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    June 30, 1997 or

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

For the transition period from ______________ to ______________

Commission file number     0-18090

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

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

                 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                                   June 30, 1997

           Common Stock
           $.001 par value                          13,281,952

                           This is page 1 of 16 pages


<PAGE>



                                                               



<TABLE>

                                CAERE CORPORATION
                                      INDEX

                          PART I. Financial Information
<CAPTION>

                                                                                                         Page
ITEM 1.           Financial Statements
<S>               <C>                                                                                   <C>      

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

                  Condensed Consolidated Statements of Earnings -- Three Months
                      and Six Months Ended June 30, 1997 and 1996                                           4

                  Condensed Consolidated Statements of Cash Flows - Six Months
                      Ended June 30, 1997 and 1996                                                          5

                  Notes to Condensed Consolidated Financial Statements                                    6-7

ITEM 2.           Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                                                8-13



                           PART II. Other Information


ITEM 4.           Submission of Matters to a Vote of Security Holders                                      14

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



SIGNATURES                                                                                                 15

</TABLE>

<PAGE>


                          PART I. FINANCIAL INFORMATION

                          ITEM I. FINANCIAL STATEMENTS
<TABLE>

                                CAERE CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)
                                   (Unaudited)
<CAPTION>

                                                                               June 30,        December 31,
                                                                                   1997             1996
<S>                                                                        <C>  <C>            <C>  <C>   

                                     ASSETS

Cash and cash equivalents                                                  $     6,021         $    11,663
Short-term investments                                                          39,090              32,627
Receivables                                                                      6,924               6,888
Inventories                                                                      2,365               2,779
Deferred income taxes                                                            2,474               2,474
Other current assets                                                             1,071                 768
                                                                                ------              ------
         Total current assets                                                   57,945              57,199

Property and equipment, net                                                      4,640               4,742
Other assets                                                                     1,369               1,213
                                                                                ------              ------

         Total assets                                                      $    63,954         $    63,154
                                                                             =========         ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued expenses and other payables                                        $     5,329         $     7,406

Preferred stock, $.001 par value:  authorized 2,000,000
  shares; none issued or outstanding                                                 -                   -
Common stock, $.001 par value:  authorized 30,000,000
  shares; issued and outstanding 13,281,952 and 12,630,584
  shares                                                                            13                  13
Additional paid-in capital                                                      59,205              55,399
Retained earnings (accumulated deficit)                                           (593)                336
                                                                                ------              ------
         Total stockholders' equity                                             58,625              55,748
                                                                                ------              ------

         Total liabilities and stockholders' equity                        $    63,954          $   63,154
                                                                                ======              ======
</TABLE>

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


<PAGE>

<TABLE>

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

<CAPTION>
                                                     Three Months Ended                      Six Months Ended
                                                                June 30,                              June 30,
                                                        1997              1996                1997                1996
                                                        ----              ----                ------------------------

<S>                                                <C>   <C>        <C>   <C>         <C>   <C>          <C>  <C>

Net revenues                                       $     12,751     $     13,989      $     25,323       $    27,545

Cost of revenues                                          3,353            4,457             7,069             8,772
                                                         ------           ------            ------            ------

                                                          9,398            9,532            18,254            18,773
                                                         ------           ------            ------            ------

Operating expenses:
  Research and development                                2,204            1,858             4,206             3,620
  Selling, general and administrative                     6,683            6,575            12,995            13,003
  Merger related costs                                        -                -             2,935                90
                                                         ------           ------            ------            ------

                                                          8,887            8,433            20,136            16,713
                                                         ------           ------            ------            ------

  Operating earnings (loss)                                 511            1,099            (1,882)            2,060

Interest income                                             613              745             1,175             1,393
                                                         ------           ------            ------            ------

  Earnings (loss) before income taxes                     1,124            1,844              (707)            3,453

Income tax expense                                          112              369               222               678
                                                         ------           ------            ------            ------

  Net earnings (loss)                              $      1,012     $      1,475      $       (929)      $     2,775
                                                         ======           ======            ======            ======

Net earnings (loss) per common and
 common equivalent share                           $       0.08     $       0.11      $      (0.07)       $     0.20
                                                         ======           ======            ======            ======

Shares used in per share calculation                     13,320           13,820            12,983            13,658
                                                         ======           ======            ======            ======

</TABLE>


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


<PAGE>

<TABLE>

                                CAERE CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
<CAPTION>
                                                                                            Six Months Ended
                                                                                                  June 30,

                                                                                            1997             1996
<S>                                                                               <C>    <C>         <C>    <C>    

Cash flows from operating activities:
  Net earnings (loss)                                                             $         (929)    $       2,775
  Adjustments to reconcile net earnings (loss) to net cash
  provided by (used for) operating activities:
    Depreciation and amortization                                                          1,488             1,244
    In-process research and development                                                    2,935                 -
    Merger related costs                                                                       -              (860)
    Amortization of capitalized software development costs                                   243               294
    Changes in operating assets and liabilities:
       Receivables, net                                                                      (36)             (837)
       Income tax receivable                                                                   -             1,109
       Inventories                                                                           414                 2
       Other current assets                                                                 (303)             (175)
       Accrued expenses and other payables                                                (2,077)             (164)
                                                                                          ------            ------
           Net cash provided by operating activities                                       1,735             3,388
                                                                                          ------            ------
Cash flows from investing activities:
    Short-term investments, net                                                           (6,463)           (9,832)
    Capital expenditures                                                                  (1,184)             (743)
    Capitalized software development costs                                                  (558)             (297)
    Other assets                                                                             127                70
                                                                                          ------            ------
           Net cash used for investing activities                                         (8,078)          (10,802)
                                                                                          ------            ------
Cash flows from financing activities -
     proceeds from issuances of common stock                                                 701             1,452
                                                                                          ------            ------
Net change in cash and cash equivalents                                                   (5,642)           (5,962)
Cash and cash equivalents, beginning of period                                            11,663            10,664
                                                                                          ------            ------
Cash and cash equivalents, end of period                                          $        6,021      $      4,702
                                                                                          ======            ======
Supplemental disclosures:
  Cash paid for income taxes                                                      $          991      $         46
                                                                                          ======            ======
  Common stock issued for business acquisition                                    $        3,105      $          -
                                                                                          ======            ======
</TABLE>

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


<PAGE>





                                CAERE CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


A)       Basis of Presentation

         The  accompanying  unaudited  condensed  consolidated  balance  sheets,
statements  of earnings 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 the Company as
of June 30, 1997,  and the results of operations  and cash flows for the periods
indicated.

         The accompanying  unaudited condensed consolidated financial statements
have  been  prepared  in  accordance  with the  instructions  for Form  10-Q and
therefore  certain  information and footnote  disclosure  normally  contained in
financial  statements  prepared in accordance with generally accepted accounting
principles have been condensed or omitted.  The Company filed audited  financial
statements  with the  Securities  and  Exchange  Commission  which  included all
information and footnotes necessary for a complete presentation of the Company's
financial  position,  results of  operations  and cash flows for the years ended
December 31, 1996,  1995 and 1994, in its report on Form 10-K for the year ended
December  31, 1996 ("the Form 10-K").  These  condensed  consolidated  financial
statements should be read in conjunction with the financial statements contained
in the Company's  Form 10-K dated March 25, 1997.  The results of operations for
the interim periods ended June 30, 1997, are not  necessarily  indicative of the
results to be expected for the full year.
<TABLE>
<CAPTION>

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

               Raw materials                                      $      1,483             $       1,540
               Work in process                                             204                       348
               Finished goods                                              678                       891
                                                                     ---------                 ---------
                                                                  $      2,365             $       2,779
                                                                     === =====                 =========
</TABLE>


C)       Net Earnings Per Share

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





<PAGE>




D.       Business Acquisition

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

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

         The following  summarized,  pro forma results of operations assumes the
acquisition  took place at the beginning of the respective  periods and excludes
the $2,935,000 charge for acquired in-process technology.
<TABLE>
<CAPTION>

Six months ended June 30, in thousands, except per share amounts                 1997             1996
                                                                                 ----             ----
<S>                                                                             <C>             <C>   

Net revenues                                                                    $25,323         $27,545
Net earnings                                                                    $ 1,863         $ 2,853
Earnings per share                                                              $   .14         $   .20
</TABLE>









<PAGE>


                                     Item 2

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND 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.  Such  risks and  uncertainties  include,  but are not  limited  to,
various important  competitive and technological  factors such as rival customer
and pricing  pressures;  success of the "bundle and upgrade"  business  model to
include the Company's  maintaining its relationships with scanner  manufacturers
as well as 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
reports filed with the Securities and Exchange  Commission,  including,  but not
limited  to,  the  report  on Form 10-K for the year  ended  December  31,  1996
(Certain Trends and Risk Factors sections).

Results of Operations

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

<TABLE>
<CAPTION>

Business Line Analysis

                          ------------- --------------- --------------- -------------- --------------- ---------------
Three Months Ending:                    June 30, 1997                                  June 30, 1996
                          Software      Hardware                        Software       Hardware
                          Products      Products        Combined        Products       Products        Combined
<S>                         <C>             <C>            <C>             <C>              <C>           <C>    
Net revenues                $11,351         $1,400         $12,751         $11,462          $2,527        $13,989
Cost of revenues              2,485            868           3,353           3,376           1,081          4,457
                             $8,866           $532          $9,398          $8,086          $1,446         $9,532
Gross margin %                 78.1%          38.0%           73.7%           70.5%           57.2%          68.1%
                          ------------- --------------- --------------- -------------- --------------- ---------------

                          ------------- --------------- --------------- -------------- --------------- ---------------
Six Months Ending:                      June 30, 1997                                  June 30, 1996
                          Software      Hardware                        Software       Hardware
                          Products      Products        Combined        Products       Products        Combined
Net revenues                $22,216         $3,107         $25,323         $22,877          $4,668        $27,545
Cost of revenues              5,262          1,807           7,069           6,798           1,974          8,772
                            $16,954         $1,300         $18,254         $16,079          $2,694        $18,773
Gross margin %                 76.3%          41.8%           72.1%           70.3%          57.7%           68.2%
                          ------------- --------------- --------------- -------------- --------------- ---------------
</TABLE>

     Net revenues for software  products  decreased 1% during the second quarter
of 1997 to  $11,351,000  from  $11,462,000  in the second  quarter of 1996,  due
primarily  to a decrease  in  upgrade  revenues  of  OmniPage  Professional  and
WordScan products. The primary reason for the decrease in upgrade unit sales was
the  deferral of direct mail  programs  into the third  quarter of 1997 when the
Company expects a new version of OmniPage Pro to begin  shipping.  This decrease
in software  upgrade  revenue was offset by a  significant  one-time  payment of
royalties  during the quarter,  as well as an increase in revenues from sales of
OmniForm products.  The one-time royalty payment was received as a result of the
fact that certain agreed upon changes in one of the Company's  bundling programs
could not be implemented as quickly as the Company  desired.  For the six months
ended  June 30,  1997,  net  revenues  for  software  products  decreased  3% to
$22,216,000  from  $22,877,000  during the same period of 1996, due primarily to
the same reasons.

     Net revenues for  hardware  products  decreased  45% to  $1,400,000  in the
second  quarter of 1997 compared to  $2,527,000  during the same period in 1996.
This  decrease was  primarily  attributable  to lower unit sales of  transaction
processing OCR products  between the two periods.  Hardware  product revenues in
the second  quarter of 1996  included a large,  one-time  order for  transaction
processing OCR products which exceeded $1 million.  This fluctuation in revenues
is  typical  of  quarterly  shipment  patterns  in this  line  of the  Company's
business.  The balance of the decrease in hardware revenues is associated with a
transition   of  the  M/Series   line  of   production-level   OCR  products  to
"software-only"  solutions, as the computing power available on today's personal
computers  continues  to increase.  For the six months ended June 30, 1997,  net
revenues for hardware  products  decreased  33% to  $3,107,000  from  $4,668,000
during the same period of 1996, due primarily to the same factors.

     International  sales  increased 10% to $3,744,000,  or 29% of net revenues,
during  the  second  quarter  of 1997,  compared  to  $3,408,000,  or 24% of net
revenues,  in the same period of 1996.  The primary reason for this increase was
the   operation  of  the   Company's   Hungarian   subsidiary,   Recognita   Rt.
("Recognita"),  acquired  in  December  1996.  Also,  to a  lesser  extent,  the
availability of new foreign versions of certain software products contributed to
the  increase  in  international  sales as the  "bundle  and  upgrade"  strategy
continued  to  develop  overseas.  For the  six  months  ended  June  30,  1997,
international  sales  increased  13% to  $8,683,000,  or  34%  of net  revenues,
compared to $7,668,000,  or 28% of net revenues, during the comparable period of
1996. This increase is primarily attributable to the same factors.
Gross Margins

     Gross  margins  for  software  products  improved  from 70.5% in the second
quarter of 1996 to 78.1% in the second  quarter  of 1997,  primarily  due to the
shift  of  the  manufacturing  of  bundled  product  to  the  Company's  scanner
manufacturer  partners.  Beginning  in the fourth  quarter of 1996,  the Company
began to change the bundling arrangement with certain of its partners.  Prior to
the fourth quarter of 1996, the Company sold such bundled product to partners at
prices  approximating  cost. Since the fourth quarter of 1996,  certain partners
have agreed to manufacture their product  requirements on a much reduced royalty
basis.  The effect of this change upon the Company's  financial  statements  has
been to reduce net revenues and cost of revenues previously associated with such
bundled  product by a similar  amount,  creating an improvement in overall gross
margins.  The one-time  royalty  payment  recorded in the second quarter of 1997
also contributed to the increase in gross margins for software products. For the
six months ended June 30, 1997, gross margins for software  products improved to
76.3% from 70.3% in the first half of 1996.  This  improvements is primarily due
to the same factors.

     Gross  margins  for  hardware  products  decreased  to 38.0% in the  second
quarter of 1997 from 57.2% in the same  period of 1996,  due to lower unit sales
and revenues of both transaction  processing OCR and bar code products,  as well
as M/Series  products.  M/Series  products  typically carry higher gross margins
than  other  hardware  products.  Also  contributing  to the  reduced  margin on
hardware  products was the fixed nature of a majority of the Company's  hardware
manufacturing  overhead.  As hardware  product  revenues  decline,  the level of
manufacturing  overhead  does not  decline in the same  proportion.  For the six
months ended June 30, 1997,  gross  margins for hardware  products  decreased to
41.8% from 57.7% in the first half of 1996 due primarily to the same factors.

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

Operating Expenses

     Research and development (R&D) expenses  increased 19% to $2,204,000 in the
second  quarter  of 1997 from  $1,859,000  during the same  period of 1996.  The
increase in spending from 1996 to 1997 was  primarily the result of  development
expenses of the Company's recently acquired subsidiaries,  Recognita in Hungary,
which was  acquired  in  December  1996,  and  Formonix,  Inc.  ("Formonix")  in
Colorado,  which was acquired in March 1997. To a lesser extent, the increase in
R&D expenses was also  attributable  to increased  staffing  associated with the
Company's ongoing software development projects. As a percentage of revenue, R&D
expense  increased  to 17% of  revenue  in the  second  quarter of 1997 from 13%
during the same  period in 1996.  This  increase is  attributable  to higher R&D
expense and lower net  revenues  between  the  comparable  periods.  For the six
months ended June 30, 1997, R&D expenses increased 16% to $4,206,000,  or 17% of
net revenues, from $3,621,000,  or 13% of net revenues, during the first half of
1996. This increase in spending was primarily the result of the same factors.

     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 1997. In
accordance with Statement of Financial  Accounting Standards No. 86, the Company
capitalized  $150,000 of software development costs during the second quarter of
1997,  compared to $132,000 in the same period of 1996. For the six months ended
June 30, 1997, capitalized software development costs totaled $305,000, compared
to $297,000 during the first half of 1996. In addition to this capitalization of
internal R&D expenses, in connection with the Company's acquisition of Formonix,
the Company  capitalized  approximately  $253,000 of the acquisition cost during
the first quarter of 1997. The costs  capitalized  related to the portion of the
Formonix  acquisition   valuation  which  was  allocated  to  existing  products
acquired. Amortization of capitalized software development costs was $126,000 in
the second quarter of 1997,  versus $132,000 for the comparable  period in 1996.
On a year-to-date basis,  amortization of capitalized software development costs
totaled  $243,000  in the  first  half  of  1997,  versus  $294,000  during  the
comparable period in 1996.

     Selling,  general and  administrative  (S,G&A) expenses increased 2% in the
second quarter of 1997 to $6,683,000 from  $6,574,000  during the same period of
1996. The increase in S,G&A spending was primarily  related to increased service
and support  expenses  related to the Company's  growing customer base resulting
from the high volume business being generated by the "bundle and upgrade" model.
To a lesser extent, the increase in S,G&A expenses was attributable to sales and
service costs of Recognita  during 1997. As a percentage of net revenues,  S,G&A
expense  increased to 52% in the second quarter of 1997 from 47% during the same
period in 1996.  This increase is attributable to higher S,G&A expense and lower
net revenues  during the comparable  periods.  For the six months ended June 30,
1997, S,G&A spending remained consistent at $12,995,000  compared to $13,002,000
in the first half of 1996. This consistency  resulted from increased service and
support costs being offset by savings related to the  streamlining of management
and promotional  costs between the OmniPage and OmniForm  product line marketing
areas.  As a  percentage  of  revenue on a  year-to-date  basis,  S,G&A  expense
increased  to 51% of  revenue in the first half of 1997 from 47% during the same
period in 1996.  This increase is  attributable to lower net revenues during the
comparable  periods.  The Company  expects  that S,G&A  expense may  increase in
dollar  terms in 1997,  as  efforts  to expand  sales and  marketing  activities
continue in the OCR, forms, and desktop document management areas.

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

Interest Income

     Interest  income  decreased  18% in the second  quarter of 1997 to $613,000
from $745,000  during the same period of 1996. For the six months ended June 30,
1997,  interest income  decreased 16% to $1,175,000  from $1,393,000  during the
first  half of 1996.  The  decrease  in  interest  income is  attributable  to a
reduction  in  total  cash  and  short-term   investment  balances  between  the
comparable periods.  The Company's one million share repurchase during the third
quarter  of 1996,  its  acquisition  of  Recognita  in  December  1996,  and its
acquisition  of Formonix in March 1997 were the primary  reasons for the decline
in total cash and  short-term  investment  balances  since the second quarter of
1996.

Income Taxes

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

Net Earnings and Earnings Per Share

     Net earnings for the second  quarter of 1997 were  $1,012,000,  compared to
$1,475,000  during the same period in 1996.  Earnings per share were $.08 in the
second quarter of 1997,  versus $.11 in the  comparable  period of 1996. For the
six months ended June 30, 1997,  the net loss was  $929,000,  or $.07 per share,
compared to net earnings of $2,775,000, or $.20 per share, during the first half
of 1996.  The reason  for the loss in the first half of 1997 was the  $2,935,000
one-time  in-process  research and  development  charge  related to the Formonix
acquisition  recorded during the first quarter.  Excluding this one-time charge,
net earnings for the first half of 1997 would have been $2,006,000,  or $.15 per
share,  using  primary  dilutive  shares  outstanding  of  13,124,000  under the
treasury stock method.

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,  forms technology, and document management technology. 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  success of 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 June 30, 1997. Working capital
increased 6% to $52,616,000  from  $49,793,000 at December 31, 1996. The Company
has no long-term  debt. The Company's cash and  short-term  investments  totaled
$45,111,000  at June 30, 1997.  The Company  believes that current cash balances
and internally  generated funds will be sufficient to meet its cash requirements
through 1997.

     Caere generated cash for operating  activities of $1,735,000 during the six
months  ended  June 30,  1997.  Uses of cash  included  $6,463,000  to  purchase
short-term  investments  in  addition  to a  $1,184,000  investment  in  capital
equipment.  During  the first  half of 1996,  the  Company  generated  cash from
operating  activities of  $3,388,000.  Uses of cash during that period  included
$9,832,000 to purchase  short-term  investments and $743,000 of expenditures for
capital equipment.

     The Company  offers credit terms to qualifying  customers and also sells on
prepaid,  credit card, and cash-on-delivery bases. 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
reduce the potential for catastrophic losses.

<PAGE>



                                     Item 4

Submission of Matters to a Vote of Security Holders

(a)      The Annual Meeting of Stockholders of the Company was held on
         May 13, 1997.

(b)      Management's  nominee to the Board of  Directors  of Class II Directors
         (for a three-year term expiring at the Annual Meeting in the year 2000)
         was elected by the following votes:
<TABLE>
<CAPTION>

                                                              For                   Withhold
         <S>                                              <C>                       <C>    
         Frederick W. Zuckerman (Class II)                11,129,233                124,818
</TABLE>

         The  following  are persons  whose term of office as  Directors  of the
Company continued after the meeting:
<TABLE>
<CAPTION>
         <S>                                                  <C>                   <C>      

         Director                                             Class                 Term Expires

         Robert G. Teresi                                     III                   1998
         Wayne E. Rosing                                      III                   1998
         James K. Dutton                                      I                     1999
         Robert J. Frankenberg                                I                     1999
</TABLE>

(c)      The other matters presented and the voting of stockholders with respecT
 thereto are as follows:
<TABLE>

         (i)      Approval of the 1990 Employee Stock Purchase Plan, as amended,
                  to  increase  the  number of shares  which may be issued  from
                  500,000 to 1,000,000, an increase of 500,000 shares.
<CAPTION>
                  <S>                     <C>                        <C>                       <C>

                  For:  9,094,736         Against:  1,905,694        Abstain:  45,591          No Vote:  208,030

         (ii)     Ratification  of  selection  of KPMG Peat  Marwick  LLP as the
                  Company's  independent  auditors  for the fiscal  year  ending
                  December 31, 1997.

                  For:  11,150,870        Against:  75,295           Abstain:  27,886

</TABLE>

<PAGE>



                                     Item 6

Exhibits and Reports on Form 8-K

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

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




SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                            CAERE CORPORATION

Date:  August 7, 1997

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

                                    (Principal Financial and Accounting Officer
                                     and Duly Authorized Officer)


<PAGE>



 <TABLE>
                                                                                                                     EXHIBIT 11

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

                                                              Three Months Ended                           Six Months Ended
                                                                    June 30,                                      June 30,
                                                                    --------                                      --------
                                                            1997                 1996                  1997                 1996
                                                          -------               ------                 ----                 ----
<S>                                               <C>    <C>          <C>     <C>           <C>     <C>          <C>     <C>      

Net earnings (loss)                               $      1,012,000    $       1,475,000     $       (929,000)    $       2,775,000
                                                    ==   =========            =========        ==   =========            =========

Weighted average shares outstanding during
the period                                              13,280,285           13,434,976            12,982,694           13,417,216

Common equivalent shares using the treasury
stock method                                                39,990              385,145                     -              240,889
                                                    -----   ------             --------        -----        -             --------

Common and common equivalent shares
outstanding for purposes of calculating net
earnings per share                                      13,320,275           13,820,121            12,982,694           13,658,105
                                                        ==========           ==========            ==========           ==========

Net earnings (loss) per common and common
equivalent share                                  $           0.08          $      0.11      $         ( 0.07)     $          0.20
                                                       ===========          ===========        ==============       ==============
                                                             


</TABLE>


<PAGE>