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:     June 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:    (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
                                -----         ------

Number of shares outstanding of the issuer's Common Stock, as of
August 8, 1997: 45,080,138

 This Quarterly Report on Form 10-Q contains 17 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 June 30, 1997 and
            December 31, 1996 (Unaudited)...................................3

         CondensedConsolidated Statements of Operations for the three
            and six month periods ended June 30, 1997 and 1996
            (Unaudited).....................................................4

         Condensed Consolidated Statements of Cash Flows for the six
            month periods ended June 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......................10

PART II.  OTHER INFORMATION

         Item 4.  Submission of Matters to a Vote of Security Holders......16

         Item 6.  Exhibits and Reports on Form 8-K

                  (a)      Exhibits........................................16

                  (b)      Reports on Form 8-K.............................16

         Signatures........................................................17

<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
                      Condensed Consolidated Balance Sheets
                                    Unaudited
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                            June 30,    Dec. 31,
Assets                                                        1997        1996
                                                            --------    --------
Current assets:
<S>                                                       <C>         <C>     
     Cash and cash equivalents .........................   $  2,472    $ 10,573
     Short-term investments ............................      2,102         752
     Accounts receivable, net ..........................        722         376
     Inventories .......................................      1,235         529
     Other current assets ..............................        241         190
                                                            --------    --------
         Total current assets ..........................      6,772      12,420

Notes receivable from officers and employees ...........        360         210
Property and equipment, net ............................        884         537
Other assets ...........................................        317         336
                                                            --------    --------

         Total assets ..................................   $  8,333    $ 13,503
                                                            ========    ========

Liabilities and stockholders' equity Current liabilities:
     Accounts payable ..................................   $    585    $    367
     Accrued compensation ..............................        381         339
     Short-term debt (Note 4) ..........................        109        --
     Other accrued liabilities .........................        738         578
     Deferred revenue ..................................      1,497       2,006
     Pre-petition liabilities ..........................       --           878
                                                            --------    --------
         Total current liabilities .....................      3,310       4,168

Redeemable convertible preferred stock (Note 5) ........       --         9,417
Convertible preferred stock (Note 5) ...................          5        --
Common stock ...........................................        449         419
Additional paid-in capital .............................     63,989      54,015
Accumulated deficit ....................................    (59,332)    (54,347)
Cumulative foreign currency translation adjustment .....        (88)       (169)
Commitments (Note 5)
                                                            --------    --------

         Total liabilities, redeemable securities,
         convertible preferred and common stockholders'
         equity (Note 5) ...............................   $  8,333    $ 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     Six Months Ended
                                             June 30,              June 30,
                                       -------------------   -------------------              
                                         1997       1996       1997       1996
                                       --------   --------   --------   --------
Revenues:
<S>                                   <C>        <C>        <C>        <C>     
     Product ........................ $    995   $    467   $  1,760   $    884
     License and royalty ............      318        162        590        293
     Development contracts ..........       84         49        245        140
                                       --------   --------   --------   --------

              Total revenues ........    1,397        678      2,595      1,317

Operating costs and expenses:
     Cost of sales:
        Product .....................      786        329      1,421        687
        License, royalty and other
           costs ....................      250        111        419        214
        Development contracts .......       84         49        181        140
     Research and development .......      595        459      1,071        787
     Sales and marketing ............    1,580        803      2,980      1,517
     General and administrative .....      690        535      1,119      1,029
                                       --------   --------   --------   --------

           Total operating costs
               and expenses .........    3,985      2,286      7,191      4,374
                                       --------   --------   --------   --------

Loss from operations ................   (2,588)    (1,608)    (4,596)    (3,057)

Interest income and other income
  (expense) net, (Note 5) ...........       53         75       (368)       155

Interest expense ....................       (4)       (18)       (21)       (97)
                                       --------   --------   --------   --------

         Net loss ................... $ (2,539)  $ (1,551)  $ (4,985)  $ (2,999)
                                       ========   ========   ========   ========

         Net loss per common share .. $  (0.06)  $  (0.04)  $  (0.11)  $  (0.07)
                                       ========   ========   ========   ========

         Weighted average common
              shares outstanding ....   44,871     40,925     44,713     40,533
                                       ========   ========   ========   ========
</TABLE>
<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
                 Condensed Consolidated Statements of Cash Flows
                                    Unaudited
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                          Six Months Ended
                                                              June 30,
                                                        --------------------
                                                          1997        1996
                                                        --------    --------
Cash flows used in operating activities:
<S>                                                    <C>         <C>          
Net loss ............................................  $ (4,985)   $ (2,999)
Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization ..................       113         144
     Warrant issuance ...............................       484          --
     Stock options issued for services ..............        46          --
     Changes in operating assets and liabilities:
         Accounts receivable ........................      (346)         31
         Inventories ................................      (717)       (242)
         Other current assets .......................      (201)         17
         Other assets ...............................       (62)        (20)
         Accounts payable and accrued compensation ..       259        (176)
         Other accrued liabilities ..................       164        (236)
         Deferred revenue ...........................      (509)       (286)
         Pre-petition liabilities ...................      (878)       (771)
                                                        --------    --------

         Net cash used in operating activities ......    (6,632)     (4,538)
                                                        --------    --------

Cash flows used in investing activities:
     Proceeds from sale of short-term investments ...     4,954       6,065
     Purchase of short-term investments .............    (6,304)     (6,629)
     Acquisition of property and equipment ..........      (383)       (146)
                                                        --------    --------

         Net cash used in investing activities ......    (1,733)       (710)
                                                        --------    --------

Cash flows from financing activities:
     Principal payments on short-term debt ..........       --          (30)
     Principal payments on capital lease obligations         (5)        (18)
     Proceeds from issuance of short-term debt ......       109         100
     Proceeds from issuance of common stock .........       194       3,207
                                                        --------    --------

         Net cash provided by financing activities ..       298       3,259
                                                        --------    --------

Effect of exchange rate changes on cash .............       (34)        (62)
                                                        --------    --------

Net decrease in cash and cash equivalents ...........    (8,101)     (2,051)
Cash and cash equivalents at beginning of period ....    10,573       5,924
                                                        ========    ========

Cash and cash equivalents at end of period ..........  $  2,472    $  3,873
                                                        ========    ========
</TABLE>

<PAGE>
                     COMMUNICATION INTELLIGENCE CORPORATION
                                 AND SUBSIDIARY
                         NOTES TO CONDENSED CONSOLIDATED
                        FINANCIAL STATEMENTS (UNAUDITED)
                                    FORM 10-Q

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 and 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
         Manta.  Additionally,  CIC has developed products for dynamic signature
         verification,  electronic  ink data  compression  and  encryption and a
         suite of development tools and applications  which the Company believes
         could  increase  the  functionality  of its  core  products  and  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%.

         As of June 30, 1997,  the Company's  principal  source of liquidity was
         its cash, cash  equivalents  and short-term  investments of $4,574,000.
         The Company  believes that the above mentioned  funds,  are adequate to
         meet projected working capital and other cash requirements for the next
         six months.  However  the Company may be required to obtain  additional
         financing  earlier,  and, there can be no assurance that such financing
         is available, or if available, 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.


<PAGE>


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>

                                                              June 30,  Dec. 31,
                                                                1997      1996
                                                              --------  --------
                                                                 (In Thousands)

<S>                                                           <C>       <C>    
             Cash in bank ..................................  $   414   $ 9,483
             Commercial paper ..............................    1,984     1,088
             Money markets .......... ......................       74         2
                                                               =======   =======
                                                              $ 2,472   $10,573
                                                               =======   =======
</TABLE>

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

                                                               June 30, Dec. 31,
                                                                 1997     1996
                                                               -------- --------
                                                                 (In Thousands)

<S>                                                            <C>      <C>    
             U.S. Corporate securities ......................  $   603  $   252
             Other debt securities ..........................    1,499      500
                                                                -------  -------
                                                               $ 2,102  $   752
                                                                =======  =======
</TABLE>

         Corporate  debt  securities  at June 30,  1997  mature in less than one
         year.  Other debt securities at June 30, 1997 consist of securities not
         due at a single maturity date.

3.       Inventories

         Inventories  are stated at the lower of cost  (first-in,  first-out) or
         market. At June 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. The note bears interest at a rate of 10% per annum and is due
         on June 1, 1998.


<PAGE>



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 in  exchange  for  390,000  shares of common  stock,  originally
         issued in a private placement of common stock consummated in June 1996.

         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

         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 in exchange for the issuance to the holders of
         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.


<PAGE>



  6.     Recent accounting pronouncement

         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 six
         months ended June 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      Six months Ended
                                           June 30,               June 30,
                                      -------------------   -------------------
                                        1997       1996       1997       1996
                                      --------   --------   --------   --------

<S>                                  <C>        <C>        <C>        <C>      
            Basic loss per share .   $  (0.06)  $  (0.04)  $  (0.11)  $  (0.07)
            Diluted loss per share   $  (0.06)  $  (0.04)  $  (0.11)  $  (0.07)

</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 the 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  beginning in 1998 and does not expect such  adoption to
         have a material effect on the consolidated financial statements.


<PAGE>


                     COMMUNICATION INTELLIGENCE CORPORATION
                                 AND SUBSIDIARY
                                    FORM 10-Q

                     COMMUNICATION INTELLIGENCE CORPORATION
                                 AND SUBSIDIARY
                                    FORM 10-Q

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

Revenues. Revenues for the three and six months ended June 30, 1997 increased by
106% and 97% to $1,397,000  and  $2,595,000,  respectively,  from the comparable
three and six month periods of the prior year. 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   Six Months Ended
                                           June 30,            June 30,
                                       ----------------    ----------------
                                                  (In Thousands)
                                        1997      1996      1997     1996
                                       ------    ------    ------   -------

Revenues:
<S>                                   <C>       <C>       <C>      <C>     
     Product sales ..........         $   995   $   467   $ 1,760  $    884
     License and royalty fees             318       162       590       293
     Development contracts ..              84        49       245       140
                                       ======    ======    ======    ======

           Total Revenues ...         $ 1,397   $   678   $ 2,595  $  1,317
                                       ======    ======    ======    ======
</TABLE>

Product sales increased to $995,000 and $1,760,000,  respectively, for the three
and  six  month  periods  ended  June  30,  1997  from  $467,000  and  $884,000,
respectively,  in the  comparable  prior year  periods.  This  increase  was due
primarily to the  introduction  of Handwriter  products into the retail  channel
through  CompUSA and an increase in Handwriter  sales to the  corporate  market.
Handwriter  product  sales  increased  $533,000 and $881,000,  respectively,  to
$581,000 and  $1,069,000,  respectively,  during the three and six month periods
ended June 30,  1997  compared  to $48,000 and  $188,000,  respectively,  in the
comparable  periods in 1996.  Product  sales by the  Company's  90% owned  Joint
Venture were  $414,000 and $691,000,  respectively,  for the three and six month
periods  ended June 30, 1997  compared to $419,000 and  $696,000,  respectively,
during the same periods last year.

Revenues from license and royalty fees for the three and six month periods ended
June 30, 1997  increased to $318,000 and $590,000,  respectively,  from $162,000
and  $293,000,  respectively,  in the  comparable  prior  periods in 1996.  This
increase  was due to of higher  shipment  volumes of  licensed  products  by the
Company's  licensees  and to royalty  revenues  of  approximately  $164,000  and
$383,000, respectively, for the three and six month periods ended June 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,  licensees  and  royalty  revenues of  approximately  $26,000 and
$88,000,respectivly,  was  recognized  on  licensing  agreements  for  which the
Company have no further obligation to deliver additional software or services.

Development contract revenues for the three and six month periods ended June 30,
1997  increased 71% and 75% to $84,000 and $245,000,  respectively,  compared to
$49,000 and $140,000,  respectively,  in the comparable prior year periods. This
increase was due in part to $168,000 in grant revenues  received  during the six
months  ended June 30, 1997 from The  National  Science  Foundation  ("NSF") for
basic  research,  compared to $50,000  received  from NSF during the  comparable
periods of the prior year.  The increase was offset in part by the loss in April
1996 of  development  contract  revenues  attributable  to a grant  from  the US
Government's  National Institute of Standards and Technology ("NIST").  The NIST
grant was awarded in December 1993 to supplement the Company's  development of a
recognition  system for the Chinese  language.  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 six months  ended June 30, 1997,  consists  primarily of
cost of materials,  approximately $323,000 and $558,000,  respectively, of which
is  related to the  hardware  and  software  components  involved  in the system
integration activities of the Joint Venture,  compared to approximately $334,000
and $567,000,  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 $542,000 and $942,000, respectively, for the
three and six months ended June 30, 1997 compared to  approximately  $39,000 and
$134,000,  respectively,  in the prior year periods.  Handwriter  products gross
margin  increased to 25% during the three months ended June 30, 1997 from 20% in
the comparable period of the prior year. This increase resulted from an increase
in corporate sales of the Company's new higher margin  Handwriter  Manta product
which was not  available in 1996.  For the six month period ended June 30, 1997,
Handwriter  products  gross margin  decreased to 22% from 28% in the  comparable
period of the prior year.  The decrease is due to the lower margins  experienced
on  Handwriter  products in the retail  channel.  Gross margin on product  sales
activities of the Joint Venture was 22% and 19%, respectively,  during the three
and six months ended June 30, 1997 compared to 20% and 19%, 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 $250,000 and $419,000,  respectively,  for the three and
six months ended June 30, 1997 compared to $111,000 and $214,000,  respectively,
for the comparable 1996 periods.  This increase in other costs for the three and
six months ended June 30, 1997 related  primarily to additional  personnel costs
of $75,000 and $117,000,  respectively,  and product fulfillment and other costs
of $82,000 and  $127,000,  respectively,  in  connection  with the launch 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  71% and 29% during the three and six  months  ended June 30,  1997 as
compared to the  comparable  periods of the prior year,,  commensurate  with the
increase in contract  development  revenues in the first and second  quarters of
1997.

Research and  development.  Research and development  expenses for the three and
six month periods  ended June 30, 1997  increased by 30% and 36% to $595,000 and
$1,071,000, respectively, as compared to $459,000 and $787,000, respectively, in
the  comparable  periods  of  the  prior  year.  The  increases  were  primarily
attributable to increases of approximately $118,000 and $213,000,  respectively,
in  payroll  and  related  costs,  and  $9,000  and  $46,000,  respectively,  in
professional services compared to the prior year. These increases are due to the
continued  development of the Chinese recognizer and the development of the soon
to be released MX and FX Handwriter  products.  This  increase was  commensurate
with the  increase in  personnel.  The Company did not  capitalize  any software
development  costs in the three and six month  periods  ended  June 30,  1997 or
1996, respectively.

Sales and  marketing.  Sales and marketing  expenses for the three and six month
periods ended June 30, 1997 increased 97% and 96% to $1,580,000 and  $2,980,000,
respectively,  as compared  to $803,000  and  $1,517,000,  respectively,  in the
comparable  periods of the prior  year.  The  increases  were  primarily  due to
increases of $377,000  and $740,000  respectively,  in  advertising  and related
expenses,  and  $261,000  and  $481,000,  respectively,  in payroll  and related
expenses.  Other  costs  including  facilities  and related  expenses  increased
$139,000  and  $242,000,  respectively,  during the three and six month  periods
ended June 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 the first and second quarters of 1997, and continued  marketing and sales
efforts in the corporate channel.

General and  administrative.  General and administrative  expenses for the three
and six month periods ended June 30, 1997 increased 29% and 9%, respectively, to
$690,000 and $1,119,000,  respectively,  as compared to $535,000 and $1,029,000,
respectively,  in the  comparable  periods of the prior year. The increases were
primarily  attributable  to increases of  approximately  $198,000 and  $213,000,
respectively,  in professional  fees and services  related to corporate  filings
including the annual report and the preparation and filing of the Company's Form
S-3. These increases were partially  offset by reductions in payroll and related
costs of  $70,000  and  $112,000,  respectively,  during the three and six month
periods  ended June 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 six months  ended June 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 six month periods
ended  June 30,  1997  compared  to the  prior  year due to the  pay-off  of the
pre-petition liabilities in the first quarter of 1997.

Liquidity and Capital Resources

At June 30, 1997,  cash,  cash  equivalents and short-term  investments  totaled
$4,574,000  compared to cash,  cash  equivalents  and short-term  investments of
$11,325,000  at December 31, 1996.  This  decrease was  primarily  the result of
$6,632,000  used in operating  activities  which  included the final  payment of
$878,000  to  pre-petition  creditors  during the first  quarter of 1997.  Total
current  assets were  $6,772,000  at June 30, 1997  compared to  $12,420,000  at
December 31, 1996.

As of June 30, 1997, the Company's  principal  source of liquidity was its cash,
cash equivalents and short-term investments of $4,574,000.  The Company believes
that the above mentioned funds,  are adequate to meet projected  working capital
and other cash requirements for the next six months.  However the Company may be
required to obtain additional financing earlier,  and, there can be no assurance
that such financing is available,  or if available,  that such financing will be
on favorable terms.

Current liabilities, which include deferred revenue, were $3,310,000 at June 30,
1997. Deferred revenue, totaling $1,497,000 at June 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.

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 90% owned by the Company at June 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.. As of June 30, 1997, the Company had contributed
$1,800,000 in cash and had provided  non-exclusive  licenses to  technology  and
certain  distribution  rights, while the Government had contributed certain land
use rights and equipment.

During the second quarter of 1997 the Company  contributed  technology  licenses
and  $900,000 in cash.  This  contribution  will help fund  CICC's new  Software
Development Division. This division was formed to create pencentric applications
initially  for the  Chinese  market.  CICC also plans to  introduce  the Chinese
Handwriter  during the third quarter of 1997. 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 beginning July
1, 1997, or earlier in the event of a change in control transaction, 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 Convertible Preferred.

The exact number of shares of Common Stock  issuable  upon  conversion of all of
the  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 August 8, 1997,  the last  reported  sales price of the Common
Stock on the Nasdaq SmallCap Market was $1.56 per share. If the effective market
price of the Common  Stock on August 8, 1997 of $ 1.52 per share (as  determined
pursuant to the terms of the  Convertible  Preferred) were used to determine the
number  of shares of Common  Stock  issuable  as of the first  date on which the
Preferred  Stock may be  converted,  the Company  would be  obligated to issue a
total of approximately 8,672,000 shares of Common Stock assuming all such shares
were converted at such time. To the extent the effective  market price per share
of the  Common  Stock  is lower  or  higher  than $ 1.52 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.

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 Convertible  Preferred,  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 filing a registration statement on Form S-3 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.  The Preferred  Stock may be converted by the holders into
shares of common stock at any time beginning July 1, 1997.

In the event the 1997 Registration  Statement was not declared  effective by the
Declaration  Date,  the Company  has 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 has 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 Convertible  Preferred.  The Default  Payments must be
made 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  Convertible
Preferred.

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  Convertible  Preferred)  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 public stock markets have experienced significant volatility in
stock prices in recent  years.  The stock prices of  technology  companies  have
experienced  particularly  high  volatility,  including  at times  severe  price
changes that are unrelated or  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 10Q,  include  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 Company results 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;  and (3) the Company's  inability to
protect  its  trade  secrets  or  other  proprietary  rights,  operate  with out
infringing  upon the  proprietary  rights  of others  and  prevent  others  from
infringing on the proprietary rights of the company.


<PAGE>


Item 4.  Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of  Stockholders on May 19, 1997. The number
of shares of common stock with voting  rights as of the record date  represented
at the meeting either in person or by proxy was 40,021,312 shares or 87 % of the
eligible  outstanding  common stock of the Company.  Three  proposals were voted
upon by the stockholders. The proposals and the voting results follow:

Proposal 1

Each of the six persons listed below were re-elected as directors to serve until
the next Annual  Meeting or until his  successor  is elected or  appointed.  The
number of votes for and withheld for each individual is listed next to his name.
<TABLE>
<CAPTION>

                                                                 Broker
         Name                    For          Withheld    Non-votes   Abstain
-----------------------       ----------      --------   -----------  --------

<S>                           <C>              <C>           <C>        <C>        
George P. Clayson, III        39,602,768       418,544       None       None
James Dao ............        39,566,568       454,744
L. Michael McFarland .        39,511,013       510,299
Philip Sassower ......        39,595,568       425,744
Dr. Donald R. Scheuch         39,587,118       434,194
C. B. Sung ...........        39,579,068       442,244
</TABLE>

Proposal 2

It was resolved to increase the number of shares of Common Stock  available  for
issuance under the Company's 1994 Stock Option Plan from 5,000,000 to 6,000,000.
The number of votes for, against and abstaining on this proposal follows:
<TABLE>
<CAPTION>
<S>
                                                               Broker
            For              Against        Abstain     Non-votes    Abstain
       --------------      -----------     ---------    ---------    ---------                                           ----

         <C>                <C>             <C>           <C>          <C>       
         38,393,045         1,444,591       183,676        None         None
</TABLE> 

Proposal 3

It was resolved to ratify the appointment of Price Waterhouse LLP as independent
accounts of the Company for the fiscal year ending December 31, 1997. The number
of votes for, against and abstaining on this proposal follows:
<TABLE>
<CAPTION>
<S>
                                                                Broker
             For              Against        Abstain    Non-votes     Abstain
       ---------------      -----------    ----------   ----------   ---------
          <C>                <C>             <C>           <C>         <C>   
          38,393,045         1,444,591       183,676       None         None
</TABLE>

Item 6. Exhibits and Reports on Form 8-K

(a)      Exhibits:  None.

(b)      Reports on Form 8-K:  None.


<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



     August 8, 1997                      /s/ Francis V. Dane
-----------------------------   ----------------------------------------
          Date                             Francis V. Dane
                                 Vice President, Secretary and Treasurer
                                (Principal Financial Officer and Officer
                              Authorized to Sign on Behalf of the Registrant)