations."

                                            Year Ended December 31,
                              --------------------------------------------------
                                1999      1998       1997       1996       1995
                              --------------------------------------------------
                                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>
<S>                         <C>      <C>        <C>       <C>        <C>

Statement of Operations Data:
Revenues..................... $ 6,518  $  4,581   $  5,516  $   2,887  $  2,314
Research and
development expenses(1)......   1,363     1,989      2,360      1,672     1,355
Sales and marketing
 expenses....................   1,877     2,015      6,257      3,282     2,613
General and administrative
 expenses..............         1,683     1,889      2,663      2,037     1,717
Loss from operations.........  (1,722)   (3,285)   (11,627)    (6,535)   (5,534)
Net loss available to
 common stockholders(2)......  (1,740)   (3,592)   (16,940)    (6,356)   (5,595)
Basic and diluted loss
per common share.............  ( 0.02)   ( 0.06)  (   0.37)    ( 0.15)   ( 0.16)
</TABLE>

                                           As of December 31,
                        --------------------------------------------------------
                            1999       1998        1997       1996         1995
                        --------------------------------------------------------
                                             (In thousands)
<TABLE>
<CAPTION>
<S>                     <C>        <C>         <C>        <C>        <C>

Balance Sheet Data:
Cash, cash equivalents
 and restricted cash....  $  2,374   $  1,045    $   5,485  $ 11,325   $   7,459
Working capital (3).....     2,929        346        2,721     8,284       3,763
Total assets............     4,963      3,354        7,491    13,503       9,776
Deferred revenue........        35        651          440     2,006       2,570
Long-term obligations...     1,338          -            8        32         830
Redeemable securities(4)         -          -            -     9,417           -
Stockholders' equity
 (deficit)(5)...........     2,349      1,332        3,989       (82)      4,010
</TABLE>
-----------

(1)      Excludes  software  development  costs  capitalized in accordance  with
         Statement of Financial Accounting Standards No. 86 of $9, $17, and $20,
         for the years ended December 31, 1999, 1998, and 1995, respectively. No
         software development costs were capitalized in the years ended December
         31, 1997 and 1996, respectively.

(2)      The Company's 1997 net loss applicable to common stockholders  includes
         a one-time,  non-cash  charge of $4.9  million  related to the embedded
         yield on the Company's Series A Preferred Stock issued in December 1996
         due to the  discounted  conversion  provisions  of such  stock  and the
         cumulative  dividends  of  $1.25  per  share,  per  annum  on  Series A
         Preferred  Stock.  Includes  dividends on Series A Preferred  Stock and
         Series B Preferred  Stock of $435 and $564 for the years ended December
         31, 1998 and 1997, respectively.

(3)      Current  liabilities used to calculate working capital at December 31,
         1999,  1998,  1997,  1996, and 1995 include  deferred  revenue of $32,
         $651, $440, $2,006, and $2,570, respectively.

(4)      For  details,  refer  to  Note  5 to  of  the  Company's  Consolidated
         Financial Statements included in Item 8 of this Form 10-K.

(5) The Company has never paid dividends to the holders of its common stock.

                                       14
<PAGE>
Item 7. Management's  Discussion and Analysis of Financial Condition and Results
     of Operations

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, 1999,  losses  aggregated  approximately $34
million  and,  at December  31,  1999,  the  Company's  accumulated  deficit was
approximately  $71  million.  In July 1994,  the  Company  filed a petition  for
reorganization  and protection under Chapter 11 of the United States  Bankruptcy
Code in order to  restructure  the Company and its debt. In November,  1994, the
Company's  pre-petition  creditors  approved,  and the United States  Bankruptcy
Court confirmed,  the Company's Plan of  Reorganization  and the Company emerged
from bankruptcy. See "Item 1. Business - History."

     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 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 did 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 that collection of the resulting  receivable
is likely.  The Company  provides  for  estimated  sales  returns at the time of
shipment.  License  revenues are recognized when the software has been delivered
and all significant  obligations  have been met. Royalty revenues are recognized
as products  are  licensed  and sold by  licensees.  Revenues  from  development
contracts  are  primarily  generated  from  non-recurring  engineering  fees and
research  grants.  Revenue is  recognized  in  accordance  with the terms of the
grants and  agreements,  generally when collection is probable and related costs
have been incurred.

     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. As of December 31, 1999, 1998 and 1997, such costs were insignificant.

                                       15
<PAGE>
     Significant  Customers.  One customer  accounted  for 27% of the  Company's
revenues in 1999. No one customer  accounted for more than 10% of total revenues
in  1998.  Three  customers  accounted  for  approximately  27%,  16%,  and 15%,
respectively, of the Company's revenues in 1997.

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

     Foreign Currency Translation. The Company considers 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 the Company's  consolidated  balance sheets included in this Annual Report on
Form 10-K.  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 which 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  included in this Annual Report on Form
10-K. The Company  recorded a net foreign  currency  transaction gain of $59,000
and $55,000 for the years ended December 31, 1999 and 1998, respectively,  and a
loss of $101,000 for the year ended December 31, 1997.

     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,
1999 of 18,919,000 based upon the Company's history of losses.

     Restatement  of 1997  Quarterly  Results.  In  January  1998,  the  Company
restated the previously  issued financial  statements for the first,  second and
third quarters of 1997. The display of the net loss per common share  applicable
to common stock holders and the  components  thereof in the Company's  unaudited
condensed  consolidated  statements of operations for each of these quarters was
restated  to  reflect  the  non-cash  charge  for  the  embedded  yield  on  the
convertible  preferred stock due to the discount  conversion feature provided on
such stock and cumulative  dividends on the  convertible  preferred  stock.  The
Company  believes that the  restatements  were in accordance with the accounting
treatment of the embedded  discount on convertible  preferred stock as announced
by the Securities  and Exchange  Commission at the March 13, 1997 meeting of the
Financial Accounting Standards Board's Emerging Issues Task Force.

Results of Operations

Years Ended December 31, 1999 and December 31, 1998

     Revenues.  The Company's product sales for the year ended December 31, 1999
increased  $429,000 or 14%, to  $3,411,000  from  $2,982,000  in the prior year.
Sales of the Company's products offered via its website increased  $1,376,000 or
402%,  to $1,718,000  from $342,000 in the prior year.  This increase was due to
increased  direct mail  campaigns  and  acceptance of the Company's new software
product  offerings,  sold  over the  Internet,  aimed at the  handheld  computer
market.  Hardware sales decreased $670,000 or 90%, to $78,000 for the year ended
December  31, 1999  compared to $748,000 in the prior year.  This  reduction  in
hardware sales resulted from the Company's  transition from a combined  hardware
and  software  company  to a company  focused  primarily  on  software.  Systems
integration  activities of the Joint Venture decreased $259,000, or 14%, in 1999
to $1,620,000  compared to $1,879,000 in 1998. This decrease is due to two major
contracts  recorded  in the  second  and third  quarters  of 1998 which were not
repeated in 1999.

     Revenues from license and royalty fees for the year ended December 31, 1999
increased by $1,341,000 or 103%, to  $2,641,000  from  $1,300,000  for the prior
year. The increase was primarily  attributable  to the recognition of $1,500,000
of license fees for the  Company's  Jot software  product to be sold on Ericsson
mobile smartphones.

                                       16
<PAGE>
     Revenues from development  contracts in 1999 increased 56% to $466,000 from
$298,000  for the  prior  year  due  primarily  to  increases  in  non-recurring
engineering revenues. Revenues from development contracts in 1999 were primarily
attributable  to porting of the Company's  software to third party products such
as smartphones and web browsers. Revenues from development contracts in 1998 and
1997 were primarily  attributable to grants awarded by the National Institute of
Standards and Technology and the National Science Foundation.

     Cost of Sales.  Cost of sales is  composed  of costs  from  product  sales,
license and royalty fees and  development  contracts.  Cost of product sales for
the year ended  December 31, 1999  increased  76% or  $1,294,000  to  $2,992,000
compared to $1,698,000 in the  comparable  prior year. The increase is primarily
due to the increase in the Company's direct mail activities  associated with the
sale of  software  products  via its  website.  Cost of  product  sales  in 1999
consisted of cost of materials, approximately $1,160,000 of which related to the
hardware and software components involved in the systems integration  activities
of the Joint Venture  compared to $1,420,000 in 1998,  and  $1,803,000 in direct
mail campaign  costs compared to $4,000 in the  comparable  prior year.  Product
costs related the  Company's  discontinued  Handwriter(R)  product sales in 1999
amounted to $29,000  compared to  $278,000  in 1998.  License and royalty  costs
remained  unchanged  and  amounted  to  approximately  $63,000 in 1999 and 1998,
respectively.  Costs incurred in connection with development  contracts  revenue
are expensed as incurred,  and increased 24% in 1999 compared to the prior year,
commensurate with the increase in development  contracts revenue compared to the
same period in the prior year.

     Gross Margin.  Gross margin in 1999 increased 23% to $3,197,000 compared to
$2,609,000 in 1998.  This increase was due primarily to an increase in licensing
and royalty fees compared to the prior year.  Product gross margins decreased to
$419,000  compared  to  $1,284,000  in the prior  year.  This  decrease  was due
primarily to the costs of direct mail  campaigns  associated  with the Company's
sales via its website.  Development  contract  gross margins  increased  137% to
$204,000  in 1999  compared  to  $86,000 in the prior  year.  This  increase  is
commensurate with the increase in development contract revenues.

     Research  and  Development  Expenses.  Research  and  development  expenses
decreased  31% or $626,000 to  $1,363,000  in 1999 from  $1,989,000 in the prior
year. Salaries and related costs decreased 12% in 1999 or $151,000 to $1,134,000
from  $1,285,000  recorded  in the  prior  year.  This  decrease  resulted  from
reductions in U.S. based personal and transfer of engineering  development  work
to the Joint Venture in China. Other expenses  including  facilities and related
costs, service and support costs, and other costs decreased $457,000,  or 52% in
1999, to $419,000 from $876,000  compared to the prior year. The reductions were
due to the  transfer of  engineering  development  work to the Joint  Venture in
China where labor and other costs are less expensive and the reduced  support of
hardware products sold in prior years.  These decreases were offset by increases
in 1999 for travel and related expenses,  training fees and software  developers
dues and subscriptions of $31,000.  In addition,  overhead costs associated with
development  contracts  transferred  to  cost of  goods  sold  increased  24% to
$262,000  in 1999  compared to  $212,000  in the prior  year.  This  increase is
commensurate with the increase in development contract revenue.

     Sales and  Marketing  Expenses.  Sales and  marketing  expense for the year
ended  December 31, 1999  decreased  7% or $138,000  compared to the prior year.
Payroll and related  costs in 1999  decreased  19% or $165,000 due  primarily to
reductions in U.S. personnel related to the Joint Venture operations in China in
the second  quarter of 1998.  During the third and fourth  quarters of 1999, the
Company  increased its domestic  sales force.  Other costs  associated  with the
reduction in personnel, such as facilities and miscellaneous expenses, decreased
$161,000 or 20% in 1999 to $641,000 from $802,000 in the comparable  prior year.
Advertising and promotion  expense  decreased $49,000 or 21% to $188,000 in 1999
from  $237,000  in the  comparable  prior  year.  This  decrease  was due to the
Company's efforts in direct mail campaigns,  which costs are a component of cost
of goods  sold.  These  reductions  were  offset by  increases  in  professional
services  associated  with marketing  studies,  recruiting and other expenses of
$112,000.  Commission expenses increased $110,000 commensurate with the increase
in sales as compared to the same twelve month period last year.

     General and Administrative  Expenses.  General and administrative  expenses
decreased  11% or $206,000 to  $1,683,000  for the year ended  December 31, 1999
from $1,889,000 for the comparable prior year period.  Payroll and related costs
in 1999 decreased 12% or $62,000 due to reductions in U.S.  personnel related to
the Joint Venture operations in China in the second quarter of 1998. Other costs
related to the reduction in personnel,  including  travel and  facilities  costs

                                       17
<PAGE>
were reduced $102,000. Other expenses including provisions for bad debts, patent
amortization  and other costs  decreased  $164,000 in 1999  compared to the same
prior year  period.  These  reductions  were  partially  offset by  increases in
recruiting and other  professional  services,  insurance,  and investor relation
expenses of $122,000 compared to the same twelve month period last year.

     Interest Income and Other Income (Expense),  Net. Interest income and other
income  (expense) net,  declined 76% to $35,000 from $147,000 in the prior year.
This  decrease  resulted  from a decrease in  interest  income due to lower cash
balances  during the year,  the write off of the loan discount on long-term debt
of  approximately  $20,000,  and fees associated with credit card sales from the
Company's website of approximately $59,000.

     Interest Expense.  Interest expense increased in 1999 compared to the prior
year due to bridge loans and subsequent conversion to long-term debt to fund the
Company's  operations in 1999.  Interest  expense in 1998 related to an accounts
receivable  financing  arrangement  and an equipment loan which were paid off in
January and June 1998, respectively.

     Preferred Stock  Dividends.  Preferred stock dividends relate to cumulative
dividends of $1.25 per share, per annum, compounded  semi-annually or quarterly,
respectively,  whether or not  declared,  on the Series A and Series B Preferred
Stock.  All of the shares of the Company's Series A and Series B Preferred Stock
were  converted  into Common Stock in November 1998  accounting for the decrease
from the amount recorded in 1998.

Years Ended December 31, 1998 and December 31, 1997

     Revenues.  Product  sales for the year ended  December  31, 1998  decreased
$264,000,  or 8%, to $2,982,000  from $3,246,000 in the prior year. The decrease
was due to the  Company's  transition  from a  combined  hardware  and  software
company to a company  focused  primarily on software.  Hardware sales  decreased
$1,207,000, or 62%, to $748,000 for the year ended December 31, 1998 compared to
$1,955,000  in the prior year.  This  reduction in hardware  sales was partially
offset by an increase of $305,000,  or approximately  850%, in software products
sold over the Internet via the Company's website for the year ended December 31,
1998 compared to the prior year. In addition,  systems integration activities of
the Joint Venture increased $404,000,  or 27%, in 1998 to $1,879,000 compared to
$1,475,000  in 1997.  Other sales  including  software  solutions  utilizing the
Company's  software and third party hardware and  replacement and spare hardware
and software  components for the Company's  installed hardware base not included
above  amounted to $234,000  for the year ended  December  31, 1998  compared to
$92,000 in the prior year.

     Revenues from license and royalty fees for the year ended December 31, 1998
decreased by $542,000, or 29%, to $1,300,000 from $1,842,000 for the prior year.
The decrease was primarily  attributable to the recognition in the prior year of
approximately  $1,424,000 of royalty revenues  deferred in prior years that were
recognized on  agreements  for which the Company had no further  obligations  to
deliver  additional  software or services,  compared to $404,000  recognized  in
1998.

     Revenues from development contracts for 1998 decreased 30% to $298,000 from
$428,000  for the  prior  year due  primarily  to  reductions  in  non-recurring
engineering  revenues.  Revenues from development contracts in 1998 and 1997 are
primarily  attributable to grants awarded by the National Institute of Standards
and Technology and the National Science Foundation.

     Cost of Sales.  Cost of sales is  composed  of costs  from  product  sales,
license and royalty fees and  development  contracts.  Cost of product  sales in
1998 consisted primarily of cost of materials, approximately $1,420,000 of which
related  to the  hardware  and  software  components  involved  in  the  systems
integration  activities  of the Joint Venture and the remainder of which related
to material and other costs of the Company's discontinued  Handwriter(R) product
sales.  Cost of product sales decreased 69% to $1,698,000 from $5,458,000 in the
prior year. In the fourth quarter of 1997, the Company wrote down its Handwriter
products  finished  goods  inventory  by  approximately  $1,600,000  due  to the
intended  withdrawal  of its  Handwriter  product from the retail  market in the
first quarter of 1998. In addition, the Company charged approximately 300,000 to
product cost of sales in the fourth  quarter of 1997,  related to  noncancelable
manufacturing license agreements associated with the Handwriter products entered
into in 1997. License and royalty costs decreased by approximately  $69,000,  or
52%,  to $63,000 in 1998 from  $132,000  in 1997.  This  decrease in license and
royalty  costs   related   primarily  to  decreases  in   capitalized   software

                                       18
<PAGE>
amortization  and  software  maintenance.  Costs  incurred  in  connection  with
development  contracts  revenue are expensed as incurred,  and  decreased 22% in
1998 compared to the prior year,  commensurate with the reduction in development
contracts revenue in the same period.

     Gross  Margin.  The gross  margin  increased to  $2,609,000  in 1998 from a
negative  margin of $347,000 in 1997.  This increase was due to a shift from low
margin  retail  hardware  sales to the  sales  of the  Company's  higher  margin
software  products,  and  there  being  no  write-offs  in 1998  similar  to the
write-offs in 1997 of Handwriter(R)  inventory and non-cancelable  manufacturing
licenses as discussed above.

     Research  and  Development  Expenses.  Research  and  development  expenses
decreased $371,000,  or 16%, to $1,989,000 in 1998 compared to $2,360,000 in the
prior  year.  Salaries  and wages  decreased  $465,000,  or 23%,  to  $1,535,000
compared to $2,000,000 in the prior year. This decrease was due to the reduction
in domestic  staffing  due to moving the  development  of the Chinese  character
recognition  system to the Joint Venture  which has a lower  average  salary per
person.  Outside engineering costs decreased $155,000, or 99%, in 1998 to $2,000
from  $157,000 in the prior year.  This decrease was due to the  elimination  of
outside  development for the Company's  discontinued  hardware  products.  Other
overhead costs,  including facilities and related expenses,  increased $150,000,
or 74%, to $353,000  from  $203,000 in the prior  year.  This  increase  was due
primarily  to the  decrease  in  applied  overhead  to cost of  sales  from  the
reduction in  development  contract  revenues and  increases in the  development
effort by the Joint Venture.

     Sales and Marketing  Expenses.  Sales and marketing expenses decreased 68%,
or  $4,242,000,  to $2,015,000  for the year ended December 31, 1998 compared to
$6,257,000 in the prior year.  Salaries,  wages,  and related costs decreased by
$1,821,000, or 70%, to $774,000 compared to $2,595,000 in the prior year, due to
reductions in staffing as the Company  discontinued its sales efforts related to
hardware  products  in the  corporate  and retail  markets.  In  addition to the
reductions  in the Company's  sales force,  outside  services  particular to the
retail  market,  such as retail  site  visits  and  product  display,  were also
discontinued.   The  cost  reduction  related  to  these  services  amounted  to
approximately  $354,000,  or 96%, of the amount  incurred during the same period
last year.  Advertising and promotion expense decreased  $1,843,000,  or 89%, to
$237,000 in 1998 compared to $2,080,000 in the prior year. This decrease was due
to the reduction in costs associated with in-store hardware product  positioning
and  advertising in the retail  channel.  Other costs  including  facilities and
related  costs,  recruiting and training  materials  costs  associated  with the
combined  corporate  and retail  hardware  effort  decreased  $224,000,  or 18%,
compared to the prior year.

     General and Administrative  Expenses.  General and administrative  expenses
for the year ended December 31, 1998 were $1,889,000, a decrease of $774,000, or
29%,  compared to  $2,663,000 in the prior year.  Salaries and related  expenses
decreased  $184,000 to $570,000  from  $754,000  during  1997.  The  decrease in
salaries  and  related  expenses  resulted  from a  decrease  in the  number  of
personnel.  Professional  services  including  legal,  accounting,  and investor
relations  expenses  decreased  approximately  $479,000  during  the year  ended
December 31, 1998 to $727,000 from $1,206,000 in the prior year. The decrease is
due  primarily  to the  reduction  in  expense  for the  number of  registration
statements  filed with the SEC in 1998 related to  financings  compared to 1997,
and the shift of investor relations activities from outside services to internal
personnel.   Other  costs  including  insurance,   telephone,   recruiting,  and
miscellaneous  expenses  decreased $151,000 to $551,000 from $702,000 during the
prior year.  The  reduction in other costs is due  primarily to the reduction in
personnel,  the  number  of  recruiting  efforts,  and  directors  and  officers
insurance costs.

     Interest Income and Other Income (Expense),  Net. Interest income and other
income (expense), net was $147,000 in 1998 compared to an expense of $322,000 in
1997. The decrease in expense was due to a one-time, non-cash charge of $484,000
in 1997 for 300,000  warrants  issued on March 28,  1997,  and  effective  as of
December 31, 1996, to holders of 100% of the then issued and outstanding  shares
of Series A Preferred Stock in exchange for the execution of a waiver to certain
provisions of the registration  rights agreement entered into in connection with
the private placement of the Series A Preferred Stock in December 1996. See Note
5 in the Consolidated Financial Statements.

     Interest Expense.  Interest expense decreased in 1998 compared to the prior
year due to the final payment in February 1997 of the pre-petition  liabilities,
the  repayment in January 1998 of the amounts  outstanding  at December 31, 1997
under the accounts  receivable  financing  agreement,  and the repayment in June
1998 of the note outstanding at December 31, 1997 for the purchase of equipment.


                                       19
<PAGE>
     Embedded Yield on Preferred  Stock.  The embedded yield on preferred  stock
results from the discount feature provided on the conversion price of the Series
A Preferred Stock into Common Stock. The embedded yield totaling  $4,376,000 was
recognized from the issuance date of December 31, 1996 through July 1, 1997, the
date on which the Series A Preferred Stock first became convertible.

     Preferred Stock  Dividends.  Preferred stock dividends relate to cumulative
dividends of $1.25 per share, per annum, compounded  semi-annually or quarterly,
respectively,  whether or not  declared,  on the Series A and Series B Preferred
Stock.  All of the shares of the Company's Series A and Series B Preferred Stock
were  converted  into Common Stock in November 1998 resulting in a decrease from
the amounts recorded in 1997.


Liquidity and Capital Resources

     Cash and cash equivalents at December 31, 1999 totaled $2,374,000  compared
to cash and cash equivalents of $795,000 at December 31, 1998. This increase was
primarily  attributable  to the  $4,296,000  of cash from  financing  activities
offset by $2,656,000  used by operations,  and $61,000 of cash used in investing
activities  in 1999.  In 1999,  the effect of exchange  rate changes on cash was
immaterial.

     At December 31, 1999, current liabilities,  which include deferred revenue,
were  $1,276,000.  Deferred  revenue,  totaling  $35,000 at December  31,  1999,
primarily  reflects  advance  non-recurring  engineering  fees received from the
Company's licensees which are generally  recognized as revenue by the Company in
the period in which the engineering work is completed.

     As of December 31, 1999,  the Company's  principal  source of liquidity was
its cash and cash  equivalents of $2,374,000.  In each year since its inception,
the Company has incurred losses. Although there can be no assurance, the Company
believes that its current cash and resources, together with the expected revenue
levels,  will provide  sufficient funds for planned  operations for at least the
next twelve months.  However, if the Company is unable to generate adequate cash
flow 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 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 marketing and development  efforts or other  operations,  which could
have a material adverse effect on the Company's business,  results of operations
and prospects.

     Joint Venture in the People's Republic of China. The Company currently owns
90% of a joint venture with the Information Industry Bureau, a provincial agency
of the People's  Republic of China (the "Agency").  In June 1998, the registered
capital of the Joint Venture was reduced from  $10,000,000 to $2,550,000.  As of
December 31, 1999,  the Company had  contributed  an aggregate of  $1,800,000 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.


                                       20
<PAGE>
     Financing.  On June 16,  1999,  the Company  obtained a bridge  loan,  (the
"Bridge  Loan") in the amount of $500,000  from a charitable  remainder  annuity
trust,  of which a director and officer of the Company is a trustee.  The Bridge
Loan was  increased  by  $150,000  and  $100,000 in August and  September  1999,
respectively.  Amounts  outstanding  under the Bridge Loan bore  interest at the
prime  rate  plus 2%.  The loan was  secured  by the  Company's  cash,  accounts
receivable  and other  receivables  as then owned or thereafter  acquired by the
Company. The Bridge Loan plus accrued interest was due December 31, 1999.

     On October 20, 1999,  the Company  entered into a loan  agreement  with the
same charitable  remainder annuity trust,  whereby the then existing Bridge Loan
of $750,000 was converted into a long term loan in the amount of $1,500,000 (the
"1999 Loan").  The 1999 Loan is secured by a first priority security interest in
all of the Company's  assets as now owned or hereafter  acquired by the Company.
The 1999 Loan bears  interest at the rate of 2% over the prime rate as published
by Citibank  from time to time,  and is due January  31,  2002.  Interest on the
principal amount under the 1999 Loan is payable quarterly.  The 1999 Loan can be
re-paid in whole at any time or in part at any time without penalty. Any partial
payment  must be in the  principal  amount of $100 or a  multiple  thereof.  The
interest rate at December 31, 1999 was 10.25%.

     On October 20, 1999, in connection with the 1999 Loan the Company issued to
the charitable  remainder  annuity trust warrants to purchase  300,000 shares of
the Company's  common stock.  The warrants  expire  October 20, 2001 and have an
exercise price of $1.09 per share.  The Company  ascribed a value of $179,000 to
these warrants,  which will be amortized to the Company's  results of operations
over the life of the  warrant.  The fair  value  ascribed  to the  warrants  was
estimated on the date of issuance using the Black-Scholes pricing model with the
following  assumptions:  risk-free  interest  rate of 5.50%;  expected life of 2
years; expected volatility of 99%; and expected dividend yield of 0%.

     On September 3, 1999,  the Company's  90% owned Joint Venture  borrowed the
equivalent of $96,000, denominated in Chinese currency, from a Chinese bank. The
loan bears interest at 5.12% and was due on March 2, 2000. The borrowings do not
require a compensating balance. The note was repaid in January, 2000.

     Operating Lease  Commitments.  The Company leases  facilities in the United
States and China.  The Company's  rental expense for the year ended December 31,
1999 was approximately $376,000.  Sublease income was approximately $209,000 and
$188,000 for the years ended  December 31, 1999 and 1998,  respectively.  Future
minimum lease payments under non-cancelable  operating leases are expected to be
approximately  $517,000, and $431,000,  excluding sub-lease income for the years
ending December 31, 2000, and 2001, respectively.  The Company's rent expense is
expected  to be reduced by  approximately  $98,000 and $82,000 in 2000 and 2001,
respectively, in connection with the subleases.

Year 2000

     Year 2000 issues arose  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.

     Management  as a  whole  is  responsible  issues  arising  from  Year  2000
problems. 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 has not received any reports of
malfunctions or errors in any of its products  related to the change to the Year
2000.  The Company  does not  anticipate  that it will  experience  any material
difficulties  with  Year  2000  issues  in the  future,  and  therefore  has not
formalized any contingency  plan. The Company has been informed by third parties
which it does  business  with that they are Year  2000  compatible,  and has not
experienced  any  major  interuptions  or  difficulties  with  its  thirs  party
relationships.

Volatility of 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

                                       21
<PAGE>
or the global economy generally, or market volatility unrelated to the Company's
business and operating results.

Item 8. Financial  Statements and Supplementary Data

     The Company's audited consolidated financial statements for the years ended
December 31, 1999, 1998 and 1997 begin on page F-1 of this Annual Report on Form
10-K.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

        On December 8, 1999, the Company  dismissed  PricewaterhouseCoopers  LLP
("Pricewaterhouse") as its independent accountants.

        In connection with the audits conducted and during the subsequent period
through December 8, 1999,  there were no  disagreements  between the Company and
Pricewaterhouse  on any matter of accounting  principles or practice,  financial
statement disclosure,  auditing scope or procedures, which disagreements, if not
resolved to their  satisfaction,  would have caused  them to make  reference  in
connection  with their  opinion to the subject  matter of the  disagreement.  In
addition,  the audit report of  Pricewaterhouse  on the  consolidated  financial
statements  of the  Company as of and for the years ended  December  31,1998 and
1997 did not contain any adverse  opinion or disclaimer  of opinion,  nor was it
qualified or modified as to uncertainty, audit scope or accounting principles.

        On  December  13,  1999,  the  Company  retained  Stonefield   Josephson
Accountancy Corporation  ("Stonefield Josephson") as its independent accountants
to audit the Company's financial statements. During the two years ended December
31, 1998 and during the subsequent  period ended December 13, 1999,  neither the
Company nor anyone on its behalf consulted  Stonefield  Josephson  regarding (i)
the application of accounting  principles to any transaction either completed or
proposed, or (ii) the type of audit opinion that might be rendered by Stonefield
Josephson on the Company's financial statements.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

        Information  with respect to this Item is  incorporated  by reference to
the Company's  definitive  proxy statement with respect to its Annual Meeting of
Stockholders expected to be held on June 12, 2000.

Item 11. Executive Compensation

        Information  with respect to this Item is  incorporated  by reference to
the Company's  definitive  proxy statement with respect to its Annual Meeting of
Stockholders expected to be held on June 12, 2000.


                                       22
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management

        Information  with respect to this Item is  incorporated  by reference to
the Company's  definitive  proxy statement with respect to its Annual Meeting of
Stockholders expected to be held on June 12, 2000.

Item 13. Certain Relationships and Related Transactions

        Information  with respect to this Item is  incorporated  by reference to
the Company's  definitive  proxy statement with respect to its Annual Meeting of
Stockholders expected to be held on June 12, 2000.


                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

                          Index to Financial Statements

                                                                           Page
 (a)(1) Financial Statements
        Report of Stonefield Josephson, Inc., Independent Accountants....   F-1
        Report of PricewaterhouseCoopers LLP, Independent Accountants....   F-2
        Consolidated Balance Sheets at December 31, 1999 and 1998........   F-3
        Consolidated Statements of Operations for the years
        ended December 31, 1999, 1998, and 1997..........................   F-4
        Consolidated Statements of Changes in Stockholders'
        Equity (Deficit) for the years ended
        December 31, 1999, 1998 and 1997.................................   F-5
        Consolidated Statements of Cash Flows for the years ended
        December 31, 1999, 1998 and 1997.................................   F-6
        Notes to Consolidated Financial Statements.......................   F-7
 (a)(2) Financial Statement Schedule
        Schedule II Valuation and Qualifying Accounts and Reserves.......   S-1

(b) Reports on Form 8-K

     Current Report on Form 8-K dated December 14, 1999, regarding (i) dismissal
of  Pricewaterhouse  as  its  independent   accountants,   (ii)  appointment  of
Stonefield Josephson as the Company's independent accountants,  and (iii) Hiring
of Marjorie L. Bailey as Vice President of Finance and Chief Financial Officer.

(c) Exhibits

   Exhibit                  Document
   Number

          2.0 Second Amended Plan of Reorganization of the Company, incorporated
              herein by reference to the  Company's  Form 8-K filed  October 24,
              1994.
          2.1 Orderly  Liquidation  Valuation,  Exhibit F to the Second  Amended
              Plan of  Reorganization,  incorporated  herein by reference to the
              Company's Form 8-K filed October 19, 1994.
          2.2 Order Confirming Plan of  Reorganization,  incorporated  herein by
              reference to the Company's Form 8-K filed November 14, 1994.
          3.1 Certificate  of   Incorporation   of  the  Company,   as  amended,
              incorporated herein by reference to Exhibits 3.1, 3.2, 3.3 and 3.4
              to the  Company's  Registration  Statement  on Form 10  (File  No.
              0-19301).

                                       23
<PAGE>
          3.2 Certificate   of  Amendment  to  the  Company's   Certificate   of
              Incorporation  (authorizing  the  reclassification  of the Class A
              Common  Stock  and Class B Common  Stock  into one class of Common
              Stock) as filed with the Delaware  Secretary of State's  office on
              November 1, 1991, incorporated herein by reference to Exhibit 3 to
              Amendment  1 on  Form  8 to  the  Company's  Form  8-A  (File  No.
              0-19301).
          3.3 By-laws of the  Company  adopted on October 6, 1986,  incorporated
              herein by reference to Exhibit 3.5 to the  Company's  Registration
              Statement on Form 10 (File No. 0-19301).
          4.1 1984 Stock Option Plan of the Company,  as amended and restated as
              of  October  15,  1987  and  as  amended  by  resolutions  of  the
              stockholders  of the Company passed on August 15, 1989 and October
              8, 1990 to  increase  the  aggregate  shares  covered  thereby  to
              1,000,000,  incorporated herein by reference to Exhibit 4.4 to the
              Company's Registration Statement on Form 10 (File No. 0-19301).
          4.2 Form  of  Stock   Option  Grant  under  1984  Stock  Option  Plan,
              incorporated  herein by reference to Exhibit 4.5 to the  Company's
              Registration Statement on Form 10 (File No. 0-19301).
          4.3 1991 Stock  Option  Plan of the  Company,  incorporated  herein by
              reference to Exhibit 4.5 of the Company's  Form S-1 dated December
              23, 1991 (Registration No. 33-43879).
          4.4 1991 Non-Discretionary  Stock Option Plan,  incorporated herein by
              reference to Exhibit 4.6 of the Company's  Form S-1 dated December
              23, 1991 (Registration No. 33-43879).
          4.5 Form of Incentive Stock Option Grant under 1991 Stock Option Plan,
              incorporated  herein by reference to Exhibit 4.7 of the  Company's
              Form S-1 dated December 23, 1991 (Registration No. 33-43879).
          4.6 Form of  Non-Qualified  Stock Option Grant under 1991 Stock Option
              Plan,  incorporated  herein by  reference  to  Exhibit  4.8 of the
              Company's  Form S-1 dated  December  23,  1991  (Registration  No.
              33-43879).
          4.7 Form of Stock  Option  Grant  under 1991  Non-Discretionary  Stock
              Option  Plan,  incorporated  herein by reference to Exhibit 4.9 of
              the Company's Form S-1 dated December 23, 1991  (Registration  No.
              33-43879).
          4.8 1994  Stock  Option  Plan,  incorporated  herein by  reference  to
              Exhibit G of the Company's  Second  Amended  Disclosure  Statement
              filed  on  Form  8-K  dated  October  19,  1994  and  approved  by
              shareholders on November 14, 1994.
          4.9 Form of Warrant of the  Company  dated  March 28,  1997  issued in
              connection  with the  Waiver  by and  among  the  Company  and the
              signatories  thereto,  incorporated herein by reference to Exhibit
              4.9 of the Company's 1996 Form 10-K (File No. 0-19301).
         4.10 1999  Stock  Option  Plan,  incorporated  herein by  reference  to
              Exhibit A of the Company's Definitive Proxy Statement filed on May
              4, 1999 and approved by shareholders on June 7, 1999.
              .
        +10.1 Licensing  and  Development  Agreement  for Use and  Marketing  of
              Program Materials dated September 25, 1992 between the Company and
              International  Business Machines Corporation,  incorporated herein
              by  reference  to Exhibit  10.13 of the  Company's  1992 Form 10-K
              (File No. 0-19301)
         10.2 Standby Stock  Purchase  Agreement  between the Company and Philip
              Sassower dated October 3, 1994,  incorporated  herein by reference
              to  Exhibit  10.13 of the  Company's  1994  Form  10-K  (File  No.
              0-19301)
         10.3 Form  of  Subscription  Agreement  between  the  Company  and  the
              Purchasers,  dated  November  28,  1995,  incorporated  herein  by
              reference to Exhibit 1 of the  Company's  Form 8-K dated  November
              28, 1995.
         10.4 Form of Registration  Rights Agreement between the Company and the
              Purchasers,  dated  November  28,  1995,  incorporated  herein  by
              reference to Exhibit 1 of the  Company's  Form 8-K dated  November
              28, 1995.
         10.5 Form of Warrant of the Company issued to Libra  Investments,  Inc.
              on November 28, 1995,  incorporated herein by reference to Exhibit
              1 of the Company's Form 8-K dated November 28, 1995.
         10.6 Form of  Registration  Rights  Agreement  between  the Company and
              Libra  Investments,  Inc.,  dated November 28, 1995,  incorporated
              herein by reference to Exhibit 1 of the  Company's  Form 8-K dated
              November 28, 1995.

                                       24
<PAGE>

        10.7 Form of  Subscription  Agreement  between  the Company and various
              investors,  dated June 13, 1996,  incorporated herein by reference
              to Exhibit 1 of the Company's Form 8-K dated June 27, 1996.
         10.8 Form of  Registration  Rights  Agreement  between  the Company and
              various  investors,  dated June 13, 1996,  incorporated  herein by
              reference  to Exhibit 2 of the  Company's  Form 8-K dated June 27,
              1996.
         10.9 Form of Preferred Stock Investment Agreement, dated as of December
              31, 1996, between the Company and the investors listed on Schedule
              1 thereto,  incorporated  herein by  reference to Exhibit 1 of the
              Company's Form 8-K dated December 31, 1996.
        10.10 Form of Registration  Rights Agreement between the Company and the
              Investors  Listed on  Schedule 1 thereto,  incorporated  herein by
              reference to Exhibit 2 of the  Company's  Form 8-K dated  December
              31, 1996.
        10.11 Form of  Certificate of Designation of the Company with respect to
              the 5% Cumulative Convertible Preferred Stock, incorporated herein
              by reference to Exhibit 3 of the Company's Form 8-K dated December
              31, 1996.
        10.12 Waiver,  dated March 26, 1997, effective December 31, 1996, by and
              among the Company and the signatories thereto, incorporated herein
              by  reference  to Exhibit  10.19 of the  Company's  1996 Form 10-K
              (File No. 0-19301).
        10.13 Form of  Subscription  Agreement  between  the  Company  and  each
              subscriber,  dated as of November 25, 1997, incorporated herein by
              reference to Exhibit 10.1 of the Company's Form 8-K dated December
              3, 1997.
        10.14 Certificate  of  Designations  of the Company  with respect to the
              Series B 5% Cumulative  Convertible Preferred Stock,  incorporated
              herein by  reference  to Exhibit  10.2 of the  Company's  Form 8-K
              dated November 13, 1997.
        10.15 Form of Registration  Rights  Agreement,  by and among the Company
              and the  signatories  thereto,  dated  as of  November  25,  1997,
              incorporated  herein by reference to Exhibit 10.3 to the Company's
              Form 8-K dated November 13, 1997.
        10.16 Amendment to the Company's Certificate of Designation with respect
              to the 5% Cumulative  Convertible  Preferred  Stock dated June 12,
              1998,  incorporated  herein by reference  to Exhibit  10.23 of the
              Company's 1998 Form 10-K (File No. 0-19301).
        10.17 Amendment to the  Company's  Amended and Restated  Certificate  of
              Incorporation   dated  June  12,  1998,   incorporated  herein  by
              reference to Exhibit 10.24 of the  Company's  1998 Form 10-K (File
              No. 0-19301).
        10.18 Employment  Agreement  dated August 14, 1998 between James Dao and
              the Company,  incorporated herein by reference to Exhibit 10.25 of
              the Company's 1998 Form 10-K (File No. 0-19301).
      ++10.19 Software  Development and License Agreement dated December 4, 1998
              between  Ericsson  Mobile   Communications  AB  and  the  Company,
              incorporated herein by reference to Exhibit 10.26 of the Company's
              1998 Form 10-K (File No. 0-19301).
      **10.20 Loan and Warrant  Agreement  dated  October 20, 1999 between the
              Company and the Philip S. Sassower 1996 Charitable Remainder
              Annuity Trust.
       **21.1 Schedule of Subsidiaries.
       **23.1 Consent of Stonefield Josephson, Accountancy Corporation,
              Independent Accountants.
       **23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
       **27.1 Financial Data Schedule.
-----------

+        Confidential  treatment  of certain  portions of this exhibit have been
         previously  granted  pursuant  to a request for  confidentiality  dated
         March 29, 1993, filed pursuant to the Securities Exchange Act of 1934.

*        Confidential  treatment  of certain  portions of this exhibit have been
         previously  granted  pursuant  to a request for  confidentiality  dated
         March 30, 1994, filed pursuant to the Securities Exchange Act of 1934.

**       Filed herewith.

++       Confidential  treatment  of certain  portions of this exhibit have been
         requested from the SEC pursuant to a request for confidentiality  dated
         March 30, 1999,  filed  pursuant to the  Securities and Exchange Act of
         1934.


                                       25
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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, in the City of Redwood
Shores, State of California, on March 15, 2000.

                                              COMMUNICATION INTELLIGENCE CORP.
                                       By:   /s/   Guido Digregorio
                                         ---------------------------------------
                                                   Guido DiGregorio
                                          President and Chief Executive Officer

        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report  has been  signed  below by the  following  persons  on  behalf  of
Registrant and in the capacities indicated on March 15, 2000.

      Signature                                Title


     /s/ Guido DiGregorio        Director, President and Chief Operating Officer
         --------------------
         Guido DiGregorio       (Principal Executive Officer)

     /s/ Marjorie L. Bailey      Vice President and Chief Financial Officer
         --------------------
         Marjorie L. Bailey     (Principal Financial and Accounting Officer)

     /s/ Jess M. Ravich          Director
         --------------------
         Jess M. Ravich

     /s/ Philip S. Sassower      Director, Chairman of the Board , and Secretary
         --------------------
         Philip S. Sassower

     /s/ Jeffrey Steiner         Director
         --------------------
         Jeffrey Steiner

     /s/ Chien Bor Sung          Director
         --------------------
         Chien Bor Sung


                                       26
<PAGE>



                         Report of Independent Auditors



Board of Directors and Stockholders of
Communication Intelligence Corporation
Redwood Shores, California


We have audited the  accompanying  consolidated  balance sheet of  Communication
Intelligence  Corporation  as of December 31, 1999 and the related  consolidated
statements of operations,  changes in stockholders' equity (deficit), cash flows
and financial statement schedule for the year then ended, as listed in the index
appearing under Item 14(a)(1) and (2) of this Annual Report on Form 10-K.  These
financial  statements  are  the  responsibility  of  Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts  and the  disclosures  in the  financial  statements.  An audit also
includes assessing the accounting principles used and significant estimates made
by  management,   as  well  as  evaluating  the  overall   financial   statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion the consolidated  financial  statements and financial  statements
schedule  listed in the index  appearing  under  Item  14(a)(1)  and (2) of this
Annual  Report  on Form 10-K  present  fairly,  in all  material  respects,  the
financial   position  of   Communication   Intelligence   Corporation   and  its
subsidiaries  ("the  Company")  at  December  31,  1999 and the results of their
operations  and their cash flows for the year then  ended,  in  conformity  with
generally accepted accounting principles.




STONEFIELD JOSEPHSON
Certified Public Accountants

San Francisco, California
February 25, 2000


                                      F-1
<PAGE>



                        Report of Independent Accountants


To the Board of Directors and Stockholders of
Communication Intelligence Corporation


     In our opinion,  the consolidated  financial statements listed in the index
appearing  under  Item  14(a) (1) of this  Annual  Report  on Form 10-K  present
fairly,  in all  material  respects,  the  financial  position of  Communication
Intelligence  Corporation and its  subsidiaries  ("the Company") at December 31,
1998 and 1997, and the results of their  operations and their cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14(a)2 presents fairly, in all material
respects,  the information  set forth therein when read in conjunction  with the
related consolidated  financial  statements.  These financial statements are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements in  accordance  with  auditing  standards  generally
accepted in the United  States which  require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.


PRICEWATERHOUSECOOPERS  LLP



San Jose, CA
March 29, 1999


                                      F-2
<PAGE>
                     Communication Intelligence Corporation
                           Consolidated Balance Sheets
                    (In thousands, except par value amounts)

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

<S>                                             <C>               <C>

 Assets
 Current assets:
   Cash and cash equivalents..................    $    2,374        $      795
   Restricted cash............................             -               250
   Accounts receivable, net
    of allowances of $13 and $174 at
    December 31, 1999 and 1998,
    respectively..............................         1,575             1,146
   Inventories................................            81                74
   Prepaid expenses and other current assets..           175               103
                                               ---------------   ---------------

         Total current assets.................         4,205             2,368

 Note receivable from officer.................           135               200
 Property and equipment, net..................           344               539
 Other assets.................................           279               247
                                               ---------------   ---------------

         Total assets.........................    $    4,963        $    3,354
                                               ===============   ===============


 Liabilities and Stockholders' Equity
 Current liabilities:
   Accounts payable...........................    $      288        $      473
   Short-term debt............................            60               145
   Accrued compensation.......................           268               229
   Other accrued liabilities..................           625               524
   Deferred revenue...........................            35               651
                                               ---------------   ---------------

         Total current liabilities............         1,276             2,022


 Long-term debt - related party...............         1,338                 -

 Commitments..................................

 Stockholders' equity:
   Common stock, $.01 par value; 100,000
    shares authorized; 82,209 and 78,459
    shares issued and outstanding at
    December 31, 1999 and 1998,respectively...           822               785
   Additional paid-in capital.................        72,983            70,205
   Accumulated deficit........................       (71,244)          (69,504)
   Accumulated other comprehensive loss.......          (212)             (154)
                                               ---------------   ---------------

 Total stockholders' equity...................         2,349             1,332
                                               ---------------   ---------------

 Total liabilities and stockholders' equity...    $    4,963        $    3,354
                                               ===============   ===============
</TABLE>





           See accompanying Notes to Consolidated Financial Statements


                                      F-3
<PAGE>


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

<TABLE>
<CAPTION>
                                                Years ended December 31,
                                       -----------------------------------------
                                              1999           1998          1997
                                       -----------------------------------------

<S>                                    <C>           <C>             <C>
 Revenues:
   Product...........................    $    3,411    $    2,982      $  3,246
   License and royalty...............         2,641         1,300         1,842
   Development contracts.............           466           298           428
                                        ----------------------------------------
                                              6,518         4,581         5,516
                                        ----------------------------------------
 Operating costs and expenses:
    Cost of sales:
      Product........................         2,992         1,698         5,458
      License and royalty............            63            63           132
      Development contracts..........           262           212           273
    Research and development.........         1,363         1,989         2,360
    Sales and marketing..............         1,877         2,015         6,257
    General and administrative.......         1,683         1,889         2,663
                                        ----------------------------------------
                                              8,240         7,866        17,143
                                        ----------------------------------------

 Loss from operations................        (1,722)       (3,285)      (11,627)

 Interest income and other
   income (expense), net.............            35           147          (322)
 Interest expense....................           (53)          (19)          (51)
                                        ----------------------------------------

 Net loss............................        (1,740)       (3,157)      (12,000)

 Embedded yield on preferred stock..              -             -        (4,376)
 Preferred stock dividends...........             -          (435)         (564)
                                        ----------------------------------------

 Net loss available to common
  stockholders.......................    $   (1,740)   $   (3,592)     $(16,940)
                                        ========================================

 Basic and diluted loss per
  common share.......................    $    (0.02)   $    (0.06)     $  (0.37)
                                        ========================================


 Weighted average common shares......        79,625        56,233        45,370
                                        ========================================
</TABLE>






           See accompanying Notes to Consolidated Financial Statements


                                      F-4
<PAGE>
                     Communication Intelligence Corporation
      Consolidated Statements of Changes in Stockholders' Equity (Deficit)
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>

                   Series      Series
                      A          B                              Accumulated
                   Convert.  Convert.            Additional       Other
                  Preferred Preferred Common Paid-In  Accum.  Comprehensive
                     Stock    Stock   Stock  Capital   Deficit     Loss    Total


<S>                    <C>   <C>    <C>    <C>      <C>        <C>     <C>

Balances as of
   December 31, 1996..   $  -  $  -   $ 419  $54,015  $(54,347)  $ (169) $  (82)
                         -------------------------------------------------------
Exercise of options
  and warrants for 3,092
  shares of Common Stock    -     -      31      135         -      -       166
Issuance of 50 options to
  consultants for services  -     -       -       75         -      -        75
Conversion of redeemable
  convertible preferred
  stock into 450 shares
  of Series A
  Preferred Stock.........  5     -       -    9,412         -      -     9,417
Issuance of warrants to
  purchase 300 shares of
  Common Stock in
  connection with the
  waiver of redemption
  rights on Series A
  Preferred Stock...........-     -       -      484         -      -       484
Conversion of 121 shares of
  Series A Preferred
  Stock into 2,437 shares
  of Common Stock....      (1)    -      24      (23)        -      -         -
Issuance of 240 Series B
  Preferred Stock, net of
  issuance costs of $141    -     2       -    5,857         -      -    5,859
Foreign currency
 translation adjustment.... -     -       -        -         -     70        70
Net loss................... -     -       -        -   (12,000)     -   (12,000)
                           -----------------------------------------------------
Balances as of
 December 31, 1997......... 4     2     474   69,955   (66,347)   (99)    3,989

Conversion of 329 shares
 of Series A Preferred
 Stock into  18,598 shares
 of Common Stock...........(4)    -     186     (182)        -       -         -
Conversion of 240 shares
 of Series B Preferred
 Stock into 11,384
 shares of Common Stock...  -    (2)    114     (112)        -       -         -
Exercise of options
 for 1,126 shares of
 Common Stock..........     -     -      11      511         -       -      522
Accelerated vesting of
 40 options to
 consultants for
 services.................  -      -      -       33         -       -       33
Foreign currency
 translation
 adjustment...............  -      -      -        -         -     (55)     (55)
Net loss..................  -      -      -        -    (3,157)      -   (3,157)
                          ------------------------------------------------------
Balances as of December
 31, 1998.................  -      -    785   70,205   (69,504)   (154)   1,332
Issuance of 300 warrants in
 connection
 with Long-term debt......  -      -      -      179         -       -      179
Exercise of options
for 3,421 shares of
Common Stock..............  -      -     34    1,802         -       -    1,836
Exercise of 329 warrants
 for 329 shares of
 Common Stock.............  -      -      3      797         -       -      800
Foreign currency
 translation
 adjustment...............  -      -      -        -         -     (58)     (58)
Net loss..................  -      -      -        -    (1,740)      -   (1,740)
                          ======================================================
Balances as of
 December 31, 1999........$ -    $ -  $ 822  $72,983  $(71,244)  $(212)  $2,349
                          ======================================================
</TABLE>

           See accompanying Notes to Consolidated Financial Statements

                                      F-5
<PAGE>


                     Communication Intelligence Corporation
                      Consolidated Statements of Cash Flows
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                    Years ended December 31,
                                              ----------------------------------
                                                   1999       1998        1997
                                              ----------------------------------
<S>                                           <C>       <C>        <C>

 Cash flows from operating activities
 Net loss...................................... $ (1,740) $  (3,157) $  (12,000)
 Adjustments to reconcile net loss
  to net cash used in operating
   activities:
   Depreciation and amortization...............      334        327         347
   Warrant issuance costs......................        -          -         484
   Equity securities issued for services.......        -         33          75
   (Gain) loss on disposal of
     property and equipment....................       (1)        (2)         32
   Changes in operating assets and liabilities
     Accounts receivable, net..................     (429)      (784)         15
     Inventories...............................       (7)       119         317
     Prepaid expenses and other current assets.      (72)        72          15
     Other assets..............................      (49)       (12)        (32)
     Accounts payable..........................     (184)      (586)        692
     Pre-petition liabilities..................        -          -        (878)
     Accrued compensation......................       38       (217)        107
     Other accrued liabilities.................       70       (595)        623
     Deferred revenue..........................     (616)       211      (1,537)
                                                ---------    --------   --------
 Net cash used in operating activities.........   (2,656)    (4,591)    (11,740)
                                                ---------    --------   --------

 Cash flows from investing activities
 Proceeds from sales and maturities of
  short-term investments.......................        -          -       8,782
 Purchase of short-term investments............        -          -      (8,035)
 Acquisition of property and equipment.........      (78)       (45)       (601)
 Acquisition of property through
  capital leases...............................       17          -           -
 Proceeds from the sale of property
  and equipment................................        -         25           -
                                               ----------    --------   --------
 Net cash provided by (used in)
  investing activities.........................      (61)       (20)        146
                                               ----------    --------   --------

 Cash flows from financing activities
 Proceeds from issuance of short-term debt.....       96        145         525
 Proceeds from issuance of long-term debt
 - related party...............................    1,500          -           -
 Restricted cash related to short-term debt....      250       (250)          -
 Principal payments on short-term debt.........     (181)      (490)        (35)
 Principal payments on capital lease
   obligations.................................      ( 5)       ( 6)        (11)
 Proceeds from issuance of Series B
   Convertible Preferred Stock,
   net of cash issuance costs..................        -          -       5,859
 Proceeds from exercise of warrants............      800          -           -
 Proceeds from exercise of stock options.......    1,836        522         166
                                               ----------    --------   --------
 Net cash provided by (used in)
   financing activities........................    4,296        (79)      6,504
                                               ----------    --------   --------

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

 Net increase (decrease) in cash and
   cash equivalents............................    1,579     (4,690)     (5,088)
 Cash and cash equivalents at beginning
   of year.....................................      795      5,485      10,573
                                               ----------    --------   --------

 Cash and cash equivalents at end of year...... $  2,374   $    795   $   5,485
                                               ==========    ========   ========
</TABLE>

           See accompanying Notes to Consolidated Financial Statements

                                      F-6
<PAGE>

                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

1.   Nature of  Business,  Basis of  Presentation  and  Summary  of  Significant
     Accounting Policies

The Company

     Communication  Intelligence  Corporation  (the "Company" or "CIC") develops
and  markets  natural  input and  electronic  signature  solutions  aimed at the
emerging markets for pen-based computing, wireless Internet/information devices,
and enterprise  applications  including  electronic commerce document automation
and corporate  security.  These emerging  markets for CIC's products include all
areas of personal computing, as well as electronic commerce and communications.

     The  Company's  research  and  development  activities  have  given rise to
numerous  technologies  and  products.   The  Company's  core  technologies  are
classified  into  two  broad  categories:   "natural  input   technologies"  and
"transaction  and  communication  enabling  technologies".  CIC's  natural input
technologies are designed to allow users to interact with a computer or handheld
device through use of a pen. Such products  include the Company's  multi-lingual
Handwriter(R) Recognition System, and its Handwriter(R) for Windows(R) family of
desktop  computing  products.   CIC's  transaction  and  communication  enabling
technologies  provide  a  means  for  protecting  electronic   transactions  and
discretionary  communications.  CIC has developed products for dynamic signature
verification,  electronic  ink data  compression  and  encryption and a suite of
development tools and applications which the Company believes could increase the
functionality  of its  core  products  and  facilitate  their  integration  into
original equipment manufacturers' ("OEM") hardware products and computer systems
and networks.

     Through its  majority-owned  joint venture in China (the "Joint  Venture"),
the Company  provides  system  integration  services  and markets its  pen-based
business  computer  systems to Chinese  businesses,  government  users and other
joint ventures.

     For the  five-year  period ended  December 31, 1999,  the Company  incurred
aggregate  losses of $34  million,  and, at December  31,  1999,  the  Company's
accumulated  deficit was  approximately  $71 million.  The Company has primarily
funded these losses through the sale of debt and equity and debt securities.

     As of December 31, 1999,  the Company's  principal  source of liquidity was
its cash and cash equivalents of $2,374. Although there can be no assurance, the
Company believes that its current  resources,  together with expected  revenues,
will  provide  sufficient  funds for  planned  operations  for at least the next
twelve months.  However, if the Company is unable to generate adequate cash flow
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.  Management  believes  that it  will be able to  reduce
discretionary spending if required.

Basis of Consolidation

     The  accompanying   consolidated   financial  statements  are  prepared  in
accordance  with  generally  accepted  accounting  principles,  and  include the
accounts  of CIC and its 90% owned  Joint  Venture in the  People's  Republic of
China. All inter-company accounts and transactions have been eliminated.

Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the  reported  amounts of assets and  liabilities,  and
disclosure of contingent  assets and  liabilities,  at the date of the financial
statements,  as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

                                      F-7
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

1.   Nature of  Business,  Basis of  Presentation  and  Summary  of  Significant
     Accounting Policies (continued)

Plan of Reorganization and Pre-Petition Liabilities

     On July 18, 1994, the Company filed a voluntary petition for reorganization
and protection  under Chapter 11 of the U. S. Bankruptcy  Code (the  "Bankruptcy
Code") in the United States Bankruptcy Court, San Francisco District.  The Joint
Venture did not file a petition for  reorganization.  On September 28, 1994, the
Company filed a Disclosure  Statement and Plan of Reorganization (the "Plan") in
the  United  States  Bankruptcy  Court,  San  Francisco  District.  The Plan was
approved by the  creditors on November 14,  1994,  and the Company  emerged from
Chapter 11 protection on that date.

     The Plan  provided  for the  payment  in  full,  in  cash,  of all  allowed
unsecured  claims of creditors  while leaving  secured  creditors  unimpaired by
providing for their payment in compliance with the original terms and conditions
of their  loans.  Unsecured  creditors  were paid in three  approximately  equal
installments  in each of  February  1995,  1996 and 1997.  Pursuant to the Plan,
amounts  outstanding after February 1995 accrued simple interest at 8% per annum
through  February 1996 and 10% per annum  thereafter  through February 1997. The
Plan also approved  certain warrant  offerings and stock purchase  agreements as
described in Note 5.

Fair Value of Financial Instruments

     The carrying amounts of the Company's financial instruments, including cash
and cash equivalents,  restricted cash, short-term debt,  approximate fair value
due to their short maturities.

Cash and Cash Equivalents

     The Company considers all highly liquid  investments with a maturity at the
date of purchase of three months or less to be cash equivalents.

     Short-term  investments  are  classified as  "available-for-sale."  For all
periods presented,  cost of investments approximated fair market value. The cost
of securities sold is based on the specific  identification  method. The Company
had no short-term investments as of December 31, 1999 or 1998.

        The Company's cash and cash  equivalents,  at December 31,  consisted of
the following:
<TABLE>
<CAPTION>

                                                           1999         1998
                                                       -----------  ------------
<S>                                                    <C>          <C>

 Cash in bank........................................    $  2,359     $    668
 Commercial paper....................................          11          125
 Money markets.......................................           4            2
                                                        -----------------------


   Cash and cash equivalents.........................    $  2,374     $    795
                                                        =======================
</TABLE>

Concentrations of Credit Risk

     Financial  instruments that potentially  subject the Company to significant
concentrations  of credit risk  consist  primarily  of cash,  cash  equivalents,
restricted cash,  short-term  investments and accounts  receivable.  The Company
maintains its cash,  cash  equivalents and short-term  investments  with various
financial institutions.  This diversification of risk is consistent with Company
policy to maintain  liquidity and ensure the safety of principal.  Although such
amounts  may exceed the F. D. I. C.  limits,  the  Company  limits the amount of
credit  exposure  with  any  one  financial  institution  and  believes  that no
significant  concentration  of credit risk exists with  respect to cash and cash
equivalents.

     At December  31, 1999,  the Joint  Venture had  approximately  $649 in cash
accounts held by a financial  institution in the People's Republic of China. The
Joint Venture deposits are not covered by any federal deposit  insurance program
that is comparable to the programs applicable to U.S. deposits.

                                      F-8
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

1. Nature of  Business,  Basis of  Presentation  and  Summary  of  Significant
     Accounting Policies (continued)

     To date,  accounts  receivable have been derived  principally from revenues
earned 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.

     One customer accounted for 95% of accounts receivable at December 31, 1999.
Two customers accounted for 46% and 24%, respectively, of accounts receivable at
December 31, 1998.

Inventories

     Inventories  are  stated  at the  lower  of  cost  or  market,  cost  being
determined  using the  first-in  first-out  ("FIFO")  method.  Cost  principally
includes direct materials.  At December 31, 1999 and 1998, inventories consisted
of finished goods.

Property and Equipment, Net

     Property and equipment are stated at cost.  Depreciation  is computed using
the straight-line  method over the estimated useful lives of the related assets,
ranging from three to five years.  Leasehold  improvements  are  amortized  over
their estimated  useful lives,  not to exceed the term of the related lease. The
cost of additions and improvements is capitalized, while maintenance and repairs
are charged to expense as incurred.

     Property and equipment, net at December 31, consists of the following:
<TABLE>
<CAPTION>

                                                             1999         1998
                                                          ----------   ---------
<S>                                                      <C>          <C>

 Machinery and equipment................................   $ 1,127      $ 1,121
 Office furniture and fixtures..........................       438          438
 Leasehold improvements.................................        84           84
 Purchased software.....................................       146          130
                                                           ---------------------


                                                             1,795        1,773
 Less accumulated depreciation and amortization.........    (1,451)      (1,234)
                                                           ---------------------
                                                           $   344      $   539
                                                           =====================
</TABLE>





     Included in property and  equipment as of December 31, 1999 and 1998 is $39
and $34,  respectively,  of assets  acquired under capital  leases.  Accumulated
depreciation  on such assets  totaled $25 and $27 at December 31, 1999 and 1998,
respectively.

Long-Lived Assets

     The Company evaluates the  recoverability of its long-lived assets whenever
circumstances  or events  indicate  such assets might be  impaired.  The Company
would  recognize an  impairment  reserve in the event the net book value of such
assets exceeded the future  undercounted cash flows attributable to such assets.
No such reserves have been recorded in the three years ended December 31, 1999.

Software Development Costs

     The Company capitalizes  software  development costs upon the establishment
of technological  feasibility,  subject to net realizable value  considerations.
Capitalization  commences  upon the  completion  of a working  model and ends on
general  product  release.  As of December  31,  1999 and 1998,  such costs were

                                      F-9
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

insignificant and are included as a 1. Nature of Business, Basis of Presentation
and Summary of Significant Accounting Policies (continued)

component of "other assets" in the  accompanying  consolidated  balance  sheets.
Amortization  expense related to capitalized  software development costs in 1999
and 1998 amounted to $1 and $7, respectively.  There was no amortization expense
related to capitalized software development costs in 1997.

Stock-Based Compensation

     Effective  January 1, 1996,  the Company  adopted  Statement  of  Financial
Accounting Standards No. 123,  "Accounting for Stock-Based  Compensation" ("SFAS
123").  The Company has  elected to  continue to use the  intrinsic  value based
method of Accounting Principles Board Opinion No. 25, as allowed under SFAS 123,
to account for its employee stock-based compensation plans. The Company complies
with the disclosure provisions of SFAS 123.

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  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 did not
have  a  material   impact  on  revenue   recognition   during  1999  and  1998,
respectivley.

     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 non-recurring  engineering fees and 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.

     One  customer  accounted  for 27% of  revenues  in  1999.  Three  customers
accounted  for 27%,  16% and 15%,  respectively,  of revenues in 1997.  No other
customers accounted for greater than 10% of revenues in 1999, 1998 and 1997.

Research and Development

     Research and development costs are charged to expense as incurred.

                                      F-10
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

1.Nature of  Business,  Basis of  Presentation  and  Summary  of  Significant
     Accounting Policies (continued)

Advertising

        The Company expenses advertising costs as incurred.  Advertising expense
for the year ended December 31, 1999, 1998, and 1997 was $140,000, $162,000, and
$1,745,000, respectively.

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.
For the years  ended  December  31,  1998 and 1997,  the 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.

Foreign Currency Translation

     The Company considers the functional  currency of the Chinese Joint Venture
to be the 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 the  accompanying  consolidated
balance sheets. Foreign currency assets and liabilities are translated into U.S.
dollars at the end-of-period  exchange rates except for non-monetary  assets and
liabilities,  which 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  related to balance  sheet  amounts which are
translated at historical exchange rates.

     Net foreign currency transaction gains and losses are included in "interest
income  and  other  income  (expense),  net"  in the  accompanying  consolidated
statements  of  operations.   The  Company   recorded  a  net  foreign  currency
transaction  gain of $59,  $58, and a loss of $101 for the years ended  December
31, 1999, 1998 and 1997, respectively.

Income Taxes

     Deferred tax assets and  liabilities  are  recognized  for the expected tax
consequences  of  temporary  differences  between  the tax bases of  assets  and
liabilities and their financial  statement reported amounts and for tax loss and
credit  carryforwards.  A valuation  allowance is provided  against deferred tax
assets for which it is more likely than not that the asset will not be realized.

2. Chinese Joint Venture

     The Company  currently  owns 90% of a joint  venture  with the  Information
Industry  Bureau 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 $10,000 to $2,550.  As of December 31, 1999,  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.

                                      F-11
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

3.      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 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 have been
reclassified, as required.

     The  accumulated  other  comprehensive  loss at December  31, 1999 and 1998
consisted of cumulative foreign currency translation adjustments.

4. Debt

     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 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 was due on June 30,  1999.  The note was repaid in  February
1999. The borrowings were secured by a $250 US dollar  denominated  deposit held
by the bank.

     On September 3, 1999,  the Company's  90% owned Joint Venture  borrowed the
equivalent of $96,  denominated  in Chinese  currency,  from a Chinese bank. The
loan bears  interest at 5.12% and is due on March 2, 2000. The borrowings do not
require a compensating balance. The note was repaid in full in January, 2000.

     Interest  expense for the year ending December 31, 1999, 1998, and 1997 was
$53,000,  $19,000, and $51,000,  respectively.  Interest expense associated with
related party debt was $52,000 for the year ended  December 31, 1999.  There was
no related party debt in the years ended December 31, 1998 and 1997.

5. Stockholders' Equity

Private Placement

     In June 1996, the Company  completed a private placement (the "June Private
Placement") of 600 shares of the Company's Common Stock, at a price of $4.50 per
share  to  certain   institutional  and  other  investors   (collectively,   the
"Subscribers").  The net proceeds to the Company were approximately  $2,408, net
of cash  issuance  costs of $181 and $111 of value  ascribed  to 30  warrants to
purchase  common stock issued to the placement  agent.  The warrants expire five
years from the date of issuance  and have an exercise  price of $4.50 per share,
subject  to  adjustments  for  anti-dilution.  The fair  value  ascribed  to the
warrants was estimated on the date of issuance using the  Black-Scholes  pricing
model with the following assumptions: risk-free interest rate of 6.69%; expected
life of 5 years; expected volatility of 102%; and expected dividend yield of 0%.
The Company agreed to register the  securities  which were issued in conjunction
with the June  Private  Placement  and which may be issued upon  exercise of the
placements agent's warrants. The Registration Statement on Form S-3 filed by the
Company to effect the registration of these securities was declared effective on
December 24, 1996 (the "Effective Date").

     Pursuant to the June Private  Placement  agreement,  the Company  agreed to
issue  additional  shares  (the  "Extra  Shares")  of its  Common  Stock  to the
Subscribers if the average of the daily closing  prices of the Company's  Common
Stock for the  twenty  business  days  prior to two  business  days  before  the
Effective  Date was less than $4.50 per share.  In  December  1996,  the Company
issued 196 Extra Shares for no additional  consideration  to the Subscribers who
did not  exchange  the shares of Common  Stock which they  purchased in the June
Private Placement for the Company's Series A

                                      F-12
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

5. Stockholders' Equity (continued)

Private Placement

preferred Stock (as defined below). The Registration Statement on Form S-3 filed
by the Company in connection  with the June Private  Placement also effected the
registration of the Extra Shares.

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. 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.

Common Stock Options

     The Company  adopted two stock  option plans in 1991 (the 1991 Stock Option
Plan and the 1991  Non-discretionary  Plan,  collectively,  the  "1991  Plans").
Incentive  and  non-qualified  options  under the 1991  Plans may be  granted to
employees, officers, and consultants of the Company. As amended, there are 2,050
shares of Common Stock authorized for issuance under the 1991 Plans.

     In conjunction  with the approval of the Company's plan of  reorganization,
the Company adopted the 1994 Stock Option Plan (the "1994 Plan").  The 1994 Plan
allows directors,  officers and employees to be eligible for grants of incentive
and  non-qualified  stock  options.  In May 1997, the  stockholders  approved an
increase of 1,000 shares to the number of shares  authorized  for issuance under
the 1994  Plan.  Accordingly,  a total of  6,000  shares  of  Common  Stock  are
authorized  for issuance  under the 1994 Plan.  The  exercise  prices of options
under the 1994 Plan are  determined  by a committee  of the Board of  Directors,
but, in the case of an incentive  stock  option,  the exercise  price may not be
less than 100% of the fair market  value of the  underlying  Common Stock on the
date of grant. Non-qualified options may not have an exercise price of less than
85% of the fair  market  value  of the  underlying  Common  Stock on the date of
grant.  Options under the 1994 Plan  generally  vest over four years.  For those
options which vest over four years, 20% of the total options granted vest on the
first  anniversary of the date of grant,  and an additional 20%, 20%, and 40% of
the total options granted vest on the second, third, and fourth anniversaries of
the date of grant,  respectively.  Options  under  the 1994  Plan are  generally
exercisable over a period not to exceed seven years.

                                      F-13
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

5. Stockholders' Equity (continued)

Common Stock Options

     In December 1994,  for services  rendered prior to and during the Company's
Chapter 11 proceedings,  options to purchase 180 shares of Common Stock at $0.50
per share were granted to three  directors of the Company under non-plan  option
agreements.  In  addition,  a non-plan  option to purchase  100 shares of Common
Stock at $0.50 per share was  granted on December  28,  1994 to a newly  elected
director and Chairman of the Finance Committee.  The newly elected director also
received an option,  vesting one year from date of grant,  to purchase 50 shares
of  Common  Stock at an  exercise  price  of $0.50  per  share  pursuant  to the
Company's 1991 Non-discretionary  Plan. The non-plan options generally vest over
four years.  For those non-plan  options which vest over four years,  20% of the
total  non-plan  options  granted vest on the first  anniversary  of the date of
grant and an additional 20%, 20%, and 40% of the total non-plan  options granted
vest on the  second,  third,  and  fourth  anniversaries  of the date of  grant,
respectively.  Non-plan  options under the 1994 Plan are  generally  exercisable
over a period not to exceed seven years. As of December 31, 1999, 6,368 non-plan
options were  outstanding  with a weighted  average  exercise price of $0.75 per
share.  Of such non-plan  options,  1,807 were  exercisable at December 31, 1999
with a weighted average exercise price of $0.75 per share.

     On June 1, 1994,  the Company  negotiated  with  employees  to reduce their
salaries  through August 31, 1994.  Those employees who agreed to continue their
employment  at the reduced wage were granted  certain  option rights to purchase
Common Stock (the  "Options").  Options to purchase 2,210 shares of Common Stock
were  granted  at an  average  exercise  price of $0.57  per  share  under  this
arrangement,  of which 377 Options were granted to officers under the 1991 Plan,
with the  remaining  Options  granted  outside of the plans.  The  Options  were
immediately  exercisable  and have a term of seven years from the date of grant.
As of December 31, 1999,  1,216 Options had been exercised at a weighted average
exercise  price of $0.50 per  share  and 573  Options  with a  weighted  average
exercise  price of $0.81 per  share  had been  forfeited.  The  following  table
summarizes information about the Options outstanding and exercisable at December
31, 1999 which were granted outside of the Plans:
<TABLE>
<CAPTION>

                                                         Weighted Average
Range of Exercise Prices      Options            Remaining
                          Outstanding and       Contractual
                             Exercisable        Life (Years)      Exercise Price
                             ---------------------------------------------------
<S> <C>     <C>              <C>                  <C>            <C>

     $0.30 - $1.05..........       44               1.6             $0.64
                             =========
</TABLE>



     In June 1999, the Company adopted and the shareholders approved a new stock
option plan (the "1999  Plan").  Incentive and  non-qualified  options under the
1999 Plan may be granted to employees, officers, and consultants of the Company.
There are 2,000 shares of Common Stock  authorized  for issuance  under the 1999
Plan. The options have a ten year life and vest  quarterly over three years.  At
December 31, 1999 there were 1,600 shares available for future grants.

                                      F-14
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

5. Stockholders' Equity (continued)

Common Stock Options

     Information  with respect to the Company's 1991 Plans the 1994 Plan and the
1999 Plan is summarized below:
<TABLE>
<CAPTION>

                                                Year Ended December 31,
                                      ------------------------------------------
                                             1999                  1998
                                      --------------------- --------------------
                                                Weighted               Weighted
                                                Average                Average
                                                Exercise               Exercise
                                        Shares   Price       Shares     Price
                                      ------------------------------------------
<S>                                    <C>      <C>        <C>        <C>

Outstanding at beginning
of period............................... 4,540     $0.82      6,016      $1.15
Granted................................. 3,745     $0.94      1,021      $1.03
Exercised...............................(2,723)    $0.55       (804)     $0.50
Forfeited...............................(2,018)    $1.61     (1,693)     $1.62
                                        =======             =========
Outstanding at period end............... 3,544     $1.02      4,540      $1.06
                                        =======             =========

Options exercisable at period end......    784      $1.04     3,243      $0.82
                                        =======             =========
Weighted average grant-date
  fair value ofoptions granted
  during the period....................  $1.02                 $0.73
                                        =======              =========
</TABLE>

     The following table summarizes  information about stock options outstanding
under the 1991 Plans, the 1994 Plan and the 1999 Plan at December 31, 1999:
<TABLE>
<CAPTION>

                                                      Weighted Average
                                                -------------------------------

                                    Remaining
                                     Options     Contractual Life
Range of Exercise Prices           Outstanding       (Years)       ercise Price
-------------------------------------------------------------------------------
<S>                                    <C>         <C>               <C>

$0.50..........................            196        2.5              $0.50
$0.51 - $2.00..................          3,229        6.6              $0.99
$2.01 - $2.99..................             99        3.5              $2.63
$3.00..........................             20        3.7              $3.00
                                  --------------
                                         3,544
</TABLE>

     The following table summarizes  information about stock options exercisable
under the 1991 Plans, the 1994 Plan and the 1999 Plan at December 31, 1999:
<TABLE>
<CAPTION>

                                                                    Weighted
                                                 Options            Average
 Range of Exercise Prices                      Exercisable       Exercise Price
                                             ---------------     ---------------
<S>                                          <C>                    <C>

       $0.50..............................               170           $0.50
       $0.51 - $2.00......................               526           $0.94
       $2.01 - $2.99......................                68           $2.57
       $3.00..............................                20           $3.00
                                             ----------------
                                                         784
                                              ===============
</TABLE>

                                      F-15
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

5. Stockholders' Equity (continued)

Common Stock Options

Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123,  "Accounting for Stock-Based  Compensation" ("SFAS 123"). The
Company  has  elected to continue  to use the  intrinsic  value based  method of
Accounting  Principles  Board  Opinion  No.  25, as allowed  under SFAS 123,  to
account for its employee  stock-based  compensation  plans. The Company complies
with the disclosure provisions of SFAS 123.

     Had compensation  cost for the Company's option plans been determined based
on the fair value of the  options at the date of grant,  as  prescribed  by SFAS
123,  the  Company's  net loss  available to common  stockholders  and basic and
diluted net loss per share available to common  stockholders  for the year ended
December 31, would have been as follows:
<TABLE>
<CAPTION>
                                               1999        1998          1997
                                             ---------   ---------   ----------
<S>                                          <C>         <C>        <C>

 Net loss available to common stockholders:
   As reported..............................  $ (1,740)   $ (3,592)    $(16,940)
   Pro forma................................  $ (3,316)   $ (4,863)    $(18,024)
 Basic and diluted net loss per share
   available to common stockholders:
   As reported..............................  $  (0.02)   $  (0.06)    $  (0.37)
   Pro forma................................  $  (0.04)   $  (0.09)    $  (0.40)
</TABLE>


     The fair value of each option grant is estimated on the date of grant using
the  Black-Scholes  option  pricing  model with the following  weighted  average
assumptions used for grants during the applicable  periods:  risk-free  interest
rate of 5.4% for 1999,  4.5% for 1998 and 6.2% for 1997;  an expected  life of 4
years for 1999 and 1998 and 5 years for 1997, respectively;  expected volatility
of 100% all periods and dividend yield of 0% for all periods.

     Stock  options  generally  vest over  three to four  years and the  Company
expects to make  additional  option grants each year,  the Company  believes the
above pro forma  disclosures are not  representative of the pro forma effects on
reported results of operations to be expected in future periods.

Warrants

     In September  1994, in connection with a $1,000 bridge loan provided to the
Company by an investor  (who  became a  director),  the  Company  granted to the
investor  warrants to purchase 2,000 shares of Common Stock at an exercise price
of $0.50 per share.  In January 1997,  the Company  issued  approximately  1,686
shares of Common  Stock in  connection  with the net exercise of the warrants by
the  investor's  assignee.  In June 1995,  the Company  entered into a financing
agreement with the investor  providing for loans to the Company of up to $2,500.
Upon signing the  agreement,  the Company issued to the investor 625 warrants to
purchase Common Stock,  and, in each month in which the loan was available,  the
Company was  obligated to issue to the investor 156 warrants to purchase  shares
of common stock.  Under the financing  agreement,  a total of 1,563  warrants to
purchase  Common Stock were issued to the investor at an exercise price of $1.00
per share.  In January 1997,  the Company issued  approximately  1,073 shares of
Common  Stock  in   connection   with  the   investor's   net  exercise  of  the
aforementioned warrants.

     On  March  28,  1997,  and  effective  as of  December  31,  1996,  holders
constituting  100% of the  then  issued  and  outstanding  shares  of  Series  A
Preferred  Stock  executed a waiver to 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  obligation  of the  Company  with  respect to its Series A Preferred
Stock in exchange  for the  issuance to the holders of warrants to purchase  the
300 shares of the  Company's  Common Stock,  allocated  amongst the holders on a
pro-rata  basis.  The  warrants  expire five years from the date of issuance and
have an

                                      F-16
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

5. Stockholders' Equity continued)

Warrants

exercise price of $2.00 per share, subject to adjustment for anti-dilution.  The
Company has ascribed a value of $484 to these warrants, which was recorded as an
expense in the  Company's  statement of  operations  during the first quarter of
1997.  The fair value  ascribed to the  warrants  was  estimated  on the date of
issuance using the Black-Scholes  pricing model with the following  assumptions:
risk-free interest rate of 6.60%;  expected life of 5 years; expected volatility
of 104%; and expected  dividend  yield of 0%. As a result of the  aforementioned
waiver,  the  shares of Series A  Preferred  Stock,  which  were  classified  as
redeemable  securities at December 31, 1996,  were  reclassified  as convertible
preferred  stock at March 31, 1997 and, as such,  are included in  stockholders'
equity at December 31, 1997.

     On October 20, 1999,  in connection  with the 1999 Loan (as defined  below)
the  Company  issued to the  charitable  remainder  annuity  trust  warrants  to
purchase 300 shares of the Company's common stock. The warrants expire two years
from the  effective  date of issuance  and have an  exercise  price of $1.09 per
share.  The Company  ascribed a value of $179 to these  warrants,  which will be
amortized to the Company's  results of operations  over the life of the warrant.
The fair value  ascribed to the warrants  was  estimated on the date of issuance
using the Black-Scholes pricing model with the following assumptions:  risk-free
interest rate of 5.50%;  expected life of 2 years;  expected  volatility of 99%;
and expected dividend yield of 0%.

     Warrants to purchase a total of 876 shares of Common Stock were outstanding
as of December 31, 1999, and have a weighted average remaining  contractual life
of 2.8 years and a weighted average exercise price of $2.27 per share.

     As of December 31, 1999,  10,832  shares of Common Stock were  reserved for
issuance upon exercise of outstanding options and warrants.

6. Related Party Transactions

        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,  bearing  interest at the lesser of the highest  marginal rate per
annum  applicable to the Company's  borrowings or the highest rate  allowable by
law (10% per annum at  December  31,  1997).  On August 14,  1998,  the  Company
entered into an  employment  agreement  (the  "Employment  Agreement")  with the
aforementioned  former  officer.  Under the  Employment  Agreement,  the  former
officer will provide  consulting  services to the Company  through  December 15,
2001.  In exchange  for these  services,  $110 of the note  receivable  from the
officer shall be forgiven on a monthly basis over the period  commencing  August
15,  1998  and  ending  December  15,  2001.  The  remaining,  $100 of the  note
receivable from the officer will be forgiven on December 15, 2001 if the officer
has performed all the required services under the Agreement.  The Agreement will
terminate on December 15, 2001.

     On June 16, 1999, the Company  obtained a bridge loan,  (the "Bridge Loan")
in the amount of $500,000 from a charitable  remainder annuity trust, of which a
director and officer of the Company is a trustee.  The Bridge Loan was increased
by $150,000 and $100,000 in August and  September  1999,  respectively.  Amounts
outstanding  under the Bridge Loan bore  interest at the prime rate plus 2% with
an  effective  rate of . The loan was secured by the  Company's  cash,  accounts
receivable  and other  receivables  as then owned or thereafter  acquired by the
Company.  The Bridge Loan plus accrued  interest  was due December 31, 1999.  In
October  1999,  the Bridge Loan was  converted  to  long-term  debt as discussed
below.

     On October 20, 1999,  the Company  entered into a loan  agreement  with the
same charitable  remainder annuity trust,  whereby the then existing Bridge Loan
of $750,000 was converted into a long term loan in the amount of $1,500,000 (the
"1999 Loan").  The 1999 Loan is secured by a first priority security interest in
all of the Company's  assets as now owned or hereafter  acquired by the Company.
The 1999 Loan bears  interest at the rate of 2% over the prime rate as published
by Citibank  from time to time,  10.25% at December 31,  19999.  The note is due
January  31,  2002.  Interest  on the  principal  amount  under the 1999 Loan is
payable quarterly.  The 1999 Loan can be re-paid in whole at any time or in part
at any time


                                      F-17
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

6.  Related  Party Transactions (continued)

without penalty.  Any partial payment must be in the principal amount of $100 or
a multiple thereof. The interest rate at December 31, 1999 was 10.25%.

     On October 20, 1999, in connection with the 1999 Loan the Company issued to
the charitable  remainder  annuity trust warrants to purchase  300,000 shares of
the Company's  common stock.  The warrants  expire  October 20, 2001 and have an
exercise price of $1.09 per share.  The Company  ascribed a value of $179,000 to
these warrants,  which will be amortized to the Company's  results of operations
over the life of the debt. The fair value ascribed to the warrants was estimated
on the date of issuance using the Black-Scholes pricing model with the following
assumptions:  risk-free  interest  rate of  5.50%;  expected  life  of 2  years;
expected volatility of 99%; and expected dividend yield of 0%.

     In 1997, a director of the Company  increased the amount of time devoted to
the affairs of the Company.  The director  received  consulting  fees of $150 in
1999, 1998 and 1997, including fees for office expenses.

7. Commitments

Operating Lease Commitments

     The Company  currently  leases its  principal  facilities  (the  "Principal
Offices) in Redwood Shores,  California,  pursuant to a sublease that expires in
2001. In addition, the Company subleases to third parties certain space adjacent
to the Principal Offices.  The Joint Venture leases  approximately  1,000 square
feet in Nanjing,  China.  In addition to monthly rent,  the U.S.  facilities are
subject to  additional  rental  payments for utilities and other costs above the
base amount.  Facilities rent expense was approximately  $376, $420, and $892 in
1999,  1998, and 1997,  respectively.  Sublease income was  approximately  $209,
$128,  and  $188  for the  years  ended  December  31,  1999,  1998,  and  1997,
respectrively.

     Future  minimum lease  payments under  noncancelable  operating  leases are
approximately,  $517, and $431 for the years ending December 31, 2000, and 2001,
respectively.   The  Company's  rent  expense  is  expected  to  be  reduced  by
approximately  $98 in 2000 in  connection  with the subleases  described  above.
Future minimum payments required under capital leases, which expire in 2000, are
insignificant at December 31, 1999.

8. Income Taxes

     As of December  31,  1999,  the Company  had  federal  net  operating  loss
carryforwards  available to reduce taxable income through 2012 of  approximately
$52,442.  The  Company  also had  federal  research  and  investment  tax credit
carryforwards of approximately $315 which expire at various dates through 2010.

        Deferred  tax assets and  liabilities  at  December  31,  consist of the
following:
<TABLE>
<CAPTION>

                                                         1999           1998
                                                    -------------- -------------
<S>                                                <C>             <C>
 Deferred tax assets:
 Net operating loss carryforwards................     $ 20,977       $ 16,210
 Credit carryforwards............................          315            430
 Deferred income.................................           13            221
 Other, net......................................          844            877
                                                    -------------- -------------
 Total deferred tax assets.......................       22,149         17,740
                                                    -------------- -------------
                                                        22,149         17,740
 Valuation allowance.............................      (22,149)       (17,740)
                                                    -------------- -------------
 Net deferred tax assets.........................     $      -       $      -
                                                    ============== =============
</TABLE>

                                      F-18
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

8. Income Taxes (continued)

     A full  valuation  allowance  has been  established  for the  Company's net
deferred tax assets since the  realization of such assets through the generation
of future taxable income is uncertain.

     Under the Tax Reform Act of 1986, the amounts of, and the benefit from, net
operating  losses and tax credit  carryforwards  may be  impaired  or limited in
certain  circumstances.  These circumstances  include, but are not limited to, a
cumulative stock ownership change of greater than 50%, as defined,  over a three
year period.  During 1997, the Company experienced stock ownership changes which
could  limit  the  utilization  of its  net  operating  loss  and  research  and
investment tax credit carryforwards in future periods.

9. 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  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 years
ended December 31,:
<TABLE>
<CAPTION>

                               Handwriting         Systems
                               Recognition       Integration         Total
                            ----------------- ---------------- -----------------
<S>                           <C>              <C>              <C>

 1999
      Revenues                  $      4,898      $      1,620    $       6,518
      Loss from Operations      $     (1,078)     $        (44)   $      (1,722)
      Total assets              $      3,523      $      1,440    $       4,963
      Depreciation and
      amortization              $        289      $         45    $         334
 1998
      Revenues                  $      2,702      $      1,879    $       4,581
      Loss from Operations      $     (2,561)     $       (684)   $      (3,285)
      Total assets              $      2,160      $      1,194    $       3,354
      Depreciation and
      amortization              $        283      $         44    $         327
 1997
      Revenues                  $      4,040      $      1,476    $       5,516
      Loss from Operations      $    (11,609)     $        (18)   $     (11,627)
      Total assets              $      6,192      $      1,299    $       7,491
      Depreciation and
      amortization              $        314      $         33    $         347

</TABLE>

                                      F-19
<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (In thousands, except per share amounts)

9. Segment Information (continued)

The following  table  represents  revenues and long-lived  asset  information by
geographic location for the period ended December 31,:
<TABLE>
<CAPTION>

                         Revenues                         Long Lived Assets
              ------------------------------- ----------------------------------
                  1999       1998       1997      1999        1998        1997
              ----------- --------- --------- ---------   ---------- -----------
<S>            <C>       <C>       <C>       <C>        <C>         <C>

 U.S.           $ 4,898   $ 2,702   $  4,039   $    261   $    416     $   655

 China            1,620     1,879      1,476         83        123         143

 Other                                     1
               ========== ========= ========= ==========  ========== ==========
         Total  $ 6,518   $ 4,581   $  5,516   $    344   $    539     $   798
               ========== ========= ========= ==========  ========== ==========
</TABLE>


     The Company's  export sales from U.S.  operations were 36%, 16%, and 40% of
total revenues in 1999, 1998, and 1997, respectively.

10. Statement of Cash Flows Data
<TABLE>
<CAPTION>

                                                       December 31,
                                           ------------------------------------
                                               1999        1998         1997
                                           ----------- ------------ -----------
<S>                                      <C>         <C>         <C>

 Schedule of non-cash transactions:
   Conversion of redeemable convertible
   preferred stock into Series A
   Preferred Stock.......................  $      -    $      -     $  9,417

   Fair market value of warrants issued
   connection with long-term debt - related
   party.................................  $    176

</TABLE>



Supplemental disclosure of cash flow information:

     Interest paid in 1999, 1998, and 1997 was $4, $19, and $106, respectively.

11. Employee Benefit Plans

     The  Company  sponsors a 401(k)  defined  contribution  plan  covering  all
employees meeting certain  eligibility  requirements.  Contributions made by the
Company are determined annually by the Board of Directors.  To date, the Company
has made no contributions to this plan.

12. Subsequent event

     On January 20, 2000, the charitable  remainder  trust,  of which a director
and officer of the Company is a trustee,  exercised all 300,000  warrants issued
in connection  with the $1,500,000  long-term  debt. The warrants were exercised
under the  cashless  exercise  provision in the warrant  agreement.  The Company
issued 255,186 shares ofcommon stock in exchange for the 300,000 warrants.


                                      F-20
<PAGE>
                                                                 EXHIPIT 10.20

                                   SCHEDULE II

                     Communication Intelligence Corporation
                 Valuation and Qualifying Accounts and Reserves
                                 (In thousands)

Years Ended December 31, 1997, 1998, 1999
<TABLE>
<CAPTION>

                                Balance      Charged to
                             At Beginning    Costs and                 Balance
                               Of Period      Expense                   At End
                                                         Deductions   Of Period
<S>                             <C>           <C>       <C>           <C>

Year ended December 31, 1997:
Accounts receivable reserves...   $85          $195       $(243)          $46




Year ended December 31, 1998:
Accounts receivable reserves..    $46          $236       $(108)         $174




Year ended December 31, 1999:
Accounts receivable reserves...  $174           $38       $(200)          $12
</TABLE>


                                      S-1
<PAGE>
                                                                   EXHIBIT 10.20

                       AMENDED AND RESTATED LOAN AGREEMENT

AMENDED AND RESTATED LOAN  AGREEMENT (the  "Agreement")  dated as of October 20,
1999 between The Philip S. Sassower 1996 Charitable Remainder Annuity Trust (the
"Lender"), and Communication  Intelligence  Corporation,  a Delaware corporation
(the "Borrower").

                          ----------------------------


Subject to the terms and conditions  hereinafter set forth, the Lender is making
a loan to the Borrower in the aggregate principal amount of $1,500,000,  and the
Borrower is willing to accept and repay such loan as herein provided.

                  This  Agreement  amends  and  restates  in its  entirety  that
certain loan agreement  dated June 15, 1999, as amended,  between the Lender and
the  Borrower  (the  "Prior  Agreement"),  and such  Prior  Agreement  is hereby
terminated.



                  In  consideration of the mutual promises and covenants in this
Agreement,  and for other  good and  valuable  consideration,  the  receipt  and
sufficiency of which are hereby acknowledged, the parties agree as follows:


I.      LOANS

1.1  Loans.  Subject to the terms and conditions hereof, the Lender hereby loans
     (the "Loan") to the Borrower  until the earlier of January 31, 2002, or the
     date on which  the Loan is paid in full  pursuant  to  Section  2.2 of this
     Agreement  (such  earlier  date being the  "Maturity  Date"),  an aggregate
     principal  amount of $1,500,000.  Borrower hereby  acknowledges  and agrees
     that Lender has previously made loans to Borrower under the Prior Agreement
     in the aggregate  principal  amount of $750,000  (collectively,  the "Prior
     Notes") and that the outstanding  principal amount under the Prior Notes is
     included in the determination of the aggregate principal amount outstanding
     under the Loan.  Borrower further  acknowledges and agrees that all accrued
     and  unpaid  interest  with  respect  to the Prior  Notes  shall be due and
     payable on December  31, 1999.  The Loan shall mature on the Maturity  Date
     and bear  interest  at a rate per annum  equal to 2% per annum in excess of
     the rate per annum publicly  announced from time to time by Citibank,  N.A.
     as its prime rate in effect at its principal  office in New York City, each
     such change in the interest rate on the Loan to take effect  simultaneously
     with the corresponding change in such prime rate.

1.2  The  Note.  (a) The  Borrower's  obligation  to  repay  the  Loan  shall be
     evidenced by a promissory  note,  substantially in the form attached hereto
     as Exhibit A (such note being individually referred to as a "Note"),  dated
     the date of the Loan and maturing on the Maturity Date.


<PAGE>
                                                                   EXHIBIT 10.20

(b)  Subject to Section 1.1, interest on the Loan shall be payable in arrears on
     each March 31, June 30, September 30 and December 31,  commencing  December
     31, 1999 and all accrued and unpaid interest on the outstanding  balance of
     the Loan shall be due and payable on the Maturity Date.  Overdue  principal
     and, to the extent  permitted by law,  overdue interest with respect to the
     Loan  shall  bear  interest,  payable on  demand,  at the  highest  rate of
     interest permitted by applicable law.

1.3  Payments.  (a) The Borrower may, at its option, prepay the principal amount
     of the Loan (without premium), in whole at any time or in part from time to
     time,  together  with  accrued  interest to the date of  prepayment  on the
     amount being prepaid.  Each partial  prepayment  pursuant to this paragraph
     (a) shall be in the principal amount of $100,000 or any multiple thereof.

(b)  Notwithstanding  any other provision of this Agreement to the contrary,  on
     the Maturity Date, the entire principal  amount of the Loan,  together with
     accrued  interest  thereon  through the date of  payment,  shall be paid in
     full.

(c) All payments and  prepayments  made by Borrower  hereunder  shall be made in
immediately available funds.

II.     TERMINATION OR REDUCTION OF LOAN

2.1  The Borrower may, without  penalty,  at any time repay the principal amount
     of the Loan then outstanding, together with accrued interest to the date of
     such  repayment  and shall pay all other  amounts  owed to the Lender under
     this Agreement.

2.2  The Borrower  hereby  covenants and agrees that to the extent the Company's
     cash,  cash  equivalents  and  marketable  securities,   as  determined  in
     accordance  with  generally  accepted  accounting  principles  consistently
     applied,  in any  quarter  commencing  March  31,  2000 and  ending  on the
     Maturity Date exceeds $500,000,  such excess shall be applied to reduce the
     Loan on a dollar for dollar basis.

III.    OTHER DOCUMENTS

3.1  On the date  hereof,  Borrower  has  executed  and  delivered to the Lender
     warrants (the  "Warrants")  registered on the books of Borrower in the name
     of the  Lender  and in the form  annexed  hereto as  Exhibit B to  purchase
     300,000 shares of Borrower's common stock (the "Common Stock").

3.2  The Borrower has executed and  delivered to the Lender on the date hereof a
     security agreement (the "Security Agreement") in the form annexed hereto as
     Exhibit C.

IV.     REPRESENTATIONS OF THE BORROWER

       The Borrower hereby represents and warrants to the Lender as follows:

4.1  Organization  and Standing.  The Borrower is a corporation  duly organized,
     validly  existing  and in good  standing  under  the  laws of the  State of

                                       2
<PAGE>
                                                                   EXHIBIT 10.20

     Delaware and has full corporate power and authority to conduct its business
     as presently  conducted  and as proposed to be conducted by it and to enter
     into and perform this Agreement,  the Security Agreement,  the Note and the
     Warrants and to carry out the transactions contemplated hereby and thereby.
     The Borrower and each Subsidiary are duly qualified and in good standing in
     each  jurisdiction  in which the character or location of its properties or
     nature of its business makes such qualification necessary.

4.2  Capitalization.  The  authorized  and  outstanding  capital  stock  of  the
     Borrower is as described in the  Borrower's  Annual Report on Form 10-K for
     the year ended  December  31,  1999 (the  "Annual  Report").  Borrower  has
     heretofore  delivered  to  Lender a true and  complete  copy of the  Annual
     Report.  Except as set forth in the Annual  Report or as  provided  in this
     Agreement, (i) no subscription,  warrant,  option,  convertible security or
     other right  (contingent or otherwise) to purchase or acquire any shares of
     capital stock of the Borrower is authorized or  outstanding,  (ii) there is
     no commitment of the Borrower to issue any subscription,  warrant,  option,
     convertible  security  or other  such  right or to issue or  distribute  to
     holders of any shares of its capital stock any evidence of  indebtedness or
     assets  of  the  Borrower,   and  (iii)  the  Borrower  has  no  obligation
     (contingent  or  otherwise)  to purchase,  redeem or otherwise  acquire any
     shares of its capital stock or any interest  therein or to pay any dividend
     or make any other  distribution in respect  thereof.  Except as provided in
     the Annual Report, no person or entity is entitled to (i) any preemptive or
     similar  right with  respect to the  issuance of any  capital  stock of the
     Borrower,  or (ii) any  rights  with  respect  to the  registration  of any
     capital stock of the Borrower under the Act.

4.3  Subsidiaries. On the date hereof, the Borrower has three Subsidiaries,  CIC
     Japan,  CICI Limited and CICI Limited II. The only asset of CICI Limited is
     a 90%  interest in a joint  venture in the  Peoples  Republic of China (the
     "Joint  Venture").  No  Subsidiary  is  material  to  the  business  of the
     Borrower, nor possesses significant or exclusive rights with respect to the
     Intellectual  Property (as hereinafter  defined).  As used herein, the term
     "Subsidiary"  shall mean any entity of which  securities or other ownership
     interests  having ordinary voting power to elect a majority of the board of
     directors or other persons  performing similar functions are owned directly
     or indirectly through one or more intermediaries, or both, by the Borrower.

4.4  Issuance  of Shares.  The  issuance,  sale and  delivery  of the Note,  the
     Warrants  and the shares of Common  Stock  issuable  upon  exercise  of the
     Warrants (the "Warrant Shares") in accordance with this Agreement have been
     duly  authorized  by all  necessary  corporate  action  on the  part of the
     Borrower,  and the Warrants and the Warrant Shares,  when issued,  sold and
     delivered  against  payment  therefor in accordance  with the provisions of
     this  Agreement,   will  be  duly  and  validly  issued,   fully  paid  and
     nonassessable  and will not be issued in  violation  of any  preemptive  or
     similar rights.  The Borrower will issue the Warrants and, upon exercise of
     the Warrants,  the Warrants Shares, free and clear of all Liens (as defined
     in Section 4.8 hereof).

4.5  Authority. The execution,  delivery and performance by the Borrower of this
     Agreement,   the  Security  Agreement  and  the  Warrants  have  been  duly
     authorized by all  necessary  corporate  action,  and this  Agreement,  the
     Security  Agreement  and the Warrants have been duly executed and delivered

                                       3
<PAGE>
                                                                   EXHIBIT 10.20

     by the Borrower.  This Agreement,  the Security  Agreement and the Warrants
     constitute the valid and binding obligations of the Borrower enforceable in
     accordance with their respective  terms,  except as such enforcement may be
     limited by  bankruptcy,  insolvency,  reorganization  or other similar laws
     affecting the  enforcement  of creditors'  rights in general and by general
     equity principles  (regardless of whether such enforcement is considered in
     a proceeding in equity or at law). The execution,  delivery and performance
     of this Agreement,  the Security  Agreement,  the Note and the Warrants and
     the consummation of the transactions contemplated hereby and thereby do not
     and will not violate any  provision  of law  applicable  to Borrower or any
     Subsidiary and do not and will not conflict with or result in any breach of
     any of the terms,  conditions  or  provisions  of, or  constitute a default
     under,  the certificate of  incorporation  or bylaws of the Borrower or any
     Subsidiary, or any indenture, lease, agreement or other instrument to which
     the  Borrower  or any  Subsidiary  is a party  or by which it or any of its
     properties or assets is bound,  or any decree,  judgment,  order,  statute,
     rule or regulation applicable to the Borrower or any Subsidiary.

4.6  Governmental Consents. No consent,  approval, order or authorization of, or
     registration,  qualification,  designation, declaration or filing with, any
     governmental  authority  is  required  on the part of the  Borrower  or any
     Subsidiary in connection with the execution and delivery of this Agreement,
     the Security  Agreement,  the offer,  issue, sale and delivery of the Note,
     the Warrants or the Warrant Shares, or the other transactions  contemplated
     hereby or thereby, except for such filings as shall have been made prior to
     and shall be effective on and as of the date hereof.

4.7  Litigation.  Except as disclosed in the Annual Report,  there is no action,
     suit,  proceeding or  investigation  pending,  or  threatened,  against the
     Borrower or any Subsidiary  which questions the validity of this Agreement,
     the  Security  Agreement,  the  Note or the  Warrants  or the  right of the
     Borrower to execute,  deliver  and perform any of the  foregoing,  or which
     might result,  either  individually  or in the  aggregate,  in any material
     adverse change in the assets, results of operations,  conditions (financial
     or  otherwise),  net worth,  business or  prospects of the Borrower and its
     Subsidiaries taken as a whole (a "Material Adverse Change").

4.8  Property and Assets.  Each of the Borrower  and its  Subsidiaries  has good
     title to all of its  properties  and assets,  including all  properties and
     assets  reflected  in the  financial  statements  included  with the Annual
     Report,  except  those  disposed of since the date  thereof in the ordinary
     course  of  business  consistent  with  past  practice,  and  none  of such
     properties or assets is subject to any  mortgage,  pledge,  lien,  security
     interest, lease, charge, claim or encumbrance ("Lien") other than those the
     material terms of which are described in the Annual Report or the financial
     statements included therein.

4.9  Compliance.  Each of the Borrower and its Subsidiaries has, in all material
     respects,  complied with all laws, regulations and orders applicable to its
     present and proposed business as described in the Annual Report and has all
     permits,  consents,  approvals,   authorizations,   orders,  registrations,
     qualifications and licenses ("Licenses") of and from all public, regulatory
     or  governmental  agencies and bodies  necessary to own its  properties and
     conduct its  existing and proposed  business  and is in  compliance  in all
     material respects with such Licenses.

                                       4
<PAGE>
                                                                   EXHIBIT 10.20

4.10 Financial  Statements.  The  financial  statements  included  in the Annual
     Report and in the Borrower's  Quarterly Report on Form 10-Q for the quarter
     ended June 30, 1999 (the "Quarterly  Report"),  are true and correct in all
     material  respects and present  fairly the financial  position,  results of
     operations  and changes in  financial  position  of the  Borrower as of the
     dates and for the periods  indicated in conformity with generally  accepted
     accounting principles consistently applied ("GAAP") during such periods. As
     of December  31,  1998,  the  Borrower  did not have any direct or indirect
     indebtedness,  liability,  claim, loss,  damage,  deficiency or obligation,
     whether fixed or unfixed, liquidated or unliquidated, secured or unsecured,
     contingent  or  otherwise  of a kind  required by GAAP to be set forth on a
     financial statement or in the notes thereto  ("Liabilities")  that were not
     fully and  adequately  reflected  on or  reserved  against  the  Borrower's
     balance  sheet at such date  included in the Annual  Report  (the  "Balance
     Sheet").  Except as disclosed in the Quarterly  Report,  since December 31,
     1998, the Borrower has not incurred any Liability,  other than  Liabilities
     incurred in the ordinary course of business, none of which, individually or
     in the aggregate, are material.

4.11 Absence of Certain Changes. Except as disclosed in the Annual Report or the
     Quarterly  Report,  since  December 31, 1998,  each of the Borrower and its
     Subsidiaries  has  conducted  its business in the ordinary and usual course
     consistent  with past  practices and has not (i)  transferred  to any other
     person,  corporation or entity any  Intellectual  Property (as  hereinafter
     defined),  except for licenses  granted by the Company to third  parties in
     the ordinary course of business  consistent with past practices,  (ii) made
     any loan,  advance,  capital  contribution  or  investment in any person or
     entity,  (iii)  terminated or amended in any material  respect any material
     contract to which the Borrower or such Subsidiary is a party or by which it
     is  bound,  (iv)  materially  increased  the  compensation  payable  to any
     employee of the Borrower or such  Subsidiary  except in the ordinary course
     of  business,  consistent  with past  practice,  (v)  suffered any material
     damage,  destruction  or other loss  (whether or not covered by  insurance)
     affecting  its  business or assets,  (vi) made any  material  change in its
     business  policies,  (vii)  taken any  action or agreed to take any  action
     which,   if  taken  prior  to  the  date   hereof,   would  have  made  any
     representation  or warranty herein untrue,  or (viii) suffered any Material
     Adverse Change.

4.12 No Defaults.  Neither the Borrower nor any Subsidiary is in default and, to
     Borrower's  knowledge,  no other party is in default,  nor does there exist
     any event that,  with notice or lapse of time or both,  would  constitute a
     default or give rise to rights of termination, under any agreement or other
     instrument  to which the Borrower or any  Subsidiary is a party or by which
     it or its properties are bound.  All such  agreements and  instruments  are
     valid, subsisting in full force and effect and binding on the parties.

4.13 Intellectual  Property.  Except as  disclosed  in the Annual  Report or the
     Quarterly Report, the Borrower owns, free and clear of any Liens, all trade
     patents,   trademarks,    copyrights,   service   marks,   trade   secrets,
     manufacturing  and  process  know-how,  processes,  unpatented  inventions,
     technical information,  technology, designs and other intellectual property
     utilized in the conduct of its business as  described in the Annual  Report
     (the "Intellectual  Property").  To best of the Borrower's  knowledge,  the
     Intellectual Property does not conflict with or infringe upon the rights of
     others.

                                       5
<PAGE>
                                                                   EXHIBIT 10.20

4.14 Accuracy. Neither the representations and warranties contained herein or in
     the Security Agreement,  or the statements made in the Annual Report or the
     Quarterly  Report,  nor in any other agreement between the Borrower and the
     Lender made in connection with the transactions contemplated hereby contain
     any untrue  statement of a material fact or omit to state any material fact
     necessary  to make  the  statements  herein  or  therein,  in  light of the
     circumstances under which they were made, not misleading.

4.15 Full  Disclosure.  There is no fact or circumstance  which the Borrower has
     not  disclosed  to Lender in  writing  that  could  reasonably  result in a
     Material Adverse Change.

V.      REPRESENTATIONS OF THE LENDER

Lender represents and warrants to the Borrower as follows:
5.1  Investment Intent.  Lender is acquiring the Note and the Warrants (and when
     issued, the Warrant Shares) for its own account for investment and not with
     a view to, or for sale in connection  with, any distribution  thereof,  nor
     with any present  intention of distributing or selling the same except,  in
     each case,  distributions  or sales made in accordance  with the Securities
     Act of 1933, as amended (the "Act").

5.2  Speculative Investment.  Lender is aware that an investment in the Borrower
     is highly speculative.  Lender understands that there are significant risks
     in this  investment,  including,  without  limitation,  the  impact  on the
     Borrower  of the  highly  competitive  market  in  which it  operates,  the
     uncertainty with respect to the Borrower's  obtaining  additional financing
     which  it may  require,  the  Borrower's  reliance  on the  efforts  of key
     individuals,  the potential  impact of the regulatory  climate in which the
     Borrower operates and the significant  restrictions on  transferability  of
     the Note, the Warrants and the Warrant Shares.

5.3  Authority.  The  execution,  delivery  and  performance  by  Lender of this
     Agreement have been duly authorized by all necessary action required by its
     partnership  agreement,  and this  Agreement  has been  duly  executed  and
     delivered  by Lender.  This  Agreement  constitutes  the valid and  binding
     obligations of Lender  enforceable in accordance with its terms,  except as
     such enforcement may be limited by bankruptcy,  insolvency,  reorganization
     or other similar laws  affecting the  enforcement  of creditors'  rights in
     general  and by general  equity  principles  (regardless  of  whether  such
     enforcement  is  considered  in a proceeding  in equity or at law).  To the
     knowledge  of Lender,  the  execution,  delivery  and  performance  of this
     Agreement and the consummation of the transactions  contemplated thereby do
     not and will not violate any provision of law  applicable to the Lender and
     do not and will not  conflict  with or result  in any  breach of any of the
     terms,  conditions or provisions  of, or  constitute a default  under,  its
     trust agreement, or any indenture,  lease, agreement or other instrument to
     which  the  Lender  is a party or by which it or any of its  properties  or
     assets is bound, or any law applicable to the Lender.

5.4  Accredited Investor. The Lender is an "accredited investor" as such term is
     defined in Rule 501(a) of Regulation D promulgated under the Act.

                                       6
<PAGE>
                                                                   EXHIBIT 10.20

VI.     CONDITIONS PRECEDENT

6.1  The obligation of the Lender to make the Loan is subject to the fulfillment
     of each of the following conditions prior to or contemporaneously  with the
     making of such Loan.

(a)  The Lender shall have received  certified  copies of all  corporate  action
     taken by the Borrower to authorize the execution,  delivery and performance
     of this  Agreement,  the  Security  Agreement,  the Note and the  Warrants,
     together with such other  documents as the Lender may  reasonably  request,
     all of which shall be satisfactory in form and substance to the Lender.

(b)  The  Lender  shall  have  executed  and  delivered  (i) the Note,  (ii) the
     Security Agreement, and (iii) the Warrants.

VII.    COVENANTS

So long as the Loan or  other  amount  payable  hereunder  or under  the Note is
outstanding and unpaid or the Borrower shall have the right to borrow hereunder,
the Borrower  covenants and agrees as follows:  7.1 Affirmative  Covenants.  The
Borrower shall and shall cause each of its Subsidiaries to:

(a)  Maintain (i) its  corporate  existence  and material  agreements,  (ii) its
     properties in good condition and repair  (subject to normal wear and tear),
     and (iii) to the same extent and in such amounts and manner as do companies
     engaged in similar lines of business under similar circumstances, insurance
     on its fixed assets, inventory and other properties, workmen's compensation
     or similar  insurance  as required by law, and  adequate  public  liability
     insurance  against  claims for personal  injury,  death or property  damage
     arising out of its products, facilities or operations.

(b)  Pay and discharge all taxes, assessments and governmental charges or levies
     imposed upon it or on its income or profits or on any of its property prior
     to the date on which any penalties  would otherwise  attach thereto;  other
     than any such tax, assessment, charge or levy the payment of which is being
     contested in good faith and by proper proceedings and for which an adequate
     reserve has been  established if such reserve is required by GAAP in effect
     at the time.

(c)  Allow  the  Lender  by  or  through  its  officers,  agents,  attorneys  or
     accountants,  at all reasonable times and from time to time upon reasonable
     notice to the Borrower, to inspect and to make extracts from the Borrower's
     books and records and to visit or inspect the facilities of the Borrower.

(d)  Keep full and correct books of account in accordance  with GAAP,  including
     the maintenance of adequate reserves for doubtful or uncollectible accounts
     and for depreciation of property.

                                       7
<PAGE>
                                                                   EXHIBIT 10.20

(e)  Continue to engage in all  material  respects in its present  business  and
     comply with all applicable  laws,  rules and  regulations  relating to such
     business,  other than laws,  rules and  regulations,  the failure to comply
     with which,  when taken  together with the failure to comply with all other
     laws,  rules and  regulations,  would not  individually or in the aggregate
     have a Material Adverse Effect.

(f)  Maintain in full force and effect all  Licenses  referred to in Section 4.9
     hereof to the extent necessary to conduct its normal course of business.

7.2  Financial Statements and Information. The Borrower will furnish or cause to
     be furnished to the Lender:

(a)  Within  45 days  after  the  close  of each of the  first  three  quarterly
     accounting periods in each fiscal year of the Borrower, a true and complete
     copy of the Borrower's  Quarterly Report on Form 10-Q for such quarter.  At
     the time such  quarterly  reports are  furnished,  the Borrower  shall also
     furnish  a  certificate  of the  Borrower's  president  or chief  financial
     officer,  stating that, based on an examination which in the opinion of the
     signer was sufficient to enable him to make an informed statement, no Event
     of Default, nor any event which with the giving of notice or the passage of
     time or both would constitute an Event of Default,  exists,  or, if such an
     Event of Default or event exists,  stating its nature, when it occurred and
     what action the Borrower proposes to take with respect thereto.

(b)  Within 90 days after the end of each  fiscal year of the  Borrower,  a true
     and complete copy of the Borrower's Annual Report on Form 10-K (which shall
     include  an  unqualified  report  of  the  Borrower's   independent  public
     accountants on the financial statements included therein) for such year. At
     the time such annual reports are furnished, the Borrower shall also furnish
     a certificate of the Borrower's president or chief financial officer to the
     effect set forth in Section 7.2(a).

(c)  As  soon as  practicable,  copies  of all  registration  statements,  proxy
     statements  and all periodic or other reports  which the Borrower  shall or
     may be required to file with the Securities and Exchange  Commission or any
     successor commission, and copies of all press releases.

(d)  From time to time, such data, certificates,  reports, statements, documents
     or further information regarding the business or financial condition of the
     Borrower as the Lender may reasonably request in writing.

(e)  Prompt notice of all proceedings by or before any governmental  commission,
     board,  bureau or other  administrative  agency and all  judicial  actions,
     suits or  proceedings  against  the  Borrower or its  properties,  which if
     adversely  determined  could,  together with all such other  litigation and
     proceedings, if similarly determined, have a Material Adverse Effect.

(f)  Prompt notice of (i) any fact, circumstance, condition or development which
     could  reasonably be expected to have a Material  Adverse Effect,  (ii) any
     Event of  Default  or any  event,  which  with the  giving of notice or the
     passage of time or both would  constitute,  an Event of Default  under this
     Agreement, (iii) an Event of Default or a default with respect to any other

                                       8
<PAGE>
                                                                   EXHIBIT 10.20

     indebtedness  of  the  Borrower  or any  Subsidiary  or  any  agreement  or
     instrument  under  any  other  agreement  to  which  the  Borrower  or  any
     Subsidiary  is a party or by which the Borrower or any  Subsidiary or their
     respective properties are bound.

7.3  Negative Covenants.  The Borrower shall not and shall not permit any of its
     Subsidiaries to:

(a)  Create, assume, incur, directly or indirectly,  or permit to exist or to be
     created,  assumed  or  incurred  any  Lien  except  (i)  Liens  for  taxes,
     governmental assessments and governmental charges or levies imposed upon it
     or upon  its  income  or  profits  or  upon  any of its  property,  real or
     personal,  or any part thereof if the same shall not at the time be due and
     payable or are being contested in good faith by appropriate proceedings and
     for which  adequate  reserves  have been  established  if such reserves are
     required by GAAP in effect at the time,  (ii) Liens  imposed by law such as
     for carriers, warehousemen and mechanics incurred in the ordinary course of
     business  for sums not yet due and payable or which are being  contested in
     good faith by  appropriate  proceedings  and (iii) Liens  permitted  by the
     Security Agreement.

(b)  Incur, create, assume or otherwise become obligated in respect of or permit
     to  be  outstanding  any  Indebtedness  (as  hereinafter  defined),  except
     Indebtedness  incurred as a result of  borrowings  under this  Agreement or
     Indebtedness  secured by a Lien to the  extent  permitted  by the  Security
     Agreement.  As used herein,  the term  "Indebtedness"  shall mean (i) money
     borrowed  by the  Borrower  or any  Subsidiary  from any  person;  (ii) any
     indebtedness  of  the  Borrower  or any  Subsidiary  arising  under  leases
     required  to be  capitalized  under  GAAP or  evidenced  by a  note,  bond,
     debenture or similar instrument;  (iii) any indebtedness of the Borrower or
     any Subsidiary arising under purchase money obligations or representing the
     deferred  purchase price of property and services (other than current trade
     payables  incurred in the  ordinary  course of the  Business)  and (iv) any
     Liability of the Borrower or any Subsidiary  under any guaranty,  letter of
     credit, performance credit or other agreement having the effect of assuring
     a creditor against loss.

(c)  Declare  or pay any  dividends  (other  than  dividends  payable in capital
     stock) on any shares of any class of capital  stock of the  Borrower or any
     Subsidiary (other than a wholly-owned  Subsidiary) or apply any property or
     assets of the Borrower or any  Subsidiary  to the  purchase,  redemption or
     other  retirement of or set apart any sum for the payment of, any dividends
     on or for the purchase, redemption or other retirement of or make any other
     distribution  by reduction of capital or otherwise in respect of any shares
     of  capital  stock  of  the  Borrower  or  any  Subsidiary  (other  than  a
     wholly-owned Subsidiary).

(d)  Liquidate or dissolve  itself (or suffer any  liquidation or  dissolution),
     merge  or  consolidate  with any  corporation  (other  than a  merger  of a
     wholly-owned  Subsidiary into the Borrower),  or, sell, lease,  transfer or
     otherwise  dispose of all or,  except in the  ordinary  course of business,
     consistent  with  past  practice,  any  part  of its  assets,  property  or
     business.

(e)  Make any investment in or capital  contribution to, or make or permit to be
     outstanding  any loan,  advance  or  extension  of  credit to or  purchase,
     acquire or incur any  liability  for the  purchase  or  acquisition  of any
     business,  assets or securities of any person,  or entity except (i) loans,

                                       9
<PAGE>
                                                                   EXHIBIT 10.20

     advances  and  extensions  of credit on  account  of sales on credit in the
     ordinary  course of business,  (ii) purchases or  acquisitions of assets in
     the  ordinary  course of business,  (iii)  travel  advances in the ordinary
     course of business to officers and employees, (iv) advances in the ordinary
     course of business to employees or consultants  against commissions and (v)
     temporary cash  investments  consisting of investments in prime  commercial
     paper, short-term investment grade securities or certificates of deposit.

(f)  Enter into any transaction,  including,  without limitation,  the purchase,
     sale or  exchange of property or the  rendering  of any  service,  with any
     Affiliate (as hereinafter  defined),  except a transaction  which is in the
     ordinary course of business and is upon fair and reasonable  terms not less
     favorable  to the  Borrower  or the  Subsidiary  than it would  obtain in a
     comparable arm's length transaction.  As used herein, the term, "Affiliate"
     shall mean any other  person  directly  or  indirectly  through one or more
     intermediary  persons,  controlling,  controlled by or under common control
     with the Borrower.

(g)  Acquire an  interest  in any  corporation,  partnership,  joint  venture or
     similar entity or create any Subsidiary.

(h)  Establish,  become obligated to make contributions under or permit to exist
     any pension  plan  subject to the  provisions  of the  Employee  Retirement
     Income  Security Act of 1974,  other than such plans of the Borrower or any
     Subsidiary existing on the date hereof.

VIII.   EVENTS OF DEFAULT

8.1  Events of  Default.  Each of the  following  shall  constitute  an Event of
Default:

(a)  Default  in the  payment  of the  principal  amount  of the  Note  when due
     (whether at maturity,  by reason of  acceleration  or  otherwise) or in the
     payment of any  interest on the Note  within five days after such  interest
     becomes due.

(b)  Any  representation  or warranty made by the Borrower  under this Agreement
     shall have been incorrect in any material respect when made.

(c)  The Borrower shall default in the  performance of any agreement or covenant
     contained in Section 7.3 of this Agreement.
(d)  The Borrower  shall default in the  performance  of any other  agreement or
     covenant  contained in this  Agreement or the Security  Agreement  and such
     default shall remain unremedied for 10 days.

(e)  The Borrower or any  Subsidiary  shall fail to pay when due and payable the
     principal  of or  interest  on any  Indebtedness  in respect of which it is
     obligated to make such payment,  other than  Indebtedness  evidenced by any
     Note, or the maturity of any such Indebtedness  shall have been accelerated
     in accordance  with the provision of any indenture,  contract or instrument
     providing for the creation of or concerning such  Indebtedness or any event
     shall have  occurred and be continuing  which,  with the passage of time or
     the  giving of notice or both  would  permit  any holder or holders of such

                                       10
<PAGE>
                                                                   EXHIBIT 10.20

     Indebtedness,  any  trustee  or agent  acting on  behalf of such  holder or
     holders or any other person so to accelerate such maturity.

(f)  The Borrower or any Subsidiary  shall commence any proceeding in bankruptcy
     or under any law relating to the relief of debtors  from,  or  readjustment
     of, any  Indebtedness;  or any  proceeding  shall be commenced  against the
     Borrower  or any  Subsidiary  and  shall be  consented  to or  approved  or
     sustained as  meritorious  by a court of competent  jurisdiction  or not be
     dismissed  or  stayed  within a period of 30 days  after  the  commencement
     thereof;  or the  Borrower or any  Subsidiary  shall  become  insolvent  or
     consent to the  appointment  of a trustee or receiver or make an assignment
     for the benefit of creditors.

(g)  A final judgment  shall be rendered  against the Borrower or any Subsidiary
     and if within 30 days after the entry  thereof such judgment or any of such
     other judgments shall not have been discharged or execution  thereof stayed
     pending appeal or, if within 30 days after the expiration of any such stay,
     such  judgment  or  any  of  such  other  judgments  shall  not  have  been
     discharged.

8.2  Remedies. If any Event of Default shall occur and be continuing, the Lender
     may, by written notice to the Borrower,  do any or all of the following (i)
     declare  the  principal  of and  interest  on the  Loan  and the Note to be
     forthwith due and payable whereupon the same shall become forthwith due and
     payable without presentment,  demand,  protest or other notice of any kind,
     all of which are expressly  waived,  anything in this Agreement or the Note
     to the  contrary  notwithstanding,  (ii)  exercise  all of  its  rights  or
     remedies  under the Security  Agreement  and (iii)  exercise all rights and
     remedies which may be available at law or in equity.

IX.     MISCELLANEOUS

9.1  Notices. All notices,  notifications and other  communications  required or
     permitted by this  Agreement  shall be in writing and shall be delivered by
     hand,  telegraphically   transmitted,   sent  by  telecopy,  or  mailed  by
     registered or certified first class airmail to the parties at the following
     addresses  (or such  other  address  for a party as shall be  specified  by
     notice given pursuant hereto):

If to the Borrower:
Communication Intelligence Corporation
           275 Shoreline Drive
           Redwood City, CA 94065-1413
           Attn:  President
           Tel: (650) 802-7888
           Fax: (650) 802-7777
If to the Lender:
The Philip S. Sassower 1996 Charitable Remainder Annuity Trust
           c/o Mr. Philip Sassower
           135 East 57th Street
           New York, New York  10022
           Tel: (212) 759-1909
           Fax: (212) 319-4930
with a copy to:
Baer Marks & Upham LLP
           805 Third Avenue
           New York, NY  10022-7513
           Attn:  Jonathan J. Russo, Esq.

                                       11
<PAGE>
                                                                   EXHIBIT 10.20

           Tel:  (212) 702-5700
           Fax:  (212) 702-5941

Notices  delivered  by hand,  telegraphically  transmitted,  or sent by telecopy
shall be deemed given the day so delivered,  transmitted or sent. Notices mailed
as provided herein shall be deemed given on the third business day following the
date so mailed or on the date of actual receipt, whichever is earlier.

9.2  Expenses.  The  Borrower  will pay (i) all  out-of-pocket  expenses  of the
     Lender in connection with the  preparation,  execution and delivery of this
     Agreement,  the  Security  Agreement,  the  Warrants  and the  Note and the
     transactions contemplated hereby and thereby, including reasonable fees and
     disbursements of counsel to the Lender, (ii) all out-of-pocket  expenses in
     connection  with the  preparation,  execution  and  delivery of any waiver,
     amendment or consent by the Lender  relating to this  Agreement,  including
     reasonable fees and  disbursements of counsel to the Lender,  and (iii) all
     costs of  obtaining  performance  under  this  Agreement  and the  Security
     Agreement by the Borrower  and all costs of  collection  in respect to this
     Agreement, which costs shall include reasonable counsel fees and expenses.

9.3  Rights,  Remedies  Cumulative.  The rights and remedies of the Lender under
     this Agreement,  the Security Agreement or the Note shall be cumulative and
     not exclusive of any rights or remedies which it would  otherwise have, and
     no failure or delay by the Lender in exercising  any right shall operate as
     a waiver of it, nor shall any single or  partial  exercise  of any power or
     right  preclude its other or further  exercise or the exercise of any other
     power  or  right.  Any  term,  covenant,  agreement  or  condition  of this
     Agreement  or the  Note may be  amended  with the  written  consent  of the
     Borrower and the Lender. No modification or waiver of any provision of this
     Agreement  or the Note and no  consent  to any  departure  by the  Borrower
     therefrom  shall in any  event be  effective  unless  the same  shall be in
     writing and signed by the Lender and then such  waiver or consent  shall be
     effective  only in the  specific  instance and for the purpose for which it
     was given.

9.4  Assignment.  This  Agreement  may not be  assigned by the  Borrower  unless
     consent to such  assignment  is given in writing by the Lender.  Subject to
     the foregoing,  this Agreement and the Note shall be binding upon and inure
     to the benefit of the parties hereto and their respective successors, heirs
     and legal representatives.

9.5  Exhibits. All Exhibits attached hereto are hereby incorporated by reference
     into, and made a part of, this Agreement.

                                       12
<PAGE>
                                                                   EXHIBIT 10.20

9.6  Enforceability.  If any  provision  of this  Agreement  or the Note for any
     reason  shall  be  held  to be  illegal,  invalid  or  unenforceable,  such
     illegality  shall not affect any other  provision of this  Agreement or the
     Note, but this Agreement or the Note shall be construed as if such illegal,
     invalid or unenforceable provision had never been included herein.

9.7  Counterparts. This Agreement may be executed in any number of counterparts,
     each of which shall be deemed to be an original,  and shall be binding upon
     all parties, their successors and assigns.

9.8  Governing Law. This Agreement and the Note shall be construed in accordance
     with and  governed  by the laws of the  State of New York,  without  giving
     effect to the conflicts of law principles applied in such state.

9.9  Prior  Agreement.  This  Agreement  amends and restates in its entirety the
     Prior Agreement, and the Prior Agreement is hereby terminated.


                                         COMMUNICATION INTELLIGENCE
                                               CORPORATION


                                          By: /s/Guido DiGregorio
                                          Name:  Guido DiGregorio
                                          Title: President and CEO


                                         THE PHILIP S. SASSOWER 1996 CHARITABLE
                                         REMAINDER ANNUITY TRUST


                                           By: /s/ Philip S. Sassower
                                           Name:   Philip S. Sassower
                                           Title: Trustee


                                       13
<PAGE>
                                                                   EXHIBIT 10.20



THIS NOTE HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY BE OFFERED,  SOLD OR OTHERWISE  TRANSFERRED  ONLY IF SO REGISTERED UNDER
SAID ACT OR IF THE HOLDER  HAS  DELIVERED  TO THE MAKER AN  OPINION OF  COUNSEL,
WHICH COUNSEL AND OPINION SHALL BE SATISFACTORY TO THE MAKER,  THAT AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE.


                                      NOTE


$1,500,000                                                     October 20, 1999


        FOR  VALUE  RECEIVED,   the  undersigned,   Communication   Intelligence
Corporation (the "Borrower"),  hereby promises to pay to the order of The Philip
S. Sassower 1996 Charitable Remainder Annuity Trust (the "Lender") at the office
of the Lender  located at 135 East 57th Street,  New York,  New York 10022,  the
principal amount of $1,500,000,  or if less the then unpaid aggregate  principal
amount then due, on January 31, 2002,  in lawful  money of the United  States of
America  in  immediately  available  funds,  and to pay  interest  on the unpaid
principal  amount hereof for each day from the date hereof until due (whether at
maturity, by reason of acceleration or otherwise) at an annual rate equal to the
sum of 2% in excess of the rate per annum  publicly  announced from time to time
by Citibank,  N.A., as its prime rate in effect at its  principal  office in New
York City in immediately available funds. Interest on this Note shall be payable
in arrears on each March 31, June 30,  September 30 and December 31,  commencing
December 31, 1999, provided that any unpaid interest,  in addition to the unpaid
principal  amount of this Note, shall be due and payable on the Maturity Date as
defined in the Loan Agreement hereinafter described.


<PAGE>
                                                                   EXHIBIT 10.20

     Presentation,  demand,  protest and notice of dishonor are hereby waived by
the undersigned.

     This Note amends and restates the following: (i) Borrower's promissory note
dated  June 15,  1999 in the  principal  amount  of  $500,000,  (ii)  Borrower's
promissory  note dated August 18, 1999 in the  principal  amount of $150,000 and
(iii)  Borrower's  promissory  note dated  September  17, 1999 in the  principal
amount of $100,000  (collectively the "Prior Notes"), and such Prior Notes shall
hereby be  terminated.  The  outstanding  principal  amounts due pursuant to the
Prior  Notes shall be included in the amount due under this Note and all accrued
and unpaid  interest with respect to the Prior Notes shall be due and payable on
December 31, 1999.

        This Note  evidences a loan under and is entitled to the benefits of the
Amended and Restated Loan Agreement  dated October 19, 1999 between the Borrower
and the Lender,  which agreement,  among other things,  contains provisions with
respect to the  acceleration  of the maturity of this Note upon the happening of
certain  stated events and for  prepayments  on account of the principal of this
Note prior to maturity, all upon the terms and conditions specified therein. The
provisions of such Loan Agreement are incorporated by reference into the Note as
if more fully set forth  herein.  This Note is also  entitled to the benefits of
the Amended and Restated Security Agreement, dated October 19, 1999, between the
Borrower and the Lender.
        The Borrower  hereby agrees to pay all of Lender's costs and expenses in
connection with the execution and delivery of the Loan  agreement,  the Security
Agreement  and this  Note  and the  exercise  of  Lender's  rights  contemplated
hereunder and thereunder.
                                      Communication Intelligence Corporation

                                           By: /s/Guido DiGregorio
                                           Name: Guido DiGregorio
                                           Title: President and CEO


<PAGE>
                                                                   EXHIBIT 10.20





THIS  WARRANT  HAS NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS
AMENDED, AND MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY IF SO REGISTERED
UNDER  SAID ACT OR IF THE  HOLDER  HAS  DELIVERED  TO THE  COMPANY AN OPINION OF
COUNSEL  REASONABLY  ACCEPTABLE  TO THE  COMPANY  THAT AN  EXEMPTION  FROM  SUCH
REGISTRATION IS AVAILABLE


                            CERTIFICATE FOR WARRANTS


EXERCISABLE  ON OR AFTER THE DATE OF  ISSUANCE  UNTIL 5:00  P.M.,  NEW YORK CITY
TIME, ON OCTOBER 20, 2001



                     COMMUNICATION INTELLIGENCE CORPORATION
                    COMMON STOCK PURCHASE WARRANT CERTIFICATE


                                                               300,000 Warrants


    THIS CERTIFIES that: THE PHILIP S. SASSOWER 1996 CHARITABLE
REMAINDER ANNUITY TRUST

or registered assigns is the registered holder (the "Registered  Holder") of the
number of Warrants set forth above, each of which,  subject to the provisions of
Section 1.1 of Article  hereof,  represents the right to purchase one fully paid
and nonassessable share (the "Shares") of Common Stock, par value $.01 per share
("Common Stock") of Communication Intelligence Corporation, a corporation formed
under the laws of the state of Delaware (the "Company"), at the initial exercise
price of $1.09 per Share, at any time prior to the Exercise Deadline hereinafter
referred to, by surrendering this Warrant Certificate, with the form of election
to purchase set forth hereon duly  executed,  at the office of the Company,  275
Shoreline Drive, Redwood Shores, CA 94065, or such other address as to which the
Company shall have given written notice to the Registered Holder. Payment of the
exercise price shall be made in United States  currency,  by certified  check or
money order  payable to the order of the Company.  This Warrant  Certificate  is
being  issued  in  connection  with  the  issuance  of  300,000   Warrants  (the
"Warrants").
<PAGE>
                                                                   EXHIBIT 10.20


                                    ARTICLE 1

                 WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS

        1.1 Exercise Price;  Number of Shares.  This Warrant  Certificate shall,
when executed by the Company,  entitle the Registered  Holder hereof to purchase
from the Company one Share for each  Warrant  evidenced  hereby,  at the initial
Exercise  Price of $1.09 per Share,  or such  adjusted  number of Shares at such
adjusted  purchase price as may be established from time to time pursuant to the
provisions  of Articles 1 and 2 hereof,  payable in full at the time of exercise
of this Warrant.  The term "Exercise Price" as used in this Agreement shall mean
the purchase  price of one Share upon the exercise of this  Warrant,  reflecting
all appropriate adjustments made in accordance with the provisions hereof.

        1.2  Exercisability  of  Warrants.  Each Warrant may be exercised at any
time on or after the date of its issuance  until 5:00 P.M.,  New York City time,
on October 20, 2001 (the "Exercise Deadline").

        1.3 Procedure for Exercise. Prior to the Exercise Deadline, Warrants may
be exercised by  surrendering  this  Warrant  Certificate  to the Company at the
address specified above, accompanied by payment in full of the Exercise Price as
provided in Section 1.1 in effect at the time of such  exercise,  together  with
such taxes as are  specified in Section 4.1 hereof,  for each Share with respect
to which such Warrants are being exercised.  Such Exercise Price and taxes shall
be paid in full by  certified  check or money  order,  payable in United  States
currency to the order of the Company.  The date on which  Warrants are exercised
in accordance with this Section 1.3 is sometimes  referred to herein as the Date
of  Exercise.  In addition to the method of payment set forth in Section 1.3 and
in lieu of any cash payment required  thereunder,  the Registered  Holder of the
Warrants  shall have the right at any time and from time to time to exercise the
Warrants  in full or in part by  surrendering  the  Warrant  Certificate  in the
manner  specified  in Section 1.3 in exchange for the number of shares of common
stock  equal to the  product of (x) the  number of shares of common  stock as to
which the  Warrants  are  being  exercised  multiplied  by (y) a  fraction,  the
numerator  of which is the Market  Price of the shares of Common  Stock less the
Exercise Price and the denominator of which is such Market Price. Solely for the
purposes of this  paragraph,  Market Price shall be calculated on the date which
the form of election  attached hereto is deemed to have been sent to the Company
("Notice Date").

        For purposes of this  Agreement,  "Market  Price" of any security on any
date means the average of the daily closing  prices for 10  consecutive  trading
days  commencing  five trading days prior to the Notice Date.  The closing price
for each day shall be the last  reported  sales price regular way or, in case no
such  reported  sale takes place on such day, the average of the closing bid and
asked prices  regular way for such day, in each case on the  principal  national
securities  exchange on which the  securities  are listed or admitted to trading
or, if not so listed or admitted to trading, the last sale price regular way for
the  security as published by NASDAQ or if no such sale takes place on such day,
the mean  between the closing bid and asked prices for the security as published
by NASDAQ or if no such sale  takes  place on such  day,  the mean  between  the
closing bid and asked prices for the  security as  published  by NASDAQ.  In the

                                       2
<PAGE>
                                                                   EXHIBIT 10.20

absence of one or more such  quotations,  the Company shall determine the Market
Price in good faith, based on the best information available to it.

        1.4  Issuance  of  Shares.  As soon as  practicable  after  the  Date of
Exercise of any Warrants,  the Company shall issue,  or cause the transfer agent
for the Common Stock,  if any, to issue a certificate  or  certificates  for the
number of full Shares to which the holder is entitled,  registered in accordance
with the instructions set forth in the Form of Election to Purchase.  All Shares
shall be validly  authorized and issued,  fully paid and  nonassessable and free
from all liens and  charges  created  by the  Company  in  respect  of the issue
thereof.  Each  person in whose name any such  certificate  for Shares is issued
shall for all  purposes  be deemed to have  become  the  holder of record of the
Shares represented  thereby on the Date of Exercise of the Warrants resulting in
the issuance of such shares, irrespective of the date of issuance or delivery of
such certificate for the Shares.

        1.5 Certificates for Unexercised  Warrants.  In the event that less than
all of the Warrants  represented by a Warrant  Certificate  are  exercised,  the
Warrant  Agent  shall  execute  and  mail,  by  first  class  mail,  as  soon as
practicable  but,  in any  event,  not  later  than 30 days  after  the  Date of
Exercise,  to the Registered Holder of such Warrant  Certificate,  or such other
person  as shall be  designated  in the  election  to  purchase,  a new  Warrant
Certificate  representing the number of full Warrants not exercised. In no event
shall a  fraction  of a  Warrant  be  exercised,  and the  Warrant  Agent  shall
distribute no Warrant Certificates representing fractions of Warrants under this
or any other section of this Agreement.  Fractions of Shares shall be treated as
provided in Section 2.9.

        1.6  Reservation  of Shares.  The Company shall at all times reserve and
keep  available  for  issuance  upon the  exercise  of  Warrants a number of its
authorized but unissued shares of Common Stock that will be sufficient to permit
the exercise in full of all outstanding Warrants.


                                    ARTICLE 2

                        ADJUSTMENTS AND NOTICE PROVISIONS

        2.1  Adjustment  of Exercise  Price.  Subject to the  provisions of this
Article 2, the  Exercise  Price in effect  from time to time shall be subject to
adjustment, as follows:

                (a)     [Intentionally Omitted.]

                (b) In case the Company  shall at any time after the date hereof
(i) declare a dividend on the outstanding  Common Stock payable in shares of its
capital stock,  (ii) subdivide the outstanding  Common Stock,  (iii) combine the
outstanding  Common  Stock into a smaller  number of  shares,  or (iv) issue any
shares of its capital stock by  reclassification  of the Common Stock (including
any such  reclassification in connection with a consolidation or merger in which
the Company is the  continuing  corporation),  then, in each case,  the Exercise
Price in effect, and the number of Shares issuable upon exercise of the Warrants
outstanding,  at the  time  of the  record  date  for  such  dividend  or of the

                                       3
<PAGE>
                                                                   EXHIBIT 10.20

effective date of such subdivision,  combination or  reclassification,  shall be
proportionately  adjusted  so that the holders of the  Warrants  after such time
shall be entitled to receive the aggregate  number and kind of shares which,  if
such Warrants had been exercised  immediately  prior to such time,  such holders
would have owned upon such  exercise  and been  entitled to receive by virtue of
such dividend,  subdivision,  combination or  reclassification.  Such adjustment
shall be made successively whenever any event listed above shall occur.

                (c) In case the  Company  shall  distribute  to all  holders  of
shares of Common Stock (including any such distribution made to the shareholders
of the Company in connection with a consolidation or merger in which the Company
is the  continuing  corporation  but  excluding the  transaction  referred to in
Section 2.1(b)) evidences of its indebtedness,  cash (other than cash dividends)
or assets (other than  distributions  and dividends payable in Common Stock), or
rights,  options or  warrants to  subscribe  for or purchase  Common  Stock,  or
securities  convertible  into or  exchangeable  for Common Stock,  then, in each
case, the Exercise Price shall be adjusted by multiplying  the Exercise Price in
effect   immediately   prior  to  the  record  date  for  the  determination  of
shareholders entitled to receive such distribution by a fraction,  the numerator
of which shall be the  Exercise  Price per Share on such record  date,  less the
fair market value (as  determined in good faith by the board of directors of the
Company,  whose  determination shall be conclusive absent manifest error) of the
portion of the evidences of indebtedness  or assets so to be distributed,  or of
such rights, options, or warrants or convertible or exchangeable securities,  or
the amount of such cash,  applicable to one Share,  and the denominator of which
shall be such Exercise Price per Share.  Such adjustment  shall become effective
at the close of business on such record date.

                (d) In case the  Company  shall sell any shares of Common  Stock
(other  than  in  a  transaction   referred  to  in  Section  2.1(a)-(c)  for  a
consideration  per share less than the Exercise  Price per Share,  then, in each
case,  the  Exercise  Price in effect  immediately  prior to such sale  shall be
adjusted to a price  determined  by  multiplying  the  Exercise  Price in effect
immediately  prior to such sale by a fraction,  the  numerator of which shall be
the sum of (i) the total number of Shares outstanding  immediately prior to such
sale, and (ii) the aggregate consideration, if any, received by the Company upon
such sale divided by the Exercise Price  immediately prior to such sale, and the
denominator of which shall be the total number of Shares outstanding immediately
after such sale.

                (e) For the purposes of any  adjustment to be made in accordance
with Section 2.1(d) the following provisions shall be applicable:

     (i) In case of the sale of Common Stock for a consideration  part or all of
which  shall be  cash,  the  amount  of the cash  portion  of the  consideration
therefor deemed to have been received by the Company shall be without  deduction
for any expenses  (including,  without  limitation,  any underwriting  discount,
selling  concession or other  compensation  paid in  connection  with such sale)
incurred by the Company in connection with such transaction. In case of the sale
of Common Stock for consideration  part or all of which shall be in a form other
than cash, the value of such consideration  shall be as determined in good faith
by the  board  of  directors  of  the  Company,  whose  determination  shall  be
conclusive absent manifest error.

                                       4
<PAGE>
                                                                   EXHIBIT 10.20

     (ii) The number of shares of Common Stock at any one time outstanding shall
be deemed to include the aggregate maximum number of shares issuable (subject to
readjustment  upon the actual  issuance  thereof)  upon the exercise of options,
rights or  warrants  and upon the  conversion  or  exchange  of  convertible  or
exchangeable securities.

     (iii) Except as hereinafter provided, in case the Company shall at any time
after the date hereof issue options,  rights or warrants to subscribe for Common
Stock,  or issue any  securities  convertible  into or  exchangeable  for Common
Stock,  for a  consideration  per share  (determined as provided in this Section
2.1(e)) less than the Exercise Price in effect  immediately prior to the earlier
of the issuance of such  options,  rights or warrants,  or such  convertible  or
exchangeable  securities or the record date therefor,  or without  consideration
(including  the  issuance  of any such  securities  by way of  dividend or other
distribution),  the Exercise Price for the Warrants in effect  immediately prior
to the issuance of such  options,  rights or warrants,  or such  convertible  or
exchangeable  securities or the record date therefor,  as the case may be, shall
be reduced to a price  determined by making the  computation in accordance  with
the provisions of Section 2.1(d) hereof, provided that:

     a. The aggregate  maximum number of shares of Common Stock issuable or that
may become issuable under such options, rights or warrants (assuming exercise in
full even if not then currently  exercisable  or currently  exercisable in full)
shall be deemed to be issued and outstanding at the time such options, rights or
warrants  were  issued,  for a  consideration  equal to the minimum  purchase or
exercise price per share provided for in such options, rights or warrants at the
time of issuance,  plus the consideration,  if any, received by the Company upon
the issuance of such options, rights or warrants (without deduction for expenses
incurred or amounts paid to any  underwriter  by the Company in connection  with
such issuance); provided, however, that upon the expiration or other termination
of such  options,  rights  or  warrants,  if any  thereof  shall  not have  been
exercised,  the  number  of  shares of  Common  Stock  deemed  to be issued  and
outstanding  pursuant to this  Section  2.1(e) shall be reduced by the number of
shares as to which options,  warrants and/or rights shall have expired, and such
number of shares shall no longer be deemed to be issued and outstanding, and the
Exercise  Price then in effect shall  forthwith be readjusted  and thereafter be
the price that it would have been had the  adjustment  been made on the basis of
the  issuance  only of the shares  actually  issued  plus the  shares  remaining
issuable upon the exercise of those options,  rights or warrants as to which the
exercise rights shall not have expired or terminated unexercised.

     b. The aggregate  maximum number of shares of Common Stock issuable or that
may  become   issuable  upon  conversion  or  exchange  of  any  convertible  or
exchangeable  securities  (assuming  conversion  or exchange in full even if not
then currently convertible or exchangeable in full) shall be deemed to be issued
and outstanding at the time of issuance of such securities,  for a consideration
equal to the  consideration  received by the Company  upon the  issuance of such
securities  (without  deduction  for  expenses  incurred or amounts  paid to any
underwriter in connection with such issuance),  plus the minimum  consideration,
if any,  receivable  by the Company  upon the  conversion  or exchange  thereof;
provided, however, that upon the termination of the right to convert or exchange
such convertible or exchangeable  securities (whether by reason of redemption or
otherwise),  the  number  of  shares of  Common  Stock  deemed to be issued  and

                                       5
<PAGE>
                                                                   EXHIBIT 10.20

outstanding pursuant to this subsection 2.1(e) shall be reduced by the number of
shares as to which the  conversion  or  exchange  rights  shall have  expired or
terminated  unexercised,  and such number of shares shall no longer be deemed to
be issued and outstanding, and the Exercise Price then in effect shall forthwith
be readjusted and thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares  actually  issued plus
the shares remaining  issuable upon conversion or exchange of those  convertible
or  exchangeable  securities as to which the conversion or exchange rights shall
not have expired or terminated unexercised.

     c. If any change shall occur in the price per share  provided for in any of
the options,  rights or warrants  referred to in this Section 2.1(e),  or in the
price per share or ratio at which the  securities  referred  to in this  Section
2.1(e) are  convertible or exchangeable  (in either case,  other than changes in
such prices or ratios  arising  pursuant  to  antidilution  adjustments  in such
options,  rights,  warrants,  convertible  or  exchangeable  securities  or  the
instruments  pursuant  to which  they  were  issued),  such  options,  rights or
warrants or convertible or exchangeable  securities,  as the case may be, to the
extent not theretofore exercised,  shall be deemed to have expired or terminated
on the date when such  price  change  became  effective  in respect of shares of
Common Stock not  theretofore  issued  pursuant to the exercise or conversion or
exchange thereof,  and the Company shall be deemed to have issued upon such date
new options, rights or warrants or convertible or exchangeable securities.

        2.2 No Adjustments to Exercise Price.  (a) No adjustment in the Exercise
Price shall be required if such adjustment is less than $.01; provided, however,
that any  adjustments  which by reason of this  Article 2 are not required to be
made  shall  be  carried  forward  and  taken  into  account  in any  subsequent
adjustment.  All calculations  under this Article 2 shall be made to the nearest
cent or to the nearest one hundredth of a share, as the case may be.

                (b) Notwithstanding  any provision of this Warrant  Certificate,
no adjustment of the Exercise  Price or in the number of Shares shall be made as
a result of or in connection with the issuance or sale of shares of Common Stock
pursuant to options,  warrants,  stock purchase  agreements  and  convertible or
exchangeable securities outstanding or in effect on the date hereof.

        2.3 Adjustment to Number of Shares. Upon each adjustment of the Exercise
Price as a result  of the  calculations  made in  Section  2.1(a),  (c)-(d)  and
Section  2.10  hereof,  the  Warrants  shall  thereafter  evidence  the right to
purchase,  at the adjusted Exercise Price, that number of shares  (calculated to
the  nearest  hundredth)  obtained  by  dividing  (A) the  product  obtained  by
multiplying the number of shares purchasable upon exercise of the Warrants prior
to such  adjustment  by the Exercise  Price in effect prior to adjustment of the
Exercise Price by (B) the Exercise Price in effect after such  adjustment of the
Exercise Price.

        2.4 Reorganizations.  In case of any capital reorganization,  other than
in the transactions  referred to in Section 2.1 hereof,  or the consolidation or
merger of the Company with or into another  corporation  (other than a merger or
consolidation  in which the Company is the surviving or  continuing  corporation
and which  does not result in any  reclassification  of the  outstanding  Common
Stock or the  conversion of such  outstanding  Common Stock into shares of other

                                       6
<PAGE>
                                                                   EXHIBIT 10.20

stock or other  securities  or property),  or in the case of any sale,  lease or
conveyance  to another  corporation  of the property and assets of any nature of
the Company as an entirety or  substantially  as an entirety (such actions being
hereinafter   collectively  referred  to  as  "Reorganizations"),   there  shall
thereafter be deliverable upon exercise of any Warrant (in lieu of the number of
shares  theretofore  deliverable)  the  number  of  shares  of  stock  or  other
securities  or  property  to which a holder of the number of shares  which would
otherwise  have been  deliverable  upon the exercise of such Warrant  would have
been entitled  upon such  Reorganization  if such Warrant had been  exercised in
full immediately prior to such  Reorganization  on the record date therefor.  In
case of any Reorganization,  appropriate adjustment, as determined in good faith
by the board of directors of the Company,  shall be made in the  application  of
the  provisions  herein set forth with  respect to the rights and  interests  of
Warrant  holders so that the  provisions  set forth herein shall  thereafter  be
applicable,  as nearly as possible,  in relation to any shares or other property
thereafter  deliverable upon exercise of Warrants.  Any such adjustment shall be
made by and  set  forth  in a  supplemental  agreement  of the  Company,  or any
successor thereto,  and shall for all purposes hereof  conclusively be deemed to
be  an   appropriate   adjustment.   The  Company  shall  not  effect  any  such
Reorganization  unless upon or prior to the  consummation  thereof the successor
corporation,  or if the Company shall be the surviving  corporation  in any such
Reorganization  and is not the issuer of the shares of stock or other securities
or property to be delivered to holders of the Common  Stock  outstanding  at the
effective time thereof, then such issuer, shall assume by written instrument the
obligation to deliver to the Registered Holder of each Warrant  Certificate such
shares of stock,  securities,  cash or other  property as such  holder  shall be
entitled to purchase in accordance with the foregoing  provisions.  In the event
of sale,  lease or conveyance or other transfer of all or  substantially  all of
the assets of the Company as part of a plan for liquidation of the Company,  all
rights to exercise any Warrant  shall  terminate 30 days after the Company gives
written notice to each Registered  Holder of each Warrant  Certificate that such
sale or conveyance or other transfer has been consummated.

        2.5 Reclassifications.  In case of any reclassification or change of the
Ordinary  Shares  issuable upon exercise of the Warrants (other than a change in
par value or from no par value to a  specified  par  value,  or as a result of a
transaction  referred to in Section 2.1 or 2.4, but  including any change in the
shares  into  two or  more  classes  or  series  of  shares),  or in case of any
consolidation  or merger of another  corporation  into the  Company in which the
Company is the continuing  corporation and in which there is a  reclassification
or change (including a change to the right to receive cash or other property) of
the Common  Stock  (other than a change in par value,  or from no par value to a
specified  par  value,  or as a result  of a  subdivision  or  combination,  but
including  any  change  in the  shares  into two or more  classes  or  series of
shares),  the holders of the Warrants shall have the right thereafter to receive
upon exercise of the Warrants solely, the kind and amount of shares of stock and
other securities,  property,  cash, or any combination  thereof  receivable upon
such reclassification, change, consolidation or merger by a holder of the number
of Shares for which the Warrants might have been exercised  immediately prior to
such  reclassification,  change,  consolidation  or  merger on the  record  date
therefor. Thereafter,  appropriate provision shall be made for adjustments which
shall be as nearly  equivalent as practicable  to the  adjustments in Article 2.
The above  provisions  of this Section 2.5 shall  similarly  apply to successive
reclassifications and changes of the Shares.

                                       7
<PAGE>
                                                                   EXHIBIT 10.20

        2.6  Verification  of  Computations.  Whenever  the  Exercise  Price  is
adjusted as provided in this  Article 2, the Company  will  promptly  deliver to
each  Registered  Holder a certificate  setting  forth the Exercise  Price as so
adjusted and a brief statement of the facts accounting for such adjustment,  and
will make  available a brief summary  thereof to the holders of the Warrant,  at
their  addresses  listed on the  register  maintained  for that  purpose  by the
Company.

     2.7  Notice  of  Certain  Actions.  In case at any time the  Company  shall
propose:

     (a) to pay any dividend or make any  distribution on shares of Common Stock
in shares of Common Stock or make any other  distribution  (other than regularly
scheduled cash dividends) to all holders of such shares; or

     (b) to issue any  rights,  warrants or other  securities  to all holders of
shares  entitling them to purchase any additional  shares of Common Stock or any
other rights, warrants, other securities or other property; or

     (c) to effect any  consolidation,  merger,  sale,  lease,  or conveyance of
property,  described  in  Section  2.4,  or any  reclassification  or  change of
outstanding shares of Shares, described in Section 2.5; or

     (d) to effect any liquidation, dissolution or winding-up of the Company;

then, in each such case, the Company shall cause notice of such proposed  action
to be mailed to each  Registered  Holder.  Such notice shall specify the date on
which the books of the Company  shall  close,  or a record  shall be taken,  for
determining  holders of shares  entitled to receive such stock dividend or other
distribution  or such rights,  warrants or  property,  or the date on which such
reclassification, change, consolidation, merger, sale, lease, other disposition,
liquidation,  dissolution,  winding up or  exchange or other  action  shall take
place or  commence,  as the case may be, and the date as of which it is expected
that  holders of record of shares  shall be  entitled to receive  securities  or
other property  deliverable  upon such action,  if any such date has been fixed.
Such notice  shall be mailed,  in the case of any action  covered by  Subsection
2.7(a)  or  2.7(b)  above,  at  least  15 days  prior  to the  record  date  for
determining  holders of shares for purposes of receiving  such payment or offer;
in the case of any action covered by Subsection 2.7(c) or 2.7(d) above, at least
15 days prior to the earlier of the date upon which such action is to take place
or any record  date to  determine  holders of shares  entitled  to receive  such
securities or other property.

        2.8 Warrant  Certificate  Amendments.  Irrespective  of any  adjustments
pursuant to this  Article 2,  Warrant  Certificates  theretofore  or  thereafter
issued need not be amended or replaced but certificates  thereafter issued shall
bear an appropriate legend or other notice of any adjustments.

        2.9  Fractional  Shares.  The  Company  shall not be  required  upon the
exercise  of any  Warrant  to issue  fractional  Shares  which may  result  from
adjustments  in the Exercise  Price or number of shares  purchasable  under each
Warrant.  If more  than  one  Warrant  is  exercised  at one  time  by the  same
Registered  Holder,  the  number  of  full  shares  of  Shares  which  shall  be

                                       8
<PAGE>
                                                                   EXHIBIT 10.20

deliverable  shall be  computed  based on the  number of shares  deliverable  in
exchange for the  aggregate  number of Warrants  exercised.  With respect to any
fraction of a share called for upon the exercise of any Warrant or Warrants, the
Company  shall pay a cash  adjustment  in respect of such  fraction in an amount
equal to the same fraction of the then Exercise Price per share.


                                    ARTICLE 3

                       OTHER PROVISIONS RELATING TO RIGHTS
                  OF REGISTERED HOLDERS OF WARRANT CERTIFICATES

        3.1  Rights of  Warrant  Holders.  This  Warrant  Certificate  shall not
entitle the  Registered  Holder thereof to any of the rights of a shareholder of
the  Company,  including,  without  limitation,  the right to vote,  to  receive
dividends  and other  distributions,  or to receive any notice of, or to attend,
meetings of shareholders or any other proceedings of the Company.

        3.2 Lost, Stolen,  Mutilated or Destroyed Warrant Certificates.  If this
Warrant Certificate shall be mutilated,  lost, stolen or destroyed,  the Company
shall  execute  and  deliver,   in  exchange  and   substitution  for  and  upon
cancellation  of  a  mutilated  Warrant  Certificate,   or  in  lieu  of  or  in
substitution for a lost, stolen or destroyed Warrant Certificate,  a new Warrant
Certificate for the number of Warrants represented by the Warrant Certificate so
mutilated,  lost,  stolen or destroyed but only upon receipt of evidence of such
loss,  theft or  destruction of such Warrant  Certificate,  and of the ownership
thereof,  and  indemnity,  if  requested,   all  satisfactory  to  the  Company.
Applicants for such substitute Warrant  Certificates shall also comply with such
other reasonable  regulations and pay such other reasonable  charges  incidental
thereto as the Company may prescribe.
                                    ARTICLE 4

                    SPLIT UP, COMBINATION, EXCHANGE, TRANSFER
                    AND CANCELLATION OF WARRANT CERTIFICATES

        4.1  Split  Up,   Combination,   Exchange   and   Transfer   of  Warrant
Certificates.  Prior to the Exercise Deadline, this Warrant Certificate, subject
to the  provisions  of Section 4.2, may be split up,  combined or exchanged  for
other Warrant Certificates representing a like aggregate number of Warrants. Any
holder  desiring  to split up,  combine  or  exchange a Warrant  Certificate  or
Warrant Certificates shall make such request in writing delivered to the Company
at its principal  office and shall surrender the Warrant  Certificate or Warrant
Certificates so to be split up,  combined or exchanged at said office.  Upon any
such surrender for split up, combination or exchange,  the Company shall execute
and  deliver to the person  entitled  thereto a Warrant  Certificate  or Warrant
Certificates,  as the case may be, as so requested.  The Company may require the
holder to pay a sum sufficient to cover any tax or governmental  charge that may
be imposed in connection with any split up, combination, exchange or transfer of
Warrant Certificates prior to the issuance of any new Warrant Certificate.

                                       9
<PAGE>
                                                                   EXHIBIT 10.20

        4.2 Agreement of Warrant Certificate Holders.  Every holder of a Warrant
Certificate by accepting the same, consents and agrees with the Company and with
every other holder of a Warrant Certificate that:

                (a) transfer of the Warrant  Certificates shall be registered on
the books of the Company  maintained  for that  purpose by the  Company  only if
surrendered at the principal office of the Company, duly endorsed or accompanied
by a proper instrument of transfer; and

                (b) prior to due presentment for  registration of transfer,  the
Company may deem and treat the person in whose name the Warrant  Certificate  is
registered as the absolute owner thereof and of the Warrants  evidenced  thereby
(notwithstanding   any   notations  of  ownership  or  writing  on  the  Warrant
Certificates made by anyone other than the Company) for all purposes whatsoever,
and the Company shall not be affected by any notice to the contrary.


                                    ARTICLE 5

                                  MISCELLANEOUS


        5.1  Changes to  Agreement.  The  Company  may,  without  the consent or
concurrence of any Registered Holder of a Warrant  Certificate,  by supplemental
agreement,  make any changes or corrections in this Certificate that it has been
advised by counsel  (i) are  required  to cure any  ambiguity  or to correct any
defective or inconsistent  provision or clerical omission or mistake or manifest
error herein contained, (ii) add to the covenants and agreements of the Company,
(iii) reduce the Exercise  Price or extend the Exercise  Deadline or (iv) result
in the surrender of any right or power reserved to or conferred upon the Company
in this  Certificate,  which changes or corrections do not or will not adversely
affect,  alter or change the rights,  privileges or immunities of the Registered
Holders of Warrant  Certificates.  Other  changes in this  Agreement may be made
only with the prior  written  consent of a holder of a majority of the  Warrants
affected thereby, provided that no such change shall increase the Exercise Price
or  shorten  the  exercise  period  without  the prior  written  consent of each
affected Registered Holder.

        5.2 Assignment. All the covenants and provisions of this Agreement by or
for the  benefit of the  Company  shall  bind and inure to the  benefit of their
respective successors and assigns.

        5.3 Notices.  Any notice or demand required by this Warrant  Certificate
to be given or made by the Registered Holder of any Warrant Certificate to or on
the  Company  shall  be  sufficiently  given or made if sent by  first-class  or
registered mail, postage prepaid,  addressed to the Company's  principal offices
specified  above (until  another  address is given in writing to the  Registered
Holder by the Company).

        Any notice or demand required by this Warrant Certificate to be given or
made by the Company to or on the  Registered  Holder of any Warrant  Certificate
shall be  sufficiently  given or made,  whether or not such holder  receives the
notice, if sent by first-class or registered mail, postage prepaid, addressed to
such registered holder at his last address as shown on the books of the Company.
Otherwise such notice or demand shall be deemed given when received by the party
entitled thereto.

        5.4 Defects in Notice.  Failure to file any  certificate or notice or to
mail any notice,  or any defect in any  certificate  or notice  pursuant to this
Agreement,  shall not affect in any way the rights of any Registered Holder of a
Warrant  Certificate or the legality or validity of any adjustment made pursuant

                                       10
<PAGE>
                                                                   EXHIBIT 10.20

to Article 2 hereof, or any transaction  giving rise to any such adjustment,  or
the legality or validity of any action taken or to be taken by the Company.

        5.5 Governing Law. The laws of the State of New York shall govern this
     Warrant Certificate.

        5.6 Standing.  Nothing in this Agreement  expressed and nothing that may
be implied from any of the provisions hereof is intended, or shall be construed,
to confer upon,  or give to, any person or  corporation  other than the Company,
and the  Registered  Holders of the Warrant  Certificates  any right,  remedy or
claim  under  or by  reason  of this  Warrant  Certificate  or of any  covenant,
condition,   stipulation,   promise  or  agreement  contained  herein;  and  all
covenants, conditions,  stipulations,  promises and agreements contained in this
Agreement  shall be for the sole and  exclusive  benefit of the  Company and its
successors and assigns, and the Registered Holders of the Warrant Certificates.

        5.7 Headings.  The descriptive  headings of the articles and sections of
this Warrant Certificate are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       11
<PAGE>
                                                                   EXHIBIT 10.20

        IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the day and year first above written.


Dated:   October 20, 1999


                                      COMMUNICATION INTELLIGENCE CORPORATION



                                          By: /s/Guido DiGregorio
                                          Name: Guido DiGregorio
                                          Title: President and CEO

                                       12
<PAGE>
                                                                   EXHIBIT 10.20




                         [FORM OF ELECTION TO PURCHASE]

                  The  undersigned   hereby   irrevocably   elects  to  exercise
_______________ of the Warrants  represented by this Warrant  Certificate and to
purchase the Shares  issuable upon the exercise of said  Warrants,  and requests
that certificates for such shares be issued and delivered as follows:

ISSUE TO:
                                     (NAME)

                          (ADDRESS, INCLUDING ZIP CODE)

                (SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER)

DELIVER TO:
                                     (NAME)

                          (ADDRESS, INCLUDING ZIP CODE)


                  If the number of Warrants  hereby  exercised  is less than all
the Warrants represented by this Warrant  Certificate,  the undersigned requests
that a new Warrant  Certificate  representing  the number of full  Warrants  not
exercised be issued and delivered as set forth below.

                  In full  payment of the  purchase  price  with  respect to the
Warrants  exercised and transfer taxes,  if any, the undersigned  hereby tenders
(i) payment of  $______________ by certified check or money order payable to the
order of the Company in United States currency or (ii) shares valued as provided
in the Warrant Agreement.

Dated:   ________________


(Insert Social Security or other      (Signature of registered holder)
identifying number(s) of holder(s))

                  (Signature of registered holder, if co-owned)
             NOTE: Signature must conform in all respects to name of
                     holder as specified on the face of the
                              Warrant Certificate.



<PAGE>
                                                                  EXHIBIT 10.20
                     AMENDED AND RESTATED SECURITY AGREEMENT

This AMENDED AND RESTATED SECURITY AGREEMENT ("Agreement") is entered into as of
the 20th day of  October,  1999 by  COMMUNICATION  INTELLIGENCE  CORPORATION,  a
Delaware  corporation (the "Borrower"),  in favor of THE PHILIP S. SASSOWER 1996
CHARITABLE REMAINDER ANNUITY TRUST (the "Secured Party").

     This  Agreement  amends and restates in its entirety that certain  security
agreement  dated June 15, 1999 between the  Borrower and the Secured  Party (the
"Original  Security  Agreement") and such Original  Security  Agreement shall no
longer be in effect.

          All terms used  herein but not defined  herein  shall have the meaning
     ascribed to them in the Uniform  Commercial  Code as in effect in the State
     of California from time to time (the "UCC").

          Section 1. Creation of Security Interest

               1.1  Grant  of  Security  Interest.  (a)  Borrower,  for good and
                    valuable consideration, the receipt and sufficiency of which
                    are hereby  acknowledged,  hereby  grants to Secured Party a
                    continuing,  first priority security interest in and lien on
                    (the  "Security  Interest")  the  Collateral  (as defined in
                    Section 2 hereof) to secure  performance  and payment of (i)
                    that  certain  Loan (the  "Loan") to be made by the  Secured
                    Party in favor of Borrower in the aggregate principal amount
                    of  $1,500,000  pursuant  to a Loan  Agreement  of even date
                    herewith  (the  "Loan  Agreement");  (ii) all  renewals  and
                    extensions  of the  Loan;  (iii) all  other  obligations  of
                    Borrower  under this Agreement and the Loan  Agreement;  and
                    (iv) all other  obligations and  indebtedness of Borrower to
                    Secured  Party of  whatever  kind and  whenever  or  however
                    created or incurred, whether absolute or contingent, matured
                    or  unmatured,  direct  or  indirect  (all of the  foregoing
                    described   in   this   Section   1   being   the   "Secured
                    Indebtedness").

               (b)  The Security  Interest granted herein shall continue in full
                    force and effect until all of the Secured  Indebtedness  has
                    been discharged.

          1.2 Priority.  The Secured Indebtedness shall be the senior obligation
     of  Borrower,  secured  by  a  first  priority  Security  Interest  in  the
     Collateral.

          Section 2. Collateral

          As used herein,  the term  "Collateral"  shall mean all of  Borrower's
     right,  title and interest in and to all tangible and intangible  property,
     now owned or hereafter  acquired by  Borrower,  wherever  located,  whether
     real, personal or mixed. The Collateral includes,  without limitation,  all
     goods  (including  all  Equipment,   Inventory,  consumer  goods  and  farm
     products),  Fixtures,  Accounts  Receivable,  other  receivables,   general
     intangibles,  patents and patent  applications,  including  those listed on
     Exhibit A annexed hereto,  Trademarks,  Trademark  Licenses,  Trade Secrets
     (each as  hereinafter  defined),  service  marks,  all  other  intellectual
     property,  contract  rights,  rights to receive payments of every kind, all
     goodwill (including all goodwill associated with the Trademarks,  Trademark
     Licenses,  Trade Secrets, service marks and all other intellectual property
     referred to above),  documents,  instruments and chattel paper, each as now
     owned or hereafter acquired by Borrower,  together with all proceeds of the


<PAGE>
                                                                   EXHIBIT 10.20

     foregoing,  including  without  limitation,  all proceeds of the  foregoing
     consisting of goods and intangible  personal property.  As used herein, the
     following terms shall have the meanings indicated:

          (a)  "Trademarks"  shall mean all of the  following  now or  hereafter
     owned  by  Borrower:  (i)  all  trademarks,  service  marks,  trade  names,
     corporate  names,  company names,  indicia,  business  source  identifiers,
     business  names,  fictitious  business  names,  trade styles,  trade dress,
     logos, other source or business identifiers, prints and labels on which any
     of the foregoing have appeared or appear,  designs and general  intangibles
     of like  nature,  now  existing  or  hereafter  adopted  or  acquired,  all
     registrations  and recordings  thereof,  and all applications in connection
     therewith,  including,  without limitation,  registrations,  recordings and
     applications in the United States Patent and Trademark Office (the "USPTO")
     listed on Exhibit B annexed  hereto,  any State of the United States or any
     other  country or any  political  subdivision  thereof,  (ii) all  goodwill
     associated  therewith  arising in or  relating  to the  ordinary  course of
     business of Borrower,  (iii) all extensions or renewals  thereof,  and (iv)
     the  right  to  sue  for  past,  present  and  future  infringement  of the
     foregoing.

          (b)  "Trademark  Licenses"  shall  mean  any  written  agreement,  now
     executed or to be executed  hereafter  by  Borrower,  granting to any third
     party any right to use any Trademark now or hereafter owned by Borrower, or
     granting to Borrower any right to use any Trademark now or hereafter  owned
     by any third party.

          (c)  "Trade   Secrets"   shall  mean  all  trade   secrets  and  other
     confidential  or  proprietary  technical and business  information,  now or
     hereinafter  owned by Borrower,  as any of the  foregoing may be amended or
     supplemented  from time to time,  and any  improvements  thereon or changes
     thereto.

     Section 3.     Payment of Obligations of Borrower

          3.1 Direct Obligations. Borrower shall pay to Secured Party any sum or
     sums due or which may become due pursuant to the Loan, or any extensions or
     renewals thereof, or under this Agreement or the Loan Agreement.

          3.2  Expenses.  Borrower  shall pay to  Secured  Party on  demand  all
     expenses and expenditures,  including reasonable  attorneys' fees and other
     legal  expenses  incurred  or  paid  by  Secured  Party  in  exercising  or
     protecting its  interests,  rights and remedies under the Loan Agreement or
     this  Agreement  plus  interest  thereon at the maximum  non-usurious  rate
     permitted by  applicable  law with respect to Borrower.  Such  expenses and
     expenditures shall be part of the Secured Indebtedness.

          3.3 Acceleration.  Borrower shall pay immediately, without notice, the
     entire unpaid Secured  Indebtedness  of Borrower to Secured Party,  whether
     created or  incurred  pursuant to this  Agreement,  the Loan  Agreement  or
     otherwise,  upon the  occurrence  of an Event of  Default as  described  in
     Section 5 of this Agreement and  acceleration of said Secured  Indebtedness
     as provided for in the Loan Agreement.

     Section 4. Borrower's Representations, Warranties, Covenants and Agreements

     Borrower represents, warrants, covenants and agrees that:

                                       2
<PAGE>
                                                                   EXHIBIT 10.20

          4.1 Valid  Accounts.  As used herein,  the term "Accounts  Receivable"
     shall mean all  accounts,  contract  rights,  chattel  paper,  instruments,
     general intangibles and rights to payment of every kind from Borrower,  now
     or at any time hereafter  arising.  Each Account  Receivable will represent
     the valid and  legally  enforceable  indebtedness  of a bona fide  customer
     ("Customer")  arising  from the sale or  lease  of  goods or  rendition  by
     Borrower of services and will be subject to no set-offs,  counterclaims  or
     defenses;  such goods or services will have been  delivered to or performed
     for, and accepted by, the Customer, and the amount shown as to each account
     on Borrower's books will be the true and undisputed amount owing and unpaid
     thereon,  payable in full at the time referred to in the invoice,  or if no
     time is  specified  within at least  ninety  (90) days from the date of the
     particular  invoice,   and  Borrower  has  no  knowledge  of  any  fact  or
     circumstance  that  would  impair the  validity  or  enforceability  of any
     Account Receivable.

          4.2 Title;  Authority.  (a) Except for the Security  Interest  granted
     hereby and except as set forth on Exhibit C attached  hereto,  Borrower is,
     and as to Collateral  acquired after the date hereof Borrower shall be, the
     absolute  owner and  holder  of,  and has good and,  with  respect  to real
     property,  marketable,  title  to,  the  Collateral,  free and clear of all
     liens, security interests,  charges,  mortgages or encumbrances of any kind
     or nature whatsoever  (collectively,  "Liens"). All instruments,  documents
     and chattel  paper  pertaining  to the  Accounts  are or,  with  respect to
     Accounts  Receivable  arising  after the date  hereof,  will be,  valid and
     genuine and free from all Liens,  except for the security interests granted
     hereby or as otherwise disclosed on Exhibit C.

               (b)  Borrower  has full power and  authority  to grant to Secured
          Party  the  Security  Interest  herein  granted,  and  the  execution,
          delivery and performance of this Agreement is not in  contravention of
          any charter or by-law  provision  of  Borrower,  or of any  indenture,
          contract or other  agreement to which  Borrower is a party or by which
          its properties or assets are bound.

          4.3  Performance of  Obligations.  Borrower will duly perform and will
     cause to be performed all obligations  with respect to the goods,  the sale
     or lease of which gave rise to each Account.

          4.4  Information.  All  information  supplied and  statements  made by
     Borrower or any guarantor in any financial,  credit or accounting statement
     or application for credit prior to, contemporaneously with or subsequent to
     the execution of this Agreement are and shall be true,  correct,  complete,
     valid and genuine.

          4.5 Place of  Business;  Records.  (a) The chief  place of business of
     Borrower is the address shown for Borrower in this Agreement. Borrower will
     immediately  notify  Secured  Party in writing of any change in  Borrower's
     chief place of business.

               (b) Borrower  will (i) keep such books and records  pertaining to
          the Collateral at such chief place of business,  and at such office or
          offices of Borrower as shall be approved in writing by Secured  Party;
          (ii) mark its books and  records in such  fashion as to  indicate  the
          Security Interest granted hereby; (iii) permit officers, employees, or
          other  representatives  of Secured  Party at all  reasonable  times to
          inspect the  Collateral  and inspect and make abstracts from the books

                                       3
<PAGE>
                                                                   EXHIBIT 10.20

          and records of Borrower pertaining to the Collateral; and (iv) furnish
          to Secured Party such reasonable information and reports regarding the
          Collateral as Secured Party may from time to time require.

               (c)  The  Secured  Party's  right  to take  possession  of any of
          Borrower's  books and records  after the  occurrence  of and during an
          Event of Default shall be enforceable at law, by action of replevin or
          by any other appropriate remedy at law or in equity and, to the extent
          permitted  by law,  the  Borrower  consents  to the entry of  judicial
          orders or  injunctions  enforcing  such  rights  without any notice to
          Borrower or opportunity to be heard.

          4.6 Taxes.  Borrower will promptly pay any and all taxes,  assessments
     and  governmental  charges upon the Collateral  prior to the date penalties
     are attached thereto,  except to the extent otherwise  permitted by Secured
     Party.

          4.7 Notice to Customers.  Upon Secured Party's request,  Borrower will
     give such notice in writing as Secured Party may require at any time to any
     or all  Customers  indebted on all or any of the  Accounts  and, if Secured
     Party shall so request, deliver to Secured Party copies of any and all such
     notices and, in addition  Secured Party,  or its agents or  representatives
     may (1)  transmit to any or all  Customers at any time or times such notice
     of Secured  Party's  interest  in any such  Accounts  as Secured  Party may
     determine  (but Secured Party shall not be required to give any such notice
     and any failure to give such notice by Secured Party shall in no way affect
     Secured Party's rights and interest  hereunder or under any Accounts);  (2)
     request from  Customers  at any time or times  information  concerning  the
     amount owing under any or all  Accounts;  (3) request from  Customers  that
     Accounts be paid  directly to Secured Party or to a post office box address
     over  which  Secured  Party has  control;  or (4)  enforce  payment  of and
     collect, by legal proceedings or otherwise, all Accounts.

          4.8 Information to Secured Party Regarding  Collateral.  Borrower will
     transmit to Secured Party all information  that it may have or receive with
     respect to the  Collateral  or with  respect to  Customers  indebted on the
     Accounts  Receivable  which  might  in any  way  affect  the  value  of the
     Collateral  or Secured  Party's  rights or remedies  with respect  thereto,
     including,  but not  limited to (i)  rejection  of goods or  services  by a
     Customer,  (ii)  assertion  of  claims,  counterclaims  or  set-offs  by  a
     Customer,  and (iii) information of financial difficulties of a Customer of
     which Borrower has or obtains knowledge.

          4.9 No  Additional  Security  Interests  or Liens.  Borrower  will not
     pledge,  mortgage  or  otherwise  encumber,  or create or suffer a security
     interest  or Lien to exist in any of the  Collateral  to or in favor of any
     person other than Secured Party, except as otherwise authorized pursuant to
     this Agreement.  Borrower will defend the Collateral against all claims and
     demands  of all  persons  at any time  claiming  the  same or any  interest
     therein senior or pari passu to that of Secured Party.

          4.10 Additional  Documentation.  Borrower will execute,  alone or with
     Secured  Party,  any financing  statement or other  document or procure any
     document,  and pay all connected  costs,  necessary or desirable to protect
     the  Security  Interest,  rights and  remedies  created by,  provided in or
     emanating  from this  Agreement.  Borrower  shall use its best  efforts  to
     furnish to Secured Party,  if requested,  a landlord's  waiver of all liens
     with respect to any  Collateral  covered by this  Agreement that is or that

                                       4
<PAGE>
                                                                   EXHIBIT 10.20

     may be located upon leased  premises.  Such  landlord's  waiver is to be in
     such form and upon such terms as are acceptable to Secured Party.

          4.11 Protective Action.  Borrower will, at its own expense,  do, make,
     procure,  execute and deliver all acts,  things,  writing and assurances as
     Secured  Party may at any time  request to  protect,  assure or enforce its
     interests,  rights and remedies  created by,  provided in or emanating from
     this Agreement.

          4.12 No Leases,  Licenses  or  Encumbrances.  Borrower  will not lend,
     rent, lease, license or otherwise dispose of the Collateral or any interest
     therein  except as  authorized  in this  Agreement or in writing by Secured
     Party, and Borrower shall keep the Collateral,  including the proceeds from
     any disposition  thereof,  free from unpaid charges,  including  taxes, and
     from all Liens.

          4.13 Collateral  Locations.  The Collateral shall remain in Borrower's
     possession  or control at its address  shown in this  Agreement  or at such
     other  locations as Secured Party may approve in writing,  and shall not be
     removed except for temporary  removal in the ordinary  course of Borrower's
     business from those locations.

          4.14  Insurance.  Borrower  will  have  and  maintain  or  cause to be
     maintained  insurance at all times with respect to all  Collateral  against
     risks of fire,  theft and such other  risks as Secured  Party may  require.
     Such  insurance  policies  shall  contain  such  terms  and be  written  by
     companies satisfactory to Secured Party. Such insurance policies shall also
     contain a standard  mortgagee's  endorsement  providing  for payment of any
     loss to Secured  Party.  All  policies  of  insurance  shall  provide for a
     minimum of thirty (30) days written  cancellation  notice to Secured Party.
     Borrower shall furnish  Secured Party with  certificates  or other evidence
     satisfactory  to Secured Party of compliance  with the foregoing  insurance
     provisions.  Borrower hereby irrevocably appoints Secured Party as attorney
     for Borrower in obtaining, adjusting, settling and canceling such insurance
     and endorsing any drafts drawn by insurers of the  Collateral,  which power
     is coupled with an interest;  provided,  however,  that Secured Party shall
     not be  required to obtain,  adjust,  settle or cancel  such  insurance  or
     endorse  such drafts and any failure to do so by Secured  Party shall in no
     way affect Secured  Party's rights and interest  hereunder or in any of the
     Collateral. In the event of loss and the payment of insurance proceeds, all
     monies shall be payable to Secured  Party for the accounts of Secured Party
     and  Borrower,  as their  interests  may  appear.  At the option of Secured
     Party,  all monies so  received,  from less than an actual or  constructive
     total loss shall be applied (i) to the Loan secured thereby, (ii) to repair
     of the damage in respect of which the insurance  loss was paid, or (iii) in
     reimbursements  for monies  theretofore so applied by the Borrower with the
     consent of the Secured Party. In the event of actual or constructive  total
     loss of the Collateral,  the insurance proceeds for such loss shall, unless
     otherwise  agreed by  Secured  Party,  be applied  as  follows:  (i) to the
     payment of the costs of  collecting  such  insurance,  if any,  (ii) to the
     payment of all indebtedness, principal, interest and other sums owed by the
     Borrower to Secured Party secured hereby, and (iii) the balance,  if any to
     the Borrower.

          4.15  Segregation of Returned  Goods.  Returned or  repossessed  goods
     arising from or relating to any  accounts  included  within the  Collateral
     shall,  if requested by Secured Party,  be held separate and apart from any
     other property of Borrower.

                                       5
<PAGE>
                                                                   EXHIBIT 10.20

          4.16  Accounts as  Proceeds.  All  accounts  that are  proceeds of the
     inventory  included within the Collateral  shall be subject to the security
     interest granted hereby and all of the other terms and provisions hereof.

          4.17  Certificates  of  Title.  If  certificates  of title or  similar
     documents are issued or outstanding or become issued and  outstanding  with
     respect to any of the  Collateral,  Borrower will promptly  advise  Secured
     Party thereof and will  immediately  cause the interest of Secured Party to
     be properly noted thereon and said  certificates to be delivered to Secured
     Party.

          4.18  Business  Use. The  Collateral  is and will be used for the sole
     purpose of conducting  Borrower's  business,  unless otherwise agreed to in
     writing by Secured Party.

          4.19 No Misuse;  Duty to Maintain.  The Collateral will not be misused
     or abused,  wasted or allowed to deteriorate,  except for the ordinary wear
     and tear of its intended  primary use, and will not be used in violation of
     any statute,  regulation or ordinance.  Borrower agrees to maintain and use
     the  Collateral in a careful and proper  manner and in conformity  with all
     applicable statutes,  laws, ordinances and regulations and with all permits
     and  licenses.  Borrower  will not use the  Collateral  in any manner which
     exposes  the  Collateral  to  unusual  risk or to  penalty,  forfeiture  or
     capture.  Borrower shall maintain,  service and repair the Collateral so as
     to keep the Collateral in good operating condition.

          4.20 Collateral  Affixed to Real Estate. If the Collateral is or is to
     be wholly or partly affixed to real estate or other goods, a description of
     the real  estate or other  goods shall be  delivered  to Secured  Party and
     become a part of this Agreement,  and shall specify the location and record
     owner of such real estate or other goods.  If  requested by Secured  Party,
     Borrower  shall use its best efforts to furnish  disclaimers  or waivers of
     all  parties  having an interest in the real estate or other goods to which
     the Collateral is or is to be attached to any interest in the Collateral.

          4.21 No Financing Statements. Except as otherwise set forth on Exhibit
     D attached hereto, there is no financing statement or similar filing now on
     file in any public office covering any part of the Collateral which has not
     been  discharged  nor is there any filing with the USPTO for the purpose of
     perfecting,  confirming,  continuing,  enforcing or protecting any security
     interest  granted by  Borrower in the  Collateral,  and  Borrower  will not
     execute  and there will not be on file in any public  office any  financing
     statement or similar filing, except the financing statements filed or to be
     filed in favor of Secured Party and the filing of this  Agreement  with the
     USPTO, or as otherwise specifically permitted by this Agreement.

          4.22  Trademarks.  (a) Borrower  (either itself or through  licensees)
     will,  for each Trademark  material to the conduct of Borrower's  business,
     (i) to the  extent  consistent  with past  practice,  continue  to use such
     Trademark  on each and every  trademark  class of goods  applicable  to its
     current line of business in order to maintain such  Trademark in full force
     free from any claim of abandonment for nonuse, (ii) maintain as in the past
     the quality of products and services  offered under such  Trademark,  (iii)
     employ such Trademark with the notice of Federal registration, and (iv) not
     (and not permit  any  licensee  or  sublicensee  thereof  to) do any act or
     knowingly omit to do any act whereby such Trademark may become abandoned or
     invalidated.

                                       6
<PAGE>
                                                                   EXHIBIT 10.20

               (b) In no event  shall  Borrower,  either  itself or through  any
          agent,  employee,  licensee or designee,  file an application  for any
          Trademark with the United States Patent and Trademark  Office,  or any
          similar  office  or  agency  in any  other  country  or any  political
          subdivision  thereof  or enter  into a  Trademark  License,  unless it
          promptly  informs  Secured Party,  and, upon request of Secured Party,
          executes and delivers any and all agreements,  instruments,  documents
          and papers as Secured  Party may request to evidence  Secured  Party's
          security  interest in such  Trademark  or Trademark  License,  and the
          goodwill  and  general  intangibles  of Borrower  relating  thereto or
          represented thereby.

               (c) Borrower  will take all necessary  steps that are  consistent
          with the practice in any proceeding  before the USPTO,  or any similar
          office or agency in any other  country  or any  political  subdivision
          thereof, to maintain and pursue each material  application relating to
          the Trademarks (and to obtain the relevant grant or registration)  and
          to maintain  each material  registration  of the  Trademarks  which is
          material  to the  conduct  of  such  Borrower's  business,  including,
          without limitation,  filing of application for renewal,  affidavits of
          use, affidavits of  incontestability  and maintenance fees, and, where
          appropriate,  to initiate  opposition,  interference  and cancellation
          proceedings against third parties.

         4.23 In the  event  that  any  Collateral  consisting  of a  Trademark
     material to the  conduct of  Borrower's  business  is  believed  infringed,
     misappropriated or diluted by a third party,  Borrower shall notify Secured
     Party  within  fifteen  (15) days after it learns  thereof  and  shall,  if
     consistent  with good  business  practice,  promptly sue for  infringement,
     misappropriation  or  dilution  and to recover any and all damages for such
     infringement,  misappropriation or dilution, and take such other actions as
     are appropriate under the circumstances to protect such Collateral.

          4.24  Borrower  shall use its best  effort to cause all  existing  UCC
     financing  statements and liens with respect to the Collateral,  other than
     those relating to the Secured Party, to be terminated.

     Section 5.     Events of Default

          Borrower  shall be in default under this  Agreement upon the happening
     of an Event of Default under the terms and conditions of the Loan Agreement
     (herein called an "Event of Default").

     Section 6.     Secured Party's Rights and Remedies

             6.1     Secured Party's Rights.

                    (a) This Agreement,  Secured Party's rights hereunder or the
               Secured  Indebtedness  may be assigned by Secured  Party,  at any
               time and from  time to time,  and in any such  case the  assignee
               shall be entitled to all of the rights,  privileges  and remedies
               granted in this  Agreement to Secured Party;  provided,  however,
               that prior to the time an Event of Default has occurred,  Secured
               Party shall not make any such assignment to any party in the same
               or similar business of that of the Borrower.

                    (b) Borrower  hereby  appoints the Secured Party as its true
               and lawful  attorney,  with full power of  substitution,  for the
               purpose of carrying  out the  provisions  of this  Agreement  and

                                       7
<PAGE>
                                                                   EXHIBIT 10.20

               taking any action and  executing  any  instrument  which  Secured
               Party may deem  necessary or advisable to accomplish the purposes
               hereof.  The power of attorney  granted herein shall be deemed to
               be coupled with an interest, shall be irrevocable,  shall survive
               the  death,   disability,   dissolution,   liquidation  or  other
               termination of Borrower,  shall be binding upon all heirs,  legal
               representatives,  successors  and assigns of Borrower,  and shall
               inure to the  benefit of  Secured  Party and its  successors  and
               assigns.  Without  limiting  the  generality  of  the  foregoing,
               Secured  Party  shall  have the  right to  receive,  collect  and
               endorse  all  checks  made  payable  to  Borrower  or  its  order
               representing  any  proceeds in respect of the  Collateral  or any
               part thereof and to give full discharge  therefor.  Secured Party
               may, but is not obligated to,  exercise at any time and from time
               to  time  all or any of  Borrower's  rights  including,  but  not
               limited to, the following  powers,  with respect to all or any of
               the Collateral:

                         (i) to  demand,  sue  for,  collect,  receive  and give
                    acquittance for any and all monies due or to become due upon
                    or by virtue thereof;

                         (ii) to receive, take, endorse,  assign and deliver any
                    and  all  checks,   notes,   drafts,   documents  and  other
                    negotiable and non-negotiable  instruments and chattel paper
                    taken or received by Secured Party in connection therewith;

                         (iii) to settle,  compromise,  compound,  prosecute  or
                    defend any action or proceeding with respect thereto;

                         (iv) to sell, transfer,  assign or otherwise deal in or
                    with the  same or the  proceeds  or  avails  thereof  or the
                    relative goods, as fully and effectually as if Secured Party
                    were the absolute owner thereof; and

                         (v) to extend the time of payment of any or all thereof
                    and  to  make  any  allowance  and  other  adjustments  with
                    reference thereto, including without limitation, arrangement
                    for  payment in  installments,  other  modifications  of the
                    payment terms thereof, or release thereof;

provided,  however,  that the  exercise  by  Secured  Party of or  failure to so
exercise any such  authority  shall in no manner affect or discharge  Borrower's
liability to Secured  Party  hereunder or under the Loan  Agreement or under any
other  instrument  evidencing  or  securing  any  of the  Secured  Indebtedness;
provided, further, Secured Party shall be under no obligation, responsibility or
duty to  exercise  any of the powers  hereby  conferred  upon it and it shall be
without  liability for any act or failure to act in  connection  with any of the
Collateral.  Secured Party shall not be required to take any steps  necessary to
preserve the rights of the Collateral,  except as required by law. Secured Party
shall at all times have the right to apply the  proceeds of any of the  Accounts
or other  property in which Secured  Party has been granted a Security  Interest
herein towards  payment of the Loan and other Secured  Indebtedness  immediately
upon receipt or  collection  of such  proceeds.

          (c) Secured Party or any of its employees,  agents or  representatives
     may enter  upon  Borrower's  premises  at any  reasonable  time to  inspect
     Borrower's  records  pertaining to the Collateral and Borrower shall assist
     such parties in making such inspections.

                                       8
<PAGE>
                                                                   EXHIBIT 10.20

          (d) Secured Party may execute,  sign, endorse,  transfer or deliver in
     the name of Borrower  notes,  checks,  drafts or other  instruments for the
     payment of money and receipts,  certificates  of origin,  applications  for
     certificates of title or any other documents necessary to evidence, perfect
     or realize  upon the  security  interest  and  obligations  created by this
     Agreement.

     6.2  Rights in Event of  Default.  (a) Upon the  occurrence  and during the
continuance of an Event of Default,  in addition to the rights granted  pursuant
to Section 6.1, the Secured Party may, without notice to the Borrower (except as
otherwise specified herein), do any or all of the following, all of which rights
and remedies are cumulative, and the exercise of any one or more of the remedies
provided  for  herein  shall  not be  construed  as a waiver of any of the other
remedies of Secured Party:

               (i)  Secured   Party  may   declare   the  Secured   Indebtedness
          immediately  due and  payable and may  exercise  any of the rights and
          remedies  available  to a secured  party  under  the UCC or  otherwise
          available  to Secured  Party by  agreement,  at law or in equity,  and
          under all other applicable laws of each state having jurisdiction over
          the  Collateral  or any part  thereof,  including  without  limitation
          thereto,  the right to sell, lease or otherwise  dispose of any or all
          of the Collateral and the right to take  possession of the Collateral,
          and for that  purpose  Secured  Party may,  with or without  notice or
          process of any kind,  enter upon any premises on which the  Collateral
          or any part thereof may be situated and remove the Collateral or books
          and records  evidencing  same, or may require Borrower to assemble the
          Collateral  and make it  available  to Secured  Party at a place to be
          designated  by Secured  Party which is  reasonably  convenient to both
          parties.  Unless the  Collateral is perishable or threatens to decline
          speedily  in value or is of a type  customarily  sold on a  recognized
          market, Secured Party will send Borrower reasonable notice of the time
          and place of any public  sale  thereof or of the time after  which any
          private  sale  or  other  disposition  thereof  is  to  be  made.  The
          requirement of sending  reasonable  notice shall be met if such notice
          is mailed,  postage prepaid,  to Borrower at the address designated in
          this  Agreement  at least ten (10) days before the time of the sale or
          disposition.  Expenses  of  retaking,  holding,  preparing  for  sale,
          selling  or  the  like  shall  include  Secured   Party's   reasonable
          attorneys'  fees and legal  expenses,  plus  interest  thereon  at the
          maximum  non-usurious rate permitted by applicable law with respect to
          Borrower  and  shall  constitute  part  of the  Secured  Indebtedness.
          Secured Party may apply the proceeds of any  disposition of Collateral
          available for satisfaction of the Secured Indebtedness in any order of
          preference  which  Secured  Party,  in its sole  discretion,  chooses.
          Borrower shall remain liable for any deficiency.

               (ii) Secured Party may retain all books and records of Borrower.

               (iii) Secured Party may complete any uncompleted Inventory in the
          process of construction or completion.

               (iv)  Secured  Party  may  notify  any  of  Borrower's   lessees,
          consignees,  renters and/or  debtors to make all payments  directly to
          the Secured Party and to  surrender,  at the  termination  of any such
          lease,  rental  agreement or  consignment,  the item or items  leased,
          rented or consigned, directly to the Secured Party.

                                       9
<PAGE>
                                                                   EXHIBIT 10.20

               (v) Secured Party may cure any default in any  reasonable  manner
          and add the cost of such cure to the Secured Indebtedness.

          (b)  Secured  Party may remedy any  default  and may waive any default
     without waiving the default  remedied or without waiving any other prior or
     subsequent default.

          (c) Secured Party may enforce its rights under this Agreement  without
     resort  to  prior  judicial  process  or  judicial  hearing,  and  Borrower
     expressly  waives,  renounces  and knowingly  relinquishes  any legal right
     which  might  otherwise  require  Secured  Party to  enforce  its rights by
     judicial  process.  In so providing  for a  non-judicial  remedy,  Borrower
     recognizes and concedes that such a remedy is consistent  with the usage of
     the trade,  is  responsive  to  commercial  necessity  and is the result of
     bargaining at arms length. Nothing in this Agreement is intended to prevent
     Borrower or Secured  Party from  resorting  to  judicial  process at either
     party's option.

          (d) Borrower  agrees that in performing  any act under this  Agreement
     that time shall be of the essence and that Secured Party's  acceptance of a
     partial or delinquent payment or payments,  or the failure of Secured Party
     to exercise any right or remedy shall not be a waiver of any  obligation of
     Borrower or any right of Secured  Party or constitute a waiver of any other
     similar default subsequently occurring.

          (e) Secured Party may at any time demand, sue for, collect or make any
     compromise or settlement with reference to the Collateral as Secured Party,
     in its sole discretion, chooses. Secured Party may delay exercising or omit
     to exercise any right or remedy under this Agreement  without  waiving that
     or any other  past,  present or future  right or remedy,  except in writing
     signed by Secured Party.

     Section 7.     Additional Agreements

          7.1 Successors and Assigns.  This Agreement  shall be binding upon and
     shall inure to the benefit of the  parties,  their  successors,  endorsers,
     representatives,  receivers,  trustees and assigns; provided, however, that
     nothing  contained  herein  shall be  construed  to permit the  Borrower to
     assign  this  Agreement  or any of its  rights  or  obligations  hereunder,
     without obtaining the prior written approval of the Secured Party.

          7.2 Waiver and  Indemnity.  Borrower  hereby  waives and  releases all
     relief from any and all  appraisement,  stay or exemption laws of any state
     now in force or hereinafter  enacted.  Borrower hereby waives  presentment,
     notice of dishonor and protest of all instruments included in or evidencing
     the  Collateral and any and all notices and demand  whatsoever,  whether or
     not relating to such instruments.

          7.3  Section  Headings.   The  section  headings   appearing  in  this
     instrument  have been inserted for  convenience  only and shall be given no
     substantive  meaning or  significance  whatever in construing the terms and
     provisions of this instrument.

          7.4 Applicable  Law; Place of Payment.  The law governing this secured
     transaction  shall be that of the State of  California in force at the date

                                       10
<PAGE>
                                                                   EXHIBIT 10.20

     of this  instrument,  and all payments and  obligations  hereunder shall be
     made and performed in California, unless otherwise agreed.

          7.5 Notices. All notices,  requests,  demands and other communications
     required or permitted  hereunder  shall be in writing and may be personally
     served or sent by telex,  telecopier,  mail or the express  mail service of
     the United  States  Postal  Service,  Federal  Express or other  equivalent
     overnight  or  expedited  delivery  service  and (i) if given  by  personal
     service,  telex  (confirmed  by  telephone)  or  telecopier  (confirmed  by
     telephone),  it shall be deemed to have been  given upon  receipt,  (ii) if
     sent by telex or telecopier  without  telephone  confirmation,  it shall be
     deemed to have been given  twenty-four (24) hours after being given,  (iii)
     if sent by mail,  it shall be deemed to have been  given upon  receipt  and
     (iv) if sent by Federal  Express,  the Express  Mail  Service of the United
     States Postal Service or other equivalent  overnight or expedited  delivery
     service,  it shall be deemed given twenty-four (24) hours after delivery to
     such overnight or expedited delivery service,  delivery charges prepaid and
     properly  addressed  to Borrower  or Secured  Party as the case may be. For
     purposes  hereof,  the  addresses of Borrower and Secured Party shall be as
     follows:

       Borrower:
         Communication Intelligence Corporation
         275 Shoreline Drive
         Redwood Shores, CA  94065-1413
         Attention:  President

       Secured Party:
         The Philip S. Sassower 1996 Charitable Remainder Annuity Trust
         135 East 57th Street
         New York, New York  10022
         Attn:  Mr. Philip Sassower, Trustee
         Tel: (212) 759-1909
         Fax: (212) 319-4930

         with a copy to:

         Baer Marks & Upham LLP
         805 Third Avenue
         New York, NY  10022-7513
         Attn:  Jonathan J. Russo, Esq.
         Tel:  (212) 702-5700
         Fax:  (212) 702-5941

Any party may, by proper written notice hereunder to the other party, change the
address to which notices shall thereafter be sent to it.

          7.6  Severability.  If any  provision of this  Agreement is held to be
     illegal,   invalid,  or  unenforceable,   such  provision  shall  be  fully
     severable,  and the remaining provisions of this Agreement shall be in full
     force and effect.

                                       11
<PAGE>
                                                                   EXHIBIT 10.20

          7.7 Savings  Clause.  Notwithstanding  any  provision  to the contrary
     herein, or in any of the documents evidencing the Secured Indebtedness,  no
     such  provision  shall  require  the  payment or permit the  collection  of
     interest in excess of the maximum  permitted by  applicable  usury laws. If
     any such excessive  interest is so provided for, then in such event (i) the
     provisions  of this  paragraph  shall govern and control,  (ii) neither the
     Borrower nor his heirs, legal representatives, successors or assigns or any
     other party liable for the payment  thereof,  shall be obligated to pay the
     amount of such  interest  to the  extent  that is in excess of the  maximum
     non-usurious  interest  rate  permitted by applicable  law,  (iii) any such
     excess interest that may have been collected shall be, at the option of the
     holder of the instrument evidencing the Secured Indebtedness either applied
     as a credit against the then unpaid principal amount thereof or refunded to
     the  maker  thereof,  and  (iv) the  effective  rate of  interest  shall be
     automatically  reduced to the maximum non-usurious  interest rate permitted
     under the  applicable  usury laws as now or  hereafter  construed by courts
     having jurisdiction.

          7.8  Pronouns.  The  pronouns  used  in  this  instrument  are  in the
     masculine  gender but shall be construed as feminine or neuter as occasions
     may require.

          7.9  Prior  Agreement.  This  Agreement  amends  and  restates  in its
     entirety the Original Security Agreement and such agreement shall no longer
     be in effect.



          EXECUTED as of the date set forth above.
                               BORROWER:

                               COMMUNICATIONS INTELLIGENCE CORPORATION

                               By:    /s/ Guido DiGregorio
                                  -------------------------------------
                                    Name: Guido DiGregorio
                                    Title: President and CEO


                               SECURED PARTY:


                               THE PHILIP S. SASSOWER 1996 CHARITABLE REMAINDER
                               ANNUITY TRUST


                                By:    /s/ Philip S. Sassower
                                   -------------------------------------
                                    Name:  Philip S. Sassower
                                    Title:  Trustee


                                       12
<PAGE>
                                                                   EXHIBIT 10.20

                                    EXHIBIT A

                           TRADEMARKS AND APPLICATIONS
<TABLE>
<CAPTION>

   Trademark          Country          Application/              Application/
                                     Registration No.         Registration Date
<S>                <C>             <C>                         <C>

   Handwriter         France          R: 92/421.079              R: 06/02/92
   InkShrink          France          R: 93/489.492              R: 10/26/93
   MacHandwriter      France          R: 92/418.221              R: 05/07/92
   Sign-It            France          R: 96/637.456              R: 08/05/96

   Handwriter         Germany         R: 2,057,970               R: 02/25/94
   InkShrink          Germany         R: 2,071,642               R: 07/15/94
   MacHandwriter      Germany         R: 2,027,414               R: 12/30/92
   Sign-It            Germany         R: 39,634,957              R: 04/22/97

   Handwriter         Great Britain   R: B 1,488,780             R: 07/15/94
   InkShrink          Great Britain   R: 1,549,138               R: 11/04/94
   MacHandwriter      Great Britain   R: B 1,488,781             R: 08/26/94
   Sign-It            Great Britain   R: 2,017,049               R: 02/07/97

   Handwriter         Italy           R: 639,696                 R: 12/27/94
   InkShrink          Italy           R: 677,464                 R: 05/14/96
   MacHandwriter      Italy           R: 639,697                 R: 12/27/94
   Sign-It            Italy           R: 763,200                 R: 04/22/99

   InkShrink          Japan           R: 3,199,505               R: 09/30/96
   MacHandwriter      Japan           R: 4,074,160               R: 10/24/97

   Handwriter         Spain           R: 1,682,610               R: 10/05/92
   MacHandwriter      Spain           R: 1,682,611               R: 02/07/92
   Sign-It            Spain           R: 2,044,039               R: 10/06/97

   CIC                US              R: 1,306,886               R: 11/27/84
   CIC Sign-It        US              A: 75/149,023              A: 7/23/96
   (Statement of use
    to be filed.)
   Creativity Tool    US              R: 1,951,744               R: 01/23/96
   Handwriter         US              R: 1,308,756               R: 12/11/84
   Handwriter Sign-It
  (Statement of
   use to be filed.)  US              A: 75/133-509              A: 07/96
</TABLE>

                                      A-1
<PAGE>
                                                                   EXHIBIT 10.20

                                    EXHIBIT A

                           TRADEMARKS AND APPLICATIONS
                                   (continued)
<TABLE>
<CAPTION>

Trademark                  Country          Application/         Application/
                                          Registration No.     Registration Date
<S>                     <C>               <C>                  <C>

Handwriter Sign-It         US              A: 75/133,504         A: 07/96
& design  (Statement of
use to be filed)
InkSentry                  US              R: 2,073,729          R: 06/24/97
InkShrink                  US              R: 1,931,730          R: 10/31/95
Ink-Snap                   US              A: Pending            A: 08/11/99
InkTools                   US              R: 2,152,,968         R: 04/21/98
Jot                        US              R: 2,219,350          R: 01/19/99
MacHandwriter              US              R: 1,721,067          R: 09/22/92
PenMac                     US              R: 1,930,050          R: 10/24/95
Quicknotes                 US              A: 75/206,691         A: 12/20/96
RecoEcho                   US              A: Pending            A: 08/11/99
SigCheck
(Statement of use
to be filed.)              US              A: 75/114,457         A: 06/05/96
Sign-It
(Statement of
use to be filed.)          US              A: 75/122,341         A: 06/19/96
Sign-It & design
(Statement of use to
be filed.)                US               A: 75/133,508         A: 07/96
Sign-On                   US               A: Pending            A: 08/11/99
SigView                   US               R: 2,152,967          R: 04/21/98
WordComplete              US               A: Pending            A: 08/11/99
YPAD                      US               R: 2,065,304          R: 05/27/97

</TABLE>

                                      A-2
<PAGE>
                                                                   EXHIBIT 10.20



                                    EXHIBIT B

                            PATENTS AND APPLICATIONS

<TABLE>
<CAPTION>

Patent                Inventor(s)        Country  Application      Application
                                                    Issue No.       Issue Date
<S>                  <C>                 <C>      <C>             <C>

Method for Dynamic    John S. Ostrem       USA     5,933,514        08/03/1999
Reconstruction        Norman A. Austin
of Handwritten Data   Hewitt D. Crane

Keyless Flat Panel    James Dao            USA     5,049,862        09/17/1991
Portable Computer     David C. Foyt
- Computer Aided      Jeffrey J. Dao
Notebook              Kenneth R. Allen

Method for            Hewitt D. Crane      USA      4,531,231       07/23/1985
Distinguishing        John S. Ostrem
Between Complex       Peter K. Edberg
CharacterSets

Confusion Grouping    Hewitt D. Crane      USA      4,573,196       02/25/1986
of Strokes in         John S. Ostrem
Pattern Recognition
Method andSystem

Process and Apparatus Hewitt D. Crane      USA      4,718,102       01/05/1988
Involving Pattern     John S. Ostrem
Recognition

Complex Pattern       Hewitt D. Crane      USA      4,561,105       12/24/1985
Recognition Method    John S. Ostrem
and System
</TABLE>

                                      B-1
<PAGE>

                                                                   EXHIBIT 10.20


                                    EXHIBIT C

                              TO SECURITY AGREEMENT


Leasing Company            Lease Number                  Product Leased
Xerox                      950329631                     Photo Copier
                                                         Serial # 6W6-311599

Dell Financial Services    0017336519001                 Dell File Server Power
                                                         Edge 2300 Server

Dell Financial Services    0017336519002                 Dell Hard Drives
                                                         for PowerEdge 2300
                                                         Server

Dell Financial Services    0017336519003                 Dell Dimension XPST

Dell Financial Services    0017336519004                 Dell Dimension XPST (2)



                                      C-1
<PAGE>


                                                                   EXHIBIT 21.1

                     COMMUNICATION INTELLIGENCE CORPORATION
                            SCHEDULE OF SUBSIDIARIES


Communication Intelligence Computer Corporation      Peoples Republic of China



<PAGE>

                                                                   Exhibit 23.1

                         CONSENT OF STONEFIELD JOSEPHSON
                    INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


The undersigned  independent certified public accounting firm hereby consents to
the  inclusion  of its  report  on the  financial  statements  of  Communication
Intelligence  Corp. for the year ending  December 31, 1999, and to the reference
to it  as  experts  in  accounting  and  auditing  relating  to  said  financial
statements,  in the Form 10k filed with  Securities and Exchange  Commission for
Communication Intelligence Corp., dated February 25, 2000.



-----------------------------------------
STONEFIELD JOSEPHSON, INC.
Certified Public Accountants

Santa Monica, California
February 25, 2000







                                       1
<PAGE>


                                                                   Exhibit 23.2

                    CONSENT OF INDEPENDENT ACCOUNTANTS


     We hereby  consent to the  incorporation  by reference in the  Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 333-04711, No.
333-24257  and  No.  333-43855)  and  the  incorporation  by  reference  in  the
Registration Statements on Form S-8 (No. 33-5521, No. 33-71614 and No. 33-92284)
of  Communication  Intelligence  Corporation  of our report dated March 29, 1999
appearing in this Form 10-K.  We also  consent to the  reference to us under the
heading "Experts" in such Prospectuses.




PricewaterhouseCoopers LLP

San Jose, California
March 28, 2000

                                       1
<PAGE>