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, 1996 or

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

For the transition period from ______________ to ______________

Commission file number     0-18090

                                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.)

                 100 Cooper 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, 1996

           Common Stock
           $.001 par value                                            12,552,430

                           This is page 1 of 14 pages


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                                CAERE CORPORATION
                                      INDEX

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

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

                  Condensed Consolidated Statements of Operations -- Three 
                      Months and Nine Months Ended September 30, 1996 and 1995                          4

                  Condensed Consolidated Statements of Cash Flows - Nine Months
                      Ended September 30, 1996 and 1995                                                 5

                  Notes to Condensed Consolidated Financial Statements                                  6

ITEM 2.           Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                                               7-12


                           PART II. Other Information


ITEM 6.           Exhibits and Reports on Form 8-K                                                      13


SIGNATURES                                                                                              13


Exhibit 11        Statement Regarding Computation of Net Earnings
                      Per Share                                                                         14


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<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,
                                                                               1996                1995
                                     ASSETS

Cash and cash equivalents                                                $     4,245        $   10,664
Short-term investments                                                        40,500            37,101
Receivables                                                                    6,574             6,180
Income tax receivable                                                            496             1,109
Inventories                                                                    2,026             2,077
Other current assets                                                           2,826             2,425
                                                                         -----------          --------
         Total current assets                                                 56,667            59,556

Property and equipment, net                                                    5,251             5,639
Other assets                                                                   3,854             4,103
                                                                         -----------        -----------

         Total assets                                                    $    65,772        $   69,298
                                                                         ===========        ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued expenses and other payables                                      $     6,950        $    6,340
Accrued merger related costs                                                       -               930
                                                                         -----------       -----------
         Total current liabilities                                             6,950             7,270

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 12,552,430 and 13,283,224
  shares                                                                          13                13
Additional paid-in capital                                                    54,572            62,075
Retained earnings (deficit )                                                   4,237               (60)
                                                                         -----------      ------------

         Total stockholders' equity                                           58,822            62,028
                                                                         -----------       -----------

         Total liabilities and stockholders' equity                      $    65,772       $    69,298
                                                                         ===========       ===========

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

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<CAPTION>


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

                                                     Three Months Ended             Nine Months Ended
                                                          September 30,                  September 30,
<S>                                              <C>  <C>       <C>  <C>           <C>  <C>        <C>  <C> 
                                                       1996           1995               1996            1995
                                                       ----           ----               -----          ------


Net revenues                                     $    13,403    $    13,057        $    40,948     $    38,453

Cost of revenues                                       4,273          4,377             13,045          12,267
                                                       -----          -----             ------          ------

                                                       9,130          8,680             27,903          26,186
                                                       -----          -----             ------          ------

Operating expenses:
  Research and development                             1,655          2,008              5,276           6,186
  Selling, general and administrative                  6,495          6,135             19,497          18,722
  Merger related costs                                     -              -                 90             297
                                                      ------         ------             ------           -----

                                                       8,150          8,143             24,863          25,205
                                                       -----          -----             ------          ------

  Operating earnings                                     980            537              3,040             981

Interest income, net                                     711            538              2,104           1,571
                                                      ------         ------             ------          ------

  Earnings before income taxes                         1,691          1,075              5,144           2,552

Income tax expense                                       169            161                847             383
                                                      ------         ------              -----           -----

  Net earnings                                   $     1,522    $       914        $     4,297     $     2,169
                                                      ======         ======              =====           =====


Net earnings per common and
 common equivalent share                         $      0.11    $      0.07        $      0.32     $      0.16
                                                    ========       ========           =========       =========

Shares used in per share calculation                  13,342         13,608             13,507          13,477
                                                      ======         ======             ======          ======



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

</TABLE>

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<TABLE>
<CAPTION>


                                CAERE CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
                                                                                            Nine Months Ended
                                                                                              September 30,
<S>                                                                                <C>    <C>         <C>  <C>
                                                                                          1996               1995
Cash flows from operating activities:
  Net earnings                                                                     $      4,297       $      2,169
  Adjustments to reconcile net earnings to net cash
  provided by operating activities:
    Depreciation and amortization                                                         1,962              1,636
    Merger related costs                                                                   (930)            (1,758)
    Amortization of capitalized software development costs                                  431                458
    Changes in operating assets and liabilities:
      Receivables                                                                          (394)            (1,498)
      Income tax receivable                                                                 613             (1,100)
      Inventories                                                                            51                240
      Other current assets                                                                 (401)              (161)
      Accrued expenses and other payables                                                   610             (2,214)
                                                                                      ---------          ----------
        Net cash provided by (used for) operations                                        6,239             (2,228)
                                                                                      ---------          ----------
Cash flows from investing activities:
  Short-term investments, net                                                            (3,399)             5,909
  Capital expenditures                                                                   (1,306)            (3,425)
  Capitalized software development costs                                                   (429)              (389)
  Other assets                                                                              (21)              (915)
                                                                                      ----------         ----------
        Net cash provided by (used for) investing activities                             (5,155)             1,180
                                                                                      ----------         ---------
Cash flows from financing activities:
  Proceeds from issuances of common stock, net                                            1,730              1,051
  Repurchase of stock                                                                    (9,233)                 -
  Repayment of shareholder notes                                                              -                221
                                                                                      ---------          ---------
        Net cash provided by financing activities                                        (7,503)             1,272
                                                                                      ----------         ---------
Net increase in cash and cash equivalents                                                (6,419)               224
Cash and cash equivalents, beginning of period                                           10,664              3,995
                                                                                      ---------          ---------
Cash and cash equivalents, end of period                                           $      4,245     $        4,219
                                                                                      =========          =========
Supplemental disclosures:
  Cash paid for income taxes                                                       $         66     $          603
                                                                                      =========          =========

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

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                                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,  1996,  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, 1995,  1994 and 1993 in its annual report on Form 10-K for the year
ended  December  31,  1995  ("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, 1996, are not necessarily  indicative of the results
to be expected for the full year.

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B)       Inventories

                                                                 September 30, 1996      December 31, 1995
                                                                              (In thousands)
           A summary of inventories follows:
               <S>                                               <C>    <C>              <C>      <C>   
               Raw materials                                     $       1,142           $        1,212
               Work in process                                             365                      287
               Finished goods                                              519                      578
                                                                      --------     -          ---------
                                                                 $       2,026           $        2,077
                                                                      ========                =========
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(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.




<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 the rival products,
acceptance of new products,  and pricing  pressures;  success of the "bundle and
upgrade"  business model including the Company's  maintaining its  relationships
with scanner  manufacturers  along with 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 report on
Form 10-K for the year ended December 31, 1995 (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.
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<CAPTION>

Business Line Analysis
                       ----------------------------------------------- ----------------------------------------------
Three Months                          Sept. 30, 1996                                 Sept. 30, 1995
Ending:
                       ----------------------------------------------- ----------------------------------------------
<S>                       <C>             <C>              <C>           <C>             <C>              <C>
                          Software        Hardware                       Software        Hardware
                          Products        Products         Combined      Products        Products         Combined
Net revenues               $11,407          $1,996          $13,403       $10,133          $2,924          $13,057
Cost of revenues             3,336             937            4,273         3,278           1,099            4,377
                             -----             ---            -----         -----           -----            -----
                            $8,071          $1,059           $9,130        $6,855          $1,825           $8,680
Gross margin %               70.8%           53.1%            68.1%         67.7%           62.4%            66.5%
                       -------------- --------------- ---------------- ------------- --------------- ----------------

                       ----------------------------------------------- ----------------------------------------------
Nine Months Ending:                   Sept. 30, 1996                                 Sept. 30, 1995

                       ----------------------------------------------- ----------------------------------------------
                          Software        Hardware                       Software        Hardware
                          Products        Products         Combined      Products        Products         Combined
Net revenues               $34,284          $6,664          $40,948       $31,164          $7,289          $38,453
Cost of revenues            10,134           2,911           13,045         9,409           2,858           12,267
                            ------           -----           ------         -----           -----           ------
                           $24,150          $3,753          $27,903       $21,755          $4,431          $26,186
Gross margin %               70.4%           56.3%            68.1%         69.8%           60.8%            68.1%
                       -------------- --------------- ---------------- ------------- --------------- ----------------
</TABLE>

         Net  revenues  for  software  products  increased  13% during the third
quarter of 1996 to $11,407,000  from  $10,133,000 in 1995, due to increased unit
sales of  upgrade  products.  Software  unit  sales  increased  50% in the third
quarter of 1996  compared  to the same period in 1995 due to  increases  in both
upgrade and bundled unit shipments.  For the nine month period ending  September
30,  1996,  net  revenues for software  products  increased  10% to  $34,284,000
compared to $31,164,000  during the same period of 1995.  During this comparison
period,  software unit sales increased  approximately  100% in 1996 versus 1995.
Revenue  growth from  increased  unit volumes for both the third quarter and the
nine months  ending  September  30,  1996,  was  somewhat  offset by  continuing
declines in the average  selling  prices of the  OmniPage  OCR  software  due to
shifts in the business model to the "bundle and upgrade" strategy.

         During the fourth quarter of 1996,  the Company will begin  providing a
golden  master of the light version of the bundled  OmniPage  product to certain
scanner partners who will then produce the "bundled  product" at their cost. The
effect of this will be to reduce  revenues and cost of sales to the Company by a
similar  amount.  This change will have a negative  effect on the sequential and
year to year  comparison of revenues,  a positive  effect on gross margins,  and
very little impact on earnings to the Company.

         Net revenues for hardware  products  decreased 32% to $1,996,000 in the
third quarter of 1996 compared to $2,924,000 during the same period in 1995. The
decrease was primarily the result of lower unit sales of transaction  processing
OCR and bar code products.  Approximately $500,000 of this decrease was due to a
drop in business  with one European  customer in 1995. It is common in this line
of business for the Company to receive  large one time orders for product.  This
ordering  pattern has  resulted  historically  in  significant  fluctuations  in
quarterly  hardware revenues.  This trend is expected to continue.  For the nine
months ending September 30, 1996, net revenues for hardware  products  decreased
9% to $6,664,000 from $7,289,000 during the same period of 1995 due primarily to
the reasons noted above.

         Export  sales  increased  34% to  $4,090,000,  or 31% of net  revenues,
during  the  third  quarter  of  1996,  compared  to  $3,057,000,  or 23% of net
revenues,  in the same period of 1995. The  availability of new foreign versions
of certain software  products was the primary reason for the increase during the
period. On a year-to-date  basis,  export sales increased 7% to $11,757,000,  or
29% of net revenues,  compared to  $10,965,000,  or 29% of net revenues,  in the
same period of 1995.

Gross Margins

         Gross  margins for software  products  improved from 67.7% in the third
quarter of 1995 to 70.8% in the third quarter of 1996 primarily due to increased
volumes and a decrease in software media costs. On a year-to-date  basis,  gross
margins for  software  products in 1996  improved to 70.4% from 69.8% during the
same  period of 1995.  The  primary  factor for this  change  was  manufacturing
efficiencies  and economies of scale earned from increasing  production  volumes
resulting from the change in the Company's business model.

         Gross  margins for  hardware  products  decreased to 53.1% in the third
quarter of 1996 from 62.4% in the same period of 1995 due to fixed manufacturing
costs' being spread over lower unit volumes and to product mix changes from year
to year.  For the nine  months  ended  September  30,  1996,  gross  margins for
hardware  products  declined to 56.3% from 60.8%  during the same period of 1995
also due to the reasons noted above.

         The primary factor  affecting  gross margins in the future is likely to
be shifts in product mix between fully priced retail software, bundled software,
and upgrade  products 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  decreased 18% to $1,655,000 in
the third quarter of 1996 from  $2,008,000  during the same period of 1995.  The
decrease in spending from 1995 to 1996 was a result of reduced headcount brought
about primarily by synergies  created by the merger with Calera. As a percentage
of revenue,  R&D expense  decreased to 12% in the third quarter of 1996 from 15%
during the same period in 1995.  This decrease was the result of both higher net
revenues and decreased  expenses.  For the nine months ended September 30, 1996,
R&D expense  decreased 15% to $5,276,000 from $6,186,000  during the same period
of 1995. As a percentage of revenue on a nine month basis, R&D expense decreased
to 13% in 1996 from 16% of  revenue in 1995.  On a  year-to-date  basis,  merger
synergies were the primary factors for the decrease.

         The  Company is  committed  to  providing  continuing  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 1996 and beyond. The Company expects research and development  expense to
increase in dollar terms both during the fourth  quarter of 1996 and in 1997. In
accordance with Statement of Financial  Accounting Standards No. 86, the Company
capitalized  $132,000 of software  development costs during the third quarter of
1996,  compared  to  $149,000  in the  same  period  of  1995.  Amortization  of
capitalized  software  development  costs was  $137,000 in the third  quarter of
1996, compared to $149,000 in 1995.

         Selling,  general and  administrative  (S,G&A) expenses increased 6% in
the third quarter of 1996 to $6,495,000 from  $6,135,000  during the same period
of 1995. The increase in S,G&A spending was primarily a result of higher service
and support costs along with increased promotional costs related to the OmniForm
product  line. As a percentage  of revenue,  S,G&A  expense  increased to 48% of
revenue in the third  quarter  of 1996 from 47% during the same  period in 1995.
For the nine months ended  September  30, 1996,  S,G&A  expense  increased 4% to
$19,497,000 from $18,722,000  during the same period of 1995. As a percentage of
revenue,  S,G&A expense decreased to 48% in 1996 from 49% of revenue in 1995. On
a year-to-date basis, overall spending on advertising and promotion increased at
a rate less than the  increase  in  revenues.  The  Company  expects  that S,G&A
expense  may  increase  in dollar  terms in 1996 as efforts to expand  sales and
marketing activities continue in the OCR, forms, and desktop document management
areas.

         During 1995, a $297,000  merger  related charge was taken in the second
quarter related to the Company's December 1994 acquisition of Calera Recognition
Systems,  Inc. This charge  represented  additional  integration costs including
severance payments,  legal fees, and other costs connected with the transaction.
In 1996, a $90,000 merger related charge was taken in the first quarter  related
to the Company's  terminated  acquisition of ViewStar  Corporation in the fourth
quarter of 1995. This charge represented additional direct costs including legal
and accounting fees and financial printing costs incurred in connection with the
transaction.

Interest Income

         Interest  income  increased  by 32% in the  third  quarter  of  1996 to
$711,000  from  $538,000  during  the same  period  of 1995.  This  increase  is
attributable  to  relatively  higher cash and  short-term  investment  balances,
generally  higher interest rates on the Company's  investment  securities  along
with a shift from tax-free  investments to taxable  securities  carrying  higher
rates of interest.  On a year-to-date  basis,  interest income  increased 34% to
$2,104,000 in 1996 from  $1,571,000  during 1995 for the same reasons  indicated
for the third quarter above.

Income Taxes

         The  Company's  effective  income  tax rate in 1996 is  expected  to be
10-15%,  less than statutory rates primarily due to the use of its foreign sales
corporation  and  increased  utilization  of net  operating  loss  carryforwards
acquired in the merger  with  Calera  Recognition  Systems,  Inc.  In 1995,  the
effective  income tax rate was 15%, due  primarily  to the use of the  Company's
foreign sales corporation and tax-exempt interest income.

Net Earnings and Earnings Per Share

         Net earnings  increased  67% to $1,522,000 in the third quarter of 1996
compared  to  $914,000  during the same period in 1995.  This  increase  was the
result of higher net revenues and interest  income and relatively flat operating
expenses  during the period.  Earnings per share increased 57% to $.11 per share
in the third  quarter of 1996 compared to $.07 per share in the third quarter of
1995. For the nine months ended  September 30, 1996, net earnings  increased 98%
to  $4,297,000  compared  to  $2,169,000  during the same  period in 1995.  This
increase was the result of higher net  revenues and interest  income and reduced
operating expenses.

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,
rising  costs,  or the  occasional  unavailability  of  needed  components.  The
industry is characterized by rapid changes in the technologies affecting optical
character  recognition.  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
such 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 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 "bundle and upgrade"  program  relies on  increasing  unit
sales of  upgrades  for its  success.  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 the distribution  channel.  The Company's future operating results
are  dependent  to a certain  extent on its  ability to  maintain  its  existing
relationships with distributors.

         The  Company's  future  earnings  and stock  price  could be subject to
significant  volatility,  particularly  on  a  quarterly  basis.  The  Company's
revenues and earnings are unpredictable 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 30,1996. Working
capital  decreased 5% to $49,717,000 from $52,286,000 at December 31, 1995. This
decrease is related to the Company's repurchase of common stock during the third
quarter. In accordance with its approved share repurchase  program,  the Company
used $9,233,000 to repurchase  1,000,000 shares during the quarter.  The Company
has no long-term  debt. The Company's cash and  short-term  investments  totaled
$44,745,000  at  September  30,  1996.  The Company  believes  that current cash
balances and  internally  generated  funds will be  sufficient  to meet its cash
requirements through 1996.

         Caere  generated  cash from  operations of  $6,239,000  during the nine
months ended  September  30, 1996.  Uses of cash included the  $9,233,000  share
repurchase  and modest  expenditures  for capital  equipment and  investments in
short-term interest bearing securities.

         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  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
eliminate 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  (Loss) Per Share -  page 14

(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, 1996

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

                                     (Principal Financial and Accounting Officer
                                     and  Duly Authorized Officer)



<PAGE>

<TABLE>
<CAPTION>

                                                                     EXHIBIT 11

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

                                                       Three Months Ended                 Nine Months Ended
                                                         September 30,                      September 30,
<S>                                              <C>                <C>               <C>               <C> 
                                                    1996               1995               1996            1995

Net earnings                                     $1,522,000           $914,000        $4,297,000        $2,169,000
                                             ==============    ===============    ==============   ===============

Weighted average shares outstanding during
the period                                       13,146,906         13,215,958        13,295,704        13,140,976

Common equivalent shares using the
treasury stock method                               195,108            392,012           211,564           336,397
                                             --------------    ---------------    --------------   ---------------

Common and common equivalent shares
outstanding for purposes of calculating
net earnings per share                           13,342,014         13,607,970        13,507,268        13,477,373
                                             ==============    ===============    ==============   ===============

Net earnings per common and common
equivalent share                                      $0.11              $0.07             $0.32             $0.16
                                             ==============    ===============    ==============   ===============

</TABLE>