10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended:                                                      September 30, 2012

OR

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

For the transition period from                                                                 to                      

Commission File Number:                                                      000-19301                      

COMMUNICATION INTELLIGENCE CORPORATION

(Exact name of registrant as specified in its charter)

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

   275 Shoreline Drive, Suite 500, Redwood Shores, CA  94065-1413

          (Address of principal executive offices)                  (Zip Code)

(650) 802-7888

Registrant's telephone number, including area code

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

Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

large accelerated filer accelerated filer non-accelerated filer   X Smaller reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Section 12b-2 of the exchange Act)

Yes No X

Number of shares outstanding of the issuer's Common Stock, as of November 14, 2012: 224,503,503.

- 2 -

INDEX

	Page No.
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2012 (unaudited) and December 31, 2011	3
Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 2012 and 2011 (unaudited)	4
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Nine Month Period Ended September 30, 2012 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2012 and 2011 (unaudited)	7
Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.  Controls and Procedures	30
PART II.  OTHER INFORMATION
Item 1.    Legal Proceedings	30
Item 1A. Risk Factors	30
Item 2.    Unregistered Sale of Securities and Use of Proceeds	30
Item 3.    Defaults Upon Senior Securities	30
Item 4.    Mine Safety Disclosures	31
Item 5.    Other Information	31
Item 6.    Exhibits
Signatures	33

- 2 -

PART I–FINANCIAL INFORMATION

Item 1.  Financial Statements.

Communication Intelligence Corporation

Condensed Consolidated Balance Sheets

 (In thousands)

	September 30,			December 31,
	2012			2011
Assets	Unaudited
Current assets:
Cash and cash equivalents	$	566		$	307
Accounts receivable, net of allowance of $27 at September 30, 2012 and $3 at December 31, 2011		514			298
Prepaid expenses and other current assets		194			29
Total current assets		1,274			634
Property and equipment, net		28			32
Patents, net		1,746			2,020
Capitalized software development costs, net		-			78
Other assets		29			29
Total assets	$	3,077		$	2,793
Liabilities and Stockholders' Equity
Current liabilities:
Short-term notes payable	$	3,168		$	1,083
Accounts payable		336			261
Accrued compensation		297			221
Other accrued liabilities		223			243
Deferred revenue		474			517
Total current liabilities		4,498			2,325
Deferred revenue long-term		304			397
Deferred rent		130			147
Derivative liability		182			281
Total liabilities		5,114			3,150
Commitments and contingencies
Stockholders' deficit:
Series A-1 Preferred Stock, $.01 par value; 2,000 shares authorized; 934 and 880 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively, ($934 liquidation preference at September 30, 2012)		934			880
Series B Preferred Stock, $.01 par value; 14,000 shares authorized; 9,811 and 9,250 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively, ($14,717 liquidation preference at September 30, 2012)		7,940			7,380
Series C Preferred Stock, $.01 par value; 4,100 shares authorized; 4,073 and 3,547 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively, ($6,109 liquidation preference at September 30, 2012)		4,652			3,569
Common stock, $.01 par value; 1,050,000 shares authorized; 231,004 issued, 224,504 outstanding at September 30, 2012 and 198,188 shares issued and outstanding at December 31, 2011		2,309			1,981
Treasury shares, 6,500 and 0 shares at September 30, 2012 and December 31, 2011, respectively		(325	)		−
Additional paid-in capital		96,706			97,715
Accumulated deficit		(114,215	)		(111,839	)
Accumulated other comprehensive loss		(38	)		(43	)
Total stockholders' deficit		(2,037	)		(357	)
Total liabilities and stockholders' deficit	$	3,077		$	2,793

See accompanying notes to these Condensed Consolidated Financial Statements

3 

Communication Intelligence Corporation

Condensed Consolidated Statements of Operations

Unaudited

(In thousands, except per share amounts)

	Three Months Ended						Nine months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Revenue:
Product	$	355		$	341		$	1,231		$	648
Maintenance		161			171			477			467
Total Revenue		516			512			1,708			1,115
Operating costs and expenses:
Cost of sales:
Product		87			23			308			276
Maintenance		9			63			48			239
Research and development		441			370			1,247			1,063
Sales and marketing		329			386			1,059			1,155
General and administrative		426			540			1,388			1,624
Total operating costs and expenses		1,292			1,382			4,050			4,357
Loss from operations		(776	)		(870	)		(2,342	)		(3,242	)
Other income (expense), net		(3	)		(1	)		(9	)		(3	)
Interest expense:
Related party		(30	)		(3	)		(88	)		(3	)
Other		(34	)		-			(57	)		-
Amortization of loan discount and deferred financing:
Related party		(5	)		–			(13	)		–
Other		(7	)		–			(16	)		–
Gain (loss) on derivative liability		43			30			149			24
Net loss		(812	)		(844	)		(2,376	)		(3,224	)
Accretion of beneficial conversion feature, Preferred shares:
Related party (Note 6)		(93	)		(17	)		(767	)		(119	)
Other (Notes 6)		(58	)		(11	)		(201	)		(811	)
Preferred stock dividends:
Related party		(158	)		(203	)		(370	)		(556	)
Other		(51	)		(92	)		(121	)		(225	)
Net loss attributable to commonstockholders	$	(1,172	)	$	(1,167	)	$	(3,835	)	$	(4,935	)
Basic and diluted loss per common share	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)
Weighted average common shares outstanding, basic and diluted		224,492			191,229			222,198			191,254

See accompanying notes to these Condensed Consolidated Financial Statements

4 

Communication Intelligence Corporation

Condensed Consolidated Statements Comprehensive Loss

Unaudited

(In thousands, except per share amounts)

	Three Months Ended						Nine months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net loss:	$	(812	)	$	(844	)	$	(2,376	)	$	(3,224	)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment		1			-			5			(1	)
Total comprehensive loss	$	(811	)		(844	)	$	(2,371	)	$	(3,225	)

See accompanying notes to these Condensed Consolidated Financial Statements

5 

Communication Intelligence Corporation

Consolidated Statement of Changes in Stockholders' Deficit

Nine months Ended September 30, 2012

(In thousands)

	Series A-1 Preferred Shares Outstanding		Series A-1Preferred Shares Amount		Series B Preferred Shares Outstanding			Series B Preferred Shares Amount			Series C Preferred Shares Outstanding			Series C Preferred Shares Amount			Common Shares Outstanding			Common Stock Amount		Treasury Stock			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance as of December 31, 2011		880	$	880		9,250		$	7,380			3,547		$	3,569			198,188		$	1,981	$	−		$	97,715		$	(111,839	)	$	(43	)	$	(357	)
Receipt of 6.5M Common Shares in settlement of the 16b action																		(6,500	)				(325	)											(325	)
Series C Preferred Shares issued in settlement of an indemnification claim related to the 16b settlement												278			417																				417
Stock-based employee compensation																										376									376
Common shares issued in connection with the cashless exercise of warrants																		20,186			202					(202	)							─
Common shares issued in connection with the exercise of warrants for cash																		7,439			74					138									212
Common shares issued in connection with the exercise of stock options option for cash																		184			2					7									9
Common stock issued as restricted stock																		46			−					2									2
Common shares issued in connection with the conversion of Series B Preferred Shares						(140	)		(140	)								3,232			33					107									−
Common shares issued in connection with the conversion of Series C Preferred Shares												(39	)		(39	)		1,729			17					22									−
Accretion of Beneficial Conversion Feature on Series C Preferred Shares issued in settlement of the indemnification claim															417											(417	)								−
Accretion of Beneficial Conversion Feature on Preferred Shares dividends issued in kind									263						288											(551	)								−
Preferred share dividends, paid in kind		54		54		701			437			287			-											(491	)								−
Comprehensive loss:
Net loss																													(2,376	)					(2,376	)
Foreign currency translation adjustment																																5			5
Balances as of September 30, 2012		934	$	934		9,811		$	7,940			4,073		$	4,652			224,504		$	2,309	$	(325	)	$	96,706		$	(114,215	)	$	(38	)	$	(2,037	)

See accompanying notes to these Condensed Consolidated Financial Statements

6 

Communication Intelligence Corporation

Condensed Consolidated Statements of Cash Flows

Unaudited

(In thousands)

	Nine months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(2,376	)	$	(3,224	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		365			663
Amortization of debt discount and deferred financing costs		29			−
Stock-based employee compensation		376			613
Restricted stock expense		2			3
Series C Preferred Shares issued for services		−			195
Series C Preferred Shares issued in settlement of indemnity claim		417			−
Common Stock received as settlement of 16b claim		(325	)		−
Warrants issued for services		3			−
Gain on derivative liability		(149	)		(24	)
Forfeiture of restricted stock issued in lieu of salary		−			(16	)
Changes in operating assets and liabilities:
Accounts receivable		(216	)		(452	)
Prepaid expenses and other assets		(165	)		12
Accounts payable		75			(197	)
Accrued compensation		76			(197	)
Other accrued liabilities		(37	)		39
Deferred revenue		(136	)		(161	)
Net cash used for operating  activities		(2,061	)		(2,746	)
Cash flows from investing activities: Acquisition of property and equipment		(8	)		(13	)
Capitalized software development costs		−			(72	)
Net cash used for investing activities		(8	)		(85	)
Cash flows from financing activities:
Net proceeds from issuance of Series C preferred shares		−			686
Proceeds from issuance of short-term debt		2,328			600
Proceeds from exercise of warrants for cash		213			−
Proceeds from exercise of stock options		12			−
Payment of short-term debt		(225	)		−
Net cash provided by financing activities		2,328			1,286
Effect of exchange rate changes on cash and cash equivalents		−			−
Net increase (decrease) in cash and cash equivalents		259			(1,545	)
Cash and cash equivalents at beginning of period		307			1,879
Cash and cash equivalents at end of period	$	566		$	334

See accompanying notes to these Condensed Consolidated Financial Statements

7 

Communication Intelligence Corporation

Condensed Consolidated Statements of Cash Flows (Continued)

Unaudited

(In thousands)

	Nine months Ended September 30,
	2012		2011
Supplementary disclosure of cash flow information
Interest paid	$	−	$	−
Income tax paid	$	−	$	−
Non-cash financing and investing transactions
Series C preferred shares issued in separation agreement	$	-	$	36
Dividends on preferred shares	$	491	$	796
Accretion of beneficial conversion feature on preferred shares	$	968	$	929
Cashless exercise of warrants	$	202	$	−
Conversion of Series B Preferred Stock into Common Stock	$	140	$	−
Conversion of Series C Preferred Stock into Common Stock	$	39	$	−

See accompanying notes to these Condensed Consolidated Financial Statements

8 

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

1.   Nature of business and summary of significant accounting policies

Basis of Presentation

The financial information contained herein should be read in conjunction with the Company's consolidated audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2011.

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

The Company is a leading supplier of electronic signature products and the recognized leader in biometric signature verification. CIC enables companies to achieve truly paperless workflow in their electronic business processes by providing multiple signature technologies across virtually all applications. CIC’s solutions are available both in software as a service (“SaaS”) and on-premise delivery models and afford “straight-through-processing,” which can increase customer revenue by enhancing user experience and can also reduce costs through paperless and virtually error-free electronic transactions that can be completed significantly quicker than paper-based procedures. To date, the Company primarily has delivered biometric and electronic signature solutions to channel partners and end-user customers in the financial services industry.

The Company's research and development activities have given rise to numerous technologies and products. The Company's core technologies can be referred to as “transaction-enabling” technologies. These technologies include various forms of electronic signatures, such as handwritten biometric, click-to-sign and others, as well as signature verification, cryptography and the logging of audit trails to show signers’ intent. These technologies can enable secure, legal and regulatory compliant electronic transactions that can enhance customer experience at a fraction of the time and cost required by traditional, paper-based processes. The Company’s products include SignatureOne® Ceremony® Server™, SignatureOne® Console, Sign-it® and the iSign® suite of products.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2012, the Company’s accumulated deficit was approximately $114,215. The Company also has a working capital deficit at September 30, 2012. The Company has primarily met its working capital needs through the sale of debt and equity securities. As of September 30, 2012, the Company’s cash balance was approximately $566. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Historically, the Company raised needed capital through debt and equity financings and converted short-term notes payable to equity. The Company sold, for cash in a private placement, 1,440 additional shares of Series B Preferred Stock at a purchase price of $1.00 per share (Note 6 to the Condensed Consolidated Financial Statements).  

9 

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

1.   Nature of business and summary of significant accounting policies (continued)

In March 2011, the Company sold for cash in a private placement an additional 800 shares of Series C Preferred Stock at a purchase price of $1.00.

In September 2011, the Company borrowed $100 at 10% per annum in the form of two demand notes which were repaid in September 2012, and borrowed an additional $500 at 10% per annum in the form of an unsecured convertible promissory note due September 20, 2012, which was subsequently amended to extend the due date through December 31, 2012. In December 2011, the Company borrowed $500 at 10% per annum in the form of unsecured convertible promissory notes due December 2, 2012, which was subsequently amended to extend the due date through December 31, 2012 (Note 4 to the Condensed Consolidated Financial Statements). In February 2012, the Company borrowed $25 at 10% per annum in the form of a demand note and in March 2012, the Company borrowed $100 at 10% per annum in the form of a demand note. The February and March notes were repaid in September 2012. In April 2012 the Company borrowed $1,000 at 10% per annum in the form of convertible notes which are due in April 2013. In September 2012, the Company borrowed $1,103 at 10% per annum in the form of convertible notes. The Company is seeking shareholder approval to increase its authorized capital to complete a financing and issuance of Series D Preferred Shares. The above referenced convertible notes will be exchanged for shares of the Series D Preferred.

There can be no assurance that the Company will be successful in securing adequate capital resources to fund planned operations or that any additional funds will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company. If the Company is unable to obtain adequate capital resources to fund operations, it may be required to delay, scale back or eliminate some or all of its operations, which may have a material adverse effect on the Company's business, results of operations and ability to operate as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Comprehensive Income

On January 1, 2012, the Company adopted an accounting standard that modifies the presentation of comprehensive income in the consolidated financial statements. The standard requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company elected the latter presentation option upon adopting this accounting standard. The adoption of this guidance did not have a significant effect on the consolidated financial statements.

Revenue recognition

For products sold under perpetual license, the Company recognizes revenue upon shipment, provided that persuasive evidence of an arrangement exists, collection is determined to be probable, all non-recurring engineering work necessary to enable the Company's product to function within the customer's application has been completed and the Company's product has been delivered according to specifications. For software sold under a term license, the Company recognizes revenue over the term of the license granted. Revenue from customization of software is recognized when all engineering work necessary to enable the Company's products to function within the customer's application has been completed, and the Company has delivered its product according to specifications.

Software license agreements may contain multiple elements, including upgrades and enhancements, products deliverable on a when and if available basis and post contract support.

10 

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

1.   Nature of business and summary of significant accounting policies (continued)

For arrangements with multiple deliverables the Company allocates consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. In the absence of the vendor-specific objective evidence or third-party evidence of the selling prices, Management’s best estimate of the selling prices is used. For the Company’s tangible products containing software and hardware elements that function together and deliver the tangible products’ essential functionality, the Company allocates revenue under the multiple-element arrangements revenue recognition guidance discussed above.

Maintenance revenue is recorded for post-contract support and upgrades or enhancements, which is paid for in addition to license fees, and is recognized as costs are incurred or over the support period whichever is longer. For undelivered elements where objective and reliable evidence of fair value does not exist, revenue is deferred and subsequently recognized when delivery has occurred and when fair value has been determined.

Treasury Stock

Shares of common stock returned to, or repurchased by, the Company are recorded at cost and are included as a separate component of stockholders’ equity. The Company received 6,500 shares of its Common Stock having a fair value under the cost method of $325 in January 2012, in settlement of a 16b suit brought by a shareholder against Phoenix Venture Fund, LLC. At September 30, 2012, the total value of treasury stock was $325.

Under the cost method, the gross cost of the shares reacquired is charged to a contra equity account entitled treasury stock. The equity accounts that were credited for the original share issuance (common stock, paid-in capital in excess of par, etc.) remain intact. When the treasury shares are reissued, proceeds in excess of cost are credited to a paid-in capital account. Any deficiency is charged to retained earnings (unless paid-in capital from previous treasury share transactions exists, in which case the deficiency is charged to that account, with any excess charged to retained earnings).

Accounting Changes and Recent Accounting Pronouncements

Accounting Standards Issued But Not Yet Adopted

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

In the first nine months of 2012, the adoption of other accounting standards had no material impact on the Company’s financial position, results of operations or cash flows.

2. Accounts receivable and revenue concentrations

Four customers accounted for 10%, 13%, 22% and 37%, respectively, of gross accounts receivable as of September 30, 2012. Three customers accounted for 11%, 13% and 67%, respectively, of gross accounts receivable as of September 30, 2011.

Two customers accounted for 14% and 28% of total revenue for the three months ended September 30, 2012. One customer accounted for 66% of total revenue for the three months ended September 30, 2011.

Three customers accounted for 10%, 12% and 26% of total revenue for the nine months ended September 30, 2012. One customer accounted for 37% of total revenue for the nine months ended September 30, 2011.

11 

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

3.   Patents

The Company performs intangible asset impairment analysis at least annually in accordance with the relevant accounting guidance. The Company periodically reassesses the lives of its patents and tests for impairment in order to determine whether the book value of each patent exceeds the fair value of each patent. Fair value is determined by estimating future cash flows from the products that are and will be protected by the patents and taking into account the factors listed in Critical Accounting Policies in the Company’s Annual Report on Form 10-K.

Management completed an analysis of the Company’s patents as of December 31, 2011. Based on that analysis, the Company concluded that no impairment of the carrying value of the patents existed. The Company believes that no events or circumstances occurred or changed during the three and nine months ended September 30, 2012, and therefore concluded that no impairment in the carrying values of the patents existed at September 30, 2012.

Amortization of patent costs was $90 and $274 for the three and nine months ended September 30, 2012. Amortization of patent costs was $92 and $281 for the three and nine month periods ended September 30, 2011.

Intangible Assets

The following table summarizes intangible assets (in millions):

	September 30, 2012					December 31, 2011
	Carrying Amount		Accumulated Amortization			Carrying Amount		Accumulative Amortization
Amortizable intangible assets:
Patents	$	6,746	$	(5,000	)	$	6,746	$	(4,726	)
Capitalized software		4,112		(4,112	)		4,112		(4,034	)
Total	$	10,858	$	(9,112	)	$	10,858	$	(8,760	)

Amortization for intangible assets recorded as of September 30, 2012 is estimated to be (in thousands):

Remainder of 2012	$	91
2013		365
2014		357
2015		342
2016		322
Thereafter		269
Total	$	1,746

4.   Short-term notes payable

On September 14, 2012, the Company entered into subscription agreements (the “Subscription Agreements”) with certain investors (the “September 2012 Investors”). Under the terms of the Subscription Agreements, the September 2012 Investors purchased approximately $1,103,000 of unsecured convertible promissory notes (each a “September 2012 Note,” and, collectively, the “September 2012 Notes”), and, subject to the satisfaction of certain closing conditions, agreed to purchase at a subsequent closing (the “Final Closing”) approximately 1,103,000 shares of Series D-2 Preferred Convertible Stock (“Series D-2 Preferred Stock”) at a purchase price of $1.00 per share.  The September 2012 Notes bear interest at the rate of 10% per annum, and have a maturity date of December 31, 2012.  The September 2012 Notes

12

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

4.   Short-term notes payable (continued)

will automatically convert into shares of Series D-2 Preferred Stock at a price of $1.00 per share upon the consummation of the Final Closing, provided such closing occurs prior to December 31, 2012.  The Series D-2 Preferred Stock is convertible into shares of the Company’s common stock (“Common Stock”) at a conversion price of $0.05 per share (subject to adjustment).  The Final Closing is presently expected to be consummated on or about November 15, 2012, and is subject to stockholder approvals and the satisfaction of customary closing conditions. The proceeds from the September 2012 Notes were used to repay approximately $225 in demand notes to a related party and an employee of the Company, and for working capital and general corporate purposes in the ordinary course of business

On April 23, 2012, the Company entered into a Note and Warrant Purchase Agreement (the “April 2012 Purchase Agreement”) with certain investors (the “April 2012 Investors”). Under the terms of the April 2012 Purchase Agreement, the Company received loans in the aggregate amount of $1,000,000 from the April 2012 Investors in exchange for the Company’s issuance to each of the April 2012 Investors an unsecured convertible promissory note equal to the principal amount of such April 2012 Investor’s loan to the Company (the “April 2012 Notes”). The April 2012 Notes bear interest at the rate of 10% per annum, and have a maturity date of April 22, 2013. The April 2012 Notes automatically convert into securities sold in the Company’s next equity financing. In connection with the issuance of the April 2012 Notes to the April 2012 Investors, the Company also issued to the April 2012 Investors warrants to purchase an aggregate of 5,000,000 shares of the Company’s Common Stock at an exercise price of $0.05 per share (the “April 2012 Warrants”). The company ascribed a value of $47 to the April 2012 Warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.40, expected life of three years, expected volatility of 213%, and a dividend yield of 0. This value was recorded as a discount to notes payable and as a derivative liability. The discount will be amortized over the life of the April 2012 Notes. The April 2012 Warrants are exercisable for a period of three years. The Company is using the funds received from the April 2012 Investors for working capital and general corporate purposes in the ordinary course of business, and to pay fees and expenses in connection with the Company’s entry into the April 2012 Purchase Agreement. As of September 30, 2012, the fair value of the warrants was $45. In connection with the April 2012 Purchase Agreement, the Company issued an aggregate of 349 warrants to two consultants on the financing at an exercise price of $0.05 per share. The Company ascribed a value of $2 to the warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.40, expected life of three years, expected volatility of 213%, and a dividend yield of 0. The warrant value was recorded as a professional service fee and as a derivative liability. The warrants are exercisable for a period of three years. As of September 30, 2012, the fair value of the warrants was $3.

On February 17, 2012 and March 5, 2012, the Company borrowed $25 and $100, respectively, from Phoenix, a related party, and issued unsecured demand notes. These notes were due on demand and bore interest at the rate of 10% per annum. The notes were repaid from the proceeds of the September 2012 Purchase Agreement. The Company used the net proceeds from the demand notes for working capital and general corporate purposes.

On December 2, 2011, the Company entered into a Note and Warrant Purchase Agreement (the “December 2011 Purchase Agreement”) with Philip Sassower, the Company’s Chairman and CEO, and other investors (the “December 2011 Investors”). Under the terms of the December 2011 Purchase Agreement, the Company issued unsecured convertible promissory notes in the aggregate amount of $500 (the “December 2011 Notes”) to the December 2011 Investors. The December 2011 Notes bear interest at the rate of 10% per annum, and have a maturity date of December 20, 2012.  The December 2011 Notes are also convertible at the option of the December 2011 Investors into securities sold in the Company’s next equity financing with gross proceeds to the Company in excess of $100. In connection with the issuance of the December 2011

13

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

4.   Short-term notes payable (continued)

Notes, the Company also issued to the December 2011 Investors warrants to purchase an aggregate of 5,556 shares of the Company’s Common Stock at an exercise price of $0.0225 per share (the “December 2011 Warrants”). The company ascribed a value of $13 to the December 2011 Warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.39, expected life of three years, expected volatility of 202%, and a dividend yield of 0. This value was recorded as a discount to notes payable and as a derivative liability. The discount will be amortized over the life of the December 2011 Notes. The December 2011 Warrants are exercisable for a period of three years. In February 2012, December 2011 Warrants for 5,000 shares were exercised, 4,889 in a cashless exercise and 111 for cash. The Company issued 4,043 shares of common stock related to the exercise and received $2 in cash. As of September 30, 2012, the fair value of the remaining 556 December 2011 Warrants was $1. The Company used the net proceeds from the December Notes for working capital and general corporate purposes.

On September 20, 2011, the Company entered into a Note and Warrant Purchase Agreement (the “September 2011 Purchase Agreement”) with Phoenix Banner Holdings, LLC (the “September 2011 Investor”), an entity affiliated with Phoenix, the Company’s largest stockholder.  Under the terms of the September 2011 Purchase Agreement, the Company issued an unsecured convertible promissory note in the amount of $500 (the “September 2011 Note”) to the September 2011 Investor.  The September 2011 Note bears interest at the rate of 10% per annum, and had a maturity date of September 20, 2012,which was subsequently amended to extend the due date through December 31, 2012. The September 2011 Note is also convertible at the option of the September 2011 Investor into securities sold in the Company’s next equity financing with gross proceeds to the Company in excess of $100. In connection with the issuance of the September 2011 Note, the Company also issued to the September 2011 Investor a warrant to purchase 5,556 shares of the Company’s Common Stock at an exercise price of $0.0225 per share (the “September 2011 Warrant”). On September 20, 2011, the Company ascribed a value of $13 to the September 2011 Warrant using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.42, expected life of three years, expected volatility of 204%, and a dividend yield of 0. This value was recorded as a discount to notes payable and as a derivative liability. The discount will be amortized over the life of the September 2011 Note. The September 2011 Warrant is exercisable for a period of three years. As of September 30, 2012, the fair value of the September 2011 Warrant was $12. The Company used the net proceeds from the September Notes for working capital and general corporate purposes.

On September 2, 2011, the Company borrowed an aggregate of $100 from Phoenix and an employee of the Company and issued unsecured demand notes to each. These notes were due on demand and bore interest at the rate of 10% per annum. The notes were repaid from the proceeds of the September 2012 Purchase Agreement. The Company used the net proceeds from the demand notes for working capital and general corporate purposes.

Interest expense associated with the Company’s debt for the three months ended September 30, 2012 and 2011, was $64 and $3, respectively, of which $30 and $3 was related party expense. Interest expense associated with the Company’s debt for the nine months ended September 30, 2012 and 2011, was $145 and $3, respectively, of which $88 and $3 was related party expense. Amortization of debt discount and deferred financing costs for the three months ended September 30, 2012, and 2011, was $12 and $0, respectively, of which $5 and $0 was related party expense. Amortization of debt discount and deferred financing costs included in interest expense for the nine months ended September 30, 2012, and 2011, was $29 and $0, respectively, of which $13 and $0 was related party expense.

14

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

4.   Short-term notes payable (continued)

Material commitments:

The Company had the following commitments at September 30, 2012:

	Payments due by period−
Contractual obligations	Total		2012		2013		2014		2015		2016		Thereafter
Short-term note payable	$	3,203	$	2,203	$	1,000	$	−	$	−	$	−	$	−

5. Derivative liability

The Company has determined that certain warrants related to the Company’s financings and the embedded conversion feature on the Series A-1 Preferred Stock require liability classification because of certain provisions that may result in an adjustment to the number of shares upon settlement and an adjustment to their exercise or conversion.  The fair value of the embedded conversion feature for the Series A-1 Preferred Stock at September 30, 2012, and December 31, 2011, was insignificant.

The Company has issued a total of 9,811 shares of Series B Preferred Stock and 4,073 shares of Series C Preferred Stock, respectively. At December 31, 2010, the Company determined that the embedded conversion feature on these shares required liability classification due to the impact the anti-dilution provisions could have had on the number of shares issuable upon conversion. The fair value of the embedded conversion feature on the Series B Preferred Stock at December 31, 2010, was approximately $136, and the fair value of the embedded conversion feature on the Series C Preferred Stock was approximately $179. On March 31, 2011, the Company amended its Amended and Restated Certificate of Designation for its Series B Preferred Stock and its Certificate of Designation for its Series C Preferred Stock by amending the anti-dilution provisions (see Note 7 to the Condensed Consolidated Financial Statements). As a result of these amendments, the Series B Preferred Stock and Series C Preferred Stock no longer require liability classification.

In March 2011, the Company issued fee warrants to related parties to purchase 1,778 shares of common stock in connection with a private placement sale of 800 shares of Series C Preferred Stock and recorded a derivative liability of $4 as of March 31, 2011. The fair market value of the derivative liability at September 30, 2012, was $4 (Note 7 to the Condensed Consolidated Financial Statements).

In August 2011, the Company issued 1,000 warrants as part of consulting agreements. The Company ascribed a value of $1 to the warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.07, expected life of three years, expected volatility of 190%, and a dividend yield of 0. The warrants have a three year life and expire on August 11, 2014. As of September 30, 2012, the fair value of the warrants was $2.

In September 2011, the Company issued 5,556 warrants, the September 2011 Warrant, in connection with the September 2011 Purchase Agreement. The Company ascribed a value of $13 to the September 2011 Warrant using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.42, expected life of three years, expected volatility of 204%, and a dividend yield of 0. The September 2011 Warrant has a three year life and expires on August 11, 2014. As of September 30, 2012, the fair value of the September 2011 Warrant was $12.

15

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

   5.  Derivative Liability (continued)

In December 2011, the Company issued 5,556 warrants, the December 2011 Warrants in connection with the December 2011 Purchase Agreement. The Company ascribed a value of $13 to the December 2011 Warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.39%, expected life of three years, expected volatility of 202%, and a dividend yield of 0. The December 2011 Warrants have a three year life and expire on August 11, 2014. In February 2012, 5,000 of the warrants were exercised, 4,889 in a cashless exercise and 111 for cash. The Company issued 4,043 shares of common stock related to the exercise and received $2 in cash. As of September 30, 2012, the fair value of the 556 remaining December 2011 Warrants was $1.

The Company issued 5,349 warrants in connection with the April 2012 notes. (See note 4 to the Condensed consolidated Financial Statements).

The fair value of the outstanding derivative liabilities at September 30, 2012, and December 31, 2011, was $182 and $281, respectively.

The Company uses the Black-Scholes pricing model to calculate fair value of its warrant derivative liabilities. Key assumptions used to apply these models are as follows:

	September 30, 2012	December 31, 2011
Expected term	0.3 to 2.60 years	0.5 to 2.90 years
Volatility	203.6%	204.7% - 315.2%
Risk-free interest rate	1.65%	0.06% – 0.36%
Dividend yield	0.0%	0.0%

Fair value measurements:

Assets and liabilities measured at fair value as of September 30, 2012, are as follows:

	Value at	Quoted prices in active markets	Significant other observable inputs	Significant unobservable inputs
	September 30, 2012	(Level 1)	(Level 2)	(Level 3)
Derivative liability	$     182	$           −	$        −	$        182

The fair value framework requires a categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

There were no financial assets or liabilities measured at fair value, with the exception of cash and cash equivalents (Level 1) and the above mentioned derivative liability (Level 3) as of September 30, 2012, and December 31, 2011, respectively.

Changes in the fair market value of the Level 3 derivative liability for the nine-month period ended September 30, 2012, are as follows:

16

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

5.   Derivative liability (continued

	Derivative Liability
Balance at January 1, 2012	$	281
Additional liabilities recorded for warrants issued related to note financing		47
Additional liabilities recorded related to warrants issued for services		3
Gain on derivative liability		(149	)
Balance at September 30, 2012	$	182

6.   Net loss per share

The Company calculates net loss per share of both basic net loss per share, which is based on the weighted average number of shares outstanding, and when applicable, diluted income per share, which is based on the weighted average number of shares and dilutive potential shares outstanding.

For the three and nine-month periods ended September 30, 2012, 46,080 shares of common stock issuable upon the exercise of outstanding options and 149,831 shares issuable upon the exercise of warrants and 414,273 shares of common stock issuable upon the conversion of the convertible preferred stock were excluded from the calculation of dilutive earnings per share because the exercise of such options and warrants and the conversion of the preferred stock would be anti-dilutive.

For the three and nine months ended September 30, 2011, 47,229 shares of common stock issuable upon the exercise of outstanding options, 189,310 shares issuable upon the exercise of warrants and 368,371 shares of common stock issuable upon the conversion of the convertible preferred stock were excluded from the calculation of dilutive earnings per share because the exercise of such options and warrants and the conversion of the preferred stock would be anti-dilutive.

The following table is a reconciliation of the numerator (net loss) and the denominator (number of shares) used in the basic and diluted EPS calculations and sets forth potential shares of common stock that are not included in the diluted net loss per share calculation as the effect is antidilutive:

	Three Months Ended						Nine months Ended
	September 30,			September 30,			September 30,			September 30,
	2012			2011			2012			2011
Numerator-basic and diluted net loss	$	(1,172	)	$	(1,167	)	$	(3,835	)	$	(4,935	)
Denominator-basic or diluted weighted average number of common shares outstanding		224,492			191,229			222,198			191,254
Net loss per share – basic and diluted	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)

7.   Equity

The Company has granted stock options under its 1999 Option Plan, which expired in April of 2009 (options outstanding under that plan are not affected by its expiration), and has also granted options to employees, directors and consultants pursuant to individual plans. As of September 30, 2012, there are 1,155 options outstanding under these plans.

17

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

7.   Equity (continued)

The Company's Board of Directors adopted the 2009 Stock Compensation Plan on July 1, 2009, reserving 7,000 shares of Common Stock of the Company for issuance thereunder. As of September 30, 2012, there are 962 options outstanding pursuant to this plan.

The Company's Board of Directors adopted the 2011 Stock Compensation Plan on January 28, 2011, reserving 50,000 shares of Common Stock of the Company for issuance thereunder. As of September 30, 2012, there are 43,963 options outstanding pursuant to this plan.

Share-based compensation expense is based on the estimated grant date fair value of the portion of share-based payment awards that are ultimately expected to vest during the period. The grant date fair value of stock-based awards to employees and directors is calculated using the Black-Scholes option pricing model. Forfeitures of share-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimates. The estimated average forfeiture rate for the nine months ended September 30, 2012 and 2011, was approximately 9.60% and 8.84%, respectively, based on historical data.

Valuation and Expense Information:

The weighted-average fair value of stock-based compensation is based on the single option valuation approach.  Forfeitures are estimated and it is assumed that no dividends will be declared.  The estimated fair value of stock-based compensation awards to employees is amortized using the accrual method over the vesting period of the options. The fair value calculations are based on the following assumptions:

	Nine months Ended September 30, 2012	Nine months Ended September 30, 2011
Risk free interest rate	0.62% – 5.11%	1.12% – 5.11%
Expected life (years)	2.82 – 7.00	2.82 – 7.00
Expected volatility	91.99% – 180.36%	91.99% – 147.41%
Expected dividends	None	None

The following table summarizes the allocation of stock-based compensation expense related to stock option grants for the three and nine months ended September 30, 2012 and 2011. The Company granted 2,000 stock options during the three and nine months ended September 30, 2012, and 184 stock options were exercised for $12 in cash. The Company issued 46 restricted shares of Common Stock valued at $2. The Company granted 24,496 stock options during the three and nine months ended September 30, 2011, and no stock options were exercised.

	Three Months Ended September 30,				Nine months Ended September 30,
	2012		2011		2012		2011
Research and development	$	45	$	78	$	166	$	284
Sales and marketing		27		37		70		128
General and administrative		30		70		117		129
Director options		7		22		23		72
Stock-based compensation expense	$	109	$	207	$	376	$	613

18

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

7. Equity (continued)

A summary of option activity under the Company’s plans as of September 30, 2012, is as follows:

	September 30, 2012
Options	Shares (000)			Weighted Average Exercise Price		Weighted average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1,		51,353		$	0.09				4,449
Granted		2,000		$	0.06			$	120
Exercised		(184	)	$	0.07			$	2
Forfeited or expired		(7,089	)	$	0.26			$	1,830
Outstanding at September 30		46,080		$	0.06		5.38	$	2,727
Vested and expected to vest at September 30		46,080		$	0.06		5.38	$	2,727
Exercisable at September 30		21,411		$	0.07		4.96	$	1,603

The following tables summarize significant ranges of outstanding and exercisable options as of September 30, 2012:

		As of September 30, 2012
		Options Outstanding						Options Exercisable
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Outstanding		Weighted Average Exercise Price
$	0.02 – $0.50		45,604		5.4	$	0.05		20,935	$	0.06
	0.51 – 1.00		464		0.3	$	0.75		464	$	0.75
	1.01 – 2.00		12		0.5	$	1.75		12	$	1.75
			46,080		5.4	$	0.06		21,411	$	0.07

A summary of the status of the Company’s non-vested shares as of September 30, 2012, is as follows:

Nonvested Shares	Shares			Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2012		36,814		$	0.04
Granted		2,000		$	0.06
Exercised		(184	)	$	0.05
Forfeited		(7,089	)	$	0.14
Vested		(6,872	)	$	0.06
Non-vested at September 30, 2012		24,669		$	0.04

As of September 30, 2012, there was $252 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plans.  The unrecognized compensation expense is expected to be realized over a weighted average period of 2.3 years.

19

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

7. Equity (continued)

Preferred Shares

Series A-1

In May 2008, the Company issued an aggregate of 1,040 shares of the Company’s Series A Cumulative Convertible Preferred Stock in exchange for certain debt. The Series A Cumulative Convertible Preferred Stock was subsequently exchanged in October 2008 for an equivalent number of shares of Series A-1 Cumulative Convertible Preferred Stock (the “Series A-1 Preferred Stock”). During 2009, 146 shares of Series A-1 Preferred Stock were converted into 1,005 shares of the Company’s Common Stock. As of September 30, 2012, there are 934 shares of Series A-1 Preferred Stock outstanding.  The shares of Series A-1 Preferred Stock carry an eight percent (8%) annual dividend, payable quarterly in arrears in cash or in additional shares of Series A-1 Preferred Stock, have a liquidation preference over Common Stock of one dollar ($1.00) per share and are convertible into shares of Common Stock at the conversion price of fourteen cents ($0.14) per share. The shares of Series A-1 Preferred Stock are convertible at any time. The Company issued 18 and 54 shares of Series A-1 Preferred Stock in payment of dividends for the three and nine months ended September 30, 2012, respectively. If the outstanding shares of Series A-1 Preferred Stock had been converted in their entirety as of September 30, 2012, the Company would have issued 6,672 shares of Common Stock.

Series B

On August 5, 2010, the Company completed the conversion of all of the Company’s outstanding indebtedness and issued 6,608 shares of Series B Participating Convertible Preferred Stock (the “Series B Preferred Stock”) in accordance with an executed Exchange Agreement entered into with Phoenix Venture Fund LLC and certain other holders of the Company’s indebtedness (the “Recapitalization”). In accordance with the executed Series B Preferred Stock Purchase Agreement the Company issued 1,440 shares of Series B Preferred Stock for proceeds of $1,440, net of expenses of $437 (the “Series B Financing”). In addition, the Company paid approximately $143 in expenses to a third party in connection with the financing. The expenses were recorded as a charge to additional paid in capital. The proceeds were used for working capital and general corporate purposes, in each case in the ordinary course of business, and to pay fees and expenses associated with the Recapitalization and Series B Financing.

The shares of Series B Preferred Stock carry a ten percent (10%) annual dividend, payable quarterly in arrears in cash or in additional shares of Series B Preferred Stock, and have a liquidation preference over shares of Series A-1 Preferred Stock and Common Stock of $1.50 per share. The shares of Series B Preferred Stock were initially convertible into shares of Common Stock at an initial conversion price of six cents ($0.06) per share. However, the Company issued additional preferred stock, the Series C Participating Convertible Preferred Stock (the “Series C Preferred Stock”), at a price less than the original conversion price of $0.06, which resulted in a downward adjustment in the conversion price of the Series B Preferred Stock to $0.0433 per share and an increase in the number of shares of Common Stock that would be issued upon conversion of the outstanding shares of Series B Preferred Stock. The shares of Series B Preferred Stock are convertible at any time.

The conversion feature was determined to be a derivative liability in the amount of $2,000 of which $1,498 was attributable to related parties and $502 to the other owners of Series B Preferred Stock. Due to the decline in the price of the Company’s Common Stock and the issuance of the Series C Preferred Stock, the fair value of the embedded conversion feature on the Series B Preferred Stock was reduced to approximately $130 at December 31, 2010.

In January and March 2012, a total of 140 shares of Series B Preferred Stock were converted into 3,232 shares of the Company’s Common Stock. The Company issued 241 and 701 shares of Series B Preferred Stock in payment of dividends for the three and nine months ended September 30, 2012, respectively. The

20

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

7.   Equity (continued)

Company recorded a beneficial conversion feature associated with the issuance of the Series B Preferred dividends of $51 and $263, for the three and nine months ended September 30, 2012, respectively. As of September 30, 2012, there are 9,811 shares of Series B Preferred Stock outstanding. If the outstanding Series B Preferred Stock had been converted in its entirety on September 30, 2012, the Company would have issued 226,434 shares of Common Stock.

Series C

On December 31, 2010, the Company completed the sale of 2,211 shares of Series C Preferred Stock through a Securities Purchase Agreement with Phoenix Venture Fund LLC and certain other investors, which sale provided proceeds to the Company of $2,211 net of approximately $422 in expenses to third parties in connection with the financing. The expenses were recorded as a charge to additional paid-in capital. The proceeds are being used for working capital and general corporate purposes, in each case in the ordinary course of business, and to pay fees and expenses associated with the sale of the Series C Preferred Stock.

The shares of Series C Preferred Stock carry a ten percent (10%) annual dividend, payable quarterly in arrears in cash or in additional Series C Preferred Stock, and have liquidation preference that is senior to all other shares of the Company’s capital stock, pursuant to which holders of shares of Series C Preferred Stock will receive liquidating distributions in the amount of $1.50 per share plus any accrued dividends. The shares of Series C Preferred Stock are convertible into Common Stock at any time at an initial conversion price of $0.0225 per share, subject to adjustment for stock dividends, splits, combinations and similar events and, with certain exceptions, the issuance of additional securities at a purchase price less than the then current conversion price of the Series C Preferred Stock.

On December 31, 2010, the Series C Preferred Stock’s conversion feature was determined to be a derivative liability in the amount of $179, of which $113 was attributable to related parties and $66 to other holders. After receipt of the liquidation preference, the shares of Series C Preferred Stock and Series B Preferred Stock are entitled to participate pro rata on an as-converted basis with the shares of Common Stock in any remaining liquidation proceeds (after payment of the liquidation preference on the Series C Preferred Stock, Series B Preferred Stock and Series A-1 Preferred Stock).

On March 31, 2011, the Company amended its Amended and Restated Certificate of Designation for its Series B Preferred Stock and its Certificate of Designation for its Series C Preferred Stock to modify the anti-dilution provisions. Under the amendments, in the event additional stock is issued at a price lower than the conversion price then in effect, the new conversion price of the Series B Preferred Stock or Series C Preferred Stock cannot be (A) lower than the average closing market price for the Common Stock for the twenty (20) trading days prior to the closing date of a transaction requiring an adjustment in the conversion price (the “Market Price”) or (B) greater than the conversion price then in effect. The amendments were approved by the Company’s Board of Directors and the necessary majorities of the Company’s Series A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, and were filed with the Delaware Secretary of State on March 31, 2011. As a result of the amendments, the Company reclassified $362 from derivative liabilities to equity on March 31, 2011 (Note 4) and recorded a beneficial conversion feature of $3,501 related to the intrinsic value of the conversion feature on March 31, 2011.

On March 6, 2011, the Company issued 97 shares of its Series C Preferred Stock and warrants to purchase 4,311 shares of Common Stock to its Acting President as part of a professional service agreement.  The shares of Series C Preferred Stock and warrants are convertible into Common Stock under the same terms discussed above.

On March 31, 2011, the Company sold an additional 800 shares of Series C Preferred Stock for proceeds of $800, net of approximately $110 in expenses to third parties in connection with the financing.

On March 9, 2012, the Company issue 278 shares of Series C Preferred Stock valued at $417 in settlement of

21

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

7.   Equity (continued)

the indemnification claim brought by Phoenix Venture Fund LLC, resulting from the settlement of a 16b claim in January 2012 brought by a Company shareholder against Phoenix Venture Fund LLC, certain affiliates and the Company as a nominal defendant. The Company booked a $418 accretion amount for the beneficial conversion feature on the 278 shares of Series C Preferred Stock at March 31, 2012.

On September 25, 2012, an investor converted 39 shares of Series C Preferred Stock into 1,729 shares of the Company’s Common Stock.

The Company issued 100 and 287 shares of Series C Preferred Stock in payment of dividends for the three and nine months ended September 30, 2012. The Company recorded a beneficial conversion feature associated with the issuance of the Series C Preferred dividends of $100 and $287, for the three and nine months ended September 30, 2012, respectively. As of September 30, 2012, there are 4,073 shares of Series C Preferred Stock outstanding.  If the outstanding shares of Series C Preferred Stock were converted in their entirety, the Company would issue 181,010 shares of Common Stock.

Warrants

Series C Warrants

Each investor who purchased shares of Series C Preferred Stock in the financing transactions which closed on December 31, 2010, and March 31, 2011, received a warrant to purchase a number of shares of Common Stock equal to the aggregate number of shares of Series C Preferred Stock purchased by the investor divided by 0.0225. Each warrant issued in connection with the Series C Financing has an exercise price of $0.0225 per share and is exercisable in whole or in part, including by means of cashless exercise, for a period of three years from the date of issuance. In February and March 2012, 27,625 warrants were exercised by holders of the Series C Preferred Stock warrants. Of these warrants exercised, 7,439 were exercised for cash for which the Company received $140 and 20,186 warrants were exercised on a cashless basis. The Company issued 23,929 shares of Common Stock related to these exercises.

Other Warrants

In February and March 2012, 6,484 warrants were exercised by the holders of other warrants, mainly related to indebtedness that converted to Series B Preferred Stock in the Recapitalization. Of these warrants exercised, 1,217 were exercised for cash, for which the Company received $73, and 5,267 were exercised on a cashless basis. The Company issued 3,696 Shares of Common Stock related to these exercises.

On April 23, 2012, the Company issued 5,349 warrants in connection with the $1M bridge financing.  Each warrant issued in connection with the financing has an exercise price of $0.05 per share and is exercisable in whole or in part, including by means of cashless exercise, for a period of three years from the date of issuance. (See note 5 to the Condensed Consolidated Financial Statements).

On June 30, 2012, 2,916 warrants with a derivative value of $18 expired. The $18 was recorded as a gain in derivative liabilities in the Statement of Operations at June 30 2012.

At September 30, 2012, 149,831 shares of Common Stock were reserved for issuance upon exercise of outstanding warrants.

22

Communication Intelligence Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 (In thousands, except per share amounts)

FORM 10-Q

7.   Equity (continued)

             A summary of the warrants issued are as follows:

	September 30, 2012					December 31, 2011
	Warrants			Weighted Average Exercise Price		Warrants			Weighted Average Exercise Price
Outstanding at beginning of period		182,644		$	0.0261		135,131		$	0.0274
Issued		5,349		$	0.0500		59,735		$	0.0064
Exercised		(35,162	)	$	0.0264		(12,222	)	$	0.0225
Expired		(3,000	)	$	0.0433		−			−
Outstanding at end of period		149,831		$	0.0254		182,644		$	0.0261
Exercisable at end of period		149,831		$	0.0254		182,644		$	0.0261

A summary of the status of the warrants outstanding as of September 30, 2012, is as follows:

September 30, 2012
Number of Warrants Outstanding and Exercisable		Weighted Average Remaining Life		Weighted Average Exercise Price Per Share
	14,073		0.71		0.0433
	130,409		1.30		0.0225
	5,349		2.83		0.0500
	149,831		1.24		0.0254

Restricted Share Grants

In connection with the Recapitalization, the Company issued restricted shares to employees in exchange for reductions in their respective salaries. The number of shares issued was calculated based on the amount of the annual salary reduction divided by $0.06 per share. Fifty percent of the shares vested on December 31, 2010, and the remaining 50% vested on September 30, 2011, subject to continued employment through such vesting dates. The Company has recognized $45 in expense associated with 496 restricted shares granted of which 46 shares were issued during the nine months ended September 30, 2012 for $2. As of September 30, 2012, the Company has issued all of the restricted shares granted.

23

Communication Intelligence Corporation

(In thousands, except per share amounts)

FORM 10-Q

Forward Looking Statements

Certain statements contained in this quarterly report on Form 10-Q, including, without limitation, statements containing the words “believes”, “anticipates”, “hopes”, “intends”, “expects”, and other words of similar import, constitute “forward looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors which may cause actual events to differ materially from expectations.  Such factors include those set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, including the following:

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

·   Economic, business, market and competitive conditions in the software industry and technological innovations that could affect the Company’s business;

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

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

Except as otherwise required by applicable laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, as a result of new information, future events or otherwise.

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

The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and notes thereto included in Part 1, Item 1 of this quarterly report on Form 10-Q and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in the Company’s Annual report on Form 10-K for the fiscal year ended December 31, 2011.

Overview

The Company is a leading supplier of electronic signature products and the recognized leader in biometric signature verification. CIC enables companies to achieve truly paperless workflow in their electronic business processes by providing multiple signature technologies across virtually all applications. CIC’s solutions are available both in SaaS and on-premise delivery models and afford “straight-through-processing,” which can increase customer revenue by enhancing user experience and can also reduce costs through paperless and virtually error-free electronic transactions that can be completed significantly faster than paper-based procedures. To date, the Company primarily has delivered biometric and electronic signature solutions to channel partners and end-user customers in the financial services industry.

The Company was incorporated in Delaware in October 1986. Except for the year ended December 31, 2004, in each year since its inception the Company has incurred losses. For the two-year period ended December 31, 2011, net losses attributable to common stockholders aggregated approximately $11,216, and, at September 30, 2012, the Company's accumulated deficit was approximately $114,215.

For the three months ended September 30, 2012, total revenue was $516, an increase of $4, or 1%, compared to total revenue of $512 in the prior year period. The increase in revenue is primarily attributable to the closing of several new software orders and nonrecurring engineering (“NRE”) revenue compared to the prior year period. For the nine months ended September 30, 2012, total revenue was $1,708, an increase of $593, or 53%, compared to total revenue of $1,115 in the prior year period. The increase in revenue is primarily attributable to the closing of a greater number of new software orders compared to the prior year period.

For the three months ended September 30, 2012, the loss from operations was $776, a decrease of $94, or 11%, compared with a loss from operations of $870 in the prior year period. For the nine months ended September 30, 2012, the loss from operations was $2,342, a decrease of $900, or 28%, compared with a loss from operations of $3,242 in the prior year period. The decrease in the loss from operations for the nine months ended September 30, 2012, is primarily attributable to an increase in sales of $593, or 54%, and a decrease of $307, or 7%, in operating expenses including cost of sales compared to the prior year period.

24

Communication Intelligence Corporation

(In thousands, except per share amounts)

FORM 10-Q

Non-operating expense for the three months ended September 30, 2012 was $36, an increase of $62, compared to non-operating income of $26 in the prior year period. Non-operating expense for the nine months ended September 30, 2012 was $34 and increase of $52, compared to non-operating income of $18, in the prior year. The increase in the non-operating loss for the three and nine-month periods was due to an increase in interest expense and amortization of loan discount related to the increase in the Company’s’ short-term debt compared to the prior year.

Critical Accounting Policies and Estimates

Refer to Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2011 Form 10-K.

Effect of Recent Accounting Pronouncements

In the third quarter of fiscal 2012, the adoption of accounting standards had no material impact on our financial position, results of operations or cash flows.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on our financial position, results of operations and cash flows.

Results of Operations

Revenue

For the three months ended September 30, 2012, product revenue was $355, an increase of $14, or 4%, compared to product revenue of $341 in the prior year period.  The increase in revenue is primarily attributable to closing a number of new software orders compared to the prior year period. For the three months ended September 30, 2012, maintenance revenue was $161, a decrease of $10, or 6%, compared to maintenance revenue of $171 in the prior year period. This decrease is primarily due to the accelerated recognition in the prior year of revenue from a late maintenance renewal by one of the Company’s customers.

For the nine months ended September 30, 2012, product revenue was $1,231, an increase of $583, or 90%, compared to product revenue of $648 in the prior year period.  The increase in product revenue is due primarily to the same reasons specified above for the increase in product revenue for the three months ended September 30, 2012.  For the nine months ended September 30, 2012, maintenance revenue was $477, an increase of $10, or 2%, compared to maintenance revenue of $467 in the prior year period.  The increase in maintenance revenue is primarily due to new maintenance contracts associated with the increase in product sales.

Cost of Sales

For the three months ended September 30, 2012, cost of sales was $96, an increase of $10, or 11%, compared to cost of sales of $86 in the prior year period. The increase in cost of sales was due to an increase in direct labor from NRE contracts recognized during the three months ended September 30, 2012, in comparison to the prior year period.

For the nine months ended September 30, 2012, cost of sales was $356, a decrease of $159, or 31%, compared to cost of sales of $515 in the prior year period. The decrease in cost of sales was due primarily to reduced amortization of previously capitalized software development costs, compared to the prior year period.

25

Communication Intelligence Corporation

(In thousands, except per share amounts)

FORM 10-Q

Operating expenses

Research and Development Expenses

For the three months ended September 30, 2012, research and development expense was $441, an increase of $71, or 19%, compared to research and development expense of $370 in the prior year period.  Research and development expenses consist primarily of salaries and related costs, outside engineering, maintenance items, and allocated facilities expenses. The most significant factor in the $71 increase was the addition of three new employees for the full three-month period, plus associated hiring costs, compared to the prior year period. Total expenses, before capitalization of software development costs and other allocations, for the three months ended September 30, 2012, was $569, an increase of $100, or 21%, compared to $469 in the prior year period. The increase in gross expenses is primarily due to the additional headcount and related costs and outside services associated with the Company’s new product offerings. Research and development expenses before capitalization of software development costs, as well as the amounts to be capitalized on future product development, are expected to remain at current levels in the near term.

For the nine months ended September 30, 2012, research and development expense was $1,247, an increase of $184, or 17%, compared to research and development expense of $1,063 in the prior year period.  Total expenses, before capitalization of software development costs and other allocations, for the nine-months ended September 30, 2012, were $1,656, compared to $1,504 in the prior year period. The increase in research and development expense for the nine-months ended September 30, 2012, resulted primarily from the reasons discussed for the three month period above.

Sales and Marketing Expense

For the three months ended September 30, 2012, sales and marketing expense was $329, a decrease of $57, or 15%, compared to sales and marketing expense of $386 in the prior year period. For the nine months ended September 30, 2012, sales and marketing expenses was $1,059, a decrease of $96, or 8%, compared to sales and marketing expense of $1,155 in the prior year period. The decrease in expenses for three and nine month periods ended September 30, 2012, was primarily attributable to lower stock option compensation expense and other general marketing expenses.

General and Administrative Expense

For the three months ended September 30, 2012, general and administrative expense was $426, a decrease of $114, or 21%, compared to general and administrative expense of $540 in the prior year period. The decrease was primarily due to reductions in travel and related expenses, professional service expenses and other general corporate expenses.

For the nine months ended September 30, 2012, general and administrative expense was $1,388, a decrease of $236, or 15%, compared to general and administrative expense of $1,624 in the prior year period. The decrease was primarily due to reductions in travel and related expenses, professional service fees, investor relation expenses and other general corporate expenses.

Interest expense

For the three months ended September 30, 2012, interest expense was $64, an increase of $61, or 2033%, compared to interest expense of $3 in the prior year period. For the nine months ended September 30, 2012, interest expense was $145, an increase of $142, or 4733%, compared to interest expense of $3 in the prior year period. The increase is the result of the issuance of certain demand notes and convertible notes in September and December, 2011, as well as April 2012 and September 2012 (See Note 6 to the Condensed Consolidated Financial Statements).

For the three months ended September 30, 2012, amortization of loan discount and deferred financing expense was $12, an increase of $12, or 100%, compared to amortization of loan discount and deferred financing expense of $0 in the prior year period. For the nine months ended September 30, 2012, amortization of loan discount and deferred financing expense was $29, an increase of $29, or 100%, compared to amortization of loan discount and deferred financing expense of $0 in the prior year period. The increase is the result of amortizing the cost of warrants issued with the above mentioned convertible notes (See Note 6 to the Condensed Consolidated Financial Statements).

26

Communication Intelligence Corporation

(In thousands, except per share amounts)

FORM 10-Q

For the three months ended September 30, 2012, the gain on derivative liability was $43, an increase of $13, or 43%, compared to the gain on derivative liability of $30 in the prior year period. For the nine months ended September 30, 2012, the gain on derivative liability was $149, an increase of $125, or 521%, compared to a gain on derivative liability of $24 in the prior year period. The decrease in the loss on derivative liability is primarily due to the exercise and conversion of warrants and shares of Series B and Series C Preferred Stock during the first quarter of 2012 (See Note 6 to the Condensed Consolidated Financial Statements).

For the three months ended September 30, 2012, the Company paid dividends on shares of its Series A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock in kind. The Company recorded accretion of the beneficial conversion feature on the dividends of its Series B Preferred Stock and Series C Preferred Stock of $151, compared to $28 in the prior year period. For the nine months ended September 30, 2012, the Company paid dividends on shares of the its Series A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock in kind. The Company recorded accretion of the beneficial conversion feature on shares of the Company’s Series B and Series C Preferred Stock of $968, compared to $930 in the prior year period. (See Notes 5 and 6 to the Condensed Consolidated Financial Statements).

Liquidity and Capital Resources

At September 30, 2012, cash and cash equivalents totaled $566 compared to cash and cash equivalents of $307 at December 31, 2011. The increase in cash was primarily due to cash flows from financing activities of $2,328 offset by cash used for operations of $2,061, and cash used in investing activities of $8. At September 30, 2012, total current assets were $1,274, compared to total current assets of $634 at December 31, 2011. At September 30, 2012, the Company's principal sources of funds included its cash and cash equivalents aggregating $566.

At September 30, 2012, accounts receivable net, was $514, an increase of $216, or 72%, compared to accounts receivable net of $298 at December 31, 2011. The increase is due primarily to the increase in the current quarter billings. At September 30, 2012, billed but unpaid maintenance contracts, which are offset against accounts receivable and deferred revenue, were $0, compared to $85 at December 31, 2011.

At September 30, 2012, prepaid expenses and other current assets were $194, an increase of $165, or 568%, compared to prepaid expenses and other current assets of $29 at December 31, 2011. The increase is due primarily to the renewal of annual insurance policies and payment of certain deferred financing costs.

At September 30, 2012, accounts payable were $336, an increase of $75, or 28%, compared to accounts payable of $261 at December 31, 2011. The increase is due primarily to increases in professional fees related to current financing activities.  At September 30, 2012, accrued compensation was $297, an increase of $76, or 34%, compared to accrued compensation of $221 at December 31, 2011.  The increase is due to an increase of accrued but unpaid commissions and changes in head count and salaries compared to December 31, 2011.

At September 30, 2012, total current liabilities were $4,498, an increase of $2,173, or 93%, compared to total current liabilities of $2,325 at December 31, 2011. The increase in total current liabilities is due primarily to the addition of convertible notes aggregating $2,103 associated with the April 2012 Purchase Agreement and the September Subscription Agreements. At September 30, 2012, current deferred revenue was $474, a decrease of $43, or 8%, compared to current deferred revenue of $517 at December 31, 2011. Deferred revenue primarily reflects advance payments for maintenance fees from the Company's licensees that are generally recognized as revenue by the Company when all obligations are met or over the term of the maintenance agreement, whichever is longer.  Deferred revenue is recorded when the Company receives advance payment from its customers.

On September 14, 2012, the Company entered into Subscription Agreements with the September 2012 Investors. Under the terms of the Subscription Agreements, the September 2012 Investors purchased approximately $1,103,000 of September 2012 Notes, and, subject to the satisfaction of certain closing conditions, agreed to purchase at the Final Closing approximately 1,103,000 shares of Series D-2 Preferred Stock at a purchase price of $1.00 per share.  The September 2012 Notes bear interest at the rate of 10% per annum, and have a maturity date of December 31, 2012.  The Notes will automatically convert into shares of Series D-2 Preferred Stock at a price of $1.00 per share upon the consummation of the Final Closing provided such closing occurs prior to December 31, 2012.  The Series D-2 Preferred Stock is convertible into

27

Communication Intelligence Corporation

(In thousands, except per share amounts)

FORM 10-Q

shares of the Company’s Common Stock at a conversion price of $0.05 per share (subject to adjustment).  The Final Closing is presently expected to be consummated no later than November 15, 2012, and is subject to stockholder approvals and the satisfaction of customary closing conditions. The proceeds from the September 2012 Notes were used to repay approximately $225 in demand notes to a related party and an employee of the Company, and for working capital and general corporate purposes in the ordinary course of business. In connection with the Subscription Agreements, the Company expects to issue promptly after the Final Closing, an aggregate of 294 warrants to four consultants on the financing at an exercise price of $0.05 per share.

In August and September 2012, the Company borrowed $50 and $50, respectively, from Phoenix and issued unsecured demand notes to each. These notes are due on demand and bear interest at the rate of 10% per annum. The notes were repaid in September 2012, out of the proceeds from the September 2012 Subscription Agreements.

In April 2012, the Company entered into the April 2012 Purchase Agreement with the April 2012 Investors. The Company issued $1,000 in notes, the April 2012 Notes, and received $983 in cash, net of expenses.  The April 2012 Notes bear interest at the rate of 10% per annum, and have a maturity date of April 22, 2013. The April 2012 Notes automatically convert into securities sold in the Company’s next equity financing. In connection with the issuance of the April 2012 Notes to the April 2012 Investors, the Company also issued 5,000 warrants to purchase 5,000 shares of Common Stock at an exercise price of $0.05 per share to the April 2012 Investors. The warrants are exercisable for a period of three years from the date of issue. The company ascribed a value of $47 to the April 2012 Warrants, which was recorded as a discount to notes payable and as a derivative liability.

In connection with the April 2012 Purchase Agreement, the Company paid $17 in consulting fees associated with the April 2012 Purchase agreement and issued an aggregate of 349 warrants at an exercise price of $0.05 per share to two consultants. The warrants are exercisable for three years from the date of issue. The Company ascribed a value of $2 to the warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.40, expected life of three years, expected volatility of 213%, and a dividend yield of 0. The warrant value was recorded as expense professional service fee and as a derivative liability. The warrants are exercisable for a period of three years

In February 2012, the Company borrowed $25 in the form of a demand note from Phoenix, its largest investor. The note bears interest at the rate of 10% per annum. In March 2012, the Company borrowed $100 in the form of a demand note from Phoenix under the same terms described above. The notes were repaid in September 2012.

During the months of January, February and March 2012, six investors exercised 7,439 warrants for cash, providing the Company $212 in cash. In addition, in February, March and May 2012 two employees exercised 153 stock options providing an additional $9 in cash.

In December 2011, the Company entered into the December 2011 Purchase Agreement with the December 2011 Investors, (See Note 4 to the Condensed Consolidated Financial Statements). Under the terms of the December 2011 Purchase Agreement, the Company issued the December 2011 Notes aggregating $1,000 to the December 2011 Investors.  The December 2011 Notes bear interest at the rate of 10% per annum, and have a maturity date of December 20, 2012.  The December 2011 Notes are also convertible at the option of the December 2011 Investors into securities sold in the Company’s next equity financing with gross proceeds to the Company in excess of $100.  In connection with the issuance of the December 2011 Notes, the Company also issued to the December 2011 Warrants at an exercise price of $0.0225 per share. The Company ascribed a value of $13 to the December 2011 Warrants, which was recorded as a discount to short-term debt in the balance sheet.

In September 2011, the Company borrowed an aggregate of $100 from Phoenix and an employee of the Company and issued unsecured demand notes to each. These notes are due on demand and bear interest at the rate of 10% per annum. In addition the Company entered into the September 2011 Purchase Agreement with the September 2011 Investor.  Under the terms of the September 2011 Purchase Agreement, the Company issued the September 2011 Note to the September 2011 Investor.  The September 2011 Note bears interest at the rate of 10% per

28

Communication Intelligence Corporation

(In thousands, except per share amounts)

FORM 10-Q

annum, and had a maturity date of September 20, 2012,which was subsequently amended to extend the due date through December 31, 2012.  The September 2011 Note is also convertible at the option of the September 2011 Investor into securities sold in the Company’s next equity financing with gross proceeds to the Company in excess of $100.  In connection with the issuance of the September 2011 Note, the Company also issued the September 2011 Warrant at an exercise price of $0.0225 per share. The Company ascribed a value of $13 to the warrants, which was recorded as a discount to short-term debt in the balance sheet.

In March 2011, the Company sold 800 shares of Series C Preferred Stock for proceeds of $800, net of approximately $121 in expenses, of which $50 went to SG Phoenix LLC in payment of an administrative fee and $71 in expenses to third parties in connection with the financing.  In connection with the sale of the shares of Series C Preferred Stock, the Company issued warrants to purchase an aggregate of 35,556 shares of Common Stock with an exercise price of $0.0225 per share, which warrants are exercisable for a period of three years from the date of issuance. The Company recorded a beneficial conversion feature of $800 related to the intrinsic value of the conversion feature of the shares of Series C Preferred Stock.  The Company issued 305 shares of Series C Preferred Stock in payment of dividends for the year ended December 31, 2011.

For the three and nine months ended September 30, 2012, the Company exercised its option related to the terms of its classes of preferred stock and made dividend payments in kind as follows:

	Three Months Ended September 30, 2012			Nine months Ended September 30, 2012
	Series A-1	Series B	Series C	Series A-1	Series B	Series C
Dividends	$18	$241	$100	$54	$701	$287

Interest expense associated with the Company’s indebtedness for the three months ended September 30, 2012 and 2011, was $64 and $3, respectively, of which $30 and $0, respectively, was related party expense. Amortization of debt discount and deferred financing costs for the three months ended September 30, 2012 and 2011 was $12 and $0, respectively, of which $5 and $0, respectively, was related party expense.

Interest expense associated with the Company’s indebtedness for the nine months ended September 30, 2012 and 2011, was $145 and $3, respectively, of which $88 and $0, respectively, was related party expense. Amortization of debt discount and deferred financing costs for the nine months ended September 30, 2012 and 2011 was $29 and $0, respectively, of which $13 and $0, respectively, was related party expense.

The Company had the following material commitments as of September 30, 2012:

	Payments due by period
Contractual obligations	Total		2012		2013		2014		2015		2016		Thereafter
Short-term note payable (1)		3,103	$	2,103	$	1,000	$	-	$	-	$	-	$	-
Operating lease commitments (2)		1,167		68		275		283		292		249		-
Total contractual cash obligations	$	4,270	$	2,171	$	1,275	$	283	$	292	$	249	$	-

1.   The short-term notes payable in the balance sheet are shown net of $35 in loan discounts, which will be recognized as expense over the life of the loans.

2.   The Company extended the lease on its offices in April 2010.  The base rent decreased by approximately 6% in November 2011 and will increase by approximately 3% per annum over the term of the new lease, which expires on October 31, 2016.

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

29

Communication Intelligence Corporation

(In thousands, except per share amounts)

FORM 10-Q

Item 3.                      Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

The Company did not enter into any short-term security investments during the three months ended September 30, 2012.

Foreign Currency Risk

From time to time, the Company makes certain capital equipment or other purchases denominated in foreign currencies. As a result, the Company’s cash flows and earnings are exposed to fluctuations in interest rates and foreign currency exchange rates. The Company attempts to limit these exposures through operational strategies and generally has not hedged currency exposures. During the three and nine months ended September 30, 2012 and 2011, foreign currency translation gains and losses were insignificant.

Item 4. Controls and Procedures.

We carried out an evaluation as of the end of period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to paragraph (b) of Rule 13a-15 and 15d-15 under the Exchange Act.  Based on that review, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act (1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II-Other Information

Item 1.             Legal Proceedings.

None.

Item 1A.          Risk Factors

Not applicable.

Item 2.             Unregistered Sale of Securities and Use of Proceeds.

None.

Item 3.             Defaults Upon Senior Securities.

None.

30

Communication Intelligence Corporation

(In thousands, except per share amounts)

FORM 10-Q

Item 4.             Mine Safety Disclosures

Not applicable

Item 5.             Other Information.

None.

Item 6.             Exhibits.

(a)       Exhibits.

Exhibit Number	Document
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).
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).
3.4	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).
3.5	Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation dated January 24, 2001, incorporated herein by reference to Exhibit 3.5 to the Company’s Registration Statement on Form S/1, filed December 28, 2007.
3.6	Certificate of Elimination of the Company’s Certificate of Designation of the Series A Preferred Stock dated August 17, 2001, incorporated herein by reference to Exhibit 3.6 to the Company’s Registration Statement on Form S/1, filed December 28, 2007.
3.7	Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State August 17, 2007, incorporated herein by reference to Exhibit 3.7 to the Company’s Registration Statement on Form S/1 filed on December 28, 2007.
3.8	Amended and Restated Certificate of Incorporation of the Company filed with the Delaware Secretary of State on May 18, 1995, incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
3.9	Certificate of Designations, Powers, Preferences and Rights of the Series A Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on June 4, 2008, incorporated herein by reference to Exhibit 4.23 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
3.10	Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on June 30, 2008, incorporated herein by reference to Exhibit 3.7 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008.
3.11	Certificate of Designations, Powers, Preferences and Rights of the Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on October 30, 2008, incorporated herein by reference to Exhibit 3.11 to the Company’s Annual Report on Form 10-K filed on March 12, 2009.
3.12	Certificate of Elimination of the Company’s Series A Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on December 30, 2008, incorporated herein by reference to Exhibit 3.12 to the Company’s Annual Report on Form 10-K filed on March 12, 2009.

31 

Communication Intelligence Corporation

(In thousands, except per share amounts)

FORM 10-Q

Exhibit Number	Document
3.13	Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on June 30, 2009, incorporated herein by reference to Exhibit 3.13 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2009.
3.14	Amendment No. 1 to By-laws dated June 17, 2010, incorporated herein by reference to Exhibit 3.14 to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2010.
3.15	Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on August 4, 2010, incorporated herein by reference to Exhibit 3.15 to the Company’s Quarterly Report on Form 10-Q filed on November 12, 2010.
3.16	Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on August 4, 2010, incorporated herein by reference to Exhibit 3.16 to the Company’s Quarterly Report on Form 10-Q filed on November 12, 2010.
3.17	Certificate of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware Secretary of State on August 4, 2010, incorporated herein by reference to Exhibit 3.17 to the Company’s Quarterly Report on Form 10-Q filed on November 12, 2010.
3.18	Certificate of Amendment to Amended And Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.18 to the Company’s Annual Report on Form 10-K filed on March 30, 2011.
3.19	Second Amended and Restated Certificate of Designation of Series A-1 Cumulative Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.19 to the Company’s Annual Report on Form 10-K filed on March 30, 2011.
3.20	Second Amended and Restated Certificate of Designation of Series B Participating Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.20 to the Company’s Annual Report on Form 10-K filed on March 30, 2011.
3.21	Certificate of Designation of Series C Participating Convertible Preferred Stock filed with the Delaware Secretary of State on December 31, 2010, incorporated herein by reference to Exhibit 3.21 to the Company’s Annual Report on Form 10-K filed on March 30, 2011.
3.22	Amendment to the Amended And Restated Certificate of Designation of the Series B Participating Convertible Preferred Stock, incorporated herein by reference to Exhibit 10.59 to the Company’s Current Report on Form 8-K filed March 31, 2011.
3.23	Amendment to the Amended And Restated Certificate of Designation of the Series C Participating Convertible Preferred Stock, incorporated herein by reference to Exhibit 10.60 to the Company’s Current Report on Form 8-K filed March 31, 2011.
*10.64	Form of Subscription Agreement dated September 14, 2012.
*10.65	Form of Unsecured Convertible Promissory Note dated September 14, 2012
*31.1	Certification of Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2	Certificate of Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1	Certification of Chief Executive Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2	Certification of Chief Financial Officer pursuant to 18 USC Section 1750, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

32 

Communication Intelligence Corporation

(In thousands, except per share amounts)

FORM 10-Q

SIGNATURES

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

COMMUNICATION INTELLIGENCE CORPORATION

Registrant

November 14, 2012	/s/ Andrea Goren
Date	Andrea Goren
	(Principal Financial Officer and Officer Duly Authorized to Sign on Behalf of the Registrant)

33

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Philip Sassower, certify that:

1.      I have reviewed this Quarterly Report on Form 10-Q of Communication Intelligence Corporation;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.      Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 14, 2012

/s/ Philip Sassower

Chairman and Chief Executive Officer

(Principal Executive Officer of Registrant)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Andrea Goren, certify that:

1.      I have reviewed this Quarterly Report on Form 10-Q of Communication Intelligence Corporation;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.      Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 14, 2012

/s/ Andrea Goren

Chief Financial Officer

(Principal Financial Officer of Registrant)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Philip S. Sassower, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Communication Intelligence Corporation on Form 10-Q for the quarterly period ended September 30, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Communication Intelligence Corporation.

Date: November 14, 2012

By: /s/ Philip S. Sassower

Chairman and Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Communication Intelligence Corporation and will be retained by Communication Intelligence Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Communication Intelligence Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Communication Intelligence Corporation specifically incorporates it by reference.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Andrea Goren, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Communication Intelligence Corporation on Form 10-Q for the quarterly period ended September 30, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Communication Intelligence Corporation.

Date: November 14, 2012

By: /s/ Andrea Goren

Chief Financial Officer

(Principal Financial Officer)

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Communication Intelligence Corporation and will be retained by Communication Intelligence Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Communication Intelligence Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Communication Intelligence Corporation specifically incorporates it by reference.

EX-10.64

EXHIBIT 10.64

CONFIDENTIAL

SUBSCRIPTION AGREEMENT

Dated as of August 20, 2012

Name and Address of Subscriber   __________________________ __________________________ __________________________   Total Amount of Investment   $                                                 

Communication Intelligence Corporation

c/o SG Phoenix LLC, as Administrative Agent

110 East 59th Street, Suite 1901

New York, NY 10022

Re:           Unsecured Convertible Promissory Notes and Series D-2 Preferred Stock

Ladies and Gentlemen:

Reference is hereby made to (i) the confidential term sheet (the “Term Sheet”), dated as of August 20, 2012, of Communication Intelligence Corp., a Delaware corporation (the “Company”), attached hereto as Exhibit A; (ii) the Company’s Annual Report on Form 10-K for the year ended December 31, 2011; (iii) the Company’s Quarterly Reports on Form 10-Q for the three months ended March 31, 2012 and June 30, 2012; and (iv) the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 27, 2012.

Pursuant to the Term Sheet, the Company proposes to issue to accredited investors up to $5.0 million of the Company’s Series D Convertible Preferred Stock (the “Series D Preferred Stock”), at a purchase price of $1.00 per share (the “Offering”).  Up to approximately $2.85 million of the Series D Preferred Stock will be issued pursuant to  subscription agreements in the form of this agreement (each a “Subscription Agreement,” and, collectively, the “Subscription Agreements”)  whereby, as described in greater detail below, new investors, including the undersigned (each an “Investor,” and collectively, the “Investors”) (i) at an initial note closing (the “Note Closing”) will be issued a convertible promissory note convertible into shares of Series D-2 Preferred Stock (the “Series D-2 Preferred Stock”), which shares are convertible into shares of the Company’s common stock, $0.01 par value per share (“Common Stock”), at a conversion price equal to $0.05 per share (subject to adjustment), and (ii) at a subsequent closing (the “Final Closing”) will be issued additional shares of Series D-2

EXHIBIT 10.64 

Preferred Stock.  In addition to the issuances of convertible notes and Series D Preferred Stock described in the preceding sentence, approximately $1.05 million of indebtedness currently outstanding will be automatically converted at the Final Closing into approximately 1.05 million shares of Series D-2 Preferred Stock.  Under the terms of an Agreement to Amend and Convert Convertible Promissory Notes (“Agreement to Amend and Convert”), approximately $1.1 million of indebtedness currently outstanding will be converted at the Final Closing into approximately 1.1 million shares of Series D-1 Preferred Stock (the “Series D-1 Preferred Stock”), which shares are convertible into shares of Common Stock at a conversion price equal to $0.0225 per share (subject to adjustment).  The Note Closing is expected to be consummated on or about August 31, 2012 and is subject to customary closing conditions as described below.  The Final Closing is expected to be consummated no later than October 31, 2012, and is subject to stockholder approvals and customary closing conditions described below.

On or prior to the Final Closing, the Company shall have obtained all necessary stockholder approvals in order to file a Certificate of Amendment to its Amended and Restated Certificate of Incorporation (the “Charter Amendment”), which Charter Amendment will (i) increase the authorized number of shares of Common Stock from 1,050,000,000 to 1,500,000,000, (ii) increase the authorized number of shares of Preferred Stock from 24,500,000 to 36,000,000, (iii) designate 3,000,000 of the authorized number of shares of Preferred Stock as Series D-1 Convertible Preferred Stock, and (iv) designate 8,000,000 of the authorized number of shares of Preferred Stock as Series D-2 Preferred Stock.  Stockholder approval of the Charter Amendment will require the approval of (i) the holders representing a majority of Common Stock voting separately as a class, (ii) the holders representing a majority of Common Stock, Series A-1 Cumulative Convertible Preferred Stock (“Series A-1 Preferred Stock”), Series B Participating Convertible Preferred Stock (“Series B Preferred Stock”), and Series C Participating Convertible Preferred Stock (“Series C Preferred Stock”) voting together as a class (on an as-converted basis), (iii) the holders representing a majority of Series A-1 Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock voting together as a class, (iv) the holders representing a majority of the Series B Preferred Stock voting separately as a class, and (v) the holders representing a majority of the Series C Preferred Stock voting separately as a class.

In addition to the foregoing, on or prior to the Final Closing, the Company shall have obtained all necessary stockholder approvals for amending and restating the Certificate of Designation for each existing series of Preferred Stock (the Series A-1 Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock) in connection with the Offering in order to, among other things, establish that the Series D-1 Preferred Stock and Series D-2 Preferred Stock are superior in liquidation and dividend preferences to the Series A-1 Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock.   Approval of the Third Amended and Restated Certificate of Designation of the Series A-1 Cumulative Convertible Preferred Stock (“Third Amended and Restated Certificate of Designation (Series A-1)”) will require the approval of (i) the holders representing a majority of Series A-1 Preferred Stock voting separately as a class, (ii) the holders representing a majority of Series B Preferred Stock voting separately as a class, (iii) the holders representing a majority of Series C Preferred Stock voting separately as a class, and (iv) the holders representing a majority of Series A-1 Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock voting together as a class (on an as-converted basis).   Approval of the Second Amended and Restated Certificate of Designation of the Series B Participating Convertible Preferred Stock (“Second Amended and Restated Certificate of Designation (Series B)”) will require the approval of (i) the holders representing a majority of Series B Preferred Stock voting separately as a class with, (ii) the holders representing a majority of Series C Preferred Stock voting separately as a class, and (iii) the holders representing a majority of Series A-1 Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock voting together as a class (on an as-converted basis).  Approval of the Amended and Restated Certificate of Designation of the Series C Participating Convertible Preferred Stock (“Amended and Restated Certificate of Designation (Series C)”) will require the approval of (i) the holders representing a majority of Series B Preferred Stock voting separately as a class, (ii) the

2

EXHIBIT 10.64 

holders representing a majority of Series C Preferred Stock voting separately as a class and (iii) the holders representing a majority of Series A-1 Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock voting together as a class (on an as-converted basis).

The consent of the holders of a majority of the outstanding shares of Series B Preferred Stock and holders of a majority of the outstanding shares of Series C Preferred Stock will also be required to be obtained with respect to the issuance of the Notes, the designation of rights, preferences, and privileges of the Series D-1 Preferred Stock and Series D-2 Preferred Stock, and the issuance of shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock in the Offering.  A copy of the Certificate of Designation of Series D Convertible Preferred Stock (“Certificate of Designation (Series D)”), which provides for the rights, preferences, and privileges of the Series D-1 Preferred Stock and Series D-2 Preferred Stock.

1.Subscription.  The undersigned hereby executes and delivers this Subscription Agreement and subscribes for and agrees to purchase a combination of unsecured convertible promissory notes and shares of Series D-2 Preferred Stock at a price of $1.00 for each $1.00 in principal (and or accrued interest) or per share, as the case may be, for an aggregate amount $___________  (the “Total Amount of Investment”).  Fifty Percent (50%) of the Total Amount of Investment should be remitted to SG Phoenix LLC, as administrative agent (“SG Phoenix” or the “Administrative Agent”), upon execution and delivery of this Subscription Agreement, and will be used to purchase unsecured convertible promissory notes, in the form attached hereto as Exhibit B (the “Convertible Promissory Notes”), which will automatically convert into shares of Series D-2 Preferred Stock upon the Final Closing.  The remaining 50% of the Total Amount of Investment (the “Remaining Investment”) should be remitted to SG Phoenix promptly following written notice of the proposed Final Closing and will be used to purchase Series D-2 Preferred Stock upon the Final Closing.  The Total Amount of Investment is payable either by check made out to “CIC Series D Escrow”, or by wire transfer using the following instructions:

Citibank N.A. (New York, NY)

Attn.:

ABA#

Account Name:

Account #

In the event the Final Closing does not occur by December 31, 2012, SG Phoenix will return the Remaining Investment to the undersigned.

   2.Subscription Instruments.  The undersigned is delivering to the Company a copy of this Subscription Agreement duly completed and executed by the undersigned.

 3.Conditions to Note Closing.

(a)Conditions of Investors’ Obligations at Note Closing.  The obligations of each Investor under this Subscription Agreement are subject to the fulfillment, on or prior to the date of the Note Closing, of each of the following conditions, any of which may be waived in whole or in part by the Administrative Agent in its sole and absolute discretion:

3

EXHIBIT 10.64 

(i)           Performance.  The Company shall have performed and complied in all material respects with all agreements, obliga­tions and conditions contained in this Subscription Agreement that are required to be performed or complied with by it with respect to the Note Closing on or prior to the date of the Note Closing.

(ii)           No Material Adverse Change.  No material adverse change with respect to the Company’s business, properties, prospects or condition (financial or otherwise) shall have occurred between December 31, 2011 and the date of the Note Closing.

(iii)           Consents and Waivers. The Company shall have obtained all consents or waivers necessary to execute and perform its obligations under this Subscription Agreement with respect to the lawful sale and issuance of the Notes on or prior to the date of the Note Closing.

(iv)           Governmental Approvals.  Except for the notices required or permitted to be filed after the date of Note Closing pursuant to applicable federal and state securities laws, the Company shall have obtained all governmental approvals required in connection with the lawful sale and issuance of the Notes at the Note Closing.

(iv)           Secretary’s Certificate.  On or prior to the date of the Note Closing, the Company shall have delivered to the Administrative Agent, on behalf of the Investors, a certificate executed by the Secretary of the Company dated as of the date of the Note Closing certifying with respect to (A) a copy of the Company’s Certificate of Incorporation and its Bylaws in effect on such date and that the Company is not in violation of or default under any provision of its Certificate of Incorporation or Bylaws as of and on the date of the Note Closing and (B) Board resolutions of the Company authorizing the lawful sale and issuance of the Notes.

(v)           Delivery of Notes.  The Company shall have executed and delivered to each Investor a Note, in the form attached hereto as Exhibit B, the principal amount of which shall be 50% of such Investor’s Total Amount of Investment.

(b)Conditions to Obligations of the Company.  The Company’s obligation to issue and sell the Notes at the Note Closing is subject to the fulfillment, to the Company’s reasonable satisfaction, on or prior to the date of Note Closing, of the following conditions, any of which may be waived in whole or in part by the Company:

(i)           Representations and Warranties.  The representations and warranties made by each Investor in Section 5 shall be true and correct when made, and shall be true and correct on the date of Note Closing with the same force and effect as if they had been made on and as of the same date.

(ii)           Tender of Funds by Investors.  Each Investor shall have delivered to the Administrative Agent 50% of such Investor’s Total Amount of Investment.

(iii)           Consents and Waivers. The Company shall have obtained all consents or waivers necessary to execute and perform its obligations under this Subscription Agreement with respect to the lawful sale and issuance of the Notes on or prior to the date of the Note Closing.

4

EXHIBIT 10.64 

4.Conditions to Final Closing.

(a)Conditions of the Investors’ Obligations.  The obligations of each Investor under this Subscription Agreement are subject to the fulfillment, on or prior to the date of the Final Closing of each of the following conditions, any of which may be waived in whole or in part by the Administrative Agent in its sole and absolute discretion.

(i)Performance.  The Company shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Subscription Agreement that are required to be performed or complied with by it on or prior to the date of Final Closing.

(ii)No Material Adverse Change.  No material adverse change with respect to the Company’s business, properties, prospects or condition (financial or otherwise) shall have occurred between December 31, 2011 and the date of the Final Closing.

(iii)Consents and Waivers.  The Company shall have obtained all consents or waivers necessary to execute and perform its obligations under this Subscription Agreement, the Agreement to Amend and Convert, the Certificate of Designation (Series D), the Amended and Restated Certificate of Designation (Series C), the Second Amended and Restated Certificate of Designation (Series B), and the Third Amended and Restated Certificate of Designation (Series A-1), with respect to the lawful sale and issuance of the shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock on or prior to the Final Closing.

(iv)Governmental Approvals.  Except for the notices required or permitted to be filed after Final Closing pursuant to applicable federal and state securities laws, the Company shall have obtained all governmental approvals required in connection with the lawful sale and issuance of the shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock on or prior to the Final Closing.

(v)Charter Amendment.  Prior to the Final Closing, (A) the Company shall have caused the Charter Amendment to be filed with the Secretary of State of Delaware, and (B) the Administrative Agent, on behalf of the Investors, shall have received confirmation from the Secretary of State of the State of Delaware reasonably satisfactory to them that such filing has occurred.

(vi)Certificates of Designation. Prior to the Final Closing, (A)(1) the Certificate of Designation (Series D), (2) the Amended and Restated Certificate of Designation (Series C), (3) the Second Amended and Restated Certificate of Designation (Series B) and (4) the Third Amended and Restated Certificate of Designation (Series A-1) shall have been filed with the Secretary of State of the State of Delaware, and (B) the Administrative Agent, on behalf of the Investors, shall have received confirmation from the Secretary of State of the State of Delaware reasonably satisfactory to them that such filings has occurred.

(vii)Stockholder Approvals.  The Company shall have obtained all necessary stockholder approvals to have filed the Charter Amendment, the Certificate of Designation (Series D), the Amended and Restated Certificate of Designation (Series C) and the Second

5

EXHIBIT 10.64 

Amended and Restated Certificate of Designation (Series B), and the Third Amended and Restated Certificate of Designation (Series A-1) described above.

(viii)Agreement to Amend and Convert.  Holders representing approximately $1.1 million of indebtedness currently outstanding shall have executed and delivered to the Administrative Agent the Agreement to Amend and Convert on or prior to the date of the Final Closing.

(ix)Secretary’s Certificate.  At the Final Closing, the Company shall have delivered to the Administrative Agent, on behalf of the Investors, a certificate executed by the Secretary of the Company dated as of the date of the Final Closing certifying with respect to (A) a copy of the Company’s Certificate of Incorporation and its Bylaws in effect on such date and that the Company is not in violation of or default under any provision of its Certificate of Incorporation or Bylaws as of and on the date of the Final Closing and (B) Board resolutions of the Company authorizing the transactions contemplated by this Subscription Agreement other than the Note Closing which shall have been previously authorized.

(x)Fees and Expenses; Issuance of Warrant.  The Company shall have paid to the Administrative Agent and its designees, if any, the administrative fee, the fees and expenses of counsel to the Administrative Agent and its affiliates, and issued to the Administrative Agent and its designees, if any, the warrant to purchase shares of Common Stock in each case provided for in the Term Sheet attached hereto as Exhibit A.

(b)Conditions of the Company’s Obligations.  The Company’s obligation to issue the shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock at the Final Closing is subject to the fulfillment, to the Company’s reasonable satisfaction, on or prior to the date of Final Closing, of the following conditions, any of which may be waived in whole or in part by the Company.

(i)Representations and Warranties.  The representations and warranties made by each Investor in Section 5 shall be true and correct when made, and shall be true and correct on the date of Final Closing with the same force and effect as if they had been made on and as of the same date.

(ii)Tender of Funds by Investors.  Each Investor shall have delivered to the Administrative Agent the Remaining Investment.

(iii)Agreement to Amend and Convert.  Holders representing approximately $1.1 million of indebtedness currently outstanding shall have executed and delivered to the Administrative Agent the Agreement to Amend and Convert on or prior to the date of the Final Closing.

(iv)Charter Amendment.  Prior to the Final Closing, the Company shall have caused the Charter Amendment to be filed with the Secretary of State of Delaware.

(v)Certificates of Designation. Prior to the Final Closing, (1) the Certificate of Designation (Series D), (2) the Amended and Restated Certificate of Designation (Series C), (3) the Second Amended and Restated Certificate of Designation (Series B) and (4) the Third

6

EXHIBIT 10.64 

Amended and Restated Certificate of Designation (Series A-1) shall have been filed with the Secretary of State of the State of Delaware.

(vi)Stockholder Approvals.  The Company shall have obtained all necessary stockholder approvals to have filed the Charter Amendment, the Certificate of Designation (Series D), the Amended and Restated Certificate of Designation (Series C) and the Second Amended and Restated Certificate of Designation (Series B), and the Third Amended and Restated Certificate of Designation (Series A-1) described above.

5.Representations and Warranties.  In connection with the undersigned’s subscription, the undersigned hereby represents and warrants as follows:

(a)           (i)           The undersigned acknowledges that the undersigned has carefully reviewed the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, the Company’s Quarterly Reports on Form 10-Q for the three months ended March 31, 2012 and June 30, 2012, and the Company’s Current Report on Form 8-K filed with the SEC on April 27, 2012.

(ii)           The undersigned has such knowledge and experience in financial and business matters that he, she or it is capable of evaluating the merits and risks of an investment in the Company and making an informed investment decision with respect thereto.  The undersigned has obtained sufficient information to evaluate the merits and risks of the investment and to make such a decision.

(iii)           The undersigned is an “Accredited Investor” (as such term is defined in Rule 501(a) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”)).

(b)           The undersigned has had access to all documents, records and books of the Company which the undersigned (or the undersigned’s advisor) considers necessary or appropriate to make an informed decision pertaining to this investment.  Additionally, the undersigned has been provided the opportunity to ask questions and receive answers concerning the terms and provisions of the Notes and the Series D-2 Preferred Stock and to obtain any additional information which the Company possesses, or can acquire without unreasonable effort or expense that is relevant to the undersigned’s investment decision.  To the extent the undersigned has not sought information regarding any particular matter, the undersigned represents that he, she or it had and has no interest in doing so and that such matters are not material to the undersigned in connection with this investment.

(c)           The undersigned (i) has adequate means of providing for the undersigned’s current needs and possible personal contingencies and those of the undersigned’s family, if applicable, in the same manner as the undersigned would have been able to provide prior to making the investment contemplated herein, (ii) has no need for liquidity in this investment, (iii) is aware of and able to bear the risks of the investment for an indefinite period of time and (iv) presently, based on existing conditions, is able to afford a complete loss of such investment.

7

EXHIBIT 10.64 

(d)           The undersigned recognizes that an investment in the Convertible Promissory Notes and Series D-2 Preferred Stock (collectively, the “Securities”)involves significant risks and the undersigned may lose his, her or its entire investment in the Securities.

(e)           The undersigned understands that the Securities are “restricted securities” as that term is defined pursuant to Rule 144 of the Securities Act, and have not been registered under the Securities Act or under certain state securities laws in reliance upon exemptions therefrom for nonpublic offerings.  The undersigned understands that the Securities must be held indefinitely unless the sale thereof is subsequently registered under the Securities Act and under certain state securities laws or an exemption or exemptions from such registration are available.  The undersigned understands that the Company is under no obligation to register the Securities under the Securities Act or any other applicable securities law and that the undersigned has no right to require such registration.

(f)           The Securities are being purchased solely for the undersigned’s account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, and no other person has a direct or indirect beneficial interest in such Securities.  The undersigned represents that the undersigned has no agreement, understanding, commitment or other arrangement with any person and no present intention to sell, transfer or assign any Securities.

(g)           The undersigned agrees not to sell or otherwise transfer the Securities or the underlying shares of common stock unless they are registered under the Securities Act and under any applicable state securities laws, or an exemption or exemptions from such registration are available.

(h)           The undersigned has all requisite legal capacity and power to enter into this Subscription Agreement which constitutes a valid and binding agreement of the undersigned enforceable against the undersigned in accordance with its terms; and the person signing this Subscription Agreement on behalf of the undersigned is empowered and duly authorized to do so.  The undersigned, if a corporation, partnership, trust or other entity, is authorized and otherwise duly qualified to purchase and hold the Securities and to enter into this Subscription Agreement and such entity has not been formed for the specific purpose of acquiring the Securities in the Company unless all of its equity owners qualify as accredited individual investors.

(i)           All information which the undersigned has provided to the Administrative Agent and the Company concerning the undersigned, the undersigned’s financial position and knowledge of financial and business matters, or, in the case of a corporation, partnership, trust or other entity, concerning such knowledge of the person making the investment decision on behalf of such entity, including all information contained in this Subscription Agreement, is true, correct and complete as of the date set forth on the signature page hereof, and if there should be any adverse change in such information prior to the subscription being accepted, the undersigned will immediately provide the Company with such information.

8

EXHIBIT 10.64 

(j)           The offering and sale of the Securities to the undersigned were not made through any advertisement in printed media of general and regular paid circulation, radio or television or any other form of advertisement, or as part of a general solicitation.

(k)           The undersigned shall pay all sales, transfer, income, use, and similar taxes arising out of or in connection with the Securities in accordance with all applicable laws.

6.Confidentiality.  The undersigned hereby acknowledges and agrees that the Term Sheet and the information contained in this Subscription Agreement may contain material information about the Company that has not been disclosed to the public generally.  The undersigned understands that it and its representatives could be subject to fines, penalties and other liabilities under applicable securities laws if the undersigned or any of its representatives trades in the Company’s securities while in possession of any material, non-public information concerning the Company.  The undersigned agrees to keep such information confidential and not to trade, and not to allow any of its representatives to trade, in the Company’s securities until such time as the undersigned or such representatives are no longer prohibited from so trading under all applicable securities laws (whether because the Company publicly disclosed all material information about the Company contained in the Term Sheet and this Subscription Agreement or otherwise).

7.Indemnification.  The undersigned agrees to indemnify and hold harmless the Company and its stockholders, officers, directors, employees, advisors, attorneys and agents (including the Administrative Agent) (the “Indemnitees”) from and against all liability, damage, losses, costs and expenses (including reasonable attorneys’ fees and court costs) which they may incur by reason of any breach of the representations and warranties and agreements made by the undersigned herein or in any document provided by the undersigned to the Company.

8.Market Standoff Provision.  The undersigned hereby agrees that, if so requested in writing by the Company or any managing underwriter (the “Managing Underwriter”) in connection with any registration of the offering by the Company of any securities of the Company under the Securities Act, the undersigned shall not sell or otherwise transfer any securities of the Company during the 180-day period (or such other period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the “Market Standoff Period”) following the effective date of a registration statement of the Company filed under the Securities Act.  The Company may impose stop-transfer instructions with respect to the Securities subject to the foregoing restrictions until the end of such Market Standoff Period.

9.Legend.  The undersigned understands and agrees that the Company will cause the legend set forth below, or a legend substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Securities (or the securities underlying the Securities), together with any other legend that may be required by federal or state securities laws:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD OR OTHERWISE

9

EXHIBIT 10.64 

TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION DOES NOT VIOLATE THE PROVISIONS THEREOF.

10.Additional Action.  The undersigned shall, upon the request of the Administrative Agent or the Company, from time to time, execute and deliver promptly to the Administrative Agent or the Company all instruments and documents of further assurances or otherwise, and will do any and all such acts and things, as may be reasonably required to carry out the obligations of the undersigned hereunder and to consummate the transactions contemplated hereby.

11.Miscellaneous.

(a)           The undersigned agrees not to transfer or assign this Subscription Agreement, or any of the undersigned’s interest herein, and further agrees that the transfer or assignment of the Securities acquired pursuant hereto shall be made only in accordance with all applicable laws.  The covenants, representations and warranties contained in this Subscription Agreement shall be binding on the undersigned’s heirs, legal representatives, successors and assigns and shall inure to the benefit of the Company and the Indemnitees and their respective successors and assigns.

(b)           The undersigned agrees that subject to any applicable state law, the undersigned may not cancel, terminate or revoke this Subscription Agreement or any agreement of the undersigned made hereunder and that this Subscription Agreement shall survive the acceptance hereof by the Company as well as the death or disability of the undersigned and shall be binding upon the undersigned’s heirs, executors, administrators, successors and assigns.

(c)           This Subscription Agreement, together with the Exhibits attached hereto, constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by all parties hereto.

(d)           This Subscription Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the State of New York, without regard to its conflicts of law rules.  Each of the parties hereto hereby irrevocably consents to the (non-exclusive) jurisdiction of the courts of the State of New York and of any Federal court located therein in connection with any suit, action or other proceeding arising out of or relating to this Subscription Agreement and waives any objection to venue in the State of New York.

(e)           Within five (5) days after receipt of a written request from the Company, the undersigned agrees to provide such information, to execute and deliver such documents and to take, or forbear from taking, such actions as may be necessary to comply with any and all laws and ordinances to which the Company is subject.

(f)           For the convenience of the parties, any number of counterparts hereof may be executed and each such executed counterpart shall be deemed an original, but all such counterparts together shall constitute one and the same instrument.

10

EXHIBIT 10.64 

(g)           This Subscription Agreement may be executed by the undersigned manually or by electronic signature and transmitted by facsimile, e-mail or electronically to the Administrative Agent, and if so executed and transmitted this Subscription Agreement will be for all purposes as effective as if the parties had delivered an executed original Subscription Agreement.

11 

EXHIBIT 10.64   

SUBSCRIBER SIGNATURE PAGE

IN WITNESS WHEREOF, the undersigned has duly executed this Subscription Agreement as of the date first above written.

Total Amount of Investment     $ __________     Amount of Convertible Promissory     Note Investment     $ __________     Remaining Investment     $ __________   For Individuals:     ___________________________________________ Print Name Above   ___________________________________________ Sign Name Above   ___________________________________________ Social Security Number   For Entities:     ___________________________________________ Print Name of Entity Above   By:     ______________________________________    Name: Title:   ___________________________________________ Employer Identification Number   or Tax ID Number  

12 

EXHIBIT 10.64   

SUBSCRIPTION ACCEPTANCE

IN WITNESS WHEREOF, the undersigned hereby accepts the subscription on behalf of the Company in accordance with the terms of the foregoing Subscription Agreement as of the date first above written.

SG PHOENIX LLC, as Administrative Agent

By:   ____________________________________________                                                             

Name:

Title:           Member

13

EX-10.65

EXHIBIT 10.65

NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR (B) IF REASONABLY REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

COMMUNICATION INTELLIGENCE CORPORATION

Unsecured Convertible Promissory Note

$___________ ____________, September 14, 2012

 Redwood Shores, California

FOR VALUE RECEIVED, the undersigned, Communication Intelligence Corporation, a Delaware corporation (the “Company”), hereby promises to pay to the order of ___________________ or its permitted assigns (the “Holder”) the principal sum of _____________________________ DOLLARS ($_________) with interest on the unpaid balance from the date hereof, compounded quarterly at the rate of 10.0% per annum on the unpaid principal amount, in lawful money of the United States of America or as otherwise provided in Section 1 hereof, at ______________________________________, or at such other place as the Holder may designate in writing.  This Note (the “Note”) has been issued pursuant to the Subscription Agreement dated as of August 20, 2012, as amended from time to time, among the Company and the Investor named therein (the “Subscription Agreement”) and is entitled to the benefits and rights provided therein.  Terms not otherwise defined herein shall have the definitions ascribed to them in the Subscription Agreement.

1.Maturity, Principal and Interest; Additional Notes.

1.1The principal of this Note, together with all unpaid interest and any other fees or expenses otherwise due and owed to the Holder under the Subscription Agreement, shall be due and payable on December 31, 2012 (the “Maturity Date”).

1.2 This Note shall bear interest at the rate of 10.0% per annum, compounded quarterly, from the date hereof until repayment of the Note or conversion of the Note as set forth in Section 3 hereof.  Interest on this Note shall be computed on the basis of a three hundred sixty-five (365) day year and actual days elapsed.

1.3Upon conversion of all unpaid principal and accrued interest hereunder into the shares of Preferred Stock of the Company pursuant to Section 3 hereof, this Note shall be terminated in its entirety and surrendered to the Company for cancellation.

2.Prepayment.  This Note may be prepaid by the Company, in whole or in part, at any time prior to the Maturity Date, without penalty.

EXHIBIT 10.65

3.Conversion.

3.1Automatic Conversion.  In the event the Company consummates a sale and issuance of shares of Series D-2 Convertible Preferred Stock (the “Preferred Stock”) of the Company pursuant to the terms of the Subscription Agreement prior to the Maturity Date which provides the Company with in excess of $100,000 in gross cash proceeds (the “Equity Financing”), all of the outstanding principal and accrued and unpaid interest hereunder shall be converted automatically without further action of the Holder into shares of Preferred Stock of the Company on the same terms as the shares of the Preferred Stock issued in the Equity Financing, determined in accordance with Section 3.2 hereof.  Upon conversion, this Note shall be canceled.

3.2Conversion Shares Issuable.  The number of whole shares of Preferred Stock into which this Note shall be converted pursuant to Section 3.1 hereof shall be determined by dividing (a) the aggregate principal amount of this Note, together with all accrued interest to the date of conversion, by (b) the price per share of the Preferred Stock issued in the Equity Financing.

3.3Conversion Procedures.  The Company shall promptly provide the Holder with notice of the consummation of the Equity Financing and within five (5) days of such notice the Holder shall surrender the Note to the Company.

3.4Delivery of Stock Certificates.  Upon the conversion of this Note into Preferred Stock in accordance with the terms herein, the Company at its expense will issue and deliver to the Holder of this Note a certificate or certificates (bearing such legends as are required by applicable federal and state securities laws in the opinion of counsel to the Company) for the number of whole shares of Preferred Stock issuable upon such conversion.

3.5No Fractional Shares.  No fractional shares of Preferred Stock shall be issued upon conversion of this Note.  In lieu of the Company issuing any fractional shares to the Holder upon the conversion of this Note, the Company shall pay to the Holder in cash the amount of outstanding indebtedness that is not so converted.

4.Events of Default; Remedies.

4.1So long as this Note is outstanding, an “Event of Default” with respect to this Note shall mean the occurrence and existence of one or more of the following events or conditions (for any reason, whether voluntary, involuntary or effected or required by any Law applicable to the Company):

(a)The Company fails to pay when due and payable any portion of the principal, interest, fees, expenses and other charges or other indebtedness related to the Note, whether direct or indirect, absolute or contingent in any manner and at any time, whether evidenced by the Note or arising under the Subscription Agreement, due or hereafter to become due, now owing or that may be hereafter incurred by the Company, to the holder of the Note, or any judgments that may hereafter be rendered on such indebtedness or any part thereof, with interest according to the rates and terms specified, or as provided by applicable Law (the “Note Indebtedness”).

(b)The Company fails or neglects to perform, keep, or observe in any material respect any material term, provision, condition, covenant or agreement contained in the Subscription Agreement and such failure or neglect to perform remains in effect for a period of ten (10) days after written receipt of such notice by the Company.

-2-

EXHIBIT 10.65

(c)If any event of default occurs in payment or performance of any obligation in favor of any person from whom the Company has borrowed money aggregating in excess of $100,000 which would entitle the holder to accelerate repayment of the borrowed money, and such default is not cured or waived in writing within ten (10) days of written receipt of such default.

(d)The Company institutes proceedings to be adjudicated as bankrupt or insolvent, or the consent by the Company to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, provincial or state Law relating to bankruptcy, insolvency, reorganization or relief of debtors, or the consent by it to the filing of any such petition or to the appointment under any such Law of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of substantially all of its property, or the making by it of a general assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due.

(e)If there is the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement or adjustment of or in respect of the Company under any applicable Law relating to bankruptcy, insolvency, reorganization or relief of debtors, or appointing under any such Law a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of substantially all of its property, or ordering pursuant to any such Law the winding-up or liquidation of its affairs, and the continuance of any such decree, petition, appointment or order unstayed and in effect for a period of 45 consecutive days.

(f)If any act, matter or thing is done to, or any action or proceeding is launched or taken to, terminate the corporate existence of the Company, whether by winding-up, surrender of charter or otherwise.

(g)If the Company ceases to carry on its business or makes or proposes to make any sale of its assets in bulk or any sale of its assets out of the usual course of its business.

(h)If any judgment or order for the payment of money in excess of $100,000 shall be rendered against the Company and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, or (ii) there shall be any period of ten (10) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect.

4.2Exercise of Remedies.

(a)If an Event of Default (other than an Event of Default under Section 4.1(d) or (e)) has occurred and is continuing hereunder:

(i)The holder of the Note may declare the entire unpaid Note Indebtedness, immediately due and payable, without presentment, notice or demand, all of which are hereby expressly waived by the Company; and

(ii)The holder of the Note may exercise any remedy permitted by this Note and the Subscription Agreement or at Law or in equity.

(b)If an Event of Default under Section 4.1(d) or (e) has occurred and is continuing hereunder:

-3-

EXHIBIT 10.65

(i)The entire unpaid Note Indebtedness shall automatically become immediately due and payable, without presentment, notice or demand, all of which are hereby expressly waived by the Company.

(ii)The holder of the Note may exercise any remedy permitted by this Note and the Subscription Agreement or at Law or in equity.

 4.3  Waiver of Defaults.  No Event of Default shall be waived except in a writing signed by the holder of the Note.  No waiver of any Event of Default shall extend to any other or further Event of Default.

5.No Assignment; Successors and Assigns.  The Company may not assign this Note without the prior written consent of the holder of the Note.  Subject to the foregoing sentence and the restrictions on transfer described in Section 7 below, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.  Effective upon any such assignment, the person or entity to whom such rights, interests and obligations were assigned shall have and exercise all of the Holder’s rights, interests and obligations hereunder as if such person or entity were the original Holder of this Note.

6.Waiver and Amendment.  Any provision of this Note may be amended, waived or modified only in a signed writing by the Holder and the Company.

7.Transfer of this Note.  With respect to any offer, sale or other disposition of this Note, the Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel in a form reasonably satisfactory to the Company’s counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state Law then in effect).  Promptly upon receiving such written notice and reasonably satisfactory opinion, if so requested, the Company, as promptly as practicable, shall notify such Holder that such Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company.  If a determination has been made pursuant to this Section 7 that the opinion of counsel for the Holder is not reasonably satisfactory to the Company, the Company shall so notify the Holder promptly after such determination has been made.  Each Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Act.  The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

8.Notices.  All notices, requests, consent and demands hereunder shall be made in writing at the addresses set forth in the Subscription Agreement.

9.No Stockholder Rights.  Nothing contained in this Note shall be construed as conferring upon the Holder or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company.

10.Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws provisions thereof.  Each of the parties hereto hereby irrevocably consents to the (non-exclusive) jurisdiction of the courts of the State of New York and of any Federal court located therein in connection with any suit, action or other proceeding arising out of or relating to this Note and waives any objection to venue in the State of New York.

-4-

EXHIBIT 10.65

11.Charges, Taxes and Expenses.  Issuance and delivery of a certificate for shares of the Preferred Stock upon the conversion of this Note shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificate for shares of the Preferred Stock upon the conversion of this Note in a name other than that of the Holder.  The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Note or receiving shares of the Preferred Stock upon the conversion of this Note.

12.Loss, Theft or Destruction of Note.  Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft or destruction of this Note and of indemnity or security reasonably satisfactory to it, the Company will make and deliver a new Note which shall carry the same rights to interest (unpaid and to accrue) carried by this Note, stating that such Note is issued in replacement of this Note, making reference to the original date of issuance of this Note (and any successors hereto) and dated as of such cancellation, in lieu of this Note.

13.Usury. This Note is hereby expressly limited so that in no event whatsoever, whether by reason of acceleration of maturity of the loan evidenced hereby or thereby, or otherwise, shall the amount paid or agreed to be paid to the Holder hereunder for the loan, use, forbearance or detention of money exceed that permissible under applicable Law.  If at any time the performance of any provision of this Note involves a payment exceeding the limit of the price that may be validly charged for the loan, use, forbearance or detention of money under applicable Law, then automatically and retroactively, ipso facto, the obligation to be performed shall be reduced to such limit, it being the specific intent of the Company and the Holder that all payments under this Note are to be credited first to interest as permitted by Law, but not in excess of (i) the agreed rate of interest set forth herein or (ii) that permitted by Law, whichever is the lesser, and the balance toward the reduction of principal.  The provisions of this Section 13 shall never be superseded or waived and shall control every other provision of this Note.  For purposes of this Note, “Law” shall mean any foreign, federal, state or local law, statute, rule, regulation, ordinance, code, directive, writ, injunction, decree, judgment or order applicable to the Company.

14.Issue Date.  The provisions of this Note shall be construed and shall be given effect in all respects as if this Note had been issued and delivered by the Company on the earlier of the date hereof or the date of issuance of any Note for which this Note is issued in replacement.

15.Heading; References.  All headings used herein are used for convenience only and shall not be used to construe or interpret this Note.  Except as otherwise indicated, all references herein to Sections refer to Sections hereof.

16.Delays.  No delay by the Holder in exercising any power or right hereunder shall operate as a waiver of any power or right.

17.Severability.  If any provision or set of provisions of this Note (or any portion thereof) is held by an arbitrator or court of competent jurisdiction to be invalid, illegal or unenforceable for any reason whatsoever: (a) such provision shall be limited or modified in its application to the minimum extent necessary to avoid the invalidity, illegality or unenforceability of such provision and such modified provision shall be reduced to a writing and signed by the parties hereto; (b) the validity, legality and enforceability of the remaining provisions of this Note shall not in any way be affected or impaired thereby; and (c) to the fullest extent possible, the provisions of this Note shall be construed so as to give effect to the intent manifested by the provision (or portion thereof) held invalid, illegal or unenforceable.

-5-

EXHIBIT 10.65

18.No Impairment.  The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Note and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Note against impairment.

-6- 

EXHIBIT 10.65

In Witness Whereof, the Company has caused this Note to be issued as of the date first set forth above.

Company:

COMMUNICATION INTELLIGENCE CORPORATION

By:      

Name:  Craig Hutchison

Title:    Vice President and Assistant Treasurer

Address:  275 Shoreline Drive, Suite 500

                Redwood Shores, California 94065

Facsimile Number: 650-802-7777

-7-

XML

Equity (Details 5) (USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended	9 Months Ended	12 Months Ended
	Jun. 30, 2012	Sep. 30, 2012	Dec. 31, 2011	Dec. 31, 2010
Class Of Warrant Or Right Number Of Warrants Or Rights Roll Forward
Number of Warrants Outstanding at beginning of period	182,644	182,644	135,131
Number Of Warrants Or Rights Issued		5,349	59,735
Number Of Warrants Or Rights Exercised		(35,162)	(12,222)
Number Of Warrants Or Rights Expired	(2,916)	(3,000)	0
Number of Warrants Outstanding at end of period		149,831	182,644
Number of Warrants Or Rights Exercisable at end of period		149,891	182,644	135,131
Excercise Price of Warrants Outstanding at beginning of period	$ 0.0261	$ 0.0261	$ 0.0274
Exercise Price Of Warrants Issued		$ 0.0500	$ 0.0064
Exercise Price Of Warrants Exercised		$ 0.0264	$ 0.0225
Exercise Price Of Warrants Expired		$ 0.0433	$ 0
Excercise Price of Warrants Outstanding at end of period		$ 0.0254	$ 0.0261
Exercise Price Of WarrantsExercisable at end of period		$ 0.0254	$ 0.0261	$ 0.0274

XML

Net loss per share (Details Textual) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, shares	46,080	47,229	46,080	47,229
Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, shares	149,831	189,310	149,831	189,310
Convertible Debt Securities [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, shares	414,273	368,371	414,273	368,371

XML

Patents (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of patent costs	$ 90	$ 92	$ 274	$ 281
Patents impairment	$ 0	$ 0	$ 0	$ 0

XML

Equity (Details Textual 1) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended	6 Months Ended	9 Months Ended		12 Months Ended		9 Months Ended		2 Months Ended	9 Months Ended				2 Months Ended	9 Months Ended			1 Months Ended		1 Months Ended			1 Months Ended		1 Months Ended		1 Months Ended		12 Months Ended	1 Months Ended				1 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended					1 Months Ended
	Mar. 31, 2011	Jun. 30, 2012	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Dec. 31, 2010	Sep. 30, 2012 Series A Preferred Stock [Member]	Dec. 31, 2011 Series A Preferred Stock [Member]	Mar. 31, 2012 Series B Preferred Stock [Member]	Sep. 30, 2012 Series B Preferred Stock [Member]	Dec. 31, 2011 Series B Preferred Stock [Member]	Dec. 31, 2010 Series B Preferred Stock [Member]	Aug. 05, 2010 Series B Preferred Stock [Member]	Mar. 31, 2012 Series C Preferred Stock [Member]	Sep. 30, 2012 Series C Preferred Stock [Member]	Dec. 31, 2011 Series C Preferred Stock [Member]	Dec. 31, 2010 Series C Preferred Stock [Member]	Sep. 30, 2011 September 2011 Note And Warrant Purchase Agreement [Member]	Sep. 20, 2011 September 2011 Note And Warrant Purchase Agreement [Member]	Feb. 29, 2012 December 2011 Note And Warrant Purchase Agreement [Member]	Dec. 31, 2011 December 2011 Note And Warrant Purchase Agreement [Member]	Dec. 20, 2011 December 2011 Note And Warrant Purchase Agreement [Member]	Apr. 30, 2012 April 2012 Note And Warrant Purchase Agreement [Member]	Apr. 23, 2012 April 2012 Note And Warrant Purchase Agreement [Member]	Sep. 30, 2012 September 2012 Note Purchase Agreement [Member]	Sep. 14, 2012 September 2012 Note Purchase Agreement [Member]	May 31, 2008 May 2008 Series A Financing [Member]	Oct. 31, 2008 Series A Exchange For Series A-1 [Member]	Dec. 31, 2009 Series A-1 Financing [Member]	Aug. 31, 2010 August 2010 Series B Financing [Member]	Dec. 31, 2010 December 2010 Series C Financing [Member]	Mar. 31, 2011 March 2011 Series C Financing [Member]	Sep. 30, 2012 March 2011 Series C Financing [Member]	Mar. 31, 2011 Settlement of the Indemnification Claim [Member] Series C Preferred Stock [Member]	Sep. 30, 2012 Payment of dividends [Member] Series A Preferred Stock [Member]	Sep. 30, 2012 Payment of dividends [Member] Series A Preferred Stock [Member]	Sep. 30, 2012 Payment of dividends [Member] Series B Preferred Stock [Member]	Sep. 30, 2012 Payment of dividends [Member] Series B Preferred Stock [Member]	Sep. 30, 2012 Payment of dividends [Member] Series C Preferred Stock [Member]	Sep. 30, 2012 Payment of dividends [Member] Series C Preferred Stock [Member]	Aug. 05, 2010 Related Party [Member] Series B Preferred Stock [Member]	Dec. 31, 2010 Related Party [Member] Series C Preferred Stock [Member]	Aug. 05, 2010 Other Holders [Member] Series B Preferred Stock [Member]	Dec. 31, 2010 Other Holders [Member] Series C Preferred Stock [Member]	Mar. 31, 2011 Professional Service Agreement [Member] Series C Preferred Stock [Member]
Subsidiary, Sale of Stock [Line Items]
Number of shares sold in private placement																									1,103,000		1,040,000			1,440,000	2,211,000	800,000		278,000											97,000
Stock Exchanged During Period Shares New Issues																												1,040,000
Preferred stock converted into common shares during period, shares										140,000					39,000														146,000
Common shares issued in connection with the conversion of preferred shares, shares										3,232,000					1,729,000														1,005,000																4,311,000
Preferred stock, shares outstanding							934,000	880,000		9,811,000	9,250,000				4,073,000	3,547,000
Annual dividend percentage							8.00%			10.00%					10.00%
Preferred Stock, Liquidation Preference Per Share							$ 1.00			$ 1.50					$ 1.50
Initial conversion price										$ 0.06
Conversion price							$ 0.14			$ 0.0433					$ 0.0225											$ 0.05
Stock issued during period, shares, new issues																																			18,000	54,000	241,000	701,000	100,000	287,000
Stock Issued During Period, Value, New Issues			$ 212																															$ 417
Projected number of common shares, subject to converison from preferred stock							6,672,000			226,434,000					181,010,000
Proceeds from sale of stock, net																									225					1,440	2,211	800
Expenses from the sale of stock																														437
Third party expneses in connection with the sale of stock																														143	422	110
Fair value of the derivative liability		18	182		281							130	2,000				179															4	4								1,498	113	502	66
Loss resulting from revaluation of conversion features on preferred stock	47
Beneficial Conversion Feature associated with Preferred stock			968	929																											179	3,501					51	263	100	287
Value of Preferred Stock							934	880		7,940	7,380				4,652	3,569
Accretion of Beneficial Conversion Feature on Series C Preferred Shares issued in settlement of the indemnification claim															417																			418
Warrants Weighted Average Exercise Price			$ 0.0254		$ 0.0261	$ 0.0274													$ 0.0225			$ 0.0225		$ 0.0500
Number of common shares callable by warrants																			5,556,000			5,556,000		5,000,000,000								1,778,000
Number of shares issued by warrants excercise																				5,000,000
Number of shares issued by warrants excercise, cashless									3,696,000					23,929,000						4,889,000
Number of shares issued by warrants excercise, for cash																				111,000
Proceeds from issuance of common stock, related to warrants exercise									73					140
Number of common shares, reserved for issuance upon exercise of outstanding warrants			149,831,000
Number Of Warrants Or Rights Issued			5,349,000		59,735,000																		5,349,000
Number Of Warrants Or Rights Exercised			35,162,000		12,222,000				6,484,000					27,625,000
Class Of Warrant Or Right Excercise Period Of Warrants Or Rights									3 years					3 years				3 years			3 years		3 years
Class Of Warrant Or Right Number Of Warrants Or Rights Excercised In Cashless Excercise									5,267,000					20,186,000
Class Of Warrant Or Right Number Of Warrants Or Rights Excercised For Cash									1,217,000					7,439,000
Class Of Warrant Or Right Number Of Warrants Or Rights Expired		2,916,000	3,000,000		0
Gain on derivative liability		18
Increase (Decrease) in Derivative Liabilities	$ 362

XML

Equity (Details 3) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, End of Period [Abstract]
Number of Outstanding Options	46,080
Outstanding Options, Weighted Average Remaining Contractual Term	5 years 5 months
Outstanding Options, Weighted Average Exercise Price	$ 0.06
Exercise Price Range, Number of Exercisable Options	21,411
Exercisable Options, Weighted Average Exercise Price	$ 0.07
Range One [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	$ 0.02
Exercise Price Range, Upper Range Limit	$ 0.05
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, End of Period [Abstract]
Number of Outstanding Options	45,604
Outstanding Options, Weighted Average Remaining Contractual Term	5 years 5 months
Outstanding Options, Weighted Average Exercise Price	$ 0.05
Exercise Price Range, Number of Exercisable Options	20,935
Exercisable Options, Weighted Average Exercise Price	$ 0.06
Range Two [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	$ 0.51
Exercise Price Range, Upper Range Limit	$ 1.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, End of Period [Abstract]
Number of Outstanding Options	464
Outstanding Options, Weighted Average Remaining Contractual Term	4 months
Outstanding Options, Weighted Average Exercise Price	$ 0.75
Exercise Price Range, Number of Exercisable Options	464
Exercisable Options, Weighted Average Exercise Price	$ 0.75
Range Three [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Price Range, Lower Range Limit	$ 1.01
Exercise Price Range, Upper Range Limit	$ 2.00
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, End of Period [Abstract]
Number of Outstanding Options	12
Outstanding Options, Weighted Average Remaining Contractual Term	8 months
Outstanding Options, Weighted Average Exercise Price	$ 1.75
Exercise Price Range, Number of Exercisable Options	12
Exercisable Options, Weighted Average Exercise Price	$ 1.75

XML

Accounts receivable and revenue concentrations

9 Months Ended

Sep. 30, 2012

Accounts Receivable and revenue concentrations [Abstract]

Accounts receivable and revenue concentrations

2. Accounts receivable and revenue concentrations

Four customers accounted for 10%, 13%, 22% and 37%, respectively, of gross accounts receivable as of September 30, 2012. Three customers accounted for 11%, 13% and 67%, respectively, of gross accounts receivable as of September 30, 2011.

Two customers accounted for 14% and 28% of total revenue for the three months ended September 30, 2012. One customer accounted for 66% of total revenue for the three months ended September 30, 2011.

Three customers accounted for 10%, 12% and 26% of total revenue for the nine months ended September 30, 2012. One customer accounted for 37% of total revenue for the nine months ended September 30, 2011.

XML

Derivative Liability (Details1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Liabilities measured at fair value
Derivaltive laibility	$ 182
Fair Value, Inputs, Level 1 [Member]
Liabilities measured at fair value
Derivaltive laibility	0
Fair Value, Inputs, Level 2 [Member]
Liabilities measured at fair value
Derivaltive laibility	0
Fair Value, Inputs, Level 3 [Member]
Liabilities measured at fair value
Derivaltive laibility	$ 182

XML

Derivative liability (Details) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Volatility	203.60%
Risk-free interest rate	1.65%
Dividend yield	0
Minimum [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Expected term	4 months	6 months
Volatility		204.70%
Risk-free interest rate		0.06%
Dividend yield		0
Maximum [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Expected term	2 years 7 months	2 years 11 months
Volatility		315.20%
Risk-free interest rate		0.36%
Dividend yield		0

XML

Derivative liability (Details 2) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period	$ 281
Additional liabilities recorded related to note financing	47
Additional liabilities recorded related to warrants issued for services	3
Gain on derivative liability	(149)
Balance at end of period	$ 182

XML

Derivative Liability (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended			2 Months Ended			2 Months Ended		1 Months Ended			1 Months Ended				1 Months Ended				1 Months Ended				1 Months Ended		1 Months Ended			9 Months Ended
	Mar. 31, 2011	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Mar. 31, 2012 Series B Preferred Stock [Member]	Dec. 31, 2010 Series B Preferred Stock [Member]	Aug. 05, 2010 Series B Preferred Stock [Member]	Mar. 31, 2012 Series C Preferred Stock [Member]	Dec. 31, 2010 Series C Preferred Stock [Member]	Sep. 30, 2011 September 2011 Note And Warrant Purchase Agreement [Member]	Sep. 30, 2012 September 2011 Note And Warrant Purchase Agreement [Member]	Sep. 20, 2011 September 2011 Note And Warrant Purchase Agreement [Member]	Feb. 29, 2012 December 2011 Note And Warrant Purchase Agreement [Member]	Dec. 31, 2011 December 2011 Note And Warrant Purchase Agreement [Member]	Sep. 30, 2012 December 2011 Note And Warrant Purchase Agreement [Member]	Dec. 20, 2011 December 2011 Note And Warrant Purchase Agreement [Member]	Feb. 29, 2012 December 2011 Note And Warrant Purchase Agreement [Member] Common stock [Member]	Apr. 30, 2012 April Two Thousand Twelve Note And Warrant Purchase Agreement [Member]	Sep. 30, 2012 April Two Thousand Twelve Note And Warrant Purchase Agreement [Member]	Apr. 23, 2012 April Two Thousand Twelve Note And Warrant Purchase Agreement [Member]	Aug. 31, 2010 August Two Thousand Ten Series B Financing [Member]	Dec. 31, 2010 December Two Thousand Ten Series C Financing [Member]	Mar. 31, 2011 March Two Thousand Eleven Series C Financing [Member]	Sep. 30, 2012 March Two Thousand Eleven Series C Financing [Member]	Aug. 31, 2011 Warrants Issued To Consultants [Member]	Sep. 30, 2012 Warrants Issued To Consultants [Member]	Apr. 30, 2012 Warrants Issued To Consultants [Member] April Two Thousand Twelve Note And Warrant Purchase Agreement [Member]	Sep. 30, 2012 Warrants Issued To Consultants [Member] April Two Thousand Twelve Note And Warrant Purchase Agreement [Member]	Apr. 23, 2012 Warrants Issued To Consultants [Member] April Two Thousand Twelve Note And Warrant Purchase Agreement [Member]	Sep. 30, 2012 Series B Financing [Member]	Sep. 30, 2012 Series C Financing [Member]
Derivative Liability, Fair Value, Net [Abstract]
Loss resulting from revaluation of conversion features on preferred stock	$ 47
Decrease in the derivative liability, resulted from the reclassification of derivative value to equity	362
Subsidiary, Sale of Stock [Line Items]
Number of shares sold in private placement																					1,440	2,211	800							8,380	2,211
Number of common shares callable by warrants												5,556				5,556				5,000,000			1,778
Number of warrants outstanding															556					5,349					1,000				349
Fair value of warrants outstanding, initial												7				13				47					1				2
Fair value of warrants outstanding											12				1				45							2		3
Risk-free interest rate		1.65%								42.00%				39.00%				40.00%							7.00%		40.00%
Expected term										3 years				3 years				3 years							3 years		3 years
Volatility		203.60%								204.00%				202.00%				213.00%							190.00%		213.00%
Fair value assumptions for warrants pricing, expected dividend										0.00%				0.00%				0.00%							0.00%		0.00%
Exercise period of warrants					3 years			3 years		3 years				3 years				3 years							3 years		3 years
Warrants, expiration date										Aug. 11, 2014				Aug. 11, 2012											Aug. 11, 2014
Number of shares issued by warrants excercise													5,000				4,043
Number of shares issued by warrants excercise, cashless					3,696			23,929					4,889
Number of shares issued by warrants excercise, for cash													111
Proceeds from issuance of common stock, related to warrants exercise					73			140									2
Fair value of the derivative liability		$ 182	$ 18	$ 281		$ 130	$ 2,000		$ 179														$ 4	$ 4

XML

Nature of business, basis of presentation and summary of significant accounting policies

9 Months Ended

Sep. 30, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of business, basis of presentation and summary of significant accounting policies

1. Nature of business and summary of significant accounting policies

Basis of Presentation

The financial information contained herein should be read in conjunction with the Company's consolidated audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2011.

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

The Company is a leading supplier of electronic signature products and the recognized leader in biometric signature verification. CIC enables companies to achieve truly paperless workflow in their electronic business processes by providing multiple signature technologies across virtually all applications. CIC's solutions are available both in software as a service ("SaaS") and on-premise delivery models and afford "straight-through-processing," which can increase customer revenue by enhancing user experience and can also reduce costs through paperless and virtually error-free electronic transactions that can be completed significantly quicker than paper-based procedures. To date, the Company primarily has delivered biometric and electronic signature solutions to channel partners and end-user customers in the financial services industry.

The Company's research and development activities have given rise to numerous technologies and products. The Company's core technologies can be referred to as "transaction-enabling" technologies. These technologies include various forms of electronic signatures, such as handwritten biometric, click-to-sign and others, as well as signature verification, cryptography and the logging of audit trails to show signers' intent. These technologies can enable secure, legal and regulatory compliant electronic transactions that can enhance customer experience at a fraction of the time and cost required by traditional, paper-based processes. The Company's products include SignatureOne® Ceremony® Server™, SignatureOne® Console, Sign-it® and the iSign® suite of products.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2012, the Company's accumulated deficit was approximately $114,215. The Company also has a working capital deficit at September 30, 2012. The Company has primarily met its working capital needs through the sale of debt and equity securities. As of September 30, 2012, the Company's cash balance was approximately $566. These factors raise substantial doubt about the Company's ability to continue as a going concern. Historically, the Company raised needed capital through debt and equity financings and converted short-term notes payable to equity. The Company sold, for cash in a private placement, 1,440 additional shares of Series B Preferred Stock at a purchase price of $1.00 per share (Note 6 to the Condensed Consolidated Financial Statements). In December 2010 the stockholders approved the issuance of a Series C Participating Convertible Preferred Stock and the Company sold, for cash in a private placement, 2,211 shares of Series C Preferred Stock at a purchase price of $1.00 per share (Note 6 to the Condensed Consolidated Financial Statements). In March 2011, the Company sold for cash in a private placement an additional 800 shares of Series C Preferred Stock at a purchase price of $1.00.

In September 2011, the Company borrowed $100 at 10% per annum in the form of two demand notes which were repaid in September 2012, and borrowed an additional $500 at 10% per annum in the form of an unsecured convertible promissory note due September 20, 2012, which was subsequently amended to extend the due date through December 31, 2012. In December 2011, the Company borrowed $500 at 10% per annum in the form of unsecured convertible promissory notes due December 2, 2012, which was subsequently amended to extend the due date through December 31, 2012 (Note 4 to the Condensed Consolidated Financial Statements). In February 2012, the Company borrowed $25 at 10% per annum in the form of a demand note and in March 2012, the Company borrowed $100 at 10% per annum in the form of a demand note. The February and March notes were repaid in September 2012. In April 2012 the Company borrowed $1,000 at 10% per annum in the form of convertible notes which are due in April 2013. In September 2012, the Company borrowed $1,103 at 10% per annum in the form of convertible notes. The Company is seeking shareholder approval to increase its authorized capital to complete a financing and issuance of Series D Preferred Shares. The above referenced convertible notes will be exchanged for shares of the Series D Preferred.

There can be no assurance that the Company will be successful in securing adequate capital resources to fund planned operations or that any additional funds will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company. If the Company is unable to obtain adequate capital resources to fund operations, it may be required to delay, scale back or eliminate some or all of its operations, which may have a material adverse effect on the Company's business, results of operations and ability to operate as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Comprehensive Income

On January 1, 2012, the Company adopted an accounting standard that modifies the presentation of comprehensive income in the consolidated financial statements. The standard requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company elected the latter presentation option upon adopting this accounting standard. The adoption of this guidance did not have a significant effect on the consolidated financial statements.

Revenue recognition

For products sold under perpetual license, the Company recognizes revenue upon shipment, provided that persuasive evidence of an arrangement exists, collection is determined to be probable, all non-recurring engineering work necessary to enable the Company's product to function within the customer's application has been completed and the Company's product has been delivered according to specifications. For software sold under a term license, the Company recognizes revenue over the term of the license granted. Revenue from customization of software is recognized when all engineering work necessary to enable the Company's products to function within the customer's application has been completed, and the Company has delivered its product according to specifications.

Software license agreements may contain multiple elements, including upgrades and enhancements, products deliverable on a when and if available basis and post contract support.

For arrangements with multiple deliverables the Company allocates consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. In the absence of the vendor-specific objective evidence or third-party evidence of the selling prices, Management's best estimate of the selling prices is used. For the Company's tangible products containing software and hardware elements that function together and deliver the tangible products' essential functionality, the Company allocates revenue under the multiple-element arrangements revenue recognition guidance discussed above.

Maintenance revenue is recorded for post-contract support and upgrades or enhancements, which is paid for in addition to license fees, and is recognized as costs are incurred or over the support period whichever is longer. For undelivered elements where objective and reliable evidence of fair value does not exist, revenue is deferred and subsequently recognized when delivery has occurred and when fair value has been determined.

Treasury Stock

Shares of common stock returned to, or repurchased by, the Company are recorded at cost and are included as a separate component of stockholders' equity. The Company received 6,500 shares of its Common Stock having a fair value under the cost method of $325 in January 2012, in settlement of a 16b suit brought by a shareholder against Phoenix Venture Fund, LLC. At September 30, 2012, the total value of treasury stock was $325.

Under the cost method, the gross cost of the shares reacquired is charged to a contra equity account entitled treasury stock. The equity accounts that were credited for the original share issuance (common stock, paid-in capital in excess of par, etc.) remain intact. When the treasury shares are reissued, proceeds in excess of cost are credited to a paid-in capital account. Any deficiency is charged to retained earnings (unless paid-in capital from previous treasury share transactions exists, in which case the deficiency is charged to that account, with any excess charged to retained earnings).

Accounting Changes and Recent Accounting Pronouncements

Accounting Standards Issued But Not Yet Adopted

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company's financial position, results of operations and cash flows.

In the first nine months of 2012, the adoption of other accounting standards had no material impact on the Company's financial position, results of operations or cash flows.

XML

Net loss per share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share Reconciliation [Abstract]
Net Income (Loss) Attributable to Parent	$ (1,172)	$ (1,167)	$ (3,835)	$ (4,935)
Denominator-basic or diluted weighted average number of common shares outstanding	224,492	191,229	222,198	191,254
Net loss per share - bacis and diluted	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.03)

XML

Equity (Details 6) (USD $) In Thousands, except Per Share data, unless otherwise specified				9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Dec. 31, 2010	Sep. 30, 2012 Warrants Group One [Member]	Sep. 30, 2012 Warrants Group Two [Member]	Sep. 30, 2012 Warrants Group Three [Member]
Class of Warrant or Right [Line Items]
Number of Warrants Outstanding and Excercisable	149,831	182,644	135,131	14,073	130,409	5,349
Weighted Average Remaining Life Of Warrants Or Rights				8 months 16 days	1 year 3 months 18 days	2 years 10 months
Warrants Weighted Average Exercise Price	$ 0.0254	$ 0.0261	$ 0.0274	$ 0.0433	$ 0.0225	$ 0.0500

XML

Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 566	$ 307
Accounts receivable, net of allowance of $27 at September 30, 2012 and $3 at December 31, 2011	514	298
Prepaid expenses and other current assets	194	29
Total current assets	1,274	634
Property and equipment, net	28	32
Patents, net	1,746	2,020
Capitalized software development costs, net	0	78
Other assets	29	29
Total assets	3,077	2,793
Current liabilities:
Short-term notes payable	3,168	1,083
Accounts payable	336	261
Accrued compensation	297	221
Other accrued liabilities	223	243
Deferred revenue	474	517
Total current liabilities	4,498	2,325
Deferred revenue long-term	304	397
Deferred rent	130	147
Derivative liability	182	281
Total liabilities	5,114	3,150
Commitments and Contingencies
Stockholders' deficit
Common Stock, $0.01 par value; 1,050,000 shares authorized; 231,004 issued, 224,504 outstanding at September 30, 2012 and 198,188 shares issued and outstanding at December 31, 2011	2,309	1,981
Treasury shares, 6,500 and 0 shares at September 30, 2012 and December 31, 2011, respectively	(325)	0
Additional paid in capital	96,706	97,715
Accumulated deficit	(114,215)	(111,839)
Accumulated other comprehensive loss	(38)	(43)
Total stockholders' equity (deficit)	(2,037)	(357)
Total liabilities and shareholders' deficit	3,077	2,793
Series A-1 Preferred Stock [Member]
Stockholders' deficit
Preferred stock by class of stock	934	880
Total stockholders' equity (deficit)	934	880
Series B Preferred Stock [Member]
Stockholders' deficit
Preferred stock by class of stock	7,940	7,380
Total stockholders' equity (deficit)	7,940	7,380
Series C Preferred Stock [Member]
Stockholders' deficit
Preferred stock by class of stock	4,652	3,569
Total stockholders' equity (deficit)	$ 4,652	$ 3,569

XML

Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net loss	$ (2,376)	$ (3,224)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization	365	663
Amortization of debt discount and deferred financing costs	29	0
Stock-based employee compensation	376	613
Restricted stock expense	2	3
Series C Preferred Shares issued for services	0	195
Series C Preferred issued in settlement of indemnity claim	417	0
Common Stock received as settlement of 16b claim	(325)	0
Warrants issued for services	3	0
(Gain) loss on derivative liability	(149)	(24)
Forfeiture of restricted stock issued in lieu of salary	0	(16)
Changes in operating assets and liabilities:
Accounts receivable, net	(216)	(452)
Prepaid expenses and other assets	(165)	12
Accounts payable	75	(197)
Accrued Compensation	76	(197)
Other accrued liabilities	(37)	39
Deferred revenue	(136)	(161)
Net cash used in operating activities	(2,061)	(2,746)
Cash flows from investing activities:
Acquisition of property and equipment	(8)	(13)
Capitalized software development costs	0	(72)
Net cash used in investing activities	(8)	(85)
Cash flows from financing activities:
Net proceeds from issuance of Series C preferred shares	0	686
Net proceeds from issuance of short-term debt	2,328	600
Proceeds from exercise of warrants for cash	213	0
Proceeds from exercise of stock options	12	0
Payment of short-term debt	(225)	0
Net cash provided by financing activities	2,328	1,286
Effect of exchange rate changes on cash and cash equivalents	0	0
Net decrease in cash and cash equivalents	259	(1,545)
Cash and cash equivalents at beginning of period	307	1,879
Cash and cash equivalents at end of period	566	334
Supplemental disclosure of cash flow information:
Interest paid	0	0
Income tax paid	0	0
Non-cash financing and investing transactions:
Series C preferred shares issued in separation agreement	0	36
Dividends on preferred shares	491	796
Accretion of beneficial conversion feature on Preferred Shares	968	929
Cashless exercise of warrants	202	0
Conversion of Series B Preferred Stock into Common Stock	140	0
Conversion of Series C Preferred Stock into Common Stock	$ 39	$ 0

XML

Equity (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		6 Months Ended		9 Months Ended		6 Months Ended		9 Months Ended		6 Months Ended		9 Months Ended		6 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Research and Development Expense [Member]	Sep. 30, 2011 Research and Development Expense [Member]	Sep. 30, 2012 Research and Development Expense [Member]	Sep. 30, 2011 Research and Development Expense [Member]	Sep. 30, 2012 Selling and Marketing Expense [Member]	Sep. 30, 2011 Selling and Marketing Expense [Member]	Sep. 30, 2012 Selling and Marketing Expense [Member]	Sep. 30, 2011 Selling and Marketing Expense [Member]	Sep. 30, 2012 General and Administrative Expense [Member]	Sep. 30, 2011 General and Administrative Expense [Member]	Sep. 30, 2012 General and Administrative Expense [Member]	Sep. 30, 2011 General and Administrative Expense [Member]	Sep. 30, 2012 Director Expense [Member]	Sep. 30, 2011 Director Expense [Member]	Sep. 30, 2012 Director Expense [Member]	Sep. 30, 2011 Director Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 109	$ 207	$ 376	$ 613	$ 45	$ 78	$ 166	$ 284	$ 27	$ 37	$ 70	$ 128	$ 30	$ 70	$ 117	$ 129	$ 7	$ 22	$ 23	$ 72

XML

Accounts receivable and revenue concentrations (Details Textual)	3 Months Ended		9 Months Ended									6 Months Ended		9 Months Ended	6 Months Ended	9 Months Ended
	Sep. 30, 2012 Customer	Sep. 30, 2011 Customer	Sep. 30, 2012 Customer	Sep. 30, 2011 Customer	Sep. 30, 2012 Accounts Receivable [Member] Customer One [Member]	Sep. 30, 2012 Accounts Receivable [Member] Customer Two[Member]	Sep. 30, 2011 Accounts Receivable [Member] Customer Two[Member]	Sep. 30, 2011 Accounts Receivable [Member] Customer Three [Member]	Sep. 30, 2011 Accounts Receivable [Member] Customer Four [Member]	Sep. 30, 2012 Accounts Receivable [Member] Customer Five [Member]	Sep. 30, 2012 Accounts Receivable [Member] Customer Six [Member]	Sep. 30, 2012 Sales Revenue, Services, Net [Member] Customer One [Member]	Sep. 30, 2012 Sales Revenue, Services, Net [Member] Customer Two[Member]	Sep. 30, 2012 Sales Revenue, Services, Net [Member] Customer Two[Member]	Sep. 30, 2011 Sales Revenue, Services, Net [Member] Customer Three [Member]	Sep. 30, 2011 Sales Revenue, Services, Net [Member] Customer Three [Member]	Sep. 30, 2012 Sales Revenue, Services, Net [Member] Customer Five [Member]	Sep. 30, 2012 Sales Revenue, Services, Net [Member] Customer Seven [Member]
Concentration Risk [Line Items]
Concentration risk percentage of gross receivables					13.00%	22.00%	13.00%	63.00%	11.00%	33.00%	10.00%
Concentration risk, percentage of total revenue												14.00%	28.00%	12.00%	66.00%	37.00%	10.00%	25.00%
Number of Company's largest customers, receivables	4	3	4	3
Number of Company's largest customers, revenue	2	1	3	1

XML

Equity (Details 2) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Summary of stock options outstanding
Stock Options Outstanding, Beginning Balance			51,353
Stock Options, granted	2,000	24,496	2,000	24,496
Stock Options, exercised	(184)		(184)
Stock Options, forfeited, or expired			(7,098)
Stock Options Outstanding, Ending Balance	46,080		46,080
Stock Options, Vested and expected to vest at ending balance	46,080		46,080
Stock Options Exercisable at ending balance	21,411		21,411
Weighted Average Exercise Price, Beginning Period			$ 0.09
Weighted Average Exercise Price, Granted			$ 0.06
Weighted Average Exercise Price, Exercised			$ 0.07
Weighted Average Exercise Price, Forfeited, or expired			$ 0.26
Weighted Average Exercise Price, Ending Period	$ 0.06		$ 0.06
Weighted Average Exercise Price, Vested and expected to vest at ending balance	$ 0.06		$ 0.06
Weighted Average Exercise Price, Exercisable at ending balance	$ 0.07		$ 0.07
Weighted Average Remaining Contractual Term, ending balance			5 years 4 months 17 days
Weighted Average Remaining Contractual Term, vested and expected to vest at ending balance			5 years 4 months 17 days
Weighted Average Remaining Contractual Term, excercisable at ending balance			4 years 11 months 15 days
Aggregate Intrinsic Value, Beginning Balance			$ 4,449
Aggregate Intrinsic Value, Granted			120
Aggregate Intrinsic Value, Exercised			2
Aggregate Intrinsic Value, Forfeited or expired			1,830
Aggregate Intrinsic Value, Ending Balance	2,727		2,727
Aggregate Intrinsic Value, Vested and expected to vest at ending balance	2,727		2,727
Aggregate Intrinsic Value, Exercisable at ending balance	$ 1,603		$ 1,603

XML

Patents (Details1) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Remainder of 2012	$ 91
2013	365
2014	357
2015	342
2016	322
Thereafter	269
Total	$ 1,746

XML

Condensed Consolidated Statements of Comprehensive Loss (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Comprehensive income:
Net loss	$ (812)	$ (844)	$ (2,376)	$ (3,224)
Foreign currency translation adjustment	1	0	5	(1)
Total comprehensive loss	$ (811)	$ (844)	$ (2,371)	$ (3,225)

XML

Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Accounts receivable, allowance	$ 27	$ 3
Stockholders' deficit
Common Stock, par value	$ 0.01	$ 0.01
Common Stock, shares authorized	1,050,000,000	1,050,000,000
Common Stock, shares issued	231,004,000	198,188,000
Common Stock, shares outstanding	224,504,000	198,188,000
Treasury shares	6,500,000	0
Series A Preferred Stock [Member]
Stockholders' deficit
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	934,000	880,000
Preferred stock, shares outstanding	934,000	880,000
Preferred stock, liquidation preference	934
Series B Preferred Stock [Member]
Stockholders' deficit
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	14,000,000	14,000,000
Preferred stock, shares issued	9,811,000	9,250,000
Preferred stock, shares outstanding	9,811,000	9,250,000
Preferred stock, liquidation preference	14,717
Series C Preferred Stock [Member]
Stockholders' deficit
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	4,100,000	4,100,000
Preferred stock, shares issued	4,073,000	3,547,000
Preferred stock, shares outstanding	4,073,000	3,547,000
Preferred stock, liquidation preference	$ 6,109

XML

Short-term notes payable (Tables)

9 Months Ended

Sep. 30, 2012

Short-term notes payable [Abstract]

Contractual obligations, material commitments

Contractual obligations	Payments due by period -
	Total	2012	2013	2014	2015	2016	Thereafter
Short-term note payable	$ 3,203	$ 2,203	$ 1,000	$ -	$ -	$ -	$ -

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 14, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	Communication Intelligence Corp
Entity Central Index Key	0000727634
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
EntityVoluntaryFilers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		224,503,503

XML

Derivative Liability (Tables)

9 Months Ended

Sep. 30, 2012

Derivative liability [Abstract]

Key assumptions used to calculate fair value of warrant derivative liabilities

	June 30, 2012	December 31, 2011
Expected term	0.3 to 2.80 years	0.5 to 2.90 years
Volatility	208.6% - 263.4%	204.7% - 315.2%
Risk-free interest rate	0.09% - 0.41%	0.06% - 0.36%
Dividend yield	0%	0%

Liabilities measured at fair value

	Value at	Quoted prices in active markets	Significant other observable inputs	Significant unobservable inputs
	June 30, 2012	(Level 1)	(Level 2)	(Level 3)
Derivative liability	$ 225	$ -	$ -	$ 225

Changes in the market value of the Level 3 derivative liability

	Derivative Liability
Balance at January 1, 2012	$ 281
Additional liabilities recorded for warrants issued related to note financing	47
Additional liabilities recorded related to warrants issued for services	3
Gain on derivative liability	(106)
Balance at June 30, 2012	$ 225

XML

Condensed Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenue:
Product	$ 355	$ 341	$ 1,231	$ 648
Maintenance	161	171	477	467
Total revenues	516	512	1,708	1,115
Cost of sales:
Product	87	23	308	276
Maintenance	9	63	48	239
Research and development	441	370	1,247	1,063
Sales and marketing expense	329	386	1,059	1,155
General and administrative expense	426	540	1,388	1,624
Total operating costs and expenses	1,292	1,382	4,050	4,357
Loss from operations	(776)	(870)	(2,342)	(3,242)
Other expense, net	(3)	(1)	(9)	(3)
Interest expense:
Related party	(30)	(3)	(88)	(3)
Other	(34)	0	(57)	0
Amortization of loan discount and deferred financing:
Related party	(5)	0	(13)	0
Other	(7)	0	(16)	0
Loss on derivative liability	43	30	149	24
Net loss	(812)	(844)	(2,376)	(3,224)
Accretion of beneficial conversion feature, preferred shares:
Related party (Note 6)	(93)	(17)	(767)	(119)
Other (Note 6)	(58)	(11)	(201)	(811)
Preferred stock dividends:
Related party	(158)	(203)	(370)	(556)
Other	(51)	(92)	(121)	(225)
Income tax	0	0	0	0
Net loss attributable to common stockholders	$ (1,172)	$ (1,167)	$ (3,835)	$ (4,935)
Basic and diluted loss per common share	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.03)
Weighted average common shares outstanding, basic and diluted	224,492	191,229	222,198	191,254

XML

Derivative Liability

9 Months Ended

Sep. 30, 2012

Derivative liability [Abstract]

Derivative liability

5. Derivative liability

The Company has determined that certain warrants related to the Company's financings and the embedded conversion feature on the Series A-1 Preferred Stock require liability classification because of certain provisions that may result in an adjustment to the number of shares upon settlement and an adjustment to their exercise or conversion. The fair value of the embedded conversion feature for the Series A-1 Preferred Stock at September 30, 2012, and December 31, 2011, was insignificant.

The Company has issued a total of 9,811 shares of Series B Preferred Stock and 4,073 shares of Series C Preferred Stock, respectively. At December 31, 2010, the Company determined that the embedded conversion feature on these shares required liability classification due to the impact the anti-dilution provisions could have had on the number of shares issuable upon conversion. The fair value of the embedded conversion feature on the Series B Preferred Stock at December 31, 2010, was approximately $136, and the fair value of the embedded conversion feature on the Series C Preferred Stock was approximately $179. On March 31, 2011, the Company amended its Amended and Restated Certificate of Designation for its Series B Preferred Stock and its Certificate of Designation for its Series C Preferred Stock by amending the anti-dilution provisions (see Note 7 to the Condensed Consolidated Financial Statements). As a result of these amendments, the Series B Preferred Stock and Series C Preferred Stock no longer require liability classification.

In March 2011, the Company issued fee warrants to related parties to purchase 1,778 shares of common stock in connection with a private placement sale of 800 shares of Series C Preferred Stock and recorded a derivative liability of $4 as of March 31, 2011. The fair market value of the derivative liability at September 30, 2012, was $4 (Note 7 to the Condensed Consolidated Financial Statements).

In August 2011, the Company issued 1,000 warrants as part of consulting agreements. The Company ascribed a value of $1 to the warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.07, expected life of three years, expected volatility of 190%, and a dividend yield of 0. The warrants have a three year life and expire on August 11, 2014. As of September 30, 2012, the fair value of the warrants was $2.

In September 2011, the Company issued 5,556 warrants, the September 2011 Warrant, in connection with the September 2011 Purchase Agreement. The Company ascribed a value of $13 to the September 2011 Warrant using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.42, expected life of three years, expected volatility of 204%, and a dividend yield of 0. The September 2011 Warrant has a three year life and expires on August 11, 2014. As of September 30, 2012, the fair value of the September 2011 Warrant was $12.

In December 2011, the Company issued 5,556 warrants, the December 2011 Warrants in connection with the December 2011 Purchase Agreement. The Company ascribed a value of $13 to the December 2011 Warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.39%, expected life of three years, expected volatility of 202%, and a dividend yield of 0. The December 2011 Warrants have a three year life and expire on August 11, 2014. In February 2012, 5,000 of the warrants were exercised, 4,889 in a cashless exercise and 111 for cash. The Company issued 4,043 shares of common stock related to the exercise and received $2 in cash. As of September 30, 2012, the fair value of the 556 remaining December 2011 Warrants was $1.

The Company issued 5,349 warrants in connection with the April 2012 notes. (See note 4 to the Condensed consolidated Financial Statements).

The fair value of the outstanding derivative liabilities at September 30, 2012, and December 31, 2011, was $182 and $281, respectively.

The Company uses the Black-Scholes pricing model to calculate fair value of its warrant derivative liabilities. Key assumptions used to apply these models are as follows:

	September 30, 2012	December 31, 2011
Expected term	0.3 to 2.60 years	0.5 to 2.90 years
Volatility	203.6%	204.7% - 315.2%
Risk-free interest rate	1.65%	0.06% - 0.36%
Dividend yield	0%	0%

Fair value measurements:

Assets and liabilities measured at fair value as of September 30, 2012, are as follows:

	Value at	Quoted prices in active markets	Significant other observable inputs	Significant unobservable inputs
	September 30, 2012	(Level 1)	(Level 2)	(Level 3)
Derivative liability	$ 182	$ -	$ -	$ 182

The fair value framework requires a categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3: Unobservable inputs reflecting management's own assumptions about the inputs used in pricing the asset or liability.

There were no financial assets or liabilities measured at fair value, with the exception of cash and cash equivalents (Level 1) and the above mentioned derivative liability (Level 3) as of September 30, 2012, and December 31, 2011, respectively.

Changes in the fair market value of the Level 3 derivative liability for the nine-month period ended September 30, 2012, are as follows:

	Derivative Liability
Balance at January 1, 2012	$ 281
Additional liabilities recorded for warrants issued related to note financing	47
Additional liabilities recorded related to warrants issued for services	3
Gain on derivative liability	(149)
Balance at September 30, 2012	$ 182

XML

Short-term notes payable

9 Months Ended

Sep. 30, 2012

Short-term notes payable [Abstract]

Short-term notes payable

4. Short-term notes payable

On September 14, 2012, the Company entered into subscription agreements (the "Subscription Agreements") with certain investors (the "September 2012 Investors"). Under the terms of the Subscription Agreements, the September 2012 Investors purchased approximately $1,103,000 of unsecured convertible promissory notes (each a "September 2012 Note," and, collectively, the "September 2012 Notes"), and, subject to the satisfaction of certain closing conditions, agreed to purchase at a subsequent closing (the "Final Closing") approximately 1,103,000 shares of Series D-2 Preferred Convertible Stock ("Series D-2 Preferred Stock") at a purchase price of $1.00 per share. The September 2012 Notes bear interest at the rate of 10% per annum, and have a maturity date of December 31, 2012. The September 2012 Notes will automatically convert into shares of Series D-2 Preferred Stock at a price of $1.00 per share upon the consummation of the Final Closing, provided such closing occurs prior to December 31, 2012. The Series D-2 Preferred Stock is convertible into shares of the Company's common stock ("Common Stock") at a conversion price of $0.05 per share (subject to adjustment). The Final Closing is presently expected to be consummated on or about November 15, 2012, and is subject to stockholder approvals and the satisfaction of customary closing conditions. The proceeds from the September 2012 Notes were used to repay approximately $225 in demand notes to a related party and an employee of the Company, and for working capital and general corporate purposes in the ordinary course of business.

On April 23, 2012, the Company entered into a Note and Warrant Purchase Agreement (the "April 2012 Purchase Agreement") with certain investors (the "April 2012 Investors"). Under the terms of the April 2012 Purchase Agreement, the Company received loans in the aggregate amount of $1,000,000 from the April 2012 Investors in exchange for the Company's issuance to each of the April 2012 Investors an unsecured convertible promissory note equal to the principal amount of such April 2012 Investor's loan to the Company (the "April 2012 Notes"). The April 2012 Notes bear interest at the rate of 10% per annum, and have a maturity date of April 22, 2013. The April 2012 Notes automatically convert into securities sold in the Company's next equity financing. In connection with the issuance of the April 2012 Notes to the April 2012 Investors, the Company also issued to the April 2012 Investors warrants to purchase an aggregate of 5,000,000 shares of the Company's Common Stock at an exercise price of $0.05 per share (the "April 2012 Warrants"). The company ascribed a value of $47 to the April 2012 Warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.40, expected life of three years, expected volatility of 213%, and a dividend yield of 0. This value was recorded as a discount to notes payable and as a derivative liability. The discount will be amortized over the life of the April 2012 Notes. The April 2012 Warrants are exercisable for a period of three years. The Company is using the funds received from the April 2012 Investors for working capital and general corporate purposes in the ordinary course of business, and to pay fees and expenses in connection with the Company's entry into the April 2012 Purchase Agreement. As of September 30, 2012, the fair value of the warrants was $45. In connection with the April 2012 Purchase Agreement, the Company issued an aggregate of 349 warrants to two consultants on the financing at an exercise price of $0.05 per share. The Company ascribed a value of $2 to the warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.40, expected life of three years, expected volatility of 213%, and a dividend yield of 0. The warrant value was recorded as a professional service fee and as a derivative liability. The warrants are exercisable for a period of three years. As of September 30, 2012, the fair value of the warrants was $3.

On February 17, 2012 and March 5, 2012, the Company borrowed $25 and $100, respectively, from Phoenix, a related party, and issued unsecured demand notes. These notes were due on demand and bore interest at the rate of 10% per annum. The notes were repaid from the proceeds of the September 2012 Purchase Agreement. The Company used the net proceeds from the demand notes for working capital and general corporate purposes.

On December 2, 2011, the Company entered into a Note and Warrant Purchase Agreement (the "December 2011 Purchase Agreement") with Philip Sassower, the Company's Chairman and CEO, and other investors (the "December 2011 Investors"). Under the terms of the December 2011 Purchase Agreement, the Company issued unsecured convertible promissory notes in the aggregate amount of $500 (the "December 2011 Notes") to the December 2011 Investors. The December 2011 Notes bear interest at the rate of 10% per annum, and have a maturity date of December 20, 2012. The December 2011 Notes are also convertible at the option of the December 2011 Investors into securities sold in the Company's next equity financing with gross proceeds to the Company in excess of $100. In connection with the issuance of the December 2011

Notes, the Company also issued to the December 2011 Investors warrants to purchase an aggregate of 5,556 shares of the Company's Common Stock at an exercise price of $0.0225 per share (the "December 2011 Warrants"). The company ascribed a value of $13 to the December 2011 Warrants using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.39, expected life of three years, expected volatility of 202%, and a dividend yield of 0. This value was recorded as a discount to notes payable and as a derivative liability. The discount will be amortized over the life of the December 2011 Notes. The December 2011 Warrants are exercisable for a period of three years. In February 2012, December 2011 Warrants for 5,000 shares were exercised, 4,889 in a cashless exercise and 111 for cash. The Company issued 4,043 shares of common stock related to the exercise and received $2 in cash. As of September 30, 2012, the fair value of the remaining 556 December 2011 Warrants was $1. The Company used the net proceeds from the December Notes for working capital and general corporate purposes.

On September 20, 2011, the Company entered into a Note and Warrant Purchase Agreement (the "September 2011 Purchase Agreement") with Phoenix Banner Holdings, LLC (the "September 2011 Investor"), an entity affiliated with Phoenix, the Company's largest stockholder. Under the terms of the September 2011 Purchase Agreement, the Company issued an unsecured convertible promissory note in the amount of $500 (the "September 2011 Note") to the September 2011 Investor. The September 2011 Note bears interest at the rate of 10% per annum, and had a maturity date of September 20, 2012, which was subsequently amended to extend the due date through December 31, 2012. The September 2011 Note is also convertible at the option of the September 2011 Investor into securities sold in the Company's next equity financing with gross proceeds to the Company in excess of $100. In connection with the issuance of the September 2011 Note, the Company also issued to the September 2011 Investor a warrant to purchase 5,556 shares of the Company's Common Stock at an exercise price of $0.0225 per share (the "September 2011 Warrant"). On September 20, 2011, the Company ascribed a value of $13 to the September 2011 Warrant using a modified Black Scholes pricing model with the following assumptions; risk free interest rate of 0.42, expected life of three years, expected volatility of 204%, and a dividend yield of 0. This value was recorded as a discount to notes payable and as a derivative liability. The discount will be amortized over the life of the September 2011 Note. The September 2011 Warrant is exercisable for a period of three years. As of September 30, 2012, the fair value of the September 2011 Warrant was $12. The Company used the net proceeds from the September Notes for working capital and general corporate purposes.

On September 2, 2011, the Company borrowed an aggregate of $100 from Phoenix and an employee of the Company and issued unsecured demand notes to each. These notes were due on demand and bore interest at the rate of 10% per annum. The notes were repaid from the proceeds of the September 2012 Purchase Agreement. The Company used the net proceeds from the demand notes for working capital and general corporate purposes.

Interest expense associated with the Company's debt for the three months ended September 30, 2012 and 2011, was $64 and $3, respectively, of which $30 and $3 was related party expense. Interest expense associated with the Company's debt for the nine months ended September 30, 2012 and 2011, was $145 and $3, respectively, of which $88 and $3 was related party expense. Amortization of debt discount and deferred financing costs for the three months ended September 30, 2012, and 2011, was $12 and $0, respectively, of which $5 and $0 was related party expense. Amortization of debt discount and deferred financing costs included in interest expense for the nine months ended September 30, 2012, and 2011, was $29 and $0, respectively, of which $13 and $0 was related party expense.

Material commitments:

The Company had the following commitments at September 30, 2012:

Contractual obligations	Payments due by period -
	Total	2012	2013	2014	2015	2016	Thereafter
Short-term note payable	$ 3,203	$ 2,203	$ 1,000	$ -	$ -	$ -	$ -

XML

Patents (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Amortizable intangible assets
Finite-lived intangible assets, gross	$ 10,858	$ 10,858
Finite-Lived intangible assets, accumulated amortization	9,112	8,760
Patents [Member]
Amortizable intangible assets
Finite-lived intangible assets, gross	6,746	6,746
Finite-Lived intangible assets, accumulated amortization	5,000	4,726
Capitalized software [Member]
Amortizable intangible assets
Finite-lived intangible assets, gross	4,112	4,112
Finite-Lived intangible assets, accumulated amortization	$ 4,112	$ 4,034

XML

Net loss per share (Tables)

9 Months Ended

Sep. 30, 2012

Net loss per share [Abstract]

Reconciliation of the numerator (net loss) and the denominator (number of shares) used in the basic and diluted EPS calculations

	Three Months Ended		Nine Months Ended
	September 30, 2012	September 30, 2011	September 30, 2012	September 30, 2011
Numerator-basic and diluted net loss	$ (1,172)	$ (1,167)	$ (3,835)	$ (4,935)
Denominator-basic or diluted weighted average number of common shares outstanding	224,492	191,229	222,198	191,254
Net loss per share - basic and diluted	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.03)

XML

Nature of business, basis of presentation and summary of significant accounting policies (Policies)

9 Months Ended

Sep. 30, 2012

Summary of Significant Accounting Policies

Basis of presentation

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

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company's financial position, results of operations and cash flows.

Comprehensive Income

On January 1, 2012, the Company adopted an accounting standard that modifies the presentation of comprehensive income in the consolidated financial statements. The standard requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company elected the latter presentation option upon adopting this accounting standard. The adoption of this guidance did not have a significant effect on the consolidated financial statements.

Revenue Recognition, Software

For products sold under perpetual license, the Company recognizes revenue upon shipment, provided that persuasive evidence of an arrangement exists, collection is determined to be probable, all non-recurring engineering work necessary to enable the Company's product to function within the customer's application has been completed and the Company's product has been delivered according to specifications. For software sold under a term license, the Company recognizes revenue over the term of the license granted. Revenue from customization of software is recognized when all engineering work necessary to enable the Company's products to function within the customer's application has been completed, and the Company has delivered its product according to specifications.

Revenue Recognition, Multiple-deliverable Arrangements

Software license agreements may contain multiple elements, including upgrades and enhancements, products deliverable on a when and if available basis and post contract support.

For arrangements with multiple deliverables the Company allocates consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. In the absence of the vendor-specific objective evidence or third-party evidence of the selling prices, Management's best estimate of the selling prices is used. For the Company's tangible products containing software and hardware elements that function together and deliver the tangible products' essential functionality, the Company allocates revenue under the multiple-element arrangements revenue recognition guidance discussed above.

Maintenance revenue is recorded for post-contract support and upgrades or enhancements, which is paid for in addition to license fees, and is recognized as costs are incurred or over the support period whichever is longer. For undelivered elements where objective and reliable evidence of fair value does not exist, revenue is deferred and subsequently recognized when delivery has occurred and when fair value has been determined.

Treasury stock

Under the cost method, the gross cost of the shares reacquired is charged to a contra equity account entitled treasury stock. The equity accounts that were credited for the original share issuance (common stock, paid-in capital in excess of par, etc.) remain intact. When the treasury shares are reissued, proceeds in excess of cost are credited to a paid-in capital account. Any deficiency is charged to retained earnings (unless paid-in capital from previous treasury share transactions exists, in which case the deficiency is charged to that account, with any excess charged to retained earnings).

Fair value measurement

The fair value framework requires a categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3: Unobservable inputs reflecting management's own assumptions about the inputs used in pricing the asset or liability.

Patents Impairment

The Company performs intangible asset impairment analysis at least annually in accordance with the relevant accounting guidance. The Company periodically reassesses the lives of its patents and tests for impairment in order to determine whether the book value of each patent exceeds the fair value of each patent. Fair value is determined by estimating future cash flows from the products that are and will be protected by the patents and taking into account the factors listed in Critical Accounting Policies in the Company's Annual Report on Form 10-K.

Derivatives policy

The Company has determined that certain warrants related to the Company's financings and the embedded conversion feature on the Series A-1 Preferred Stock require liability classification because of certain provisions that may result in an adjustment to the number of shares upon settlement and an adjustment to their exercise or conversion. The fair value of the embedded conversion feature for the Series A-1 Preferred Stock at September 30, 2012, and December 31, 2011, was insignificant.

Net loss per share

The Company calculates net loss per share of both basic net loss per share, which is based on the weighted average number of shares outstanding, and when applicable, diluted income per share, which is based on the weighted average number of shares and dilutive potential shares outstanding.

Share-Based Compensation, valuation

Share-based compensation expense is based on the estimated grant date fair value of the portion of share-based payment awards that are ultimately expected to vest during the period. The grant date fair value of stock-based awards to employees and directors is calculated using the Black-Scholes option pricing model. Forfeitures of share-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimates.

The weighted-average fair value of stock-based compensation is based on the single option valuation approach. Forfeitures are estimated and it is assumed that no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized using the accrual method over the vesting period of the options. The fair value calculations are based on the following assumptions:

XML

Net loss per share

9 Months Ended

Sep. 30, 2012

Net loss per share [Abstract]

Net loss per share

6. Net loss per share

The Company calculates net loss per share of both basic net loss per share, which is based on the weighted average number of shares outstanding, and when applicable, diluted income per share, which is based on the weighted average number of shares and dilutive potential shares outstanding.

For the three and nine-month periods ended September 30, 2012, 46,080 shares of common stock issuable upon the exercise of outstanding options and 149,831 shares issuable upon the exercise of warrants and 414,273 shares of common stock issuable upon the conversion of the convertible preferred stock were excluded from the calculation of dilutive earnings per share because the exercise of such options and warrants and the conversion of the preferred stock would be anti-dilutive.

For the three and nine months ended September 30, 2011, 47,229 shares of common stock issuable upon the exercise of outstanding options, 189,310 shares issuable upon the exercise of warrants and 368,371 shares of common stock issuable upon the conversion of the convertible preferred stock were excluded from the calculation of dilutive earnings per share because the exercise of such options and warrants and the conversion of the preferred stock would be anti-dilutive.

The following table is a reconciliation of the numerator (net loss) and the denominator (number of shares) used in the basic and diluted EPS calculations and sets forth potential shares of common stock that are not included in the diluted net loss per share calculation as the effect is antidilutive:

	Three Months Ended		Nine Months Ended
	September 30, 2012	September 30, 2011	September 30, 2012	September 30, 2011
Numerator-basic and diluted net loss	$ (1,172)	$ (1,167)	$ (3,835)	$ (4,935)
Denominator-basic or diluted weighted average number of common shares outstanding	224,492	191,229	222,198	191,254
Net loss per share - basic and diluted	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.03)

XML

Equity

9 Months Ended

Sep. 30, 2012

Stockholders' Equity [Abstract]

Stockholders' Equity

7. Equity

The Company has granted stock options under its 1999 Option Plan, which expired in April of 2009 (options outstanding under that plan are not affected by its expiration), and has also granted options to employees, directors and consultants pursuant to individual plans. As of September 30, 2012, there are 1,155 options outstanding under these plans.

The Company's Board of Directors adopted the 2009 Stock Compensation Plan on July 1, 2009, reserving 7,000 shares of Common Stock of the Company for issuance thereunder. As of September 30, 2012, there are 962 options outstanding pursuant to this plan.

The Company's Board of Directors adopted the 2011 Stock Compensation Plan on January 28, 2011, reserving 50,000 shares of Common Stock of the Company for issuance thereunder. As of September 30, 2012, there are 43,963 options outstanding pursuant to this plan.

Share-based compensation expense is based on the estimated grant date fair value of the portion of share-based payment awards that are ultimately expected to vest during the period. The grant date fair value of stock-based awards to employees and directors is calculated using the Black-Scholes option pricing model. Forfeitures of share-based payment awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimates. The estimated average forfeiture rate for the nine months ended September 30, 2012 and 2011, was approximately 9.60% and 8.84%, respectively, based on historical data.

Valuation and Expense Information:

The weighted-average fair value of stock-based compensation is based on the single option valuation approach. Forfeitures are estimated and it is assumed that no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized using the accrual method over the vesting period of the options. The fair value calculations are based on the following assumptions:

	Nine months Ended September 30, 2012	Nine months Ended September 30, 2011
Risk free interest rate	0.62% - 5.11%	1.12% - 5.11%
Expected life (years)	2.82 - 7.00	2.82 - 7.00
Expected volatility	91.99% - 180.36%	91.99% - 147.41%
Expected dividends	None	None

The following table summarizes the allocation of stock-based compensation expense related to stock option grants for the three and nine months ended September 30, 2012 and 2011. The Company granted 2,000 stock options during the three and nine months ended September 30, 2012, and 184 stock options were exercised for $12 in cash. The Company issued 46 restricted shares of Common Stock valued at $2. The Company granted 24,496 stock options during the three and nine months ended September 30, 2011, and no stock options were exercised.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Research and development	$ 45	$ 78	$ 166	$ 284
Sales and marketing	27	37	70	128
General and administrative	30	70	117	129
Director options	7	22	23	72
Stock-based compensation expense	$ 109	$ 207	$ 376	$ 613

A summary of option activity under the Company's plans as of September 30, 2012, is as follows:

Options	September 30, 2012
	Shares (000)	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1,	51,353	$0.09		4,449
Granted	2,000	$0.06		$ 120
Exercised	(184)	$0.07		$ 2
Forfeited or expired	(7,089)	$0.26		$ 1,830
Outstanding at September 30	46,080	$0.06	5.38	$ 2,727
Vested and expected to vest at September 30	46,080	$0.06	5.38	$ 2,727
Exercisable at September 30	21,411	$0.07	4.96	$ 1,603

The following tables summarize significant ranges of outstanding and exercisable options as of September 30, 2012:

Range of Exercise Prices	As of September 30, 2012
	Options Outstanding			Options Exercisable
	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price	Number Outstanding	Weighted Average Exercise Price
$0.02 - $0.50	45,604	5.4	$0.05	20,935	$0.06
0.51 - 1.00	464	0.3	$0.75	464	$0.75
1.01 - 2.00	12	0.5	$1.75	12	$1.75
	46,080	5.4	$0.06	21,411	$0.07

A summary of the status of the Company's non-vested shares as of September 30, 2012, is as follows:

Nonvested Shares	Shares	Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2012	36,814	$0.04
Granted	2,000	$0.06
Exercised	(184)	$0.05
Forfeited	(7,089)	$0.14
Vested	(6,872)	$0.06
Non-vested at September 30, 2012	24,669	$0.04

As of September 30, 2012, there was $252 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plans. The unrecognized compensation expense is expected to be realized over a weighted average period of 2.3 years.

Preferred Shares

Series A-1

In May 2008, the Company issued an aggregate of 1,040 shares of the Company's Series A Cumulative Convertible Preferred Stock in exchange for certain debt. The Series A Cumulative Convertible Preferred Stock was subsequently exchanged in October 2008 for an equivalent number of shares of Series A-1 Cumulative Convertible Preferred Stock (the "Series A-1 Preferred Stock"). During 2009, 146 shares of Series A-1 Preferred Stock were converted into 1,005 shares of the Company's Common Stock. As of September 30, 2012, there are 934 shares of Series A-1 Preferred Stock outstanding. The shares of Series A-1 Preferred Stock carry an eight percent (8%) annual dividend, payable quarterly in arrears in cash or in additional shares of Series A-1 Preferred Stock, have a liquidation preference over Common Stock of one dollar ($1.00) per share and are convertible into shares of Common Stock at the conversion price of fourteen cents ($0.14) per share. The shares of Series A-1 Preferred Stock are convertible at any time. The Company issued 18 and 54 shares of Series A-1 Preferred Stock in payment of dividends for the three and nine months ended September 30, 2012, respectively. If the outstanding shares of Series A-1 Preferred Stock had been converted in their entirety as of September 30, 2012, the Company would have issued 6,672 shares of Common Stock.

Series B

On August 5, 2010, the Company completed the conversion of all of the Company's outstanding indebtedness and issued 6,608 shares of Series B Participating Convertible Preferred Stock (the "Series B Preferred Stock") in accordance with an executed Exchange Agreement entered into with Phoenix Venture Fund LLC and certain other holders of the Company's indebtedness (the "Recapitalization"). In accordance with the executed Series B Preferred Stock Purchase Agreement the Company issued 1,440 shares of Series B Preferred Stock for proceeds of $1,440, net of expenses of $437 (the "Series B Financing"). In addition, the Company paid approximately $143 in expenses to a third party in connection with the financing. The expenses were recorded as a charge to additional paid in capital. The proceeds were used for working capital and general corporate purposes, in each case in the ordinary course of business, and to pay fees and expenses associated with the Recapitalization and Series B Financing.

The shares of Series B Preferred Stock carry a ten percent (10%) annual dividend, payable quarterly in arrears in cash or in additional shares of Series B Preferred Stock, and have a liquidation preference over shares of Series A-1 Preferred Stock and Common Stock of $1.50 per share. The shares of Series B Preferred Stock were initially convertible into shares of Common Stock at an initial conversion price of six cents ($0.06) per share. However, the Company issued additional preferred stock, the Series C Participating Convertible Preferred Stock (the "Series C Preferred Stock"), at a price less than the original conversion price of $0.06, which resulted in a downward adjustment in the conversion price of the Series B Preferred Stock to $0.0433 per share and an increase in the number of shares of Common Stock that would be issued upon conversion of the outstanding shares of Series B Preferred Stock. The shares of Series B Preferred Stock are convertible at any time.

The conversion feature was determined to be a derivative liability in the amount of $2,000 of which $1,498 was attributable to related parties and $502 to the other owners of Series B Preferred Stock. Due to the decline in the price of the Company's Common Stock and the issuance of the Series C Preferred Stock, the fair value of the embedded conversion feature on the Series B Preferred Stock was reduced to approximately $130 at December 31, 2010.

In January and March 2012, a total of 140 shares of Series B Preferred Stock were converted into 3,232 shares of the Company's Common Stock. The Company issued 241 and 701 shares of Series B Preferred Stock in payment of dividends for the three and nine months ended September 30, 2012, respectively. The Company recorded a beneficial conversion feature associated with the issuance of the Series B Preferred dividends of $51 and $263, for the three and nine months ended September 30, 2012, respectively. As of September 30, 2012, there are 9,811 shares of Series B Preferred Stock outstanding. If the outstanding Series B Preferred Stock had been converted in its entirety on September 30, 2012, the Company would have issued 226,434 shares of Common Stock.

Series C

On December 31, 2010, the Company completed the sale of 2,211 shares of Series C Preferred Stock through a Securities Purchase Agreement with Phoenix Venture Fund LLC and certain other investors, which sale provided proceeds to the Company of $2,211 net of approximately $422 in expenses to third parties in connection with the financing. The expenses were recorded as a charge to additional paid-in capital. The proceeds are being used for working capital and general corporate purposes, in each case in the ordinary course of business, and to pay fees and expenses associated with the sale of the Series C Preferred Stock.

The shares of Series C Preferred Stock carry a ten percent (10%) annual dividend, payable quarterly in arrears in cash or in additional Series C Preferred Stock, and have liquidation preference that is senior to all other shares of the Company's capital stock, pursuant to which holders of shares of Series C Preferred Stock will receive liquidating distributions in the amount of $1.50 per share plus any accrued dividends. The shares of Series C Preferred Stock are convertible into Common Stock at any time at an initial conversion price of $0.0225 per share, subject to adjustment for stock dividends, splits, combinations and similar events and, with certain exceptions, the issuance of additional securities at a purchase price less than the then current conversion price of the Series C Preferred Stock.

On December 31, 2010, the Series C Preferred Stock's conversion feature was determined to be a derivative liability in the amount of $179, of which $113 was attributable to related parties and $66 to other holders. After receipt of the liquidation preference, the shares of Series C Preferred Stock and Series B Preferred Stock are entitled to participate pro rata on an as-converted basis with the shares of Common Stock in any remaining liquidation proceeds (after payment of the liquidation preference on the Series C Preferred Stock, Series B Preferred Stock and Series A-1 Preferred Stock).

On March 31, 2011, the Company amended its Amended and Restated Certificate of Designation for its Series B Preferred Stock and its Certificate of Designation for its Series C Preferred Stock to modify the anti-dilution provisions. Under the amendments, in the event additional stock is issued at a price lower than the conversion price then in effect, the new conversion price of the Series B Preferred Stock or Series C Preferred Stock cannot be (A) lower than the average closing market price for the Common Stock for the twenty (20) trading days prior to the closing date of a transaction requiring an adjustment in the conversion price (the "Market Price") or (B) greater than the conversion price then in effect. The amendments were approved by the Company's Board of Directors and the necessary majorities of the Company's Series A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, and were filed with the Delaware Secretary of State on March 31, 2011. As a result of the amendments, the Company reclassified $362 from derivative liabilities to equity on March 31, 2011 (Note 4) and recorded a beneficial conversion feature of $3,501 related to the intrinsic value of the conversion feature on March 31, 2011.

On March 6, 2011, the Company issued 97 shares of its Series C Preferred Stock and warrants to purchase 4,311 shares of Common Stock to its Acting President as part of a professional service agreement. The shares of Series C Preferred Stock and warrants are convertible into Common Stock under the same terms discussed above.

On March 31, 2011, the Company sold an additional 800 shares of Series C Preferred Stock for proceeds of $800, net of approximately $110 in expenses to third parties in connection with the financing.

On March 9, 2012, the Company issue 278 shares of Series C Preferred Stock valued at $417 in settlement of the indemnification claim brought by Phoenix Venture Fund LLC, resulting from the settlement of a 16b claim in January 2012 brought by a Company shareholder against Phoenix Venture Fund LLC, certain affiliates and the Company as a nominal defendant. The Company booked a $418 accretion amount for the beneficial conversion feature on the 278 shares of Series C Preferred Stock at March 31, 2012.

On September 25, 2012, an investor converted 39 shares of Series C Preferred Stock into 1,729 shares of the Company's Common Stock.

The Company issued 100 and 287 shares of Series C Preferred Stock in payment of dividends for the three and nine months ended September 30, 2012. The Company recorded a beneficial conversion feature associated with the issuance of the Series C Preferred dividends of $100 and $287, for the three and nine months ended September 30, 2012, respectively. As of September 30, 2012, there are 4,073 shares of Series C Preferred Stock outstanding. If the outstanding shares of Series C Preferred Stock were converted in their entirety, the Company would issue 181,010 shares of Common Stock.

Warrants

Series C Warrants

Each investor who purchased shares of Series C Preferred Stock in the financing transactions which closed on December 31, 2010, and March 31, 2011, received a warrant to purchase a number of shares of Common Stock equal to the aggregate number of shares of Series C Preferred Stock purchased by the investor divided by 0.0225. Each warrant issued in connection with the Series C Financing has an exercise price of $0.0225 per share and is exercisable in whole or in part, including by means of cashless exercise, for a period of three years from the date of issuance. In February and March 2012, 27,625 warrants were exercised by holders of the Series C Preferred Stock warrants. Of these warrants exercised, 7,439 were exercised for cash for which the Company received $140 and 20,186 warrants were exercised on a cashless basis. The Company issued 23,929 shares of Common Stock related to these exercises.

Other Warrants

In February and March 2012, 6,484 warrants were exercised by the holders of other warrants, mainly related to indebtedness that converted to Series B Preferred Stock in the Recapitalization. Of these warrants exercised, 1,217 were exercised for cash, for which the Company received $73, and 5,267 were exercised on a cashless basis. The Company issued 3,696 Shares of Common Stock related to these exercises.

On April 23, 2012, the Company issued 5,349 warrants in connection with the $1M bridge financing. Each warrant issued in connection with the financing has an exercise price of $0.05 per share and is exercisable in whole or in part, including by means of cashless exercise, for a period of three years from the date of issuance. (See note 5 to the Condensed Consolidated Financial Statements).

On June 30, 2012, 2,916 warrants with a derivative value of $18 expired. The $18 was recorded as a gain in derivative liabilities in the Statement of Operations at June 30 2012.

At September 30, 2012, 149,831 shares of Common Stock were reserved for issuance upon exercise of outstanding warrants.

A summary of the warrants issued are as follows:

	September 30, 2012		December 31, 2011
	Warrants	Weighted Average Exercise Price	Warrants	Weighted Average Exercise Price
Outstanding at beginning of period	182,644	$ 0.0261	135,131	$ 0.0274
Issued	5,349	$ 0.0500	59,735	$ 0.0064
Exercised	(35,162)	$ 0.0264	(12,222)	$ 0.0225
Expired	(3,000)	$ 0.0433	-	-
Outstanding at end of period	149,831	$ 0.0254	182,644	$ 0.0261
Exercisable at end of period	149,831	$ 0.0254	182,644	$ 0.0261

A summary of the status of the warrants outstanding as of September 30, 2012, is as follows:

Number of Warrants Outstanding and Exercisable	September 30, 2012
	Weighted Average Remaining Life	Weighted Average Exercise Price Per Share
14,073	0.71	0.0433
130,409	1.30	0.0225
5,349	2.83	0.0500
149,891	1.24	0.0254

Restricted Share Grants

In connection with the Recapitalization, the Company issued restricted shares to employees in exchange for reductions in their respective salaries. The number of shares issued was calculated based on the amount of the annual salary reduction divided by $0.06 per share. Fifty percent of the shares vested on December 31, 2010, and the remaining 50% vested on September 30, 2011, subject to continued employment through such vesting dates. The Company has recognized $45 in expense associated with 496 restricted shares granted of which 46 shares were issued during the nine months ended September 30, 2012 for $2. As of September 30, 2012, the Company has issued all of the restricted shares granted.

XML

Patents (Tables)

9 Months Ended

Sep. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Summary of Intangible Assets

Amortizable intangible assets:	September 30, 2012		December 31, 2011
	Carrying Amount	Accumulated Amortization	Carrying Amount	Accumulated Amortization
Patents	$ 6,746	(5,000)	$ 6,746	$ (4,726)
Capitalized software	4,112	(4,112)	4,112	(4,034)
Total	$ 10,858	$ (9,112)	$ 10,858	$ (8,760)

Schedule of amortization for intangible assets

Remainder of 2012	$ 91
2013	365
2014	357
2015	342
2016	322
Thereafter	269
Total	$ 1,746

XML

Equity (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]
Expected volatility, minimum	$ 91.99%	$ 91.99%
Expected volatility, maximum	$ 180.36%	$ 147.41%
Risk-free interest rate, minimum	$ 0.62%	$ 1.12%
Risk-free interest rate, maximum	$ 5.11%	$ 5.11%
Expected dividend yield	$ 0	$ 0
Minimum [Member]
Fair value assumptions, stock options
Expected life	2 years 9 months 26 days	2 years 9 months 26 days
Maximum [Member]
Fair value assumptions, stock options
Expected life	7 years	7 years

XML

Nature of business, basis of presentation and summary of significant accounting policies (Details Textual) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended				1 Months Ended		1 Months Ended		1 Months Ended		1 Months Ended					1 Months Ended		1 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Dec. 31, 2010	Sep. 30, 2011 September 2011 Note And Warrant Purchase Agreement [Member]	Sep. 20, 2011 September 2011 Note And Warrant Purchase Agreement [Member]	Dec. 31, 2011 December 2011 Note And Warrant Purchase Agreement [Member]	Dec. 20, 2011 December 2011 Note And Warrant Purchase Agreement [Member]	Apr. 30, 2012 April 2012 Note And Warrant Purchase Agreement [Member]	Apr. 23, 2012 April 2012 Note And Warrant Purchase Agreement [Member]	Sep. 30, 2012 September 2012 Note Purchase Agreement [Member]	Sep. 14, 2012 September 2012 Note Purchase Agreement [Member]	Sep. 02, 2011 Unsecured Demand Notes One And Two [Member]	Feb. 17, 2012 Unsecured Demand Note Three [Member]	Mar. 05, 2012 Unsecured Demand Note Four [Member]	Aug. 31, 2010 August 2010 Series B Financing [Member]	Aug. 05, 2010 August 2010 Series B Financing [Member]	Dec. 31, 2010 December 2010 Series C Financing [Member]	Mar. 31, 2011 March 2011 Series C Financing [Member]
Nature Of Business Basis Of Presentation And Summary Of Significant Accounting Policies Textual [Abstract]
Cash and Cash Equivalents, at Carrying Value	$ 566	$ 334	$ 307	$ 1,879
Accumulated deficit	(114,215)		(111,839)
Treasury Stock, Value, Acquired, Cost Method	325	0
Treasury Stock, Value	325		0
Treasury Stock, Shares	6,500		0
Subsidiary, Sale of Stock [Line Items]
Number of shares sold in private placement											1,103					1,440		2,211	800
Purchase price per share for the shares sold in private placement												$ 1.00					$ 1	$ 1	$ 1
Aggregate amount of loans borrowed						$ 500		$ 500		$ 1,000		$ 1,103	$ 100	$ 25	$ 100
Stated percentage of loans borrowed						10.00%		10.00%		10.00%	10.00%		10.00%	10.00%	10.00%
Maturity date of loans borrowed					Sep. 20, 2012		Dec. 20, 2012		Apr. 22, 2013		Dec. 31, 2012

XML

Short-term notes payable (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Contractual Obligations, payments due by period
Contractual obligations, short-term notes payable due in 2012	$ 2,203
Contractual obligations, short-term notes payable due in 2013	1,000
Contractual obligations, short-term notes payable due in 2014	0
Contractual obligations, short-term notes payable due in 2015	0
Contractual obligations, short-term notes payable due in 2016	0
Contractual obligations, short-term notes payable due thereafter	0
Contractual obligations, short-term notes payable	$ 3,203

XML

Equity (Details Textual) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2010	Dec. 31, 2011
Share-based Arrangements with Employees and Nonemployees [Abstract]
Option grants estimated average forfeiture rate			9.60%	8.84%
Stock Options, granted	2,000	24,496	2,000	24,496
Stock Options, exercised	184		184
Proceeds from exercise of stock options			$ 12	$ 0
Restricted stock issued	46		46
Restricted stock award, value	2		2
Restricted stock, granted	496		496
Total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plans	252		252
Unrecognized compensation expense amortization period			2 years 7 months
Factor used to calculate the number of restricted shares granted to employees in exchange for reductions in their respective salaries	$ 0.06		$ 0.06
Percentage of shares vested in period				50.00%	50.00%
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options outstanding under the Stock Compensation Plan	46,080		46,080			51,353
Stock-based compensation expense	109	207	376	613
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense			$ 45
2009 Stock Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares reserved under the Stock Compensation Plan	7,000		7,000
Number of options outstanding under the Stock Compensation Plan	962		962
2011 Stock Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares reserved under the Stock Compensation Plan	50,000		50,000
Number of options outstanding under the Stock Compensation Plan	43,963		43,963
1999 Stock Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options outstanding under the Stock Compensation Plan	1,155		1,155

XML

Condensed Consolidated Statement of Changes in Stockholders' Deficit (USD $) In Thousands, unless otherwise specified	Total	Additional Paid in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Series A-1	Series B	Series C	Common Stock	Treasury Stock
Beginning balance at Dec. 31, 2011	$ (357)	$ 97,715	$ (111,839)	$ (43)	$ 880	$ 7,380	$ 3,569	$ 1,981	$ 0
Beginning balance (in shares) at Dec. 31, 2011					880	9,250	3,547	198,188	0
Common Stock received as settlement of 16b claim	(325)								(325)
Receipt of 6.5M Common Shares in settlement of the 16b action, shares								(6,500)
Series C Preferred issued in settlement of indemnity claim	417						417
Series C Preferred Shares issued in settlement of an indemnification claim related to the 16b settlement, shares							278
Stock-based employee compensation	376	376
Common shares issued in connection with the cashless exercise of warrants		(202)						202
Common shares issued in connection with the cashless exercise of warrants. shares								20,186
Common shares issued in connection with the exercise of warrants for cash	212	138						74
Common shares issued in connection with the exercise of warrants for cash. shares								7,439
Common shares issued in connection with the exercise of stock options option for cash	9	7						2
Common shares issued in connection with the exercise of stock options option for cash, shares	184							184
Common stock issued as restricted stock	2	2
Common stock issued as restricted stock, shares								46
Common shares issued in connection with the conversion of Series B Preferred Shares		107				(140)		33
Common shares issued in connection with the conversion of Series B Preferred Shares, shares						(140)		3,232
Common shares issued in connection with the conversion of Series C Preferred Shares		22					(39)	17
Common shares issued in connection with the conversion of Series C Preferred Shares, shares							(39)	1,729
Accretion of Beneficial Conversion Feature on Series C Preferred Shares issued in settlement of the indemnification claim		(417)					417
Accretion Of Benefitial Conversion Feature On Preferred Stock Dividends Issued In Kind		(551)				263	288
Preferred shares dividends, paid in kind		(491)			54	437
Preferred share dividends, paid-in-kind, shares					54	701	287
Comprehensive income:
Net loss	(2,376)		(2,376)
Foreign currency translation adjustment	5			5
Total comprehensive loss	(2,371)
Ending balance at Sep. 30, 2012	$ (2,037)	$ 96,706	$ (114,215)	$ (38)	$ 934	$ 7,940	$ 4,652	$ 2,309	$ (325)
Ending balance (in shares) at Sep. 30, 2012					934	9,811	4,073	224,504

XML

Patents

9 Months Ended

Sep. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Patents

3. Patents

The Company performs intangible asset impairment analysis at least annually in accordance with the relevant accounting guidance. The Company periodically reassesses the lives of its patents and tests for impairment in order to determine whether the book value of each patent exceeds the fair value of each patent. Fair value is determined by estimating future cash flows from the products that are and will be protected by the patents and taking into account the factors listed in Critical Accounting Policies in the Company's Annual Report on Form 10-K.

Management completed an analysis of the Company's patents as of December 31, 2011. Based on that analysis, the Company concluded that no impairment of the carrying value of the patents existed. The Company believes that no events or circumstances occurred or changed during the three and nine months ended September 30, 2012, and therefore concluded that no impairment in the carrying values of the patents existed at September 30, 2012.

Amortization of patent costs was $90 and $274 for the three and nine months ended September 30, 2012. Amortization of patent costs was $92 and $281 for the three and nine month periods ended September 30, 2011.

Intangible Assets

The following table summarizes intangible assets (in millions):

Amortizable intangible assets:	September 30, 2012		December 31, 2011
	Carrying Amount	Accumulated Amortization	Carrying Amount	Accumulated Amortization
Patents	$ 6,746	(5,000)	$ 6,746	$ (4,726)
Capitalized software	4,112	(4,112)	4,112	(4,034)
Total	$ 10,858	$ (9,112)	$ 10,858	$ (8,760)

Amortization for intangible assets recorded as of September 30, 2012 is estimated to be (in thousands):

Remainder of 2012	$ 91
2013	365
2014	357
2015	342
2016	322
Thereafter	269
Total	$ 1,746

XML

Short-term notes payable (Details Textual) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended				1 Months Ended		1 Months Ended			1 Months Ended				1 Months Ended				1 Months Ended			1 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Dec. 31, 2010	Aug. 31, 2011 Warrants Issued To Consultants [Member]	Sep. 30, 2012 Warrants Issued To Consultants [Member]	Sep. 30, 2011 September 2011 Note And Warrant Purchase Agreement [Member]	Sep. 30, 2012 September 2011 Note And Warrant Purchase Agreement [Member]	Sep. 20, 2011 September 2011 Note And Warrant Purchase Agreement [Member]	Feb. 29, 2012 December 2011 Note And Warrant Purchase Agreement [Member]	Dec. 31, 2011 December 2011 Note And Warrant Purchase Agreement [Member]	Sep. 30, 2012 December 2011 Note And Warrant Purchase Agreement [Member]	Dec. 20, 2011 December 2011 Note And Warrant Purchase Agreement [Member]	Feb. 29, 2012 December 2011 Note And Warrant Purchase Agreement [Member] Common stock [Member]	Apr. 30, 2012 April 2012 Note And Warrant Purchase Agreement [Member]	Sep. 30, 2012 April 2012 Note And Warrant Purchase Agreement [Member]	Apr. 23, 2012 April 2012 Note And Warrant Purchase Agreement [Member]	Apr. 30, 2012 April 2012 Note And Warrant Purchase Agreement [Member] Warrants Issued To Consultants [Member]	Sep. 30, 2012 April 2012 Note And Warrant Purchase Agreement [Member] Warrants Issued To Consultants [Member]	Apr. 23, 2012 April 2012 Note And Warrant Purchase Agreement [Member] Warrants Issued To Consultants [Member]	Sep. 30, 2012 September 2012 Note Purchase Agreement [Member]	Sep. 14, 2012 September 2012 Note Purchase Agreement [Member]	Sep. 02, 2011 Unsecured Demand Notes One And Two [Member]	Feb. 17, 2012 Unsecured Demand Note Three [Member]	Mar. 05, 2012 Unsecured Demand Note Four [Member]
Short Term Notes Payble Details Textual [Abstract]
Interest expense associated with the Company's debt	$ 64	$ 3	$ 145	$ 3
Interest expense associated with the Company's debt, related party	30	3	88	3
Amortization of debt discount and deferred financing costs	12	0	(29)	0
Amortization of debt discount and deferred financing costs, related party	5	0	13	0
Short-term Debt [Line Items]
Aggregate amount of loans borrowed											500				500				1,000					1,103	100	25	100
Number of shares sold in private placement																							1,103
Purchase price per share for the shares sold in private placement																								$ 1.00
Conversion price																								$ 0.05
Proceeds from sale of stock, used for working capital and for repayment of a portion of demand notes																							225
Stated percentage of loans borrowed											10.00%				10.00%				10.00%				10.00%		10.00%	10.00%	10.00%
Maturity date of loans borrowed									Sep. 20, 2012				Dec. 20, 2012				Apr. 22, 2013						Dec. 31, 2012
Extended maturity date of loans borrowed									Dec. 31, 2012
Description of the derivative transaction associated with the note									convertible at the option of the September 2011 Investor into securities sold in the next equity financing with gross proceeds to the Company in excess of $100				convertible at the option of the September 2011 Investor into securities sold in the next equity financing with gross proceeds to the Company in excess of $100										will automatically convert into shares of Series D-2 Preferred Stock at a price of $1.00 per share upon the consummation of the Final Closing, provided such closing occurs prior to December 31, 2012
Associated derivative transaction, threshold amount											100				100
Number of common shares callable by warrants											5,556				5,556				5,000,000
Warrants Weighted Average Exercise Price	$ 0.0254		$ 0.0254		$ 0.0261	$ 0.0274					$ 0.0225				$ 0.0225				$ 0.0500			$ 0.0500
Fair value of warrants outstanding, initial							1				7				13				47			2
Fair value of warrants outstanding								2		12				1				45			3
Fair value assumptions for warrants pricing, risk-free interest rate			1.65%				7.00%		42.00%				39.00%				40.00%			40.00%
Fair value assumptions for warrants pricing, expected term							3 years		3 years				3 years				3 years			3 years
Fair value assumptions for warrants pricing, expected volatility rate			203.60%				190.00%		204.00%				202.00%				213.00%			213.00%
Fair value assumptions for warrants pricing, expected dividend							0.00%		0.00%				0.00%				0.00%			0.00%
Number of warrants outstanding							1,000							556					5,349			349
Exercise period of warrants							3 years		3 years				3 years				3 years			3 years
Number of shares issued by warrants excercise												5,000				4,043
Number of shares issued by warrants excercise, cashless												4,889
Number of shares issued by warrants excercise, for cash												111
Proceeds from issuance of common stock, related to warrants exercise																$ 2

XML

Equity (Details 4) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Equity Instruments, Options, Nonvested Shares Roll-Forward
Non-vested shares, Beginning Balance	24,669	29,253
Non-vested shares, granted	2,000
Non-vested shares, excercised	(184)
Non-vested shares, forfeited, or expired	(7,089)
Non-vested shares, vested	(6,872)
Stock Options Outstanding, Ending Balance		29,253
Weighted Average Grant Date Fair Value, Options Nonvested at beginning of period	$ 0.04	$ 0.05
Weighted Average Grant Date Fair Value, Options nonvested, grants in period	$ 0.06
Weighted Average Grant Date Fair Value, Options nonvested, excercised in period	$ 0.05
Weighted Average Grant Date Fair Value, Options nonvested, forfeited in period	$ 0.14
Weighted Average Grant Date Fair Value, Options nonvested, vested in period	$ 0.06
Weighted Average Grant Date Fair Value, Options nonvested at end of period		$ 0.05

XML

Equity (Tables)

9 Months Ended

Sep. 30, 2012

Stockholders' Equity [Abstract]

Key assumptions for fair value calculation, stock options

	Nine months Ended September 30, 2012	Nine months Ended September 30, 2011
Risk free interest rate	0.62% - 5.11%	1.12% - 5.11%
Expected life (years)	2.82 - 7.00	2.82 - 7.00
Expected volatility	91.99% - 180.36%	91.99% - 147.41%
Expected dividends	None	None

Allocation of stock-based compensation expense related to stock option grants

	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Research and development	$ 45	$ 78	$ 166	$ 284
Sales and marketing	27	37	70	128
General and administrative	30	70	117	129
Director options	7	22	23	72
Stock-based compensation expense	$ 109	$ 207	$ 376	$ 613

Summary of option activity

Options	September 30, 2012
	Shares (000)	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1,	51,353	$0.09		4,449
Granted	2,000	$0.06		$ 120
Exercised	(184)	$0.07		$ 2
Forfeited or expired	(7,089)	$0.26		$ 1,830
Outstanding at September 30	46,080	$0.06	5.38	$ 2,727
Vested and expected to vest at September 30	46,080	$0.06	5.38	$ 2,727
Exercisable at September 30	21,411	$0.07	4.96	$ 1,603

Summary of the significant ranges of outstanding and exercisable options

Range of Exercise Prices	As of September 30, 2012
	Options Outstanding			Options Exercisable
	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price	Number Outstanding	Weighted Average Exercise Price
$0.02 - $0.50	45,604	5.4	$0.05	20,935	$0.06
0.51 - 1.00	464	0.3	$0.75	464	$0.75
1.01 - 2.00	12	0.5	$1.75	12	$1.75
	46,080	5.4	$0.06	21,411	$0.07

Summary of the status of the Company's non-vested shares

Nonvested Shares	Shares	Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2012	36,814	$0.04
Granted	2,000	$0.06
Exercised	(184)	$0.05
Forfeited	(7,089)	$0.14
Vested	(6,872)	$0.06
Non-vested at September 30, 2012	24,669	$0.04

Summary of the warrants issued

	September 30, 2012		December 31, 2011
	Warrants	Weighted Average Exercise Price	Warrants	Weighted Average Exercise Price
Outstanding at beginning of period	182,644	$ 0.0261	135,131	$ 0.0274
Issued	5,349	$ 0.0500	59,735	$ 0.0064
Exercised	(35,162)	$ 0.0264	(12,222)	$ 0.0225
Expired	(3,000)	$ 0.0433	-	-
Outstanding at end of period	149,831	$ 0.0254	182,644	$ 0.0261
Exercisable at end of period	149,831	$ 0.0254	182,644	$ 0.0261

Status of the warrants outstanding

Number of Warrants Outstanding and Exercisable	September 30, 2012
	Weighted Average Remaining Life	Weighted Average Exercise Price Per Share
14,073	0.71	0.0433
130,409	1.30	0.0225
5,349	2.83	0.0500
149,891	1.24	0.0254