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



                                    FORM 10-Q/A


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

For the quarterly period ended:     September 30, 1997
                                   -------------------

                                       OR

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

For the transition period from _____________ to ______________

                         Commission File Number: 0-19301


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

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

               275 Shoreline Drive, Suite 520, Redwood Shores, CA
                   94065-1413 (Address of principal executive
                               offices) (Zip Code)

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

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

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


Number of shares  outstanding of the Issuer's  Common Stock,  as of November,  7
1997: 47,057,433

This Quarterly Report on Form 10-Q/A contains 19 pages of which
this is page 1.



<PAGE>


                     COMMUNICATION INTELLIGENCE CORPORATION
                                    FORM 10-Q/A


                                      INDEX



PART I.  FINANCIAL INFORMATION


Item 1.  Financial Statements                                           Page No.

   Condensed Consolidated Balance Sheets at September 30, 1997 (unaudited)
   and December 31, 1996.....................................................3

   Condensed Consolidated  Statements of Operations  for the three and nine
   month  periods ended  September 30, 1997 and 1996  (unaudited)............4

   Condensed Consolidated  Statements  of Cash  Flows  for the  nine  month
   periods ended September 30, 1997 and 1996(unaudited)......................5

   Notes to Condensed Consolidated Financial Statements(unaudited)...........6


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

PART II.  OTHER INFORMATION

   Item 6.  Exhibits and Reports on Form 8-K

            (a)      Exhibits...............................................18

            (b)      Reports on Form 8-K....................................18

   Signatures...............................................................19




<PAGE>




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

<TABLE>
<CAPTION>
                                                September 30,      December 31,
                                                    1997               1996
Assets                                           (Unaudited)
                                                  ------------     -----------
Current assets:                                   (Restated) 
<S>                                                 <C>             <C>      
     Cash and cash equivalents                      $  1,392        $  10,573
     Short-term investments                              703              752
     Accounts receivable, net                            515              376
     Inventories                                       1,413              529
     Other current assets                                400              190
                                                  ------------     -----------
         Total current assets                          4,423           12,420

Notes receivable from officers and employees             360              210
Property and equipment, net                              994              537
Other assets                                             313              336
                                                  ------------     -----------

         Total assets                               $  6,090        $  13,503
                                                  ============     ===========

Liabilities and stockholders' equity Current liabilities:
     Accounts payable                               $    917        $     367
     Accrued compensation                                492              339
     Short-term debt                                      83                -
     Other accrued liabilities                           719              578
     Deferred revenue                                    973            2,006
     Pre-petition liabilities                              -              878
                                                  ------------      ----------
         Total current liabilities                     3,184            4,168

Redeemable convertible preferred stock (Note 5)            -            9,417
Convertible preferred stock (Note 5)                       4                -
Common stock                                             449              419
Additional paid-in capital                            64,093           54,015
Accumulated deficit                                  (61,537)         (54,347)
Cumulative foreign currency translation adjustment      (103)            (169)
Commitments (Note 5)
                                                  ------------      ----------

Total liabilities, redeemable securities,
convertible preferred and common
stockholders' equity (Note 5)                       $  6,090         $ 13,503
                                                  ============     ===========
</TABLE>


<PAGE>


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

<TABLE>
<CAPTION>
                                      Three Months Ended    Nine Months Ended
                                         September 30,        September 30,
                                      --------------------   ------------------
                                         1997       1996       1997       1996
                                      ---------  --------    -------   --------
Revenues:                             (Restated)            (Restated)
<S>                                     <C>        <C>      <C>        <C>    
  Product                               $  576     $ 433    $ 2,336    $ 1,317
  License and royalty                      623       252      1,213        545
  Development contracts                    176        69        421        209
                                       --------  --------   --------   --------

           Total revenues                1,375       754      3,970      2,071

Operating costs and expenses:
  Cost of sales:
     Product                               358       351      1,779      1,038
     License, royalty and other costs      260        95        679        309
     Development contracts                 159       107        340        247
  Research and development                 585       389      1,656      1,176
  Sales and marketing                    1,723       833      4,703      2,350
  General and administrative               544       454      1,663      1,483
                                       --------  --------   --------   --------

        Total operating costs
            and expenses                 3,629     2,229     10,820      6,603
                                       --------  --------   --------   --------

Loss from operations                    (2,254)   (1,475)    (6,850)    (4,532)

Interest income and other income
  (expense) net, (Note 5)                   56        78       (312)       233

Interest expense                            (7)      (25)       (28)      (122)
                                       --------  --------   --------   --------

        Net loss ...................    (2,205)   (1,422)    (7,190)    (4,421)

         Embedded yield on
            preferred stock .........       --        --     (4,376)        --

         Preferred stock dividend ...     (141)       --       (423)        --
                                       --------   --------   --------   --------

         Net loss applicable to
            common stockholders ..... $ (2,346)  $ (1,422) $(11,989)   $(4,421)
                                       ========   ========  =========   ========
      Net loss per common share       $  (0.05)  $ (0.03)  $  (0.27)   $ (0.11)
                                       ========  ========   ========   ========

      Weighted average common
           shares outstanding           45,200    41,951     44,876     41,011
                                       ========  ========   ========   ========
</TABLE>



<PAGE>


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

<TABLE>
<CAPTION>
                                                          Nine Months Ended
                                                             September 30,
                                                      -------------------------
                                                           1997          1996
                                                      ----------     ----------
Cash flows used in operating activities:              (Restated)
<S>                                                    <C>          <C>       
Net loss                                               $ (7,190)    $  (4,421)
Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization                          183           271
     Warrant issuance                                       484             -
     Stock options issued for services                       74             -
     Changes in operating assets and liabilities:
         Accounts receivable                               (139)          (56)
         Inventories                                       (892)         (442)
         Other current assets                              (210)           (5)
         Other assets                                      (234)           36
         Accounts payable and accrued compensation          672          (390)
         Other accrued liabilities                         (272)         (193)
         Deferred revenue                                (1,033)         (182)
         Pre-petition liabilities                          (878)         (719)
                                                       ----------    ----------

         Net cash used in operating activities           (9,435)       (6,101)
                                                       ----------    ----------

Cash flows used in investing activities:
     Proceeds from sale of short-term investments         7,071        11,385
     Purchase of short-term investments                  (7,022)      (12,650)
     Acquisition of property and equipment                 (584)         (225)
                                                       ----------    ----------

     Net cash used in investing activities                 (535)       (1,490)
                                                       ----------    ----------

Cash flows from financing activities:
     Principal payments on short-term debt                  (26)          (30)
     Principal payments on capital lease obligations        (17)          (26)
     Proceeds from issuance of short-term debt              109           140
     Proceeds from issuance of common stock                 772         3,240
                                                       ----------    ----------

         Net cash provided by financing activities          838         3,324
                                                       ----------    ----------

Effect of exchange rate changes on cash                     (49)          (59)
                                                       ----------    ----------

Net decrease in cash and cash equivalents                (9,181)       (4,326)
Cash and cash equivalents at beginning of period         10,573         5,924
                                                       ----------    ----------

Cash and cash equivalents at end of period             $  1,392      $  1,598
                                                       ==========    ==========
</TABLE>




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

                                                       Nine Months Ended
                                                         September 30,
                                                     ----------------------
                                                        1997        1996
                                                     ---------    ---------
Schedule of non-cash transactions:                   (Restated)
<S>                                                  <C>          <C>
  Embedded yield on preferred stock                  $  (4,376)   $       -
                                                      =========    =========

  Preferred stock dividend                           $    (423)   $       -
                                                      =========    =========

  Reclassification of current note receivable from
  officer to non-current                             $       -    $     210
                                                      =========    =========
</TABLE>



<PAGE>


                     COMMUNICATION INTELLIGENCE CORPORATION
                                 AND SUBSIDIARY
                         NOTES TO CONDENSED CONSOLIDATED
                        FINANCIAL STATEMENTS (UNAUDITED)
                                    FORM 10-Q/A

1.   Interim financial statements

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

     The corporate  mission of CIC is to develop and market natural,  pen input,
     computer interfaces and handwriting recognition-based security technologies
     and products to satisfy the emerging  markets for  pen-based  computing and
     electronic  commerce.  These emerging markets include all areas of personal
     computing as well as electronic commerce and communications.

     The  Company's  research  and  development  activities  have  given rise to
     numerous  technologies  and products  including:  two  pen-based  operating
     environments  (PenDOS(R) and PenMAC(R)),  its  multi-lingual  Handwriter(R)
     Recognition System, and three desktop computing products, Handwriter(R) for
     Windows(R),  MacHandwriter(R),  and  its  recently  released  Handwriter(R)
     Manta(R).  Additionally,  CIC has developed  products for dynamic signature
     verification,  electronic ink data  compression,  encryption and a suite of
     development  tools  and  applications  which  the  Company  believes  could
     increase the  functionality of its core products and could facilitate their
     integration  into  original  equipment   manufacturers'   ("OEM")  hardware
     products and computer systems and networks.

     In June 1997, the Company  contributed  licensed technology and $900,000 in
     cash to the Company's joint venture in the People's  Republic of China (the
     "Joint Venture"),  Communication  Intelligence Computer  Corporation,  Ltd.
     ("CICC"), which increased the Company's ownership of CICC from 79% to 90%.

     For the nine months ended  September 30, 1997,  the Company's cash and cash
     equivalents  decreased  by  approximately  $9,181,000,  from  approximately
     $10,573,000 at the beginning of the period to approximately  $1,392,000 due
     primarily  to  a  cash  used  in  operating   activities  of  approximately
     $9,435,000  for the nine months ended  September  30, 1997. As of September
     30, 1997, the Company's cash, cash  equivalents and short-term  investments
     was $2,095,000.  Although there is no assurance,  the Company believes that
     the above mentioned funds,  are adequate to meet projected  working capital
     and  other  cash  requirements  for the next two  months.  The  Company  is
     currently seeking to raise additional funds from financing sources in order
     to meet its short-term  requirements  and expects to consummate a financing
     in November 1997. There can be no assurance that such financing will close,
     or if the financing  does close,  that such  financing will be on favorable
     terms.

     This financial information should be read in conjunction with the Company's
     audited financial statements included in its Annual Report on Form 10-K for
     the year ended December 31, 1996.

     Certain prior period amounts in the accompanying  financial statements have
     been reclassified to conform with the current period presentation.

     The Company's  Form 10-Q for the quarter ended  September 30, 1997 has been
     restated  to reflect  the  non-cash  charge for the  embedded  yield on the
     convertible  preferred  stock  resulting  from  the  discounted  conversion
     feature  provided on such stock and the  cumulative  dividends of $1.25 per
     share , per annum, on outstanding  shares of convertible  preferred  stock.
     The Company  believes the  restatement  of the September 30, 1997 three and
     six month results are in accordance  with the  accounting  treatment of the
     embedded  discount  on  convertible  preferred  stock as  announced  by the
     Securities  and  Exchange  Commission  at the March 13, 1997 meeting of the
     Financial  Accounting  Standards  Board's  Emerging Issues Task Force.  The
     effect of this restatement on the results of operations originally reported
     in the  Company's  Form 10-Q for the three months ended  September 30, 1997
     was an  increase  in the net loss  applicable  to  common  stockholders  of
     $141,000 from $2,205,000 to $2,346,000.  This had no effect on the net loss
     per common share for the three months ended  September  30, 1997 The effect
     of this restatement on the results of operations originally reported in the
     Company's  Form 10-Q for the nine months  ended  September  30, 1997 was an
     increase in the net loss  applicable to common  stockholders  of $4,799,000
     from $7,190,000 to $11,989,000 and an increase in net loss per common share
     of  $0.11  from  $0.16 to  $0.27.  The  restatement  has no  effect  on the
     Company's cash position at September 30, 1997.

2.   Cash, cash equivalents and short-term investments

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

     Short-term  investments  are  classified  as  "available-for-sale"  and are
     stated at their fair value.  Any unrealized gains or losses are reported as
     a separate component of stockholders'  equity,  but, to date, have not been
     significant.  The  cost of  securities  sold  is  determined  based  on the
     specific identification method.

     Cash and cash equivalents consist of the following:

<TABLE>
<CAPTION>
                                        September 30,         December 31,
                                             1997                 1996
                                     --------------------- -------------------
                                                   (In Thousands)

<S>                                     <C>                   <C>        
          Cash in bank                  $     1,387           $     9,483
          Commercial paper                        -                 1,088
          Money markets                           5                     2
                                        ------------          ------------
                                        $     1,392           $    10,573
                                        ============          ============

     Short-term   investments   consist  of  the  following   available-for-sale
     securities:

                                        September 30,         December 31,
                                             1997                 1996
                                     --------------------- -------------------
                                                    (In Thousands)

           U.S. Corporate securities    $      703            $      252
           Other debt securities                 -                   500

                                        -----------           -----------
                                        $      703            $      752
                                        ===========           ===========
</TABLE>

     Corporate  debt  securities  at September  30, 1997 mature in less than one
     year.

3.   Inventories

     Inventories  are  stated  at the  lower of cost  (first-in,  first-out)  or
     market. At September 30, 1997, inventory is comprised primarily of finished
     goods.

4.   Short-term debt

     In May 1997, the Company  purchased  office furniture and a security system
     with an approximate  value of $209,000 from a third party. The Company paid
     $100,000 in cash and signed an  unsecured  note for $109,000 due in monthly
     installments  through  May 1998.  The note  bears  interest  on the  unpaid
     balance at a rate of 10% per annum.


5.   Convertible preferred stock

     On December 31, 1996, the Company  completed a private placement of 450,000
     shares of redeemable  convertible  preferred  stock (the "December  Private
     Placement")  at  $25.00  per  share  to  certain  institutional  and  other
     investors.   Of  the  aggregate  450,000  shares  sold,  70,200  shares  of
     redeemable  convertible preferred stock (the "Preferred Stock") were issued
     to  investors in exchange for 390,000  shares of common  stock,  originally
     issued by the Company in a private placement of common stock consummated in
     June 1996.

     The holders of the  convertible  preferred  stock may convert  their shares
     into shares of Common Stock at between 72% and 85% of the effective  market
     price  of the  Common  Stock  at the date of  conversion.  The  convertible
     preferred  stock  became  convertible  by the holders into shares of Common
     Stock beginning July 1, 1997.

     The  convertible  preferred  stock entitles the holders  thereof to receive
     cumulative  dividends  on each  shares  are the rate of $1.25 per share per
     annum,  compounded  semi-annually,  when payable,  whether or not declared.
     Dividends may be paid at the Company's option in cash or additional  shares
     of convertible preferred stock.

     The Company agreed to register the common stock issuable upon conversion of
     the Preferred Stock by filing a Registration Statement on Form S-3 by March
     31, 1997 and by using its best efforts to cause such Registration Statement
     to be  declared  effective  within  180 days from  December  31,  1996 (the
     "Declaration  Date"). In the event that the Registration  Statement was not
     declared  effective within 180 days from December 31, 1996, the Company was
     required to pay to each holder a default payment (the "Default Payment") in
     an amount equal to 3% of the liquidation preference for the Preferred Stock
     held for any part of each 30-day period  subsequent to the Declaration Date
     that  the   Registration   Statement  was  not  declared   effective.   The
     Registration  Statement  was  declared  effective  in April 1997. A similar
     Default Payment must be made by the Company to the holders of the Preferred
     Stock in the event  that (i) the  Company  fails,  refuses  or is unable to
     cause the securities covered by the Registration  Statement to be listed on
     the  exchange  on which the  Company's  common  stock is  traded,  (ii) any
     holder's  ability  to  sell  the  securities  covered  by the  Registration
     Statement  is  suspended  for more than 60 days,  or at any time during the
     twelfth or thirteenth  fiscal month  following  December 31, 1996, or (iii)
     the Company  does not have a  sufficient  number of shares of common  stock
     available to effect  conversion of the Preferred Stock. The Company has not
     been liable for any payments through September 30, 1997.

     On  March  28,  1997,  and  effective  as of  December  31,  1996,  holders
     constituting 100% of the issued and outstanding  Preferred Stock executed a
     waiver to certain  provisions of the  Registration  Rights  Agreement  (the
     "Agreement")   entered  into  in  connection  with  the  December   Private
     Placement,  which irrevocably waived such holders' rights to any redemption
     of the  preferred  stock,  and in exchange  therefor  the holders  received
     300,000 warrants to purchase the Company's common stock,  allocated amongst
     the holders on a pro-rata  basis.  The warrants  expire five years from the
     date of issuance and have an exercise price of $2.00 per share,  subject to
     adjustments for  antidilution.  The Company ascribed a value of $484,000 to
     these warrants, which was recorded as an expense in the Company's statement
     of operations for the quarter ended March 31, 1997. The fair value ascribed
     to  the  warrants  was  estimated  on  the  date  of  issuance   using  the
     Black-Scholes  pricing  model  with the  following  assumptions:  risk-free
     interest rate of 6.60%;  expected life of 5 years;  expected  volatility of
     104%;  and expected  dividend  yield of 0%. As a result of the waiver,  the
     shares of Preferred Stock were reclassified as convertible  preferred stock
     after December 31, 1996 and, as such, are included in stockholders'  equity
     for such periods subsequent to December 31, 1996.

     During the quarter ending September 30, 1997,  27,600 shares of convertible
     preferred  stock were exchanged for 699,465 shares of the Company's  Common
     Stock.

  6. Recent accounting pronouncements

     In February 1997, the Financial Accounting Standards Board issued Statement
     of Financial  Accounting  Standards  No. 128,  "Earnings  per Share".  This
     Statement is effective for the Company's year ending  December 31, 1997 and
     redefines   earnings  per  share  under   generally   accepted   accounting
     principles.  Under the new standard, primary earnings per share is replaced
     by basic  earnings  per  share  and  fully  diluted  earnings  per share is
     replaced with diluted  earnings per share.  If the Company had adopted this
     statement for the quarter and nine months ended  September 30, 1997 and for
     the  comparable  periods in the prior year,  the  Company's  loss per share
     would have been as follows:

<TABLE>
<CAPTION>
                                 Three Months Ended    Nine Months Ended
                                    September 30,        September 30,
                                 ------------------    -----------------
                                   1997      1996        1997      1996
                                 ------------------    -----------------
                                (Restated)            (Restated)
<S>                              <C>       <C>         <C>       <C>    
      Basic loss per share       $(0.05)   $(0.03)     $(0.27)   $(0.11)
      Diluted loss per share     $(0.05)   $(0.03)     $(0.27)   $(0.11)
</TABLE>


     In June 1997, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting Standards No. 130, "Reporting  Comprehensive  Income"
     ("SFAS  130").  SFAS  130  establishes   standards  for  the  reporting  of
     comprehensive  income and its  components in a full set of  general-purpose
     financial  statements  for  periods  beginning  after  December  15,  1997.
     Reclassification   of  financial   statements   for  earlier   periods  for
     comparative  purposes is required.  The Company will adopt SFAS 130 in 1998
     and  does  not  expect  such  adoption  to have a  material  effect  on its
     consolidated financial statements.

     In June 1997, the Financial  Accounting Standards Board issued Statement of
     Financial Accounting  Standards No. 131,  "Disclosures About Segments of An
     Enterprise  and  Related   Information"  ("SFAS  131").  SFAS  131  revises
     information  regarding the reporting of operating  segments and is required
     to be  adopted  in periods  beginning  after  December  15,  1997.  It also
     establishes  standards for related disclosures about products and services,
     geographic  areas and major  customers.  The Company will adopt SFAS 131 in
     1998 and does not expect  such  adoption  to have a material  effect on its
     consolidated financial statements.

     In October  1997,  the  Accounting  Standards  Executive  Committee  of The
     American  Institute of Certified  Public  Accountants  issued  Statement of
     Practice  97-2  "Software  Revenue  Recognition"  ("SOP  97-2").  SOP  97-2
     provides  guidance  on  generally   accepted   accounting   principles  for
     recognition  of revenue on software  transactions.  This SOP supersedes SOP
     91-1 and is effective for fiscal years  beginning  after December 15, 1997.
     The Company  will adopt SOP 97-2 in 1998 and does not expect such  adoption
     to have a material effect on its consolidated financial statements.


7.   Subsequent event

     On  October  16,  1997  the  Company  entered  into an  Account  Receivable
     Financing Agreement whereby the Company may factor its Accounts Receivable.
     The  maximum  credit  available  to the  Company  under  the  agreement  is
     $1,500,000 with an advance rate of 80% of eligible accounts receivable less
     than 90 days old. The term of the  agreement  is twelve  months with annual
     renewals.  A  financing  fee of 2.5% per month  applies to the  outstanding
     balance  based on the face  value of each  invoice.  The line of  credit is
     secured by a blanket  first  priority  lien on all Company  assets with the
     exception of intellectual property. As of November 7, 1997, the Company had
     financed approximately $396,000 of accounts receivable under this agreement
     and has  approximately  $1,100,000 of additional  financings  available for
     future use.



<PAGE>

                     COMMUNICATION INTELLIGENCE CORPORATION
                                 AND SUBSIDIARY
                                    FORM 10-Q/A

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

     The Company has restated the previously  issued  financial  results for the
     three and nine months ended  September 30, 1997.  The  Company's  financial
     results have been restated to reflect the non-cash  charge for the embedded
     yield on convertible preferred stock resulting from the discount conversion
     feature provided on such stock and cumulative  dividends on the convertible
     preferred  stock. The Company beleives the restatement of the September 30,
     1997 three and nine  month  results is in  accordance  with the  accounting
     treatment  of the  embedded  discount  on  convertible  preferred  stock as
     announced by the Securities  and Exchange  Commission at the March 13, 1997
     meeting of the Financial  Accounting Standards Board's Emerging Issues Task
     Force. The following  discussion and analysis should be read in conjunction
     with the unaudited condensed  consolidated  financial  statements and notes
     thereto  included in Part I- Item 1 of this Form  10-Q/A and  "Management's
     Discussion  and Analysis of Financial  Condition and Results of Operations"
     set forth in the  Company's  1996 Annual Report on Form 10-K for the fiscal
     year ended December 31, 1997.

Results of Operations

Revenues.  Revenues  for the three and nine  months  ended  September  30,  1997
increased by 82% and 92%, respectively, from the comparable three and nine month
periods of the prior year to $1,375,000 and $3,970,000,  respectively.  Revenues
are  comprised  of product  sales,  license and royalty  fees,  and  development
contract revenues. The increases are principally due to higher product sales and
license and royalty fees as discussed in more detail below.

<TABLE>
<CAPTION>
                            Three Months Ended        Nine Months Ended
                               September 30,             September 30,
                            -------------------       ------------------
                                           (In Thousands)
                              1997         1996          1997         1996
                            --------     --------      --------     --------
Revenues:
<S>                         <C>          <C>           <C>          <C>     
 Product sales              $   576      $   433       $  2,336     $  1,317
 License and royalty fees       623          252          1,213          545
 Development contracts          176           69            421          209
                            --------     --------      --------     --------

       Total Revenues       $ 1,375      $   754       $  3,970     $  2,071
                            ========     ========      ========     ========
</TABLE>

Product sales increased to $576,000 and $2,336,000,  respectively, for the three
and nine month  periods ended  September 30, 1997 from $433,000 and  $1,317,000,
respectively,  in the  comparable  prior year  periods.  This  increase  was due
primarily to introduction of Handwriter products into the retail channel through
CompUSA in 1997 and an increase in  Handwriter  sales to the  corporate  market.
Handwriter  product sales increased  $287,000 and $1,168,000,  respectively,  to
$337,000 and $1,406,000,  respectively,  during the three and nine month periods
ended September 30, 1997 compared to $50,000 and $238,000,  respectively, in the
comparable  periods in 1996.  Product  sales by the  Company's  90% owned  Joint
Venture were $241,000 and $930,000,  respectively,  for the three and nine month
periods  ended   September  30,  1997  compared  to  $382,000  and   $1,079,000,
respectively, during the same periods last year.

Revenues  from  license  and royalty  fees for the three and nine month  periods
ended  September 30, 1997  increased to $623,000 and  $1,213,000,  respectively,
from $252,000 and $545,000,  respectively,  in the  comparable  prior periods in
1996.  This  increase  was due to the  release of deferred  royalty  revenues of
approximately $519,000 and $902,000,  respectively, for the three and nine month
periods ended September 30, 1997,  recognized on licensing  agreements for which
the  Company  had no  further  obligation  to  deliver  additional  software  or
services.  In the comparable prior year periods,  licensing and royalty revenues
of  approximately  $164,000  and  $250,000,  respectively,  were  recognized  on
licensing  agreements for which the Company had no further obligation to deliver
additional software or services.  Royalty revenues recognized on current product
shipments  by the  Company's  licensees  increased by 17% and 5% to $104,000 and
$311,000, respectively, for the three and nine month periods ended September 30,
1997 from  $88,000 and  $295,000,  respectively,  in the  comparable  prior year
periods..

Development  contract  revenues  for the  three  and nine  month  periods  ended
September  30,  1997   increased   155%  and  101%  to  $176,000  and  $421,000,
respectively,  compared to $69,000 and $209,000, respectively, in the comparable
prior year  periods.  This increase was primarily due to $98,000 and $174,000 in
development  contracts  revenues other than grant revenues  received  during the
three and nine  months  ended  September  30,  1997,  respectively,  compared to
$10,000 in development contract revenues other than grant revenues earned during
the nine  month  period of the prior  year.  Grant  revenues  from The  National
Science Foundation for basic research for the three and nine month periods ended
September 30, 1997 was $79,000 and $247,000,  respectively,  compared to $59,000
and $155,000,  respectively,  during the  comparable  periods of the prior year.
Grant  revenues  from the US  Government's  National  Institute of Standards and
Technology ("NIST") was $90,000 in 1996. The NIST grant expired in April 1996.

Cost of Sales.  Cost of sales  comprises  costs from product  sales,  licensing,
royalty and other costs and costs from  development  contracts.  Cost of product
sales for the three and nine months ended September 30, 1997, consists primarily
of cost of  materials,  approximately  $134,000 and $692,000,  respectively,  of
which is related to the hardware and software  components involved in the system
integration activities of the Joint Venture,  compared to approximately $291,000
and $858,000,  respectively,  in the  comparable  prior year  periods,  with the
remainder being related to costs of Handwriter product sales. Handwriter product
cost of materials was approximately $279,000 and $1,221,000,  respectively,  for
the three and nine months ended  September  30, 1997  compared to  approximately
$46,000 and $180,000,  respectively,  in the comparable prior year periods. This
increase in Handwriter  product cost of sales is due to the increase in sales of
the  Handwriter  products as mentioned  above.  Handwriter  product gross margin
increased to 17% during the three months ended September 30, 1997 from 8% in the
comparable  period of the prior year. This increase resulted from an increase in
sales of the Company's new higher margin  Handwriter Manta product by the retail
channel in the third  quarter of 1997.  The Manta  product was not  available in
quantity in 1996. For the nine month period ended September 30, 1997, Handwriter
products gross margin decreased to 13% from 24% in the comparable  period of the
prior  year.  The  decrease is due to the lower  selling  price  experienced  on
Handwriter  Classic products in the retail channel.  The Handwriter  Classic was
not sold in the Retail  Channel  during  1996.  Gross  margin on  product  sales
activities of the Joint Venture was 44% and 25%, respectively,  during the three
and nine months ended September 30, 1997 compared to 24% and 20%,  respectively,
in  the  prior  year.   License,   royalties  and  other  costs,  which  include
procurement,  warehousing, and related personnel in connection with sales of the
Company's products,  increased to $260,000 and $679,000,  respectively,  for the
three and nine months ended September 30, 1997 compared to $95,000 and $309,000,
respectively, for the comparable 1996 periods. This increase in License, royalty
and other costs for the three and nine months ended  September  30, 1997 related
primarily to additional  personnel costs of $70,000 and $188,000,  respectively,
and product  fulfillment and other costs of $90,000 and $215,000,  respectively,
in connection with the launch and ongoing support of the Company's Handwriter(R)
for  Windows(R)  product in the retail market in 1997.  There were no comparable
activities  in the prior year.  Costs  incurred in connection  with  development
contract  revenue are expensed as incurred and  increased 49% and 38% during the
three and nine months ended September 30, 1997, respectively, as compared to the
comparable periods of the prior year, commensurate with the increase in contract
development revenues in 1997.

Research and  development.  Research and development  expenses for the three and
nine month periods ended September 30, 1997 increased by 50% and 41% to $585,000
and   $1,656,000,   respectively,   as  compared  to  $389,000  and  $1,176,000,
respectively,  in the  comparable  periods of the prior year. The increases were
primarily  attributable  to increases of  approximately  $155,000 and  $337,000,
respectively,   in  payroll  and  related  costs,   and  $30,000  and  $156,000,
respectively,  in professional services,  facilities and other costs compared to
the prior year. These increases are commensurate  with the increase in personnel
and the continued  development of the Chinese  recognizer and the development of
the Handwriter MX and Handwriter fx products  introduced into the retail channel
late in the third  quarter of the current year.  The Company did not  capitalize
any  software  development  costs in the  three  and nine  month  periods  ended
September 30, 1997 or 1996, respectively.

Sales and marketing.  Sales and marketing  expenses for the three and nine month
periods ended  September  30, 1997  increased  107% and 100% to  $1,723,000  and
$4,703,000,  respectively, as compared to $833,000 and $2,350,000, respectively,
in the comparable periods of the prior year. The increases were primarily due to
increases of $250,000  and $979,000  respectively,  in  advertising  and related
expenses,  and  $314,000  and  $666,000,  respectively,  in payroll  and related
expenses.  Other costs,  including  facilities and related expenses,  consulting
services and other costs increased $326,000 and $708,000,  respectively,  during
the three and nine month periods  ended  September  30, 1997  commensurate  with
additions in staffing.  The increases in staffing and advertising  expenses were
primarily  due  to  the  introduction  and  ongoing  support  of  the  Company's
Handwriter  products in the retail channel during 1997, and continued  marketing
and sales efforts in the corporate channel.

General and  administrative.  General and administrative  expenses for the three
and  nine  month  periods  ended  September  30,  1997  increased  20% and  12%,
respectively, to $544,000 and $1,663,000,  respectively, as compared to $454,000
and $1,483,000,  respectively,  in the comparable periods of the prior year. The
increases were primarily attributable to increases of approximately $100,000 and
$314,000,  respectively,  in  professional  fees  and  services  related  to the
Company's  financing  activities and related  obligations.  These increases were
partially  offset by  reductions  in payroll  and  related  costs of $57,000 and
$161,000, respectively,  during the three and nine month periods ended September
30, 1997 compared to the same periods in the prior year.  These  reductions were
associated with the transfers of general and  administrative  staff to sales and
marketing activities.

Interest  income and other income  (expense).  Interest  income and other income
(expense)  increased  for the nine months ended  September 30, 1997 due to a one
time non-cash charge to expense of $484,000 for 300,000 warrants issued on March
28, 1997, and effective as of December 31, 1996, to holders constituting 100% of
the issued and outstanding  redeemable  convertible  preferred stock in exchange
for the execution of a waiver to certain  provisions of the registration  rights
agreement  entered into in  connection  with the private  placement of Preferred
Stock in December 1996 (Note 5).

Interest  expense.  Interest  expense  decreased  for the three  and nine  month
periods  ended  September 30, 1997 compared to the prior year due to the pay-off
of the pre-petition liabilities in the first quarter of 1997.

Embedded yield on preferred stock. The embedded yield on preferred stock results
from the discount  feature  provided on conversion of the convertible  preferred
stock  into  Common  Stock.  The  embedded  yield  totaling  $4,376,000  will be
recognized  from the issuance date through July 1, 1997, the date upon which the
preferred  stock  became  convertible.

Preferred  stock dividend.  The preferred  stock dividend  relates to cumulative
dividends of $1.25 per share per annum, compounded semi-annually,  when payable,
whether or not declared, on the convertible preferred stock.

Liquidity and Capital Resources

At September 30, 1997, cash, cash equivalents and short-term investments totaled
$2,095,000  compared to cash,  cash  equivalents  and short-term  investments of
$11,325,000  at December 31, 1996.  This  decrease was  primarily  the result of
$9,435,000 used in operating  activities which included a net loss of $7,190,000
for the nine  months  ended  September  30,  1997.  Total  current  assets  were
$4,423,000 at September 30, 1997 compared to $12,420,000 at December 31, 1996.

Current  liabilities,   which  include  deferred  revenue,  were  $3,184,000  at
September 30, 1997.  Deferred revenue,  totaling $973,000 at September 30, 1997,
primarily  reflects   nonrefundable  advance  royalty  fees  received  from  the
Company's licensees which are generally  recognized as revenue by the Company in
the period in which licensees report that products  incorporating  the Company's
software have been shipped or for which the Company has no further obligation to
deliver  additional  software or services.  As such,  the period over which such
deferred revenue will be recognized as revenue is uncertain  because the Company
cannot  presently  determine  either the timing or volume of future shipments by
its licensees.

For the nine months  ended  September  30,  1997,  the  Company's  cash and cash
equivalents   decreased  by   approximately   $9,181,000,   from   approximately
$10,573,000  at the  beginning  of the period to  approximately  $1,392,000  due
primarily to a cash used in operating activities of approximately $9,435,000 for
the nine months  ended  September  30,  1997.  As of  September  30,  1997,  the
Company's  cash,  cash  equivalents  and short-term  investments was $2,095,000.
Although there is no assurance,  the Company  believes that the above  mentioned
funds,   are  adequate  to  meet  projected   working  capital  and  other  cash
requirements for the next two months.  The Company is currently seeking to raise
additional  funds  from  financing  sources  in  order  to meet  its  short-term
requirements  and expects to consummate a financing in November 1997.  There can
be no assurance that such financing will close,  or if the financing does close,
that such financing will be on favorable terms.

On October 16, 1997 the Company  entered  into an Account  Receivable  Financing
Agreement  whereby the Company may factor its Accounts  Receivable.  The maximum
credit  available  to the Company  under the  agreement  is  $1,500,000  with an
advance rate of 80% of eligible  accounts  receivable less than 90 days old. The
term of the agreement is twelve months with annual renewals.  A financing fee of
2.5% per month  applies to the  outstanding  balance  based on the face value of
each invoice.  The line of credit is secured by a blanket first priority lien on
all Company assets with the exception of intellectual  property.  As of November
7, 1997, the Company had financed  approximately $396,000 of accounts receivable
under this agreement and has  approximately.$1,100,000  of additional financings
available for future use.

In 1993,  the Company  formed the Joint  Venture with The Ministry of Electronic
Industries of Jiangsu  Province  (the  "Ministry")  of The People's  Republic of
China. The Joint Venture,  Communication Intelligence Computer Corporation, Ltd.
("CICC"),  is 90%  owned  by the  Company  at  September  30,  1997.  Under  the
provisions  of the joint  venture  agreement,  the  Company  may be  required to
contribute  up to $5.4  million in cash to the Joint  Venture and is required to
provide it with nonexclusive  licenses to technologies and certain  distribution
rights.  The  Ministry  is required to  contribute  certain  land use rights and
provide other services to the Joint  Venture.  During the second quarter of 1997
the Company  contributed  technology licenses and $900,000 in cash to CICC. This
contribution will help fund CICC's new Software Development Division,  which was
formed to create pencentric applications initially for the Chinese market. As of
September  30, 1997,  the Company had  contributed a total of $1,800,000 in cash
and had provided  non-exclusive  licenses to technology and certain distribution
rights,  while  the  Ministry  had  contributed  certain  land  use  rights  and
equipment.  There can be no assurance  that the Company will be able to fund the
balance of any required cash contributions to the Joint Venture,  that the Joint
Venture will be successful in developing or selling integrated  computer systems
or other Company products to the Chinese market or that the Company will realize
any significant benefits from its contributions to the Joint Venture.

Convertible  Preferred  Financing.  In December  1996,  the Company  completed a
private  placement of 450,000 shares of Preferred  Stock at $25.00 per share for
$11,250,000. In connection with the transaction, the Company received $9,495,000
in cash and accepted for  exchange,  in lieu of cash,  390,000  shares of Common
Stock for 70,200  shares of Preferred  Stock.  Each share of Preferred  Stock is
convertible  by the holder into shares of Common Stock at any time after July 1,
1997,  pursuant to a conversion formula based upon a discount from the effective
market  price of the  Common  Stock.  In  addition,  all  outstanding  shares of
Preferred  Stock  will  automatically  convert  into  shares of Common  Stock on
December 31, 1999, subject to the satisfaction of certain  conditions,  or later
under certain  circumstances.  There is no limitation on the number of shares of
Common  Stock that the Company may be required to issue in  connection  with the
Preferred Stock.

The exact number of shares of Common Stock  issuable  upon  conversion of all of
the outstanding  Preferred Stock cannot currently be determined but,  generally,
such issuance's of Common Stock will vary inversely with the market price of the
Common Stock.  On November 7, 1997,  the last reported sales price of the Common
Stock on the  Nasdaq  SmallCap  Market was $1.62.  per share.  If the  effective
market  price of the  Common  Stock on  November  7, 1997 of $1.48 per share (as
determined  pursuant to the terms of the Preferred Stock) were used to determine
the  number of  shares  of Common  Stock  issuable  upon the  conversion  of the
outstanding  Preferred Stock, the Company would be obligated to issue a total of
approximately  7,043,152  shares of Common Stock  assuming all of such currently
outstanding shares of Preferred Stock were converted at such time. To the extent
the effective market price per share of the Common Stock is lower or higher than
$ 1.48 as of any date on which  shares of  Preferred  Stock are  converted,  the
Company  would issue more or less shares of Common Stock than  reflected in such
estimate, and such difference could be material. As of November 7, 1997, a total
of 109,730  shares of Preferred  Stock have been converted in to an aggregate of
2,079,671  shares of the  Company's  Common  Stock and an  aggregate  of 340,270
shares of Preferred Stock were outstanding.

Restrictions in Investor Agreement.  In connection with the private placement in
December  1996,  the  Company  entered  into  an  investor  agreement  with  the
purchasers of the Preferred Stock (the "Investor Agreement"). Subject to certain
exceptions,  until the Restrictive Covenant Termination Date (as defined below),
the Investor  Agreement  prohibits or restricts  the Company  from,  among other
things,  declaring or paying dividends or making distributions to holders of the
Common Stock,  repurchasing any Common Stock or other equity junior or on parity
with the Preferred Stock,  authorizing or issuing other equity securities senior
to the Preferred Stock and incurring  indebtedness other than for trade payables
or a working capital facility not exceeding $10 million. In addition,  until the
Restrictive  Covenant  Termination Date, the Company is prohibited from offering
or selling debt,  shares of Common Stock or other equity  securities  (including
convertible  securities) other than in a bona-fide underwritten public offering,
or from obtaining any financing from a third party,  unless such transaction has
been  first  offered  to the  holders  of the  Convertible  Preferred.  The term
"Restrictive Covenant Termination Date" means, generally,  the date which is the
earlier of (a) January  31,  1998 or (b) the date on which all of the  Preferred
Stock has been converted.

Registration Rights; Default Payments. In connection with the Company's December
1996 private placement, the Company entered into a registration rights agreement
with the holders of the Preferred Stock (the  "Registration  Rights  Agreement")
pursuant to which the Company  agreed to file a  Registration  Statement on Form
S-3  relating to the shares of Common  Stock  issuable  upon  conversion  of the
Preferred Stock by March 31, 1997 (the "1997 Registration Statement") and to use
its  best  efforts  to cause  the 1997  Registration  Statement  to be  declared
effective  by June  29,  1997  (the  "Declaration  Date").  In April  1997,  the
Company's  1997  Registration  Statement on Form S-3 for the offering by selling
security  holders  of shares of Common  Stock  issuable  upon  conversion  of or
otherwise in respect to 450,000 shares of the Company's  Preferred Stock and the
exercise of warrants to purchase an aggregate of 637,000  shares of Common Stock
was declared effective by the Securities and Exchange  Commission.  Beginning in
July 1997,  the Preferred  Stock became  eligible to be converted by the holders
into shares of Common Stock.  As of November 7, 1997, a total of 109,730  shares
of Preferred Stock have been converted in to an aggregate of 2,079,671 shares of
the Company's Common Stock and an aggregate of 340,270 shares of Preferred Stock
were outstanding.

In the event the 1997 Registration  Statement was not declared  effective by the
Declaration  Date, the Company agreed to pay to each holder of Preferred Stock a
default payment in cash (the "Default  Payment") in an amount equal to 3% of the
liquidation  preference for the Preferred Stock held for any part of each 30-day
period subsequent to the Declaration Date until the 1997 Registration  Statement
was  declared  effective.  The  Company  also  agreed to make a similar  Default
Payment to the  holders  of  Preferred  Stock in the event that (i) the  Company
fails,  refuses  or is  unable  to  cause  the  securities  covered  by the 1997
Registration Statement to be listed on the exchange on which the Common Stock is
then traded,  (ii) any holder's  ability to sell the  securities  covered by the
1997 Registration Statement is suspended for more than 60 days in the aggregate,
or at any time during the months of December  1997 or January 1998, or (iii) the
Company does not have a sufficient number of shares of Common Stock available to
effect  conversion of the Preferred  Stock. The Default Payments must be made by
the Company each month until the  condition  or event  causing the payment to be
made no longer exists.

Dividends.   The  Preferred  Stock  entitles  the  holders  thereof  to  receive
cumulative  dividends  on each  share at the rate of $1.25 per share per  annum,
compounded semi-annually,  when payable, whether or not declared.  Dividends may
be paid at the Company's option in cash or additional shares of Preferred Stock.

Waiver;  Additional Warrant Issuance.  In March 1997, the Company and all of the
holders of the Preferred  Stock  executed a waiver (the  "Waiver") in connection
with the Company's obligations to comply with redemption provisions contained in
the Registration  Rights Agreement.  Pursuant to the Waiver,  each holder of the
Preferred  Stock  irrevocably  waived the Company's  obligations  to comply with
provisions in the  Registration  Rights Agreement which would have obligated the
Company to redeem the Preferred  Stock (or shares of Common Stock  issuable upon
conversion  of, or  otherwise  in  respect  to, the  Preferred  Stock)  and,  in
consideration  therefor,  the  Company  (a) issued to the holders (on a pro rata
basis) in accordance with the terms thereof, warrants to purchase 300,000 shares
of Common Stock  (subject to  adjustments),  with an exercise price of $2.00 per
share,  (b) waived its rights to request that the holders of the Preferred Stock
receive any Default  Payments in  additional  shares of Preferred  Stock and (c)
agreed that the holders of Preferred  Stock may convert their shares into shares
of Common Stock at approximately 72% of the effective market price of the Common
Stock in the event a change in  control  transaction  occurs  prior to  February
1998,  or later under  certain  circumstances.  As a result of the  Waiver,  the
shares of Preferred  Stock which were  classified  as  redeemable  securities at
December 31, 1996 were  reclassified as Preferred  Stock  commencing as of March
31, 1997 and, as such, were included in  stockholders'  equity  commencing as of
March 31, 1997.

         The Company has ascribed a value of $484,000 to these  warrants,  which
was  recorded as an expense in the  Company's  statement of  operations  for the
quarter  ended  March 31,  1997.  The fair value  ascribed to the  warrants  was
estimated on the date of issuance using the Black-Scholes pricing model with the
following  assumptions:  risk-free  interest  rate of 6.60%;  expected life of 5
years;  expected  volatility of 104%;  and expected  dividend  yield of 0%. As a
result of the waiver, the shares of redeemable  convertible preferred stock have
been  reclassified as convertible  preferred stock and, as such, are included in
stockholders' equity.

Future Results and Stock Price

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

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


<PAGE>



Item 6. Exhibits and Reports on Form 8-K

(a)   Exhibits:

          Exhibit 27,   Financial Data Schedule.

(b) Reports on Form 8-K:

          On September  22,  1997,  the Company  filed a Current  Report on Form
          8-K(dated  September 11, 1997) under Item 5, Other  Events,  reporting
          the  engagement  of Gerard  Klauer  Mattison  & Co.,  Inc.  ("GKM') to
          provide  financial  advisory  services to the Company on an  exclusive
          basis  for  a  one  year  period,  and  the  engagement  of  Swartz  &
          Associates,  Inc. to assist in the  Company's  in its search for a new
          Chief Executive Officer and Chief Financial Officer.



<PAGE>


                                   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



  January 6, 1998                            /s/ Craig M. Hutchison
----------------------            ---------------------------------------------
      Date                                      Craig M. Hutchison
                                  (Principal Financial Officer and Officer Duly
                                 authorized to Sign on Behalf of the Registrant)