<PAGE>   1
                                  UNITED STATES
                       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 March 31, 1999 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, 95032
                 ----------------------------------------------
                    (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 as of
        Class                                       March 31, 1999
        -----                                      -----------------

        Common Stock
        $.001 par value                               12,074,191


                           This is page 1 of 22 pages


<PAGE>   2
                                CAERE CORPORATION
                                      INDEX

                          PART I. FINANCIAL INFORMATION


<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>                                                                                      <C>
ITEM 1.       Financial Statements

              Condensed Consolidated Balance Sheets - March 31, 1999
                  and December 31, 1998                                                      3

              Condensed Consolidated Statements of Operations -- Three Months
               Ended March 31, 1999 and 1998                                                 4

              Condensed Consolidated Statements of Cash Flows -- Three Months
                  Ended March 31, 1999 and 1998                                              5

              Notes to Condensed Consolidated Financial Statements                         6-8

ITEM 2.       Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                                     9-20

ITEM 3.       Quantitative and Qualitative Disclosures about Market Risk                 21-22


                           PART II. OTHER INFORMATION

ITEM 6.       Exhibits and Reports on Form 8-K                                              22

SIGNATURES                                                                                  22
</TABLE>


                                       2
<PAGE>   3
                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                                CAERE CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                March 31,      December 31,
                                                                                  1999             1998
                                                                              ------------     ------------
<S>                                                                           <C>              <C>         

                                     ASSETS

Cash and cash equivalents                                                     $     21,862     $     15,753
Short-term investments                                                              24,441           28,584
Receivables, net                                                                     7,257            7,336
Inventories (Note B)                                                                 1,727            1,953
Deferred income taxes                                                                2,953            2,953
Other current assets                                                                   948              422
                                                                              ------------     ------------
         Total current assets                                                       59,188           57,001

Property and equipment, net                                                          3,389            3,640
Other assets                                                                         2,841            3,243
                                                                              ------------     ------------

         Total assets                                                         $     65,418     $     63,884
                                                                              ============     ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued expenses and other payables                                           $      7,504     $      7,711

Stockholders' equity:
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 12,074,191 and 12,072,028
  shares                                                                                12               12
Additional paid-in capital                                                          41,506           42,409
Retained earnings                                                                   16,396           13,752
                                                                              ------------     ------------

         Total stockholders' equity                                                 57,914           56,173
                                                                              ------------     ------------

         Total liabilities and stockholders' equity                           $     65,418     $     63,884
                                                                              ============     ============
</TABLE>


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


                                       3
<PAGE>   4
                                CAERE CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                    Three Months Ended
                                                                                         March 31,
                                                                                ---------------------------
                                                                                   1999             1998
                                                                                ----------       ----------
<S>                                                                             <C>              <C>       
Net revenues                                                                    $   17,736       $   15,659

Cost of revenues                                                                     3,460            3,427
                                                                                ----------       ----------

                                                                                    14,276           12,232
                                                                                ----------       ----------
Operating expenses:
  Research and development                                                           3,464            2,947
  Selling, general and administrative                                                7,611            7,058
                                                                                ----------       ----------

                                                                                    11,075           10,005
                                                                                ----------       ----------

  Operating earnings                                                                 3,201            2,227

Interest income, net                                                                   576              587
                                                                                ----------       ----------

  Earnings before income taxes                                                       3,777            2,814

Income tax expense                                                                   1,133              569
                                                                                ----------       ----------

  Net earnings                                                                  $    2,644       $    2,245
                                                                                ==========       ==========

Basic earnings per share                                                        $     0.22       $     0.17
                                                                                ==========       ==========

Diluted earnings per share                                                      $     0.21       $     0.17
                                                                                ==========       ==========

Weighted average shares used in basic earnings per share calculation
                                                                                    12,120           13,064
                                                                                ==========       ==========

Weighted average shares used in diluted earnings per share calculation
                                                                                    12,632           13,561
                                                                                ==========       ==========
</TABLE>


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


                                       4
<PAGE>   5
                                CAERE CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                        Three Months Ended
                                                                                             March 31,
                                                                                   -----------------------------
                                                                                      1999               1998
                                                                                   ----------         ----------
<S>                                                                                <C>                <C>       
Cash flows from operating activities:
  Net earnings                                                                     $    2,644         $    2,245
  Adjustments to reconcile net earnings to net cash provided by operating
  activities:
    Depreciation and amortization                                                         731                718
    Amortization of capitalized software development costs                                200                138
    Other                                                                                 (72)                 0
    Changes in operating assets and liabilities:
         Receivables, net                                                                  79                966
         Inventories                                                                      226                (35)
         Other current assets                                                            (526)                51
         Accrued expenses and other payables                                             (207)              (396)
                                                                                   ----------         ----------
         Net cash provided by operating activities                                      3,075              3,687
                                                                                   ----------         ----------
Cash flows from investing activities:
    Short-term investments, net                                                         4,143            (11,909)
    Capital expenditures                                                                 (451)              (258)
    Capitalized software development costs                                                (65)               (75)
    Other assets                                                                          238               (239)
                                                                                   ----------         ----------
         Net cash provided by (used for) investing activities                           3,865            (12,481)
                                                                                   ----------         ----------
Cash flows from financing activities:
  Proceeds from issuance of common stock                                                1,193                353
  Tax benefit associated with exercise of stock options                                     0                 30
  Repurchase of stock                                                                  (2,024)            (2,331)
                                                                                   ----------         ----------
         Net cash used for financing activities                                          (831)            (1,948)
                                                                                   ----------         ----------
Net increase (decrease)  in cash and cash equivalents                                   6,109            (10,742)

Cash and cash equivalents at beginning of period                                       15,753             16,417
                                                                                   ----------         ----------
Cash and cash equivalents at end of period                                         $   21,862         $    5,675
                                                                                   ==========         ==========
Supplemental disclosures:
  Cash paid for income taxes                                                       $    2,078         $    1,717
                                                                                   ==========         ==========
</TABLE>


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


                                       5
<PAGE>   6
                                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 present the financial
         position of the Company as of March 31, 1999, and its 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 disclosures 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, 1998, 1997 and 1996, in its report on Form 10-K, for the
         year ended December 31, 1998 (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 period ended March 31, 1999, are
         not necessarily indicative of the results to be expected for the full
         year.


B)       Inventories


<TABLE>
<CAPTION>
                                                      March 31,     December 31,
                                                        1999            1998
                                                    ------------    ------------
<S>                                                 <C>             <C>         
                                                           (In thousands)
         A summary of inventories follows:

              Raw materials                         $        869    $        690
              Work in process                                237             406
              Finished goods                                 621             857
                                                    ------------    ------------
                                                    $      1,727    $      1,953
                                                    ============    ============
</TABLE>


                                       6
<PAGE>   7
C)       Earnings Per Share

         Basic earnings per share is computed using the weighted-average number
         of common shares outstanding for the period. Diluted earnings per share
         is based on the weighted-average number of common shares outstanding
         for the period plus dilutive common equivalent shares, including stock
         options using the treasury stock method. Amounts shown below are in
         thousands, except per share amounts.


<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                                             March 31,
                                                                    ---------------------------
                                                                       1999             1998
                                                                    ----------       ----------
<S>                                                                 <C>              <C>       
         Net earnings                                               $    2,644       $    2,245
                                                                    ==========       ==========

         Shares used to compute basic earnings per share
            (weighted average common shares outstanding)                12,120           13,064

         Dilutive common equivalent shares - stock options                 512              497
                                                                    ----------       ----------

         Shares used to compute diluted earnings per share              12,632           13,561
                                                                    ==========       ==========

         Basic earnings per share                                   $     0.22       $     0.17
                                                                    ==========       ==========

         Diluted earnings per share                                 $     0.21       $     0.17
                                                                    ==========       ==========
</TABLE>


D)       Comprehensive Income

         The Company has no significant components of other comprehensive income
         and, as a result, comprehensive income is the same as net earnings for
         all periods presented.

E)       Segment Reporting

         The Company has adopted the provisions of SFAS No. 131, "Disclosure
         About Segments of an Enterprise and Related Information." SFAS No. 131
         establishes standards for the reporting by public business enterprises
         of information about operating segments, products and services,
         geographic areas, and major customers. The method for determining what
         information to report is based on the way management organizes the
         operating segments within the Company for making operating decisions
         and assessing financial performance.

         The Company's chief operating decision maker is considered to be the
         Company's Chief Executive Officer ("CEO"). The CEO reviews financial
         information presented on a consolidated basis accompanied by
         disaggregated information about revenues by product type and certain
         information about geographic regions for purposes of making operating
         decisions and assessing financial performance. The consolidated
         financial information is identical to the information presented in the
         accompanying condensed consolidated 


                                       7
<PAGE>   8
         statements of operations. Therefore, the Company operates in a single
         operating segment: information recognition software and products.

         Net revenue information regarding product type is as follows for the
         three months ended March 31 (in thousands):

<TABLE>
<CAPTION>
                                       1999             1998
                                    ----------       ----------
<S>                                 <C>              <C>       
         Software products          $   16,168       $   13,743
         Hardware products               1,568            1,916
                                    ----------       ----------
            Consolidated            $   17,736       $   15,659
                                    ==========       ==========
</TABLE>

         Revenue and asset information regarding operations in the different
         geographic regions is as follows (in thousands):

<TABLE>
<CAPTION>
                                                         Americas         Europe        Other       Consolidated
                                                         --------         ------        -----       ------------
<S>                                                      <C>              <C>           <C>         <C>
                                                         
        Revenues for the three months ended March 31:    
           1999                                           $11,661         $5,549         $526          $17,736
           1998                                            10,705          4,434          520           15,659
                                                         
        Identifiable assets at March 31:                 
           1999                                           $63,281         $2,137          $--          $65,418
           1998                                            62,402          1,482           --           63,884
</TABLE>


         One distributor accounted for approximately 24% and 26% of net revenues
         for the three months ended March 31, 1999 and 1998, respectively. A
         second customer accounted for approximately 11% and 12% of net revenues
         for the three months ended March 31, 1999 and 1998, respectively.


                                       8
<PAGE>   9
                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations, and elsewhere in this Form 10-Q, include
"forward looking" statements and are subject to risks and uncertainties. These
statements discuss, among other things, expected growth, future revenues, and
future performance. The actual future results of Caere Corporation (the
"Company") could differ materially from anticipated results described in these
forward looking statements. Some factors that could cause future actual results
to differ materially from the Company's recent results or those described in the
forward looking statements include those listed below in the sections entitled
"Net Revenues," "Gross Margin," "Financial Condition," "Certain Trends, Issues,
and Uncertainties," and other statements set forth below, as well as in the
section entitled "Risk Factors" in the Company's report on Form 10-K for its
fiscal year ended December 31, 1998. Readers should carefully review the risks
described in this and other documents that the Company files with the Securities
and Exchange Commission, including the Company's annual report on Form 10-K and
quarterly reports on Form 10-Q. The Company assumes no obligation to publicly
release any updates or revisions to the forward looking statements or reflect
events or circumstances after the date of this document.

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the percentage
relationship certain items in the Condensed Consolidated Statements of
Operations bear to net revenues:


<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED
                                                             MARCH 31,
                                                      ----------------------
                                                        1999          1998
                                                      --------      --------
<S>                                                   <C>           <C> 
         Net revenues                                      100%          100%
         Cost of revenues                                   20            22
                                                      --------      --------

            Gross margin                                    80            78
                                                      --------      --------

         Research and development                           19            19
         Selling, general and administrative                43            45
                                                      --------      --------

            Operating expenses                              62            64
                                                      --------      --------

         Operating earnings                                 18            14

         Interest income, net                                3             4
                                                      --------      --------

         Earnings before income taxes                       21            18

         Income tax expense                                  6             4
                                                      --------      --------

         Net earnings                                       15%           14%
                                                      ========      ========
</TABLE>


                                       9
<PAGE>   10
NET REVENUES

The following chart summarizes net revenues, cost of revenues, and gross margins
for the Company's products categorized between software and hardware. Software
product revenues are primarily derived from sales of OmniPage, OmniForm,
PageKeeper, and Recognita Plus products. Hardware products consist of
transaction processing optical character recognition ("OCR") and bar code
products. Dollar amounts shown are in thousands.

BUSINESS LINE ANALYSIS

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED MARCH 31,
                          -----------------------------------------------------------------------------------------------------
                                               1999                                                  1998
                          -----------------------------------------------       -----------------------------------------------
                            SOFTWARE          HARDWARE                            SOFTWARE         HARDWARE
                            PRODUCTS          PRODUCTS          COMBINED          PRODUCTS         PRODUCTS           COMBINED
                          -----------       -----------       -----------       -----------       -----------       -----------
<S>                       <C>               <C>               <C>               <C>               <C>               <C>        
NET REVENUES              $    16,168       $     1,568       $    17,736       $    13,743       $     1,916       $    15,659
COST OF REVENUES                2,584               876             3,460             2,430               997             3,427
                          -----------       -----------       -----------       -----------       -----------       -----------
GROSS MARGIN              $    13,584       $       692       $    14,276       $    11,313       $       919       $    12,232
                          ===========       ===========       ===========       ===========       ===========       ===========

GROSS MARGIN %                   84.0%             44.1%             80.5%             82.3%             48.0%             78.1%
                          -----------       -----------       -----------       -----------       -----------       -----------
</TABLE>


Under Caere's "bundle and upgrade" strategy, very low priced, limited-featured
OCR and document management software products are bundled with products sold by
certain scanner manufacturer partners. When customers purchase scanners from
these manufacturers, they will be exposed to the utility and benefit of the
Company's OCR and document management technology. The objective of this strategy
is to capitalize on such exposure by getting a number of customers to "upgrade"
from the bundled limited edition version software to the Company's more
fully-featured products.

Net revenues from software products represented about 91% and 88% of total net
revenues for the three months ended March 31, 1999 and 1998, respectively. To
the extent the demand for the Company's software products continues to broaden,
the Company anticipates that net revenues from software products during the
remainder of 1999 will continue to comprise a similar significant portion of its
total net revenues. Over 90% of all software revenues are derived from
Windows-based products, and the Company anticipates that this will continue in
1999.

Net revenues for software products of $16.2 million in the three months ended
March 31, 1999 represented an increase of approximately 18% over the same period
in 1998. This growth was primarily attributable to increased royalties received
from scanner manufacturers bundling the Company's limited-featured OCR and
document management software and increased unit sales of both the OmniPage
family of products, especially OmniPage Pro 9.0 which first shipped in October
1998, and the OmniForm products, including OmniForm 4.0 which first shipped in
March 1999.


                                       10
<PAGE>   11
Net revenues for hardware products decreased approximately 18% to $1.6 million
for the three months ended March 31, 1999, compared to $1.9 million in same
period of 1998. This decrease was primarily the result of a decrease in the unit
sales of transaction processing OCR hardware products in the first three months
of 1999 compared to the same period of 1998. Historically, there have been
fluctuations in sales patterns for the Company's hardware products. In
particular, the periodic award of large sales contracts, especially for OCR
products, tends to make shipments difficult to predict. As a result, quarterly
fluctuations in net revenues from hardware products are expected to continue in
the future.

International sales for the three months ended March 31, 1999 increased in
absolute dollars compared to the total for the same period of 1998, and
represented about 35% and 33% of total net revenues in the first three months of
1999 and 1998, respectively. The Company believes that continued growth in
international sales will be important for the Company's future success, and as a
result, the Company intends to continue to invest in expanding its operations
internationally, particularly in Europe. Sales growth in these markets, however,
has been and will continue to be impacted by certain factors beyond the control
of the Company, such as variable economic conditions, foreign currency exchange
rates, slower adoption of OCR and document management technologies, and
government regulation.

GROSS MARGIN

Gross margin represents net revenues less cost of revenues. Cost of revenues
consists primarily of manufacturing and production expenses, packaging costs,
royalties paid to third parties, and amortization and write-off of capitalized
software development costs.

Cost of revenue as a percentage of total net revenue was 20% and 22% for the
three months ended March 31, 1999 and 1998, respectively. Although cost of
revenue as a percentage of total net revenue decreased in the first three months
of 1999 compared to the same period of 1998, it varies between periods based on
both the channel mix and the product mix within channels.

Overall gross margins were 80% for the three months ended March 31, 1999
compared to 78% for the same period of 1998. This improvement was due primarily
to product mix being more heavily weighted towards software products, which
generally have higher gross margins than do hardware products, during the first
three months of 1999 compared to the same period of 1998.

Gross margins for software products were 84% for the three months ended March
31, 1999 compared to 82% for the same period of 1998. This improvement in gross
margin percentages during the first three months of 1999 compared to the same
period of 1998 is largely attributable to increasing production volumes and
increased royalty revenue.

Gross margins for hardware products were 44% for the three months ended March
31, 1999 compared to 48% for the same period of 1998. This decline in gross
margins during the first three months of 1999 compared to the same period of
1998 reflects the weakness of hardware product net revenues in the first quarter
of 1999 compared to the first quarter of 1998. Since a significant portion of
hardware cost of revenues relates to fixed manufacturing overhead costs, the
gross margins for hardware will often decline during periods of flat or negative
revenue and unit shipment growth.


                                       11
<PAGE>   12
The primary factor affecting overall gross margins in the future is likely to be
shifts in product mix between fully-priced, non-upgrade software, bundled
software, and upgrade products, as well as overall shifts in product mix between
software and hardware products. In addition, the 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
Caere continued to invest heavily in the future by funding research and
development ("R&D"). For the three months ended March 31, 1999, R&D expenses
were about 18% higher than R&D expenses for the same period of 1998. This
increase in absolute dollars was primarily from development staff headcount
growth and higher levels of third-party development costs in many areas,
particularly in software technologies. The Company's sustained commitment to R&D
over the last two years allowed the Company to successfully launch multiple
products in 1998, including OmniPage Pro 9.0, OmniPage Wizard, PageKeeper
Standard, and an all-in-one Professional Developers Kit. During the first
quarter of 1999, OmniForm 4.0 and OmniPage Web both shipped. In some cases, R&D
efforts for these products began well over a year before their launch. The
Company believes that significant R&D investments in 1999, and beyond, will be
necessary for the Company to effectively compete in the software market.

SELLING, GENERAL AND ADMINISTRATIVE
As a percentage of net revenue, selling, general and administrative ("SG&A")
expense was 43% and 45% for the three months ended March 31, 1999 and 1998,
respectively. The increase in the absolute dollar amounts of SG&A expenses for
the three months ended March 31, 1999 compared to the same period of 1998 was
due primarily to expanded product-specific marketing programs, expansion of
distribution channels, and growth in computer and information systems and
business infrastructure necessary to support overall increases in the scope of
the Company's operations. Caere expects that SG&A expense will increase in
absolute dollar terms during the remainder of 1999, as efforts to expand sales
and marketing activities continue both domestically and internationally.

INTEREST INCOME AND INCOME TAXES
Net interest income was $0.6 million for the three months ended March 31, 1999
and 1998.

The effective income tax rate for the three months ended March 31, 1999 was 30%,
compared to an effective income tax rate of about 20% for the same period of
1998 and an effective income tax rate of 25% for the calendar year 1998. The
effective income tax rate continues to be lower than the U.S. federal statutory
tax rate primarily due to benefits derived from federal net operating loss
carryforwards and the Company's utilization of a foreign sales corporation. As
of December 31, 1998 the Company has federal net operating loss carryforwards of
approximately $11.1 million, which are subject to an annual limitation of
approximately $2.7 million.


                                       12
<PAGE>   13
CERTAIN TRENDS, ISSUES AND UNCERTAINTIES
The Company's future operating results may be affected by various uncertain
trends and factors that 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 OCR, forms, and
desktop document management. The industry has also become increasingly
competitive, and, accordingly, the Company's results may additionally 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.

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 that 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.

YEAR 2000 AND POTENTIAL CONSEQUENCES
Like many other companies, the Year 2000 computer issues create certain risks
for the Company. If the Company's internal management information systems or
products sold to customers do not correctly recognize and process date
information beyond the year 1999, there could be an adverse impact on the
Company's operations.

The Company is addressing a broad range of issues associated with the
programming code in existing computer systems as the year 2000 approaches. Many
currently installed computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. This is frequently referred to as the "Year 2000 Problem." If the
Company's internal management information systems and products do not correctly
recognize and process date information beyond the year 1999, there could be an
adverse impact on the Company's operations. In mid-1997, Caere initiated a
company-wide Year 2000 Project to address this issue. A Year 2000 Committee was
established and mandated with defining, assessing and converting, or replacing,
various programs, hardware and instrumentation systems to make them Year 2000
compatible.


                                       13
<PAGE>   14
         1. STATUS OF READINESS: To address the Year 2000 issues with its
internal information technology ("IT") systems, the Company has initiated a
program to evaluate its internal systems, including manufacturing, sales and
financial systems. The Company has completed the assessment phase and the
renovation and testing phases are proceeding in parallel. The Company's
assessment indicated that certain internal IT systems should be upgraded or
replaced as part of a solution to the Year 2000 Problem. All of the hardware and
most of the software for the Company's internal IT systems come from third-party
suppliers and are being remediated by them.

Although the Company's non-IT systems do not in many cases directly impact the
Company's core business, they remain an important part of Caere's Year 2000
efforts. All mission-critical non-IT systems and products have the same target
dates for remediation and interoperability testing as their network element and
information system counterparts. Caere is currently evaluating the Year 2000
readiness of its non-IT systems with a comprehensive inventory of monitoring and
control devices for premises, safety systems and other similar operating
installations. Caere has communicated with all mission critical suppliers and
service providers about their plans for Year 2000 compliance.

The Company's Year 2000 Project for internal systems is currently scheduled to
be completed by mid-1999. The chart below shows the overall status of Caere's
five-phase Year 2000 project in the following areas:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                  AWARENESS       ASSESSMENT      RENOVATION              TESTING                  IMPLEMENTATION

---------------------------------------------------------------------------------------------------------------------------
<S>               <C>             <C>             <C>                     <C>                      <C>
IT SYSTEMS        Completed       Completed       Underway with           Underway with            Planning and
                                                  approximately 25%       approximately 35%        scheduling underway.
                                                  completed.  Mission     completed.  Mission      Scheduled to be
                                                  critical elements       critical elements        completed by mid-1999.
                                                  scheduled to be         scheduled to be
                                                  completed by mid-1999.  completed by mid-1999.

---------------------------------------------------------------------------------------------------------------------------
NON-IT SYSTEMS    Completed       Completed       Underway with           Underway with            Planning and
                                                  approximately 20%       approximately 20%        scheduling underway.
                                                  completed.  Mission     completed.  Mission      Scheduled to be
                                                  critical elements       critical elements        completed by mid-1999.
                                                  scheduled to be         scheduled to be
                                                  completed by mid-1999.  completed by mid-1999.

---------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Company is in the process of identifying and prioritizing critical third
parties and customers, and will follow up with them concerning their plans and
progress in addressing the Year 2000 problem. The Company is also working with
key suppliers of products and services to determine that their operations and
products are Year 2000 compliant or to monitor their progress toward Year 2000
compliance, as appropriate.

In the Company's standard license agreements, the Company warrants to licensees
that its software routines and programs are Year 2000 compliant. If any of the
Company's licensees experience Year 2000 problems, such licensee could assert
claims for damages against the 


                                       14
<PAGE>   15
Company. Any such litigation could result in substantial costs and diversion of
the Company's resources even if ultimately decided in favor of the Company.

The Company believes that all products currently shipping and supported by Caere
will be "Year 2000 Compliant." It is likely that some older products may not be
Year 2000 Compliant. As used by Caere, "Year 2000 Compliant" means that when
used properly and in conformity with the product information provided by the
Company, and when used with "Year 2000 Compliant" computer systems, the product
will accurately store, display, process, provide, and/or receive data from,
into, and between the twentieth and twenty-first centuries, including leap year
calculations, provided that all other technology used in combination with the
Caere product properly exchanges date data with the Caere product. There can be
no assurance that (i) third party technologies used in combination with Caere
products will be Year 2000 Compliant and (ii) Caere products will not be
adversely affected when used with such third party technologies, nor can the
Company represent that any modifications to its products made by a party other
than Caere will be Year 2000 Compliant.

         2. COSTS ASSOCIATED WITH THE YEAR 2000 PROJECT: Costs associated with
certain system upgrades are included in existing operating budgets. In some
instances (such as the Company's financial administrative system), the
installation schedule of new software and hardware in the normal course of
business is being accelerated to also afford a solution to Year 2000 compliance
issues. Certain of the costs related to upgrades of hardware and software
systems are covered by ongoing maintenance agreements. Additional costs of
purchasing, installing, modifying and testing the internal systems are not
expected to exceed $800,000. The total cost associated with required
modifications to become Year 2000 Compliant is estimated at $1,000,000.

The total cost estimate is based on the current assessment of the projects and
is subject to change as the project progresses. Based on currently available
information, the Company does not believe that the Year 2000 matters discussed
above related to internal systems or products sold to customers will have a
material adverse impact on the Company's financial condition or overall trends
in results of operations; however, it is still uncertain to what extent the
Company may be affected by such matters. In addition, customers may delay
purchase decisions because of uncertainty about Year 2000 issues. There also can
be no assurance that the failure to ensure Year 2000 compliance by a supplier or
another third party would not have a material adverse effect on the Company.

         3. CONTINGENCY PLANS: The Company has begun internal discussions
concerning contingency planning to address potential problem areas with internal
systems and with suppliers and other third parties. It is expected that
remediation and contingency planning activities will be on going throughout
calendar year 1999 with the goal of appropriately resolving all material
internal systems and third party issues.

FINANCIAL CONDITION
Caere's cash and short-term investment portfolio totaled $46.3 million at March
31, 1999. The portfolio is diversified among security types, industries, and
individual issuers. The portfolio is invested primarily in short-term, U.S.
dollar denominated securities to both minimize interest rate risk and maintain
liquidity in the event of immediate cash needs.


                                       15
<PAGE>   16
Caere offers credit terms to qualifying customers and also sells products on a
prepaid, credit card and cash-on-delivery basis. For 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 reduce
the potential for catastrophic losses.

Caere has no long-term debt. The Company has not paid cash dividends on its
common stock. Stockholders' equity at March 31, 1999 was $57.9 million.

Caere will continue to invest in its sales, marketing, and product support
infrastructures. In addition, research and development investments will continue
to be made in existing and advanced areas of technology, including using cash to
acquire technology and to fund other strategic opportunities. Additions to
property and equipment will continue, including new facilities and computer
systems for research and development, sales and marketing, support, and
administrative staff.

Cash will also continue to be used to repurchase common stock. Among other
purposes, the shares will be used for employee stock option and purchase plans.
The Company repurchased approximately 1.5 million shares of common stock in 1998
with an aggregate cost of approximately $19.8 million. During the three months
ended March 31, 1999, the Company repurchased an additional 150,000 shares of
common stock with an aggregate cost of approximately $2.0 million.

Management believes that existing cash and short-term investments together with
funds generated from operations will be sufficient to meet operating and capital
expenditure requirements for at least the next 12 months.


                                       16
<PAGE>   17
                                  RISK FACTORS

Caere's future operating results may be affected by various factors that are
beyond the Company's control. Accordingly, in addition to the factors described
elsewhere in this Form 10-Q and in the Company's 1998 annual report on Form
10-K, the following trends, issues, and uncertainties, among others, should be
considered in evaluating the Company's growth and performance outlook.

RAPID TECHNOLOGICAL CHANGE AND INDUSTRY CONSOLIDATION
Rapid change and uncertainty due to new and emerging technologies characterize
the PC software industry. The introduction of competing products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. In addition, consolidation in the software
industry continues to occur, with competing companies merging or acquiring other
companies in order to capture market share or expand product lines. As this
consolidation occurs, the nature of the market may change as a result of fewer
players dominating particular markets, potentially providing consumers with
fewer choices. Any of these changes or factors may have a material adverse
impact on the Company's future revenues, operating results, or financial
condition.

SCANNER GROWTH RATES
The underlying scanner unit growth rate directly impacts the Company's software
revenue growth. A reduction in the scanner shipment growth rate may adversely
impact the Company's future software revenue opportunity.

PRODUCT SHIPMENT SCHEDULES
Delays in new product releases adversely affect revenue growth rates and cause
operational inefficiencies that impact manufacturing and distribution logistics,
distributor and OEM relationships, and customer support expenses. In addition,
as is common in the software industry, the Company operates with relatively
little backlog. As a result, delays in product shipments or weakness in the
near-term demand for the Company's products could have an immediate, material
adverse affect on revenues and operating results, which would likely result in a
significant and precipitous drop in the Company's stock price.

FLUCTUATING REVENUES AND OPERATING RESULTS
Caere's revenues and operating results have fluctuated in the past and the
Company's future revenues and operating results are likely to do so in the
future, particularly on a quarterly basis.

Caere's experience has been that a disproportionately large percentage of
shipments have occurred in the third month of each fiscal quarter and that
shipments tend to be concentrated in the latter half of that month. Backlog
early in a quarter is not large enough to assure that Caere will meet its
revenue target for any particular 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.

The Company's quarterly operating results may continue to fluctuate due to
numerous other factors. Some of these factors include the demand for the
Company's products, seasonality, customer order deferrals in anticipation of new
versions of the Company's products, the 


                                       17
<PAGE>   18
introduction of new products and product enhancements by the Company or its
competitors, including the effects of filling the distribution channels
following such introductions and of potential delays in availability of
announced or anticipated products, price changes by the Company or its
competitors, product sales mix, timing of acquisitions and associated costs, and
timing of significant marketing and sales promotions.

CUSTOMER ACCEPTANCE
Caere believes that it will be necessary to continue to introduce new products
to remain competitive. While Caere performs extensive usability and beta testing
of new products, user acceptance and consumer penetration rates ultimately
dictate the success of development and marketing efforts.

TECHNICAL SUPPORT
Consistent with many companies in the software industry, technical support costs
comprise a significant portion of the Company's operating costs and expenses.
The Company's technical support levels are based largely on projections of
future sales levels. While the Company performs extensive quality control review
over both technical support services provided by its corporate personnel and, to
a lesser extent, support services outsourced to third-party vendors, customer
satisfaction with the services rendered may not be favorable. In the event of
customer dissatisfaction, future product and upgrade sales to that customer base
may be negatively impacted.

PRICES
Future product prices may decrease from historical levels, depending on
competitive market and cost factors. International software prices vary by
country and are generally higher than in the United States to cover higher costs
of distribution and localization expenses. Increased global competition,
European monetary unification, or other factors could erode such price uplifts
in the future. In the event of product price reductions either domestically or
internationally, the Company's future operating results and financial condition
may be adversely impacted.

Product upgrades, which enable users to upgrade from both limited edition and
earlier versions of the Company's products, have lower prices and margins than
fully priced, non-upgrade products. As the desktop applications market continues
to saturate, the sales mix has shifted from fully priced, non-upgrade products
to upgrade products. This trend is likely to continue, and it could have a
material adverse impact on the Company's future operating results and financial
condition.

DISTRIBUTION CHANNELS
Caere may not be able to develop an effective method of distributing its
software products utilizing newly emerging software distribution channels,
including the Internet. Even if successful, the presence of new channels could
adversely affect existing channels and product pricing, which could have a
material adverse impact on the Company's future operating results and financial
condition. Caere currently offers its software products over the Internet.

A significant portion of Caere's revenue is attributable to its upgrade
strategy. Upgrades are derived from three primary sources: first, from previous
customers who are seeking the improvements of the latest versions of Caere's
OCR, electronic forms, and document 


                                       18
<PAGE>   19
management software products; second, from customers who are upgrading from
competitive products; and third, from a limited edition version of the Company's
product that was bundled with various scanner manufacturer products. If previous
Caere customers or the customers of competitive products decline to upgrade or
if customers using a bundled product defer or forego the purchase of the
Company's newer or more fully featured products because they determine that the
bundled product satisfies their needs, it could have a material adverse impact
on future revenues and operating results.

Caere's future revenues and operating results may be negatively affected by
channel fill. Distributors may fill their distribution channels in anticipation
of price increases, sales promotions, or incentives. Channels may also become
filled simply because distributors do not sell their inventories to retail
distribution or retailers to end users as anticipated. If sell-through does not
occur at a sufficient rate, distributors will delay purchases, cancel orders, or
return prior purchases in an effort to reduce their inventories. Further,
distributors may also delay purchases, cancel orders, or return products in
anticipation of a new product or version release. While such channel fill, order
delays or cancellations can cause fluctuations in net revenues from one quarter
to the next, the impact is mitigated by the Company's deferral of revenue
associated with inventories estimated to be in excess of appropriate levels in
the distribution and retail channels. Furthermore, the Company estimates and
maintains reserves for product returns. There can be no assurance, however, that
such channel fill, order delays or cancellations will not have a material
adverse impact on revenue and operating results.

LONG-TERM RESEARCH AND DEVELOPMENT CYCLE
Developing and localizing software is expensive and often involves a long
payback cycle. The Company plans to continue to make significant investments in
R&D and related product opportunities. Significant revenues from these efforts
in some cases are not expected for several years. Management expects total
spending for R&D in 1999 to increase over spending in 1998.

INTERNATIONAL OPERATIONS
Caere's international operations are subject to certain risks common to
international operations, such as government regulations, import restrictions,
currency fluctuations, economic volatility, repatriation restrictions, and
seasonal reductions in business activity during summer months in Europe and
certain other parts of the world. One or more of these factors could have a
material adverse impact on the Company's business, revenues, operating results,
or financial condition.

EMPLOYEE RECRUITING AND RETENTION
Caere believes that its future success depends on its continuing ability to
attract and retain highly qualified technical, sales, financial, and managerial
personnel. Competition for such people, however, is intense. The Company
believes, therefore, that it must provide employees with a competitive
compensation package, which necessitates the continued availability of stock
options which, in turn, requires ongoing stockholder approval. Failure to obtain
such stockholder approval could have a material adverse effect on the Company's
ability to attract and retain employees.

FUTURE GROWTH RATE
The revenue growth rate in 1999 and future periods may not approach the level
attained in prior years. As discussed previously, operating expenses are
expected to increase in 1999. Because of 


                                       19
<PAGE>   20
the fixed nature of a significant portion of such expenses, coupled with the
possibility of slower revenue growth, operating margins in 1999 may decrease
from those in 1998.

LACK OF PRODUCT REVENUE DIVERSIFICATION
Caere derives a significant portion of its net revenues from sales of its
OmniPage family of products. Caere expects that these software products will
continue to account for a majority of the Company's sales in the near future. A
decline in demand for these products as a result of competition, technological
change, or other factors would have a material adverse effect on the Company's
results of operations.

MATURE MARKETS FOR CERTAIN HARDWARE PRODUCTS
Caere derived approximately 9% and 12% of its net revenues from sales of its
transaction processing OCR and bar code products during the three months ended
March 31, 1999 and 1998, respectively. As previously discussed, the market for
both of these sets of products is relatively mature and may not be subject to
growth or expansion by the Company in the future. There can be no assurance that
Caere's hardware-based transaction processing products will continue to be a
significant source of net revenues for the Company.

POSSIBLE VOLATILITY OF CAERE STOCK PRICE
The prices for Caere Common Stock have fluctuated widely in the past. The
management of the Company believes that such fluctuations may have been caused
by announcements of new products, quarterly fluctuations in the results of
operations, and other factors including, but not limited to, changes in
conditions of the personal computer industry in general. Stock markets have
experienced extreme price volatility in recent years. This volatility has had a
substantial effect on the market prices of securities issued by Caere and other
high technology companies, often for reasons unrelated to the operating
performance of the specific companies. Caere anticipates that prices for Caere
Common Stock may continue to be volatile. Such future stock price volatility for
Caere Common Stock may provoke the initiation of securities litigation, which
may divert substantial management resources and have an adverse effect on the
Company's results of operations.

EFFECT OF ANTITAKEOVER PROVISIONS OF DELAWARE LAW AND CAERE'S CHARTER DOCUMENTS
Caere is a corporation organized under the laws of the state of Delaware.
Certain provisions of the Delaware Law and the charter documents of Caere may
have the effect of delaying, deferring or preventing changes in control or
management of Caere. Caere is subject to the provisions of Section 203 of the
Delaware Law, which has the effect of restricting changes in control of a
company. In addition, Caere's Board of Directors is divided into three separate
classes. Caere's Board has authority to issue up to 2,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of such shares without any further vote or action by
its stockholders. Caere also has a Preferred Share Rights Plan (the "Shareholder
Rights Plan"). The effect of the antitakeover protections of the Delaware Law,
the Caere charter documents and the Shareholder Rights Plan could be to make it
more difficult for a third party to acquire, or could discourage a third party
from acquiring, a significant portion of the outstanding stock of Caere.


                                       20
<PAGE>   21
                                     ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY HEDGING INSTRUMENTS
The Company transacts business in various foreign currencies, primarily in
certain European countries and Japan. Accordingly, the Company is subject to
exposure from movements in foreign currency exchange rates. This exposure is
primarily related to forint denominated licenses in Hungary and Eastern Europe,
yen denominated licenses in Japan, and local currency denominated operating
expenses in Europe.

A portion of the Company's operating expenses in Japan are in yen, which
mitigates a portion of the exposure related to yen denominated licenses in
Japan. Likewise, a majority of the Company's operating expenses in Hungary are
denominated in forints, mitigating a portion of the exposure related to forint
denominated licenses in Eastern Europe. In addition, the Company hedges firmly
committed transactions using primarily forward contracts with maturities of less
than three months. As of March 31, 1999, there were no outstanding foreign
currency forward exchange contracts. The Company's hedging policy is designed to
reduce the impact of foreign currency exchange rate movements, and any gain or
loss in the hedging instruments is expected to be offset by a corresponding gain
or loss in the underlying exposure being hedged.

The Company does not use derivative financial instruments for speculative
trading purposes, nor does the Company hedge its foreign currency exposure in a
manner that entirely offsets the effects of changes in foreign exchange rates.

The Company currently does not use financial instruments to hedge local currency
denominated operating expenses in Europe. Instead, the Company believes that a
natural hedge exists, in that local currency revenue from product upgrades
substantially offsets the local currency denominated operating expenses. The
Company assesses the need to utilize financial instruments to hedge European
currency exposure on an ongoing basis.

The Company regularly reviews its hedging program and may as part of this review
determine at any time to change its hedging program.

FIXED INCOME INVESTMENTS
As of March 31, 1999, the Company had an investment portfolio of fixed income
securities, including those classified as cash equivalents of about $42.7
million. These securities are subject to interest rate fluctuations. An increase
in interest rates could adversely affect the market value of the Company's fixed
income securities. As of March 31, 1999, the weighted-average, pre-tax interest
rate on the Company's fixed income securities was approximately 5.2%.

The Company does not use derivative financial instruments in its investment
portfolio to manage interest rate risk. The Company does, however, limit its
exposure to interest rate and credit risk by establishing and monitoring
policies and guidelines for its fixed income portfolios. The guidelines limit
the maximum duration of portfolios, establish credit quality standards, limits
on 


                                       21
<PAGE>   22
exposure to one issue, issuer, as well as the type of instrument. Due to the
limited duration and credit risk criteria established in the Company's
guidelines, the exposure to market and credit risk is not expected to be
material.


                           PART II. OTHER INFORMATION


                                     ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits
                  Exhibit 27 - Financial Data Schedule (included only in the
         copy of this report filed electronically with the Commission)

(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, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                   CAERE CORPORATION

Date:  March 12, 1999

                                   /S/  Blanche M. Sutter
                                   ---------------------------------------------
                                   Blanche M. Sutter, Executive Vice President
                                   and Chief Financial Officer
                                   (Principal Financial and Accounting Officer
                                   and Duly Authorized Officer)


                                       22
<PAGE>   23
INDEX TO EXHIBIT

Exhibit 
Number                   Description
------                   -----------
  27           Financial Data Schedule