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, 1996

                                       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:    (415) 802-7888

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

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


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

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

     Number of shares outstanding of the issuer's Common Stock, as of November
     13, 1996: 41,994,375

     This Quarterly Report on Form 10-Q contains 12 pages of which this is
     page 1.


<PAGE>


                     COMMUNICATION INTELLIGENCE CORPORATION
                                    FORM 10-Q

                                      INDEX



PART I.  FINANCIAL INFORMATION


         Item 1.  Financial Statements                                  Page No.

         Condensed Consolidated Balance Sheets, at September 30, 1996
                  and December 31, 1995......................................3

         Condensed Consolidated Statements of Operations, for the three
                  and nine months ended September 30, 1996 and 1995..........4

         Condensed Consolidated Statements of Cash Flows, for the nine
                  months ended September 30, 1996 and 1995...................5

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


         Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations........................8

PART II.  OTHER INFORMATION

         Item 6.  Exhibits and Reports on Form 8-K

                  (a)      Exhibits.........................................11

                  (b)      Reports on Form 8-K..............................11

         Signatures.........................................................12




<PAGE>



                                           See accompanying notes.

                     Communication Intelligence Corporation
                                and Subsidiaries
                      Condensed Consolidated Balance Sheets
                                    Unaudited
                                 (In thousands)
<TABLE>
<CAPTION>

                                                           Sept. 30,   Dec. 31,
Assets                                                       1996        1995
                                                           ---------   ---------
Current assets:
<S>                                                        <C>         <C>         
     Cash and cash equivalents ..........................  $  1,598    $  5,924
     Short-term investments .............................     2,800       1,535
     Note receivable from officer .......................      --           210
     Accounts receivable, net ...........................       457         381
     Inventories ........................................       607         249
     Other current assets ...............................       417         400
                                                            --------    --------
         Total current assets ...........................     5,879       8,699

Note receivable from officer ............................       210        --
Property and equipment, net .............................       431         336
Capitalized software development costs, net .............        38          88
Other assets ............................................       525         653
                                                            --------    --------

         Total assets ...................................  $  7,083    $  9,776
                                                            ========    ========

Liabilities and stockholders' equity Current liabilities:
     Short-term debt ....................................  $    100    $     30
     Accounts payable ...................................       234         437
     Pre-petition liabilities - current .................       873         822
     Accrued compensation ...............................       308         282
     Other accrued liabilities ..........................       530         761
     Deferred revenue ...................................     2,266       2,570
     Obligations under capital leases - current .........         8          34
                                                            --------    --------
         Total current liabilities ......................     4,319       4,936

Obligations under capital leases - noncurrent ...........         8           8
Pre-petition liabilities - noncurrent ...................      --           822
Commitments .............................................      --          --

Stockholders' equity:
     Common stock .......................................       421         400
     Additional paid-in capital .........................    54,906      51,687   
     Accumulated deficit ................................   (52,412)    (47,991)
     Cumulative foreign currency translation adjustment .      (159)        (86)
                                                            --------    --------
         Total stockholders' equity .....................     2,756       4,010
                                                            ========    ========

         Total liabilities and stockholders' equity .....  $  7,083    $  9,776
                                                            ========    ========
</TABLE>




<PAGE>


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

                                      Three Months Ended    Nine Months Ended
                                        September 30,         September 30,
                                     --------------------  --------------------
                                     ---------  ---------  --------------------
                                       1996       1995       1996       1995
                                     ---------  ---------  ---------  ---------
Revenues:
<S>                                  <C>        <C>        <C>        <C>     
     Product .....................   $     51   $    273   $    238   $    569
     License and royalty .........        252        100        545        149
     Development contract ........        451        266      1,288        878
                                      --------   --------   --------   --------

                                          754        639      2,071      1,596
                                      --------   --------   --------   --------
Operating costs and expenses:
     Cost of sales:
        Product ..................         60        178        180        310 
        Development contract .....        291         97        858        289 
        Other costs ..............         95         99        309        270 
     Research and development ....        496        512      1,423      1,530 
     Sales and marketing .........        833        802      2,350      1,980 
     General and administrative ..        454        375      1,483      1,341 
                                      --------   --------   --------   -------- 
                                   
                                        2,229      2,063      6,603      5,720
                                      --------   --------   --------   --------

Loss from operations .............     (1,475)    (1,424)    (4,532)    (4,124)

Interest and other income ........         78         19        233        126

Interest expense .................        (25)      (103)      (122)      (183)
                                      --------   --------   --------   --------

         Net loss ................   $ (1,422)  $ (1,508)  $ (4,421)  $ (4,181)
                                      ========   ========   ========   ========

         Net loss per common share   $  (0.03)  $  (0.04)  $  (0.11)  $  (0.12)
                                      ========   ========   ========   ========

         Weighted average common
              shares outstanding .     41,951     34,108     41,011     33,925
                                      ========   ========   ========   ========
</TABLE>



<PAGE>


                     Communication Intelligence Corporation
                                and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                                    Unaudited
                                 (In thousands)

<TABLE>
<CAPTION>
                                                            Nine Months Ended
                                                              September 30,
                                                          --------------------
                                                            1996        1995
                                                          --------    --------
                                 
<S>                                                       <C>         <C>    
Net cash used in operating activities .................    (6,148)     (5,130)
                                                          --------    --------

Cash flows from investing activities:
     Sale of short-term investments ...................    11,385        --
     Purchase of short-term investments ...............   (12,650)       --
     Acquisition of property and equipment ............      (204)        (88)
     Increase in capitalized software costs ...........      --           (10)
     Increase (decrease) in other assets ..............        79        (122)
                                                          --------    --------

         Net cash used in investing activities ........    (1,390)       (220)
                                                          --------    --------

Cash flows from financing activities:
     Principal payments on short-term debt ............       (30)       (118)
     Principal payments on capital lease obligations ..       (26)        (52)
     Proceeds from issuance of note payable ...........       100       1,500
     Proceeds from issuance of common stock ...........     3,240         236
                                                          --------    --------

         Net cash provided by financing activities ....     3,284       1,566
                                                          --------    --------

Effect of exchange rate changes on cash ...............       (72)        (30)
                                                          --------    --------

Net decrease in cash and cash equivalents .............    (4,326)     (3,814)
Cash and cash equivalents at beginning of period ......     5,924       4,088
                                                          --------    --------

Cash and cash equivalents at end of period (See note 2)  $  1,598    $    274
                                                          ========    ========

Schedule of non-cash transactions:

     Issuance of common stock in exchange
     for pre-petition liabilities ................       $   --      $    188
                                                          ========    ========
     Issuance of stock purchase warrants in conjunction
     with short term debt ........................       $   --      $     67
                                                          ========    ========
</TABLE>


<PAGE>


                     COMMUNICATION INTELLIGENCE CORPORATION
                                    FORM 10-Q

1.       Interim financial statements

         The accompanying  unaudited condensed consolidated financial statements
         have been prepared in accordance with the instructions to Form 10-Q and
         Article 10 of Regulation S-X.  Accordingly,  they do not include all of
         the information and footnotes required by Generally Accepted Accounting
         Principles  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
         Communication   Intelligence   Corporation  (the  "Company"  or  "CIC")
         considers  necessary for a fair presentation of its financial  position
         at the dates  and its  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.

         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, 1995.

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

2.       Cash and cash equivalents

         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 fair value.  Any unrealized gains or losses are reported as a
         separate component of stockholders' equity, but, to date, have not been
         significant.

         Cash and cash equivalents included the following:
<TABLE>
<CAPTION>

                                         Sept. 30,      Dec. 31,
                                           1996           1995
                                         --------       --------
                                             (In thousands)

         <S>                             <C>            <C>   
         Cash in bank ................   $   598        $   441
         U.S. Corporate Securities ...      --            5,483
         Other Debt Securities .......     1,000           --
                                          -------        -------
                                         $ 1,598        $ 5,924
                                          =======        =======
</TABLE>

         Short-term  investments  consisted of the following  available-for-sale
         securities as follows:
<TABLE>
<CAPTION>

                                         Sept. 30,      Dec. 31,
                                           1996           1995
                                         --------       --------
                                             (In thousands)

         <S>                             <C>            <C>   
         U.S. Corporate Securities       $ 1,000        $   998
         Other Debt Securities ...         1,800            537
                                          -------        -------
                                         $ 2,800        $ 1,535
                                          =======        =======
</TABLE>


<PAGE>



3.       Inventories

         Inventories  are stated at the lower of cost  (first-in,  first-out) or
         market.  At September 30, 1996,  inventory  was comprised  primarily of
         finished goods.

4.       Private Placement

         In June 1996,  the  Company  completed a private  placement  of 600,000
         shares of the Company's  common  stock,  at a price of $4.50 per share,
         subject  to  certain  adjustments.  The  net  proceeds  to the  Company
         approximated $2,523,000.  The Company has agreed to register, under the
         Securities Act, the shares issued in the private placement.



<PAGE>


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

Results of Operations

Revenues for the quarter and nine months ended  September 30, 1996  increased by
18% and 30% to $754,000 and $2,071,000  respectively,  from the comparable three
and  nine-month  periods of the prior year.  Revenues  comprised  product sales,
license and royalty fees, and development  contract revenues.  The increases are
principally  due to higher  license and royalty  fees and  development  contract
revenues as discussed below.
<TABLE>
<CAPTION>

                                  Three Months Ended  Nine Months Ended
                                     September 30,       September 30,
                                  ------------------  ------------------
                                                      (In thousands)
                                    1996      1995      1996      1995
                                  --------  --------  --------  --------
Revenues:
<S>                               <C>       <C>       <C>       <C>   
Product sales .................   $    51   $   273   $   238   $   569
License and royalty fees.......       252       100       545       149
Development contract ..........       451       266     1,288       878
                                   =======   =======   =======   =======

      Total Revenues ..........   $   754   $   639   $ 2,071   $ 1,596
                                   =======   =======   =======   =======
</TABLE>

Product sales for the three and nine months ended  September 30, 1996  decreased
to $51,000 and $238,000  compared to $273,000 and $569,000  respectively  in the
prior year  periods.  The decline in product  sales for the three  months  ended
September  30,  1996 is due to reduced  unit  shipments  to retail  and  catalog
resellers as compared to the prior year period. The decline in product sales for
the nine  months  ended  September  30,  1996,  was also  due to  reductions  in
MacHandwriter  II unit sales by the  Company's  Japanese  subsidiary.  Since the
second quarter of 1994, the Company has  concentrated  its domestic sales effort
on  distributors  and catalog  resellers.  In 1995,  the Company began a limited
entry  into the  retail  and  corporate  markets  with its  domestic  Handwriter
products.  The Company  plans to expand its retail and  corporate  market  sales
efforts  during  1996.  There  can be no  assurance  that  the  Company  will be
successful   in  its  efforts  to  broaden  its   corporate  and  retail  market
distribution.

Revenues  from  license  and royalty  fees for the three and nine month  periods
ended  September  30, 1996  increased to $252,000 and $545,000 from $100,000 and
$149,000  respectively  in the comparable  prior year periods.  This increase is
primarily the result of higher shipment  volumes by the Company's  licensees and
to  approximately  $164,000 in royalty  revenues  that have been  recognized  on
agreements for which the Company has no further obligation to deliver additional
software or services.

Development  contract  revenues  for the  three  and  nine  month  period  ended
September 30, 1996 increased 70% and 47% to $451,000 and $1,288,000  compared to
$266,000 and $878,000  respectively  in the comparable  prior year periods.  The
increase is due primarily to increased system integration  service and marketing
activities by the  Company's 79% owned joint venture in The Peoples  Republic of
China (the "Joint  Venture"),  and  research  grants from The  National  Science
Foundation (NSF),  compared to the same periods last year. The increases for the
three and nine  month  periods  were  offset in part by a decrease  in  revenues
attributable to a grant from the US Government's National Institute of Standards
and Technology  ("NIST") which expired in April 1996. No revenue was recorded in
the current  quarter  ended  September  30, 1996 for the NIST grant  compared to
$118,000 for the  comparable  three-month  period last year.  For the nine-month
period ended  September  30, 1996,  revenue  attributable  to the NIST grant was
$91,000 compared to $450,000 during the comparable  prior year period.  The NIST
grant was awarded in December 1993 to supplement the Company's  development of a
recognition system for the Chinese language.

Cost of sales  includes the costs of materials,  procurement,  warehousing,  and
related  personnel in connection  with the sales of the  Company's  products and
services as well as the amortization of capitalized  software development costs.
Costs  incurred  in  connection  with the NIST grant,  included  in  development
contract  revenue,  are  expensed as incurred  and are  included in research and
development  expenses.  Cost of  sales  for the  three  and  nine-month  periods
increased to $446,000 and $1,347,000,  respectively, as compared to $374,000 and
$869,000,  respectively  for the  comparable  periods  of the  prior  year.  The
increases  are  attributable  to a shift  in the  revenue  mix to  lower  margin
development  contract revenues generated by the Joint Venture,  and increases in
the costs of procurement,  warehousing,  and related personnel.  Amortization of
software  development costs declined to $11,000 and $50,000 respectively for the
three and nine month periods ended September 30, 1996 as compared to $23,000 and
$104,000 respectively for the comparable periods of the prior year.

Research and  development  expenses for the three and  nine-month  periods ended
September  30,  1996   decreased  by  3%  and  7%  to  $496,000  and  $1,423,000
respectively  as compared to $512,000  and  $1,530,000  respectively  during the
comparable  periods of the prior year. The decreases are primarily  attributable
to decreases in the purchase of outside development services,  and the reduction
of other overhead costs.

Sales  and  marketing  expenses  for the  three  and  nine-month  periods  ended
September 30, 1996  increased 4% and 19% to $833,000 and  $2,350,000 as compared
to $802,000 and $1,980,000  respectively in the comparable  periods of the prior
year.  These  increases  are  primarily due to additions in staffing and related
costs in support of heightened sales activities in the U. S. and China.

General and  administrative  expenses for the three-month period ended September
30, 1996  increased  21% to  $454,000 as compared to $375,000 in the  comparable
period of the prior year. For the nine months ended September 30, 1996,  general
and  administrative   expenses  increased  11%  to  $1,483,000  as  compared  to
$1,341,000  in the  comparable  period of the prior year.  The increase over the
three and nine months  ended  September  30, 1996  reflects  increased  costs of
insurance, professional services, and personnel and related costs.


Liquidity and Capital Resources

Cash,  cash  equivalents,  and  short-term  investments  totaled  $4,398,000  at
September  30,  1996,   compared  to  cash,  cash   equivalents  and  short-term
investments of $7,459,000 at December 31, 1995.  This decrease was primarily the
result of $6,148,000 used in operating  activities offset by $3,284,000 provided
by financing activities as discussed below. Total current assets were $5,879,000
at September 30, 1996 compared to $8,699,000 at December 31, 1995.

Current  liabilities,   which  include  deferred  revenue,  were  $4,319,000  at
September 30, 1996. Deferred revenue, totaling $2,266,000 at September 30, 1996,
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 no further  obligations exist. 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.  Under the terms of the Company's  agreement
with IBM, the Company is obligated to share certain royalties from third parties
with IBM when earned.

In June 1996, the Company completed a private placement of 600,000 shares of the
Company's  common  stock,  at a price of $4.50 per  share,  subject  to  certain
adjustments.  The net  proceeds  to the  Company  approximated  $2,523,000.  The
Company has agreed to register,  under the Securities  Act, the shares issued in
the private placement.

In 1993,  the Company  formed the Joint  Venture with The Ministry of Electronic
Industries of Jiangsu Province (the  "Government")  of The People's  Republic of
China. The Joint Venture,  Communication Intelligence Computer Corporation, Ltd.
("CICC"), is 79% owned by the Company. Under the provisions of the joint venture
agreement,  in exchange for 79%  ownership,  the Company is to  contribute up to
$5.4 million in cash,  and the Company will  provide  non-exclusive  licenses to
technology  and certain  distribution  rights.  The Government  will  contribute
certain land use rights and provide other services for the joint venture.  As of
September  30,  1996,  the  Company  had  contributed  $900,000  in cash and had
provided  non-exclusive  licenses to technology and certain distribution rights,
while the Government had contributed certain land use rights.

As of September 30, 1996,  the Company's  principal  source of liquidity was its
cash,  cash  equivalents and short-term  investments of $4,398,000.  The Company
believes that the above mentioned funds, together with anticipated revenues, are
adequate to meet projected working capital and other cash requirements.

Future Results and Stock Price

The  Company's  future  earnings  and stock price may be subject to  significant
volatility.  The public stock markets have exhibited extreme volatility in stock
prices in recent  years.  The stock  prices of high  technology  companies  have
experienced  particularly  high  volatility,  including  at times  severe  price
changes that are unrelated or  disproportional  to the operating  performance of
these specific 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.


<PAGE>


Item 6. Exhibits and Reports on Form 8-K

(a)      Exhibits:  None.

(b)   Reports on Form 8-K

     On August 8, 1996,  the  Company  filed a Form 8K under  ITEM 4,  Change in
     Registrant's Certifying Accountants, regarding the resignation of KPMG Peat
     Marwick LLP as the Company's auditors.

     On August 14,  1996,  the Company  filed a Form 8KA under ITEM 4, Change in
     Registrant's   Certifying   Accountants,   regarding   the  above  and  the
     appointment  of Price  Waterhouse LLP as the Company's  independent  public
     accountants



<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



  November 13, 1996                              /s/ Francis V. Dane
---------------------                  ----------------------------------------
        Date                                       Francis V. Dane
                                       Vice President, Secretary and Treasurer