Communication Intelligence Corporation -- 1998 Year End Results; 1999 Objectives.

REDWOOD SHORES, Calif.--(BUSINESS WIRE)--March 31, 1999-- Communication Intelligence Corporation (Nasdaq:CICI)("CIC" or the "Company") today announced its financial results for the fourth quarter and the year ended December 31, 1998 and announced certain 1999 objectives.

CIC is pleased to announce that the transition from a combined hardware and software company to a company focused primarily on software has contributed to real growth of software sales in 1998. This change in strategy in the fourth quarter of 1997 enabled the Company to eliminate expenses related to hardware products and direct retail sales including the sales force, advertising, sales promotions, manufacturing, distribution, inventory and customer support, reducing overall 1998 operating expenses by approximately $5.4 million, approximately 50 percent of 1997 levels. The Company believes this transition did not adversely affect the Company's ability to produce revenues, pursue important new markets, or continue to develop new technology and improve existing technology. In 1998, the Company's OEM revenues from actual product shipments (new sales versus the recognition of past years' deferred revenue) almost doubled as compared to 1997. Consumer sales of the Company's software sold over the Internet, via CIC's Web site, increased approximately 900 percent in 1998 versus 1997. The majority of this increase in Internet-based consumer sales occurred in the fourth quarter of 1998, driven largely by direct mail campaigns that the Company plans to continue throughout 1999. The Company's Joint Venture in China, CICC, increased revenues more than 25 percent in 1998 over 1997 amounts.

Revenues for the year ended December 31, 1998 were $4.6 million, down from $5.5 million for the prior year. However, 1997 revenues included $2.0 million in discontinued retail hardware products sales in comparison with $0.7 million in 1998. The 1998 net loss was $3.6 million, or $0.06 per share on 56.2 million weighted average common shares, as compared to a net loss of $16.9 million, or $0.37 per share on 45.4 million weighted average common shares, in 1997. Of the 1997 net loss of $16.9 million, $4.9 million, or 29 percent, represented a one-time, non-cash charge related to the embedded yield on the Company's Series A Convertible Preferred Stock issued in December 1996 due to the discounted conversion provision of such stock and the cumulative dividends related thereto (refer to January 9, 1998 press release).

The Company's total operating costs and expenses were $7.8 million, including cost of sales, in 1998 as compared to $17.1 million in 1997. Approximately $1.9 million, or 11 percent, of the 1997 operating costs represented one-time, non-recurring expenses related to write-offs of hardware inventory and product related prepaid license fees with respect to certain hardware technologies. These write-offs were in connection with the changes in the Company's business strategy implemented in the fourth quarter of 1997, which moved the Company from a combined hardware-software business to a business primarily focused on software.

The Company's domestic business strategy involves a three-pronged thrust: (1) accelerate sales growth through original equipment manufacturers (OEM's), primarily handheld organizers and cellular Smartphone manufacturers; (2) accelerate the sale of aftermarket consumer software offerings over the Internet via the Company's Web site and selected on-line resellers; and (3) establish sustainable sales growth with enterprises by leveraging CIC technologies which enable server-side pen solutions through a distributed network architecture. This business strategy is intended to provide improved cash flows from advance payments on non-recurring engineering fees and licenses from OEM's together with a significantly shorter turnaround on receivables related to the aftermarket Web site sales.

Revenues for the fourth quarter ended December 31, 1998 were $0.9 million, down from $1.5 million in the comparable quarter of the prior year. The net loss for the fourth quarter of 1998 was $0.9 million compared to a net loss of $5.0 million in the corresponding quarter of the prior year. As stated in the earlier discussion of the annual operating expenses for 1997, fourth quarter 1997 operating expenses, including cost of sales, were significantly affected by one-time, non-recurring expenses relating to changes in the business focus in that quarter, such as write-offs of hardware inventory and prepaid product related license fees with respect to certain hardware technologies. These one-time charges represented approximately $1.9 million, or 38 percent, of the fourth quarter 1997 net loss. The net loss per share for the fourth quarter of 1998 was $0.01 on 70.9 million weighted average common shares compared to a per share net loss of $0.11 on 46.8 million weighted average common shares for the same quarter of the previous year.

CIC's president, Guido DiGregorio stated, "I am pleased that our base costs have been dramatically reduced and the Company's expenses continue to be carefully managed. This affords CIC the stability to benefit from newly implemented strategies that position the Company for increased sales and profitable growth. The real growth achieved during 1998 from OEM licensing and Internet-based consumer sales, provides the foundation for a continuous flow of revenues in 1999. I anticipate that enterprise sales will contribute notable sales growth this year as well, with new server-side solutions that pen enable the Citrix thin-client environment."

Certain statements contained in this press release may constitute "forward-looking" statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known or unknown risks, uncertainties and other factors which may cause actual Company or industry results to differ materially from such expectations. Such factors include the following: (1) technological, engineering, manufacturing, quality control, or other problems which could delay the commercial sale or shipment of the Company's products; (2) economic, business and competitive conditions in the software industry and technological innovations which affect the Company's products; and (3) the Company's inability to protect its trade secrets, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company.

Selected financial information follows.

The Company

Communication Intelligence Corporation (CIC) is a leading supplier of pen enabling software solutions. The Company's core software technologies include multilingual handwriting recognition systems, dynamic signature verification, ink compression, and operating system extensions that enable pen input. CIC's products are designed to increase the ease of use, functionality, and security of mobile electronic devices ranging from PC peripherals to cellular phones. The Company's Jot(R) handwriting recognition system is currently licensed by Microsoft and ships with every Palm-size PC as the standard recognizer. Key licensees of the Company's technologies include Ericsson, Fujitsu, Hitachi, Microsoft, Mitsubishi and Nortel. CIC is headquartered in Redwood Shores and has a subsidiary, CICC, in Nanjing, China. CIC is listed by Nasdaq as "CICI." For more information about CIC and its products please visit our Web site at http://www.cic.com.

CIC, the CIC logo, and Jot, are registered trademarks of Communication Intelligence Corporation. All other trademarks and registered trademarks are the property of their respective holders.

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                COMMUNICATION INTELLIGENCE CORPORATION
       Selected Consolidated Statement of Operations Information
               (In thousands, except per share amounts)

                      Fourth Quarter ended           Year ended
                          (unaudited)
                      12/31/98     12/31/97     12/31/98     12/31/97

Revenue (1)           $   899     $  1,546     $  4,581     $   5,516
Net loss (2)          $  (873)    $ (4,951)    $ (3,592)    $ (16,940)
Basic and diluted
 net loss per
 common share         $ (0.01)    $  (0.11)    $  (0.06)    $   (0.37)
Weighted average
 common shares
 outstanding           70,876       46,834       56,233        45,370


            Selected Consolidated Balance Sheet Information
                            (In thousands)
                                            12/31/98         12/31/97

Cash & cash equivalents                    $    795         $   5,485
Total current assets                          2,368             6,215
Total assets                                  3,354             7,491
Deferred revenue (3)                            651               440
Total current liabilities (4)                 2,022             3,494
Stockholders' equity                          1,332             3,989

NOTES:

(1) For the fourth quarter ended 12/31/98 and 12/31/97, revenues included $192 and $370, respectively, from discontinued retail hardware products. For the year ended 12/31/98 and 12/31/97, respectively, revenues included $748 and $1,955 from discontinued retail hardware products. In addition, revenues include recognition of past years deferred revenues of $519 in the fourth quarter of 1997, and $404 and $1,643 for the year ended December 31, 1998 and 1997 respectively.

(2) Net loss for 1998 includes $435 of cumulative dividends related to the Company's Series A and Series B Convertible Preferred Stock. Net loss for 1997 includes a $4.9 million one-time, non-cash charge related to the embedded yield on the Company's Series A Convertible Preferred Stock issued in December 1996 due to the discounted conversion provision of such stock and the cumulative dividends related thereto (refer to January 9, 1998 press release).

(3) Deferred revenue consists principally of advance royalty and non-recurring engineering payments from licensees

(4) Includes deferred revenue