SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)

[ x ]  Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the quarterly period ended    September 30, 1997 or

[    ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from ______________ to ______________

Commission file number     0-18090

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

Delaware                                                94-2250509
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                          Identification No.)

                 100Cooper  Court,  Los Gatos,  California,  95030  (Address  of
                    principal executive offices)

                                                      (408) 395-7000
              (Registrant's telephone number, including area code)
----------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

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_____

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock.

                                                              Outstanding
           Class                                           September 30, 1997

           Common Stock
           $.001 par value                                    13,310,331

                           This is page 1 of 16 pages


<PAGE>






 <TABLE>
<CAPTION>
                                CAERE CORPORATION
                                      INDEX

                          PART I. Financial Information
<S>               <C>                                                                                    <C>
                                                                                                         Page
ITEM 1.           Financial Statements

                  Condensed Consolidated Balance Sheets - September 30, 1997
                      and December 31, 1996                                                                 3

                  Condensed Consolidated Statements of Operations -- Three Months
                      and Nine Months Ended September 30, 1997 and 1996                                     4

                  Condensed Consolidated Statements of Cash Flows - Nine Months
                      Ended September 30, 1997 and 1996                                                     5

                  Notes to Condensed Consolidated Financial Statements                                    6-7

ITEM 2.           Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                                                8-14


                                        PART II. Other Information


ITEM 6.           Exhibits and Reports on Form 8-K                                                         15


SIGNATURES                                                                                                 15


Exhibit 11        Statement Regarding Computation of Net Earnings
                      Per Share                                                                            16

Exhibit 27        Financial Data Schedule

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION
                          ITEM I. FINANCIAL STATEMENTS
                                CAERE CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)
                                   (Unaudited)
<S>                                                                      <C>                <C>
                                                                          September 30,        December 31,
                                                                               1997                1996
                                                  ASSETS

Cash and cash equivalents                                                $     2,429        $     11,663
Short-term investments                                                        44,580              32,627
Receivables                                                                    7,723               6,888
Inventories                                                                    2,000               2,779
Deferred income taxes                                                          2,474               2,474
Other current assets                                                           1,186                 768
                                                                         -----------          ----------
         Total current assets                                                 60,392              57,199

Property and equipment, net                                                    4,919               4,742
Other assets                                                                   1,358               1,213
                                                                         -----------        -------------

         Total assets                                                    $    66,669        $     63,154
                                                                         ===========       =============

                                   LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued expenses and other payables                                      $     6,027        $      7,406

Preferred stock, $.001 par value:  authorized 2,000,000
  shares; none issued or outstanding                                               -                   -
Common stock, $.001 par value:  authorized 30,000,000
  shares; issued and outstanding 13,310,331 and 13,283,224
  shares                                                                          13                   13
Additional paid-in capital                                                    59,370               55,399
Retained earnings                                                              1,259                  336
                                                                         -----------        -------------

         Total stockholders' equity                                           60,642               55,748
                                                                         -----------        -------------

         Total liabilities and stockholders' equity                      $    66,669        $      63,154
                                                                         ===========        =============

The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.

</TABLE>

<PAGE>


<TABLE>
<CAPTION>

                                CAERE CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (Unaudited)

<S>                                              <C>  <C>      <C>   <C>           <C>  <C>        <C>  <C>
                                                     Three Months Ended             Nine Months Ended
                                                          September 30,                  September 30,
                                                     1997             1996             1997            1996
                                                     ----             ----             --------------------


Net revenues                                     $    14,069    $    13,403        $    39,392     $    40,948

Cost of revenues                                       3,448          4,273             10,517          13,045
                                                       -----          -----             ------          ------

                                                      10,621          9,130             28,875          27,903
                                                      ------          -----             ------          ------

Operating expenses:
  Research and development                             2,592          1,655              6,798           5,276
  Selling, general and administrative                  6,605          6,495             19,600          19,497
  Merger related costs                                     -              -              2,935              90
                                                      ------         ------              -----          ------

                                                       9,197          8,150             29,333          24,863
                                                       -----          -----             ------          ------

  Operating earnings (loss)                            1,424            980               (458)          3,040

Interest income, net                                     692            711              1,867           2,104
                                                      ------         ------             ------          ------

  Earnings before income taxes                         2,116          1,691              1,409           5,144

Income tax expense                                       264            169                486             847
                                                      ------         ------              -----           -----

  Net earnings                                   $     1,852    $     1,522        $       923     $     4,297
                                                      ======         ======             ======           =====


Net earnings per common and
 common equivalent share                         $      0.14    $      0.11        $       0.07    $      0.32
                                                    ========       ========           =========       ========

Shares used in per share calculation                  13,402         13,342             13,224          13,507
                                                      ======         ======             ======          ======

</TABLE>


The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.


<PAGE>

<TABLE>
<CAPTION>

                                            CAERE CORPORATION
                             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                              (In thousands)
                                               (Unaudited)
<S>                                                                               <C>    <C>        <C>      <C>
                                                                                            Nine Months Ended
                                                                                              September 30,
                                                                                           1997              1996
Cash flows from operating activities:
  Net earnings                                                                    $         923     $        4,297
  Adjustments to reconcile net earnings to net cash
  provided by operating activities:
    Depreciation and amortization                                                         2,265              1,962
    In-process research and development                                                   2,935                  -
    Merger related costs                                                                      -               (930)
    Amortization of capitalized software development costs                                  373                431
    Changes in operating assets and liabilities:
      Receivables, net                                                                     (835)              (394)
      Income tax receivable                                                                   -                613
      Inventories                                                                           779                 51
      Other current assets                                                                 (418)              (401)
      Accrued expenses and other payables                                                (1,379)               610
                                                                                      ----------         ---------
        Net cash provided by operations                                                   4,643              6,239
                                                                                      ----------         ---------
Cash flows from investing activities:
  Short-term investments, net                                                           (11,953)            (3,399)
  Capital expenditures                                                                   (2,085)            (1,306)
  Capitalized software development costs                                                   (708)              (429)
  Other assets                                                                                3                (21)
                                                                                      ---------          ----------
        Net cash used for investing activities                                          (14,743)            (5,155)
                                                                                      ----------         ----------
Cash flows from financing activities:
  Proceeds from issuances of common stock, net                                              866              1,730
  Repurchase of stock                                                                         -             (9,233)
                                                                                      ---------          ----------
       Net cash provided by (used for) financing activities                                 866             (7,503)
                                                                                      ---------          ----------
Net change in cash and cash equivalents                                                  (9,234)            (6,419)
Cash and cash equivalents, beginning of period                                           11,663             10,664
                                                                                      ---------          ---------
Cash and cash equivalents, end of period                                          $       2,429     $        4,245
                                                                                      =========          =========
Supplemental disclosures:
  Cash paid for income taxes                                                      $       1,117     $           66
                                                                                      =========          =========
  Common stock issued for business acquisition                                    $       3,105     $            -
                                                                                      =========          =========
</TABLE>

The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.


<PAGE>


                                CAERE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


A)       Basis of Presentation

         The  accompanying  unaudited  condensed  consolidated  balance  sheets,
statements of operations  and  statements of cash flows reflect all  adjustments
(consisting of only normal recurring  adjustments)  which are, in the opinion of
management,  necessary  to  fairly  present  the  financial  position  of  Caere
Corporation  (the  "Company")  as of  September  30,  1997,  and the  results of
operations and cash flows for the periods indicated.

         The accompanying  unaudited condensed consolidated financial statements
have  been  prepared  in  accordance  with the  instructions  for Form  10-Q and
therefore  certain  information and footnote  disclosure  normally  contained in
financial  statements  prepared in accordance with generally accepted accounting
principles have been condensed or omitted.  The Company filed audited  financial
statements  with the  Securities  and  Exchange  Commission  which  included all
information and footnotes necessary for a complete presentation of the Company's
financial  position,  results of  operations  and cash flows for the years ended
December 31, 1996, 1995, and 1994 in its annual report on Form 10-K for the year
ended  December  31,  1996  ("the  Form  10-K").  These  condensed  consolidated
financial statements should be read in conjunction with the financial statements
contained in the Company's  Form 10-K. The results of operations for the interim
periods ended September 30, 1997, are not necessarily  indicative of the results
to be expected for the full year. <TABLE> <CAPTION>

B)       Inventories

<S>                                                              <C>     <C>            <C>       <C>
                                                                 September 30, 1997      December 31, 1996
                                                                              (In thousands)
           A summary of inventories follows:

               Raw materials                                     $       1,106           $        1,540
               Work in process                                             152                      348
               Finished goods                                              742                      891
                                                                      --------     -          ---------
                                                                 $       2,000           $        2,779
                                                                      ========                =========
</TABLE>


(C)      Net Earnings Per Share

         Net earnings per common and common  equivalent share are computed using
the weighted  average  number of common and dilutive  common  equivalent  shares
outstanding  during the period.  Common  equivalent shares consist of options to
purchase common stock calculated using the treasury stock method.  Fully diluted
earnings per share for all periods presented were not materially  different from
primary earnings per share.

         The  Financial   Accounting  Standards  Board  (FASB)  recently  issued
Statement  of  Financial  Accounting  Standards  (SFAS) No. 128,  "Earnings  Per
Share." SFAS No. 128 replaces the presentation of primary earnings per share and
requires the presentation of basic earnings per share ("EPS") and, for companies
with complex  capital  structures or potentially  dilutive  securities,  such as
convertible debt,  options and warrants,  diluted EPS. SFAS No. 128 is effective
for annual and interim  periods  ending after  December  15, 1997,  and requires
restatement  of all prior  period  earnings per share data  presented  after the
effective  date. Had SFAS No. 128 been effective for the quarter ended September
30, 1997, basic EPS and diluted EPS would not have been significantly  different
from the reported net earnings per share.



<PAGE>




D.       Business Acquisition

         On March 31, 1997, the Company acquired Formonix, Inc. ("Formonix"),  a
software  developer located in Colorado.  The total value of the acquisition was
approximately  $3,188,000.  The Company issued 550,000 shares of Common Stock in
exchange for all of the capital  stock of Formonix.  Using the closing  price of
the Company's Common Stock on the closing date of acquisition,  the valuation of
the shares issued was  approximately  $3,105,000.  Acquisition  costs associated
with the  transaction  totaled  approximately  $83,000 and  consisted  mainly of
professional fees. The business combination was accounted for under the purchase
method of accounting.  Accordingly, the consolidated financial statements of the
Company do not include Formonix until after the date of acquisition.

         Acquired  technology was valued using a risk-adjusted  cash flow model,
under which future expected cash flows were discounted taking into account risks
related to existing  markets,  the technology's  life expectancy,  future target
markets and  potential  changes  thereto,  and the  competitive  outlook for the
technology.  The analysis resulted in an allocation of approximately $253,000 to
purchased  software and the balance of  approximately  $2,935,000  to in-process
technology  which  had  not yet  reached  technological  feasibility  and had no
alternative future use, and accordingly, was charged to expense.

         The following  summarized,  pro forma results of operations  assume the
acquisition  took place at the beginning of the respective  periods and excludes
the $2,935,000 charge for acquired in-process technology.
<TABLE>
<CAPTION>
<S>                                                                                <C>             <C>
Nine months ended September 30, in thousands, except per share amounts              1997             1996
                                                                                    ----             ----

Net revenues                                                                       $39,392         $40,954
Net earnings                                                                       $ 3,715         $ 4,253
Earnings per share                                                                 $   .28         $   .30

</TABLE>






<PAGE>


                                     Item 2

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

         The Company notes that, except for the historical information contained
herein,  the matters discussed below are  forward-looking  statements subject to
risks and  uncertainties  that may cause the Company's  actual results to differ
materially.  These  risks and  uncertainties  include,  but are not  limited to,
various  technological and competitive factors,  including competitive products,
market  acceptance  of future  products of the Company,  and pricing  pressures;
success of the "bundle and upgrade"  business  model,  including  the  Company's
maintaining its relationships  with scanner  manufacturers and customers' opting
to upgrade to newer or more fully featured  products;  changes in customer order
patterns,  including the maintenance of relationships  with retail  distributors
and dealers; manufacturing considerations,  including the maintenance of margins
in a declining-price  environment, as well as risk of inventory obsolescence due
to shifts in market demand and new product introductions; and other risk factors
listed from time to time in the Company's SEC reports, including but not limited
to the  Company's  report  on Form 10-K for the year  ended  December  31,  1996
(Certain Trends and Risk Factors sections).

Results of Operations

         The following  chart  summarizes  net revenues,  cost of revenues,  and
gross  margins for the  Company's  products  categorized  between  hardware  and
software.  Software products consist of the OmniPage,  WordScan,  OmniForm,  and
PageKeeper  lines  of  products.   Hardware   products  consist  of  transaction
processing  OCR and bar code  products,  and the M/Series line of production OCR
products. <TABLE> <CAPTION>

Business Line Analysis
                       ----------------------------------------------- ----------------------------------------------
Three Months                          Sept. 30, 1997                                 Sept. 30, 1996
Ending:
                       ----------------------------------------------- ----------------------------------------------
<S>                       <C>             <C>              <C>            <C>            <C>              <C>
                          Software        Hardware                       Software        Hardware
                          Products        Products         Combined      Products        Products         Combined
Net revenues               $11,458          $2,611          $14,069       $11,407          $1,996          $13,403
Cost of revenues             2,343           1,105            3,448         3,336             937            4,273
                             -----           -----            -----         -----             ---            -----
                             9,115           1,506          $10,621        $8,071          $1,059           $9,130
Gross margin %               79.6%           57.7%            75.5%         70.8%           53.1%            68.1%
                       -------------- --------------- ---------------- ------------- --------------- ----------------

                       ----------------------------------------------- ----------------------------------------------
Nine Months Ending:                   Sept. 30, 1997                                 Sept. 30, 1996

                       ----------------------------------------------- ----------------------------------------------
                          Software        Hardware                       Software        Hardware
                          Products        Products         Combined      Products        Products         Combined
Net revenues               $33,674          $5,718          $39,392       $34,284          $6,664          $40,948
Cost of revenues             7,605           2,912           10,517        10,134           2,911           13,045
                             -----           -----           ------        ------           -----           ------
                            26,069           2,806          $28,875       $24,150          $3,753          $27,903
Gross margin %               77.4%           49.1%            73.3%         70.4%           56.3%            68.1%
                       -------------- --------------- ---------------- ------------- --------------- ----------------
</TABLE>

     Net revenues for software  products  increased  during the third quarter of
1997 to $11,458,000  from  $11,407,000  in 1996, due to the initial  shipment of
OmniPage  Professional 8.0 for Windows 95/NT,  which began shipping in September
1997. This increase was somewhat  offset by a decline in both Macintosh  product
sales and revenues derived from bundling  arrangements.  Software unit shipments
increased  50% in the third quarter of 1997 compared to the same period in 1996,
due primarily to increased  bundled  units.  The results for the quarter  ending
September  30,  1997,  did not  include  any  significant  one-time  payment  of
royalties as was reported for the previous quarter ending June 30, 1997. For the
nine month period ending September 30, 1997, net revenues for software  products
decreased 2% to $33,674,000,  compared to $34,284,000  during the same period in
1996.  The primary reason for this decline was a reduction in sales of Macintosh
software products.

         Net revenues for hardware  products  increased 31% to $2,611,000 in the
third quarter of 1997 compared to $1,996,000 during the same period in 1996. The
increase was primarily the result of the receipt of a large,  one-time order for
transaction  processing OCR products.  It is common in this line of business for
the  Company to receive  large,  one time  orders for  products.  This  ordering
pattern has  historically  resulted in  significant  fluctuations  in  quarterly
hardware  revenues.  This trend is  expected  to  continue.  For the nine months
ending September 30, 1997, net revenues for hardware  products  decreased 15% to
$5,718,000  from  $6,664,000  during the same period in 1996, due primarily to a
reduction in revenues  associated with the Company's M/Series line of production
OCR  products.  This  hardware  product line is  undergoing  a  transition  to a
"software-only"  solution,  as the computing power available on today's personal
computers  continues to increase.  To a lesser  extent,  the decline in hardware
revenues on a year-to-date basis was also attributable to reduced unit shipments
of transaction processing OCR and barcode products.

         International sales decreased 8% to $3,751,000, or 27% of net revenues,
during  the  third  quarter  of  1997,  compared  to  $4,090,000,  or 31% of net
revenues, in the same period of 1996. The decrease was primarily a result of the
time lag  associated  with  introducing  foreign  language  versions of OmniPage
Professional  8.0. These new versions are expected to ship in the fourth quarter
of  1997.  On  a  year-to-date  basis,   international  sales  increased  6%  to
$12,434,000,  or 32% of net  revenues,  compared to  $11,757,000,  or 29% of net
revenues,  in the same period in 1996.  The primary reason for this increase was
the inclusion of operations for the Company's  Hungarian  subsidiary,  Recognita
Rt. ("Recognita"), which was acquired in December 1996.

Gross Margins

         Gross margins for software  products  increased from 70.8% in the third
quarter  of 1996 to 79.6% in the third  quarter  of 1997,  primarily  due to the
shift in  production  of  significant  quantities  of  bundled  products  to the
Company's scanner partners. Beginning in the fourth quarter of 1996, the Company
began to change the bundling arrangement with certain of its partners.  Prior to
the fourth  quarter of 1996,  the Company sold  bundled  products to partners at
prices  approximating  cost.  Commencing in the fourth quarter of 1996,  certain
partners  agreed to  manufacture  their product  requirements  on a much reduced
royalty basis. The effect of the change upon the Company's financial  statements
has been to reduce net revenues and cost of revenues previously  associated with
bundled  products by a similar amount,  creating an improvement in overall gross
margins.  For the nine months ended  September  30,  gross  margins for software
products in 1997 improved to 77.4% from 70.4% during the same period in 1996.

         Gross  margins for  hardware  products  increased to 57.7% in the third
quarter  of 1997  from  53.1%  in the same  period  in  1996,  due to  increased
shipments of transaction processing OCR products, with fixed manufacturing costs
being spread over higher unit volumes. A majority of the Company's manufacturing
overhead is fixed in nature. As hardware product revenues increase, the level of
manufacturing overhead does not necessarily increase in the same proportion. For
the nine months ended  September 30, 1997,  gross margins for hardware  products
declined to 49.1% from 56.3%  during the same period in 1996,  due  primarily to
reduced  shipments  of M/Series  hardware  products  and the fixed nature of the
Company's manufacturing overhead.

         The primary factors affecting gross margins in the future are likely to
be shifts in product mix between fully  priced,  non-upgrade  software,  bundled
software,  upgrade products,  and royalty revenue,  as well as overall shifts in
product mix between software and hardware products.  The microcomputer  software
market  has  been  subject  to  rapid  changes,   including   significant  price
competition,  which can be expected to  continue.  Future  technology  or market
changes may cause certain  products to become  obsolete  rapidly,  necessitating
increased inventory write-offs or reserves and a corresponding decrease in gross
margins.

Operating Expenses

         Research and development (R&D) expenses  increased 57% to $2,592,000 in
the third quarter of 1997, from  $1,655,000  during the same period in 1996. The
increase in spending from 1996 to 1997 was  primarily the result of  development
expenses of the Company's recently acquired subsidiaries,  Recognita in Hungary,
which was  acquired in  December  1996,  and  Formonix  in  Colorado,  which was
acquired in March 1997.  To a lesser  extent,  the  increase in R&D expenses was
also  attributable to increased  staffing  associated with the Company's ongoing
software development projects. As a percentage of revenue, R&D expense increased
to 18% of revenue in the third quarter of 1997,  from 12% during the same period
in 1996.  This  increase was  attributable  to higher R&D  expenses  between the
comparable  periods.  For the nine months ended September 30, 1997, R&D expenses
increased 29% to $6,798,000,  or 17% of net revenues, from $5,276,000, or 13% of
net revenues,  during the  comparable  period in 1996. The increases in spending
and R&D  expenses as a  percentage  of revenue  were due  primarily  to the same
reasons.

         The Company is committed to providing continued enhancements to current
products, as well as developing new technologies for the future. This commitment
will result in the Company's continuing to invest heavily in R&D during 1997 and
in the future.  In accordance with Statement of Financial  Accounting  Standards
No. 86, the Company  capitalized  $150,000 of software  development costs during
the third quarter of 1997,  compared to $132,000 in the same period of 1996. For
the nine months ended September 30, 1997, capitalized software development costs
totaled  $455,000,  compared  to  $429,000  during the same  period in 1996.  In
addition to this capitalization of internal R&D expenses, in connection with the
Company's  acquisition  of  Formonix,  the  Company  capitalized   approximately
$253,000 of the  acquisition  cost during the first  quarter of 1997.  The costs
capitalized related to the portion of the Formonix  acquisition  valuation which
was  allocated  to  existing  products  acquired.  Amortization  of  capitalized
software  development  costs was $130,000 in the third  quarter of 1997,  versus
$137,000  for  the  comparable   period  in  1996.  On  a  year-to-date   basis,
amortization  of  capitalized   software  development  costs  totaled  $373,000,
compared to $431,000 during the comparable period in 1996.

         Selling,  general and  administrative  (S,G&A) expenses increased 2% in
the third quarter of 1997 to $6,605,000 from  $6,495,000  during the same period
in 1996.  The  increase in S,G&A  spending  was  primarily  related to increased
service and support  expenses  related to the  Company's  growing  customer base
resulting  from the high  volume  business  being  generated  by the "bundle and
upgrade"  model.  To a  lesser  extent,  the  increase  in  S,G&A  expenses  was
attributable  to sales  and  marketing  costs of  Recognita  during  1997.  As a
percentage of net revenues,  S,G&A expense decreased to 47% in the third quarter
of 1997 from 48% during the same period in 1996. This decrease was  attributable
to only slightly higher S,G&A expenses, together with higher net revenues during
the  comparable  periods.  For the nine months ended  September 30, 1997,  S,G&A
spending increased 1% to $19,600,000, compared to $19,497,000 in the same period
in 1996. This relative  consistency  resulted from increased service and support
costs' being offset by savings  related to the  streamlining  of management  and
promotional  costs  between the  OmniPage and  OmniForm  product line  marketing
areas.  As a  percentage  of  revenue on a  year-to-date  basis,  S,G&A  expense
increased  to 50% of net revenue in 1997 from 48% of net  revenue in 1996.  This
increase was  attributable to lower net revenues during the comparable  periods.
The Company  expects that S,G&A expense may increase in dollar terms in 1997, as
efforts to expand sales and marketing activities continue in the OCR, forms, and
desktop document management areas.

         During the first  quarter of 1997,  a  $2,935,000  one-time  charge for
in-process   research  and  development  was  taken  related  to  the  Company's
acquisition of Formonix in March 1997. This charge related to the portion of the
Formonix  acquisition  valuation  represented  by the present value of estimated
cash flows expected to be generated by Formonix-related technology which, at the
acquisition date, had not yet reached the point of technological feasibility and
did not have an alternative future use.

Interest Income

         Interest  income  decreased 3% in the third quarter of 1997 to $692,000
from  $711,000  during  the same  period  in 1996.  For the  nine  months  ended
September 30, 1997, interest income decreased 11% to $1,867,000, from $2,104,000
during the same period in 1996. The decrease in interest income was attributable
to a reduction  in total cash and  short-term  investment  balances  between the
comparable periods.  The Company's one million share repurchase during the third
quarter  of 1996,  its  acquisition  of  Recognita  in  December  1996,  and its
acquisition  of Formonix in March 1997 were the primary  reasons for the decline
in total cash and  short-term  investment  balances  since the third  quarter of
1996.

Income Taxes

         The  Company's  effective  income  tax rate in 1997 is  expected  to be
between 10% and 20%, which is less than statutory rates primarily due to the use
of its foreign sales corporation and increased utilization of net operating loss
carryforwards  acquired in its 1994 merger with Calera Recognition Systems, Inc.
("Calera").  In the first nine months of 1996, the effective income tax rate was
16%, due primarily to the use of the Company's  foreign sales corporation and to
utilization  of the Calera net operating loss  carryforwards  in the 1996 fiscal
year.

Net Earnings and Earnings Per Share

         Net earnings for the third quarter of 1997 were $1,852,000, compared to
$1,522,000  during the same period in 1996.  Earnings per share were $.14 in the
third quarter of 1997,  versus $.11 in the  comparable  period in 1996.  For the
nine months ended  September 30, 1997, net earnings were  $923,000,  or $.07 per
share,  compared to $4,297,000,  or $.32 per share,  in 1996. The primary reason
for the  decline  in net  earnings  in the  first  nine  months  of 1997 was the
$2,935,000  one-time  in-process  research and development charge related to the
Formonix acquisition recorded during the first quarter.  Excluding this one-time
charge,  net  earnings  for the  first  nine  months  of 1997  would  have  been
$3,858,000, or $.29 per share.

Certain Trends

         The  Company's  future  operating  results  may be  affected by various
uncertain  trends and  factors  which are beyond the  Company's  control.  These
include but are not limited to adverse  changes in general  economic  conditions
and rising costs, or the occasional  unavailability  of needed  components.  The
industry is characterized by rapid changes in the technologies affecting optical
character  recognition,  forms, and document  management . The industry has also
become increasingly  competitive,  and,  accordingly,  the Company's results may
also be  adversely  affected by the  actions of existing or future  competitors,
including the development of new technologies, the introduction of new products,
and the reduction of prices by competitors to gain or retain market share.

         During 1994,  the Company began to bundle  versions of its OmniPage and
WordScan software recognition products with scanners from various manufacturers.
The Company's  objective in bundling its software  products with scanners was to
expand the  overall  market for OCR  software by  providing  a larger  number of
scanner  purchasers  with  experience  in the  advantages  of optical  character
recognition.  The success of this model,  compared  to Caere's  former  model of
selling its software  primarily  through retail  distribution,  depends upon the
Company's  maintaining  or  expanding  its existing  relationships  with scanner
manufacturers and on a significant proportion of customers who first receive OCR
software  in a bundled  product  deciding  to  upgrade  to a newer or more fully
featured   version  of  the  software.   Such  an  upgrade  is  typically  at  a
substantially  lower price than the retail price of the newer or fully  featured
product.

         Bundled products  incorporating OmniPage and WordScan began shipping in
significant  quantities  in the  fourth  quarter  of 1994.  Because of the lower
per-unit revenue to the Company that results from the combined sale of a bundled
product plus an upgrade, compared to the retail sale of a fully featured version
of the  software,  the  success of the "bundle and  upgrade"  program  relies on
increasing  unit  sales of  upgrades.  There can be no  assurance  that  Caere's
transition to the "bundle and upgrade"  business  model will be  successful  and
provide  sufficient  increase  in unit  volume in the  future to offset  reduced
per-unit revenue. In addition,  customers using the bundled product may defer or
forego  purchase of the Company's more fully  featured  versions of OmniPage and
WordScan  products  if  they  find  that  the  bundled  products  satisfy  their
recognition needs.

         A significant  portion of the Company's net revenues is attributable to
sales through its distribution  channels. The Company's future operating results
are  dependent  to  a  certain  extent  on  its  ability  to  maintain  existing
relationships with distributors, dealers, and resellers.

         The  Company's  future  earnings  and  stock  price may be  subject  to
significant  volatility,  particularly  on  a  quarterly  basis.  The  Company's
revenues and earnings on a quarterly basis are unpredictable, in part due to the
Company's  shipment  patterns.  As is  common  in  the  software  industry,  the
Company's  experience  has been that a  disproportionately  large  percentage of
shipments has occurred in the third month of each fiscal quarter,  and shipments
tend to be concentrated in the latter half of that month.  Because the Company's
backlog early in a quarter is not generally  large enough to assure that it will
meet its  revenue  targets for any  particular  quarter,  quarterly  results are
difficult to predict  until the end of the quarter.  A shortfall in shipments at
the end of any particular quarter may cause the results for that quarter to fall
significantly  short of anticipated  levels.  Due to analysts'  expectations  of
continued  growth,  any such shortfall in earnings could have a very significant
adverse  effect on the trading price of the Company's  Common Stock in any given
period.

         As a result of the foregoing  factors and other factors which may arise
in the future,  the market price of the Company's Common Stock may be subject to
significant  fluctuations over a short period of time. These fluctuations may be
due to  factors  specific  to the  Company,  to changes  in  analysts'  earnings
estimates,  or to factors  affecting  the  computer  industry or the  securities
markets in general.

Liquidity and Capital Resources

         Caere's  financial  position  remains  strong at  September  30,  1997.
Working  capital  increased 9% to $54,365,000  from  $49,793,000 at December 31,
1996.  The Company has no long-term  debt.  The  Company's  cash and  short-term
investments totaled $47,009,000 at September 30, 1997. The Company believes that
current cash balances and internally  generated funds will be sufficient to meet
its cash requirements through 1997.

         Caere generated cash for operating  activities of $4,643,000 during the
nine months ended  September  30, 1997.  Uses of cash  included  $11,953,000  to
purchase  short-term  investments,  in addition to a  $2,085,000  investment  in
capital  equipment.  During the first nine months of 1996, the Company generated
cash from operating  activities of  $6,239,000.  Uses of cash during that period
included  $3,399,000  to  purchase  short-term  investments  and  $1,306,000  of
expenditures for capital  equipment.  The primary reason for the decline in cash
generated by  operating  activities  was the  $2,935,000  charge for  in-process
research and development related to the Company's acquisition of Formonix in the
first quarter of 1997.

         The Company offers credit terms to qualifying  customers and also sells
on a prepaid,  credit card and  cash-on-delivery  basis.  With respect to credit
sales,  the  Company  attempts  to control  its bad debt  exposure  through  the
monitoring  of  customers'  creditworthiness  and,  where  practicable,  through
participation  in credit  associations  that provide  credit rating  information
about its customers. The Company has also purchased credit insurance for certain
key accounts to reduce the potential for catastrophic losses.




<PAGE>



                                                  Item 6

Exhibits and Reports on Form 8-K

(a)      Exhibits
                  Exhibit 11 - Statement Regarding Computation of Net Earnings
Per Share
                  Exhibit 27 - Financial Data Schedule

(b)      Reports on Form 8-K
                  No reports on Form 8-K were  filed by the  Company  during the
period covered by this Report.




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.

                                     CAERE CORPORATION

Date:  November 12, 1997

                                    /S/ Blanche M. Sutter
                   Blanche M. Sutter, Executive Vice President
                                    and Chief Financial Officer

                   (Principal Financial and Accounting Officer
                          and Duly Authorized Officer)



<PAGE>


                                                                     EXHIBIT 11
<TABLE>
<CAPTION>

                                            CAERE CORPORATION
                                     STATEMENT REGARDING COMPUTATION
                                        OF NET EARNINGS PER SHARE
                                               (Unaudited)

                                                       Three Months Ended                 Nine Months Ended
                                                         September 30,                      September 30,
<S>                                              <C>               <C>                  <C>            <C>
                                                    1997               1996               1997            1996

Net earnings                                     $1,852,000        $1,522,000           $923,000       $4,297,000
                                             ==============    ==============     ==============   ==============

Weighted average shares outstanding during
the period                                       13,309,577        13,146,906         13,092,852       13,295,704

Common equivalent shares using the
treasury stock method                                92,333           195,108            131,533          211,564
                                             --------------    --------------     --------------   --------------

Common and common equivalent shares
outstanding for purposes of calculating
net earnings per share                           13,401,910        13,342,014         13,224,385       13,507,268
                                             ==========        ==============         ==========   ==============

Net earnings per common and common
equivalent share                                      $0.14             $0.11              $0.07            $0.32
                                             ==============    ==============     ==============   ==============

</TABLE>