Communication Intelligence Corporation
                                and Subsidiaries

                                    FORM 10-Q




                                  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: 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 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





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

                                                           March 31,   Dec. 31,
Assets                                                       1997        1996
                                                           ---------   ---------
Current assets:
<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 ....................................    (56,803)    (54,347)
Cumulative foreign currency translation adjustment .....       (194)       (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:
<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)
                                                      ========    ========

         Net loss per common share ................   $  (0.05)   $  (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:
<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:

<S>                                                    <C>         <C>

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


                     Communication Intelligence Corporation
                                and Subsidiaries
                                    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 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.  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 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


<PAGE>


     4.   Convertible Preferred Stock (continued) 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 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
                                                      --------       --------
                                                           (in thousands)
<S>                                                  <C>             <C>

                        Basic loss per share .       $  (0.05)       $  (0.04)
                        Diluted loss per share       $  (0.05)       $  (0.04)
</TABLE>



<PAGE>


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

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).

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.

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



  May 14, 1997                              /s/ Francis V. Dane
----------------------            ---------------------------------------------
      Date                                      Francis V. Dane
                                    Vice President, Secretary and Treasurer
                                  (Principal Financial Officer and Officer Duly
                                   thorized to Sign on Behalf of the Registrant)