Communication Intelligence Corporation
                                and Subsidiaries

                                    FORM 10-Q/A




                                  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: March 31, 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 May 14, 1997:
44,872,570.

 This Quarterly Report on Form 10-Q/A contains 15 pages of which this is page 1.


<PAGE>


                                      INDEX


PART I.  FINANCIAL INFORMATION

         Item 1.  Financial Statements                                  Page No.

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

         Condensed Consolidated Statements of Operations for the
         three-month periods ended March 31, 1997 and 1996(unaudited).......4

         Condensed  Consolidated  Statements  of Cash Flows for the
         three-month periods ended March 31, 1997 and 1996 (unaudited)......5

         Notes to Condensed Consolidated Financial Statements...............7


         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......14

         Item 6.  Exhibits and Reports on Form 8-K

                  (a)      Exhibits........................................14

                  (b)      Reports on Form 8-K.............................14

         Signatures........................................................15




<PAGE>

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

                                                           March 31,   Dec. 31,
Assets                                                       1997        1996
                                                           ---------   ---------
Current assets:                                            (Restated)
<S>                                                        <C>         <C>
   Cash and cash equivalents ...........................   $  5,164    $ 10,573
   Short-term investments ..............................      2,481         752
   Accounts receivable, net ............................        656         376
   Inventories .........................................        845         529
   Other current assets ................................        246         190
                                                           ---------   ---------
      Total current assets .............................      9,392      12,420

Note receivable from officer ...........................        210         210
Property and equipment, net ............................        582         537
Other assets ...........................................        468         336
                                                           ---------   ---------

      Total assets .....................................   $ 10,652    $ 13,503
                                                           =========   =========

Liabilities and stockholders' equity Current liabilities:
   Accounts payable ....................................   $    424    $    367
   Pre-petition liabilities - current ..................          -         878
   Accrued compensation ................................        343         339
   Other accrued liabilities ...........................        548         546
   Deferred revenue ....................................      1,835       2,006
                                                           ---------   ---------
      Total current liabilities ........................      3,150       4,136

Other liabilities ......................................         20          32

Redeemable convertible preferred stock (Note 4) ........          -       9,417
Convertible preferred stock (Note 4) ...................          5           -
Common stock ...........................................        420         419
Additional paid-in capital .............................     64,054      54,015
Accumulated deficit ....................................    (56,793)    (54,347)
Cumulative foreign currency translation adjustment .....       (204)       (169)
Commitments  (Note 3)
                                                           ---------   ---------

      Total liabilities, redeemable securities,
      convertible preferred and common stockholders'
      equity (Note 4) ..................................   $ 10,652    $ 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
                                                            March 31,
                                                    ----------------------
                                                       1997        1996
                                                    ---------    ---------
Revenues:                                           (Restated)
<S>                                                       <C>          <C>
     Product ......................................   $    765         417
     License and royalty ..........................        272         131
     Development contracts ........................        161          91
                                                      --------    --------

                                                         1,198         639

Operating costs and expenses:
     Cost of sales
         Product ..................................        635         329
         License, royalty and other costs .........        169         103
         Development contracts ....................         97          91
     Research and development .....................        476         357
     Sales and marketing ..........................      1,400         714
     General and administrative ...................        429         494
                                                      --------    --------

         Total operating costs and expenses .......      3,206       2,088
                                                      --------    --------

Loss from operations ..............................     (2,008)     (1,449)

Interest and other income (expense) net, (Note 4) .       (421)         80

Interest expense ..................................        (17)        (79)
                                                      --------    --------

         Net loss .................................     (2,446)     (1,448)

         Embedded yield on preferred stock ........     (2,188)          -

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

         Net loss applicable to common stockholders     (4,775)     (1,448)
                                                      ========    ========

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

         Weighted average common shares outstanding     44,521      40,140
                                                      ========    ========
</TABLE>

<PAGE>


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

                                                         Three Months Ended
                                                             March 31,
                                                        ----------------------
                                                        ---------   ----------
                                                          1997         1996
                                                        ---------   ----------
Cash flows from operating activities:                   (Restated)
<S>                                                        <C>         <C>
Net loss ..............................................  $ (2,446)   $ (1,448)
Adjustments to reconcile net loss to net cash
used for operating activities:
   Depreciation and amortization ......................        47          74
   Warrant issuance ...................................       484           -
   Stock options issued for services ..................        46           -
   Net (increase) decrease in operating assets
   and liabilities:
      Accounts receivable .............................      (280)        189
      Inventories .....................................      (337)        (74)
      Prepaid expenses and other current assets .......       (57)         67
      Accounts payable and accrued compensation .......        61        (249)
      Deferred revenues ...............................      (172)        (96)
      Pre-petition liabilities ........................      (878)       (762)
      Other accrued liabilities .......................        (6)       (169)
                                                          --------    --------


         Net cash used in operating activities ........    (3,538)     (2,468)
                                                          --------    --------

Cash flows from investing activities:
     Proceeds from sale of short-term investments .....     3,000       2,062
     Purchase of short-term investments ...............    (4,729)     (3,029)
     Acquisition of property and equipment ............       (79)        (70)
     Increase in other assets .........................      (127)        (54)
                                                          --------    --------

         Net cash used in investing activities ........    (1,935)     (1,091)
                                                          --------    --------

Cash flows from financing activities:
     Principal payments on short-term debt ............         -         (30)
     Principal payments on capital lease obligations ..        (4)         (9)
     Proceeds from issuance of common stock ...........       102         120
                                                          --------    --------

         Net cash provided by financing activities ....        98          81
                                                          --------    --------

Effect of exchange rate changes on cash ...............       (34)        (46)
                                                          --------    --------

Net decrease in cash and cash equivalents .............    (5,409)     (3,524)
Cash and cash equivalents at beginning of quarter .....    10,573       5,924
                                                          ========    ========

Cash and cash equivalents at end of quarter ...........  $  5,164    $  2,400
                                                          ========    ========
</TABLE>
<PAGE>
                     Communication Intelligence Corporation
                                 and Subsidiary
                 Condensed Consolidated Statements of Cash Flows
                                    Unaudited
                                 (In Thousands)
<TABLE>
<CAPTION>

                                                       Three Months Ended
                                                            March 31,
                                                     ----------------------
                                                        1997        1996
                                                     ---------    ---------
Schedule of non-cash transactions:                   (Restated)
<S>                                                    <C>         <C>
  Embedded yield on preferred stock                  $  (2,188)   $       -
                                                      =========    =========

  Preferred stock dividend                           $    (141)   $       -
                                                      =========    =========

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

                     Communication Intelligence Corporation
                                and Subsidiaries
                                    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  Communication   Intelligence   Corporation   considers
     necessary for a fair  presentation  of its financial  position at the dates
     and the  Company's  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 Communication  Intelligence Corporation is to
     develop  and market  natural  human,  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 for CIC's products 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)and  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.

          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 financial  statements  have been
     reclassified to conform with the current period presentation.

     Financial statement restatement

          The Company's  Form 10-Q for the quarter ended March 31, 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  beleives  the  restatement  of the March 31,  1997  quarterly
     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 effect of this
     restatement  on  the  results  of  operations  originally  reported  in the
     Company's  Form 10-Q for the  quarter  ended March 31, 1997 was to increase
     the  net  loss  applicable  to  common   stockholders  by  $2,329,000  from
     $2,446,000 to $4,775,000  and to increase net loss per common share by $0.6
     from $.05 to $0.11. The  restatement  has no effect on the Company's  cash
     position at March 31, 1997.

     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.  The cost of
     securities sold is based on the specific identification method.
<PAGE>
          

2.   Cash  and cash  equivalents  (continued)

          Cash and cash equivalents  included certain highly liquid  investments
     with original maturities of up to 90 days as follows:
<TABLE>
<CAPTION>

                                                       March 31,    Dec. 31,
                                                         1997         1996
                                                      ----------   ---------
                                                          (In thousands)
<S>                                                     <C>          <C>

              Cash in bank                              $   493      $ 9,483
              Commercial paper                            4,667        1,088
              Money markets                                   4            2
                                                        ========     ========
                                                        $ 5,164      $10,573
                                                        ========     ========
</TABLE>

     Short-term  investments  consisted  of  the  following   available-for-sale
          securities as follows:
<TABLE>
<CAPTION>
                                                        March 31,    Dec.31,
                                                          1997        1996
                                                       ----------   --------
                                                           (In thousands)
<S>                                                     <C>           <C>

               U.S. Corporate securities                $  1,981      $  252
               Other debt securities                         500         500
                                                        ---------    ---------
                                                        $  2,481      $  752
                                                        =========    =========
</TABLE>

          Corporate  debt  securities  at March 31, 1997 mature in less than one
     year.  Other debt securities at March 31,1997 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 March 31, 1997,  inventory was comprised  primarily of finished
     goods.

4.  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 were issued in exchange for 390,000
     shares of common stock, originally issued in the June Private Placement.

          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 may be converted by the holders into shares of Common Stock
     at any time 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 redeemable  convertible  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  is not  declared
     effective  within 180 days from December 31, 1996,  the Company is required
     to pay to each holder a default  payment  (the  "Default  Payment")  in the
     amount  equal  to 3% of  the  liquidation  preference  for  the  redeemable
     convertible  preferred  stock  held  for any  part of  each  30-day  period
     subsequent to the Declaration Date that the Registration  Statement has not
     been  declared  effective.  A similar  Default  Payment must be made by the
     Company to the holders of  redeemable  convertible  preferred  stock in the
     event  that (i) the  Company  fails, refuses  or is  unable  to  cause  the


<PAGE>
4.   Convertible Preferred Stock (continued)

     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 redeemable convertible preferred stock.

          On March 28, 1997,  and  effective  as of December  31, 1996,  holders
     constituting  100% of the issued  and  outstanding  redeemable  convertible
     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
     adjustment for  antidilution.  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 for the quarter  ended March 31, 1997 and, as
     such, are included in stockholders' equity for such period.

5. 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  quarter ending  December 31,
     1997. The Statement  redefines  earnings per share under generally accepted
     accounting principles.  Under the new standard,  primary earnings per share
     is  replaced  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 ended March 31, 1997 and
     for the comparable period in the prior year, the Company's loss per share
     would have been as follows:
<TABLE>
<CAPTION>

                                                   Three Months Ended March 31,
                                                        1997           1996
                                                      --------       --------
                                                     (Restated)
                                                           (in thousands)
<S>                                                  <C>             <C>
                        Basic loss per share .       $  (0.11)       $  (0.04)
                        Diluted loss per share       $  (0.11)       $  (0.04)
</TABLE>



<PAGE>


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 months ended March 31, 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 March 31, 1997
     quarterly  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.  The  Company's  revenues are derived  from  product  sales,
     license and  royalty  revenues  and  development  contracts.  For the three
     months ended March 31, 1997,  revenues  increased by 87% to $1,198,000 from
     $639,000 for the  comparable  three  months  period ended March 31, 1996 as
     discussed below:
<TABLE>
<CAPTION>
                                                      Three months ended
                                                            March 31,
                                                 ------------------------------
                                                      ----------  ---------
                                                          1997      996
                                                       ---------  ---------
                                                            Unaudited
                                                         (in thousands)
              Revenues:
<S>                                                     <C>       <C>
               Product ..............................   $  765    $  417
               License and royalty...................      272       131
               Development contract..................      161        91
                                                        ======    ======

                                                        $1,198    $  639
                                                        ======    ======
</TABLE>

          Product  sales  increased to $765,000 for the three month period ended
     March 31, 1997 from  $417,000 in the  comparable  prior year  period.  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  $350,000 to
     $488,000 during the period ended March 31, 1997 compared to $138,000 in the
     prior year period.  Product  sales by the Company's 79% owned joint venture
     in The Peoples  Republic of China (the "Joint  Venture")  were $275,000 for
     the period ended March 31,  1997compared to $277,000 during the same period
     last year.

          Revenues  from  license  and royalty  fees for the three month  period
     ended March 31, 1997  increased to $272,000 from $131,000 in the comparable
     prior period.  This  increase was  primarily the result of higher  shipment
     volumes by the Company's licensees and to approximately $164,000 in royalty
     revenues  recognized on licensing  agreements  for which the Company has no
     further obligation to deliver additional software or services.

          Development  contract  revenues for the three month period ended March
     31, 1997  increased  77% to $161,000 from $91,000 in the  comparable  prior
     year period.  This increase was offset in part by a $10,000 or 11% decrease
     in grant revenues  received from The National Science  Foundation  ("NSF"),
     for basic research, compared to the first quarter 1996 development contract
     revenues  attributable  to  a  grant  from  the  US  Government's  National
     Institute of Standards and Technology  ("NIST") of $91,000.  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.
<PAGE>

          Cost of Sales. Cost of sales is comprised of costs from product sales,
     licensing,  royalty  and other  costs and  development  contracts.  Cost of
     product sales for the three months ended March 31, 1997 consists  primarily
     of cost of  materials,  approximately  $235,000  of which is related to the
     hardware  and  software  components  involved  in  the  system  integration
     activities of the Joint Venture,  compared to approximately $233,000 in the
     prior  year  period,  and the  remainder  of  which  related  to  costs  of
     Handwriter  product  sales.  HandwriterAE  product  cost of  materials  was
     approximately  $400,000 for the three months ended March 31, 1997  compared
     to  approximately  $95,000 in the prior year  period.  The  decrease in the
     Handwriter products gross margin to 17% during the three months ended March
     31, 1997 from 31% in the comparable  period of the prior year resulted from
     the introduction of the Handwriter products into the retail channel.  Gross
     margin on product sales  activities of the Joint Venture was 15% during the
     three  months  ended  March 31,  1997  compared  to 16% 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 by  approximately  $87,000 to $169,000 for the three months ended
     March 31,  1997  compared  $82,000 for the  comparable  1996  period.  This
     increase in other costs related primarily to additional  personnel costs of
     $42,000 and product  fulfillment  and other costs of $43,000 in  connection
     with the launch of the Company's  HandwriterAE for WindowsAE product in the
     retail  market in the  first  quarter  of 1997.  There  were no  comparable
     activities in the prior year period. The increase in other costs was offset
     by a reduction in the  amortization  of  capitalized  software  development
     costs of $21,000 for the three  months  ended March 31, 1997 as compared to
     the prior year.  Costs  incurred in connection  with  development  contract
     revenue are expensed as incurred  and  increased 6% during the three months
     ended March 31, 1997 as compared to the March 31, 1996 period, commensurate
     with the increase in contract  development revenues in the first quarter of
     1997.

          Research and  development.  Research and development  expenses for the
     three month  period  ended March 31, 1997  increased  by 33% to $476,000 as
     compared  to  $357,000 in the  comparable  period of the prior  year.  This
     increase was primarily attributable to approximately $63,000 in payroll and
     related  costs  attributable  to  increases  in  headcount  and  $37,000 in
     consulting  services  compared to the prior year.  Other  costs,  including
     facility and related costs,  increased  approximately $19,000 for the three
     month  period  ended March 31,  1997 as  compared  to the prior year.  This
     increase was commensurate  with the increase in personnel.  The Company did
     not  capitalize  any software  development  costs in the three month period
     ended March 31, 1997 or 1996, respectfully.

          Sales and marketing.  Sales and marketing expenses for the three month
     period  ended March 31, 1997  increased  96% to  $1,400,000  as compared to
     $714,000 in the  comparable  period of the prior year.  This  increase  was
     primarily due to increases of $374,000 in advertising and related expenses,
     and  $233,000  in payroll  and  related  expenses.  Other  costs  including
     facilities  and  related  expenses  increased  $49,000   commensurate  with
     additions in staffing.  The increases in staffing and advertising  expenses
     were  primarily  due to  the  introduction  and  support  of the  Company's
     Handwriter  products  into the retail  channel  during the first quarter of
     1997, and continued marketing and sales efforts in the corporate channel.

          General and  administrative.  General and administrative  expenses for
     the three month  period ended March 31, 1997  decreased  13% to $429,000 as
     compared  to  $494,000 in the  comparable  period of the prior  year.  This
     decrease was primarily  attributable to reductions of approximately $42,000
     in payroll and related costs and $21,000 in other costs including insurance
     and facilities and related costs  associated  with the transfers of general
     and administrative staff to sales and marketing activities.

          Interest  and  other  income  (expense).  Interest  and  other  income
     (expense)  increased  due to a one time 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 (the "Agreement"),
     entered into in connection with the December Private Placement (Note 4).

          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 sock becomes 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.
 <PAGE>

Liquidity and Capital Resources

          At March 31, 1997,  cash, cash  equivalents and short term investments
     totaled  $7,645,000  compared  to cash,  cash  equivalents  and short  term
     investments  of  $11,325,000  at  December  31,  1996.  This  decrease  was
     primarily the result of $3,538,000 used in operating  activities  including
     the final payment of $878,000 to pre-petition creditors during the quarter.
     Total  current  assets  were  $9,392,000  at March  31,  1997  compared  to
     $12,420,000 at December 31, 1996.

          As of March 31, 1997, the Company's  principal source of liquidity was
     its cash, cash  equivalents and short-term  investments of $7,645,000.  The
     Company  believes  that the  above-mentioned  funds,  are  adequate to meet
     projected  working capital and other cash  requirements for the next twelve
     months.  However the Company may be required to obtain additional financing
     earlier.

          Current liabilities,  which include deferred revenue,  were $3,150,000
     at March 31, 1997. Deferred revenue, totaling $1,835,000 at March 31, 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.  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 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 March 31, 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.

          The Company is planning the next  contribution of $900,000 in cash and
     approximately  $1,700,000 in licensed  technology  rights during the second
     quarter of 1997.  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 second 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.

          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  Convertible  Preferred  and the  exercise  of  warrants  to
     purchase  and  aggregate  of 637,000  shares of common  stock was  declared
     effective  by the  Securities  and  Exchange  Commission.  The  Convertible
     Preferred may be converted by the holder into shares of common stock at any
     time beginning  July 1, 1997 or earlier if a change in control  transaction
     occurs.

          On March 28, 1997,  and  effective  as of December  31, 1996,  holders
     constituting  100% of the issued  and  outstanding  redeemable  convertible
     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
     adjustment for  antidilution.  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 for the quarter  ended March 31, 1997 and, as
     such, are included in stockholders' equity for such period.
<PAGE>

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 4.  Submission of Matters to a Vote of Security Holders

         None

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

         Exhibit 27, Financial Data Schedule.

(b)      Reports on Form 8-K

          On January  22,  1997,  the  Company  filed a Form 8-K (dated  January
          22,1997) under Item 5, Other Events, reporting nation wide offering of
          CIC Handwriter products by CompUSA.

<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)