UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 10-Q


[X]  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF  THE  SECURITIES
     EXCHANGE ACT OF 1934

     For the quarterly period ended March 31, 1997

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15 (d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 
     For the transition period from _____________ to ____________

                         Commission File Number 0-15997


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

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

Delaware                                            95-3757924

FILENET CORPORATION
3565 Harbor Boulevard
Costa Mesa, CA 92626
(714) 966-3400


     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


     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date:


Title                                                        Outstanding

Common Stock                                        15,202,354 as of May 9, 1997


<PAGE>

                               FILENET CORPORATION
                                      Index


                                                                           Page
                                                                          Number
                                                                          ------

PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Balance Sheets
         as of March 31, 1997 and December 31, 1996......................    1

         Consolidated Statements of Operations
         for the quarters ended March 31, 1997 and 1996..................    2

         Consolidated Statements of Cash Flows
         for the quarters ended March 31, 1997 and 1996..................    3

         Notes to Consolidated Financial Statements......................    4

Item 2.  Management's Discussion and Analysis of Results of Operations
         and Financial Condition.........................................    7

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings...............................................   11

Item 5.  Certain Considerations..........................................   12

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

         SIGNATURE.......................................................   16

         INDEX TO EXHIBITS...............................................   17




<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
                               FILENET CORPORATION
                           Consolidated Balance Sheets
                      (In thousands, except share amounts)
<TABLE>
<CAPTION>
                                                       March 31,    December 31,
                                                         1997           1996
                                                       ---------    ------------
                                                      (Unaudited)
                                     ASSETS
<S>                                                    <C>              <C>
Current assets:
     Cash and cash equivalents.....................    $ 29,308         $ 28,530
     Short-term marketable securities..............      28,610           22,037
                                                         ------           ------
         Total cash and short-term marketable
          securities...............................      57,918           50,567
                                                         ------           ------
     Accounts receivable, net......................      43,941           75,469
     Inventories...................................       7,819            8,794
     Prepaid expenses and other....................       7,409            8,336
     Deferred income taxes.........................       6,016            5,641
                                                          -----            -----
Total current assets...............................     123,103          148,807
                                                        -------          -------
Net property and equipment.........................      28,583           28,329
Long-term marketable securities....................      13,057           16,705
Other..............................................       2,103            1,838
                                                          -----            -----
Total assets.......................................    $166,846         $195,679
                                                       ========         ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable..............................    $ 11,442         $ 16,752
     Accrued liabilities:
         Compensation..............................       8,796           10,728
         Unearned maintenance revenue..............       4,585            5,554
         Royalties.................................       3,343            4,531
         Other.....................................      13,315           21,903
                                                         ------           ------
Total current liabilities..........................      41,481           59,468
                                                         ------           ------
Deferred income taxes..............................       3,373            3,405
Stockholders' equity:
     Common stock - $.01 par value;  authorized,
       100,000,000 shares; issued and outstanding
       15,330,306 and 15,230,566  shares at
       March 31, 1997 and December 31, 1996,
       respectively................................     128,735          127,813
     Retained earnings (accumulated deficit).......      (1,546)           7,874
     Other.........................................        (629)           1,687
                                                           ----            -----
                                                        126,560          137,374
     Less 200,000 Treasury shares at cost                 4,568            4,568
                                                          -----            -----
Total stockholders' equity.........................     121,992          132,806
                                                        -------          -------
Total liabilities and stockholders' equity.........    $166,846         $195,679
                                                       ========         ========
</TABLE>
See notes to consolidated financial statements.

                                       1
<PAGE>

                               FILENET CORPORATION
                      Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                          Quarter Ended
                                                --------------------------------
                                                March 31, 1997    March 31, 1996
                                                --------------    --------------
<S>                                                <C>               <C>      
Revenue:
     Software revenue..........................    $ 22,082          $ 37,118
     Service revenue...........................      18,237            17,215
     Hardware revenue..........................       7,243            12,411
                                                      -----            ------
Total revenue..................................      47,562            66,744
                                                     ------            ------
Costs and expenses:
     Cost of software revenue..................       2,999             3,863
     Cost of service revenue...................      13,131            11,450
     Cost of hardware revenue..................       5,329             8,219
     Research and development..................      10,140             8,422
     Selling, general and administrative.......      29,766            30,027
     Merger, restructuring and write-off of
      purchased in-process research and
      development costs........................           -            16,011
                                                     ------            ------
Total costs and expenses.......................      61,365            77,992
                                                     ------            ------
Operating loss.................................     (13,803)          (11,248)

Other income, net..............................         721               831
                                                        ---               ---
Loss before income taxes.......................     (13,082)          (10,417)

Provision (benefit) for income taxes...........      (3,662)            1,403
                                                     ------             -----
Net loss.......................................    $ (9,420)         $(11,820)
                                                   ========          ======== 
Net loss per share.............................    $  (0.63)         $  (0.79)
                                                   ========          ======== 

Weighted average common shares outstanding.....      15,045            14,882
                                                     ======            ======
</TABLE>
See notes to consolidated financial statements.

                                       2

<PAGE>
                               FILENET CORPORATION
                      Consolidated Statements Of Cash Flows
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                          Quarter Ended
                                                --------------------------------
                                                March 31, 1997    March 31, 1996
                                                --------------    --------------
<S>                                                <C>               <C> 
Cash flows from operating activities:
     Net loss..................................    $ (9,420)         $(11,820)
     Adjustments to reconcile net loss to net
      cash provided (used) by operating
      activities:
        Write-off of purchased in-process
          research and development costs.......           -            10,011
        Depreciation and amortization..........       3,353             2,872
        Provision for losses on accounts
          receivable...........................          23               110
        Changes in operating assets and
          liabilities, net of acquisition:
              Accounts receivable..............      30,090           (11,831)
              Inventories......................       1,090              (843)
              Prepaid expenses.................         617            (1,079)
              Accounts payable.................      (5,108)              184
              Accrued liabilities:
                  Compensation.................      (1,863)           (1,302)
                  Unearned maintenance revenue.        (954)            2,155
                  Royalties....................      (1,188)               24
              Other............................      (8,436)            6,560
                                                     ------             -----
Net cash provided (used) by operating
  activities...................................       8,204            (4,959)
                                                      -----            ------ 
Cash flows from investing activities:
     Proceeds from sale of equipment...........          70             2,848
     Capital expenditures......................      (4,059)           (4,856)
     Payment for purchase of IFSL..............           -           (11,711)
     Purchase of marketable securities.........     (14,215)           (6,029)
     Proceeds from sales and maturity of
       marketable securities...................      11,260            12,317
                                                     ------            ------
Net cash used by investing activities..........      (6,944)           (7,431)
                                                     ------            ------ 
Cash flows from financing activities:
     Proceeds from issuance of common stock....         922             2,456
 
Effect of exchange rate changes on cash and
  cash equivalents.............................      (1,404)              (92)
                                                     ------                --
Net increase (decrease) in cash and cash
  equivalents..................................         778           (10,026)
Cash and cash equivalents, beginning of year...      28,530            43,378
                                                     ------            ------
Cash and cash equivalents, end of period.......    $ 29,308          $ 33,352
                                                   ========          ========
Supplemental cash flow information:
     Interest paid.............................    $     38          $    108
     Income taxes paid.........................    $    718          $    625
</TABLE>
See notes to consolidated financial statements

                                       3
<PAGE>

                               FILENET CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   In the opinion of the management of FileNet  Corporation  ("the  Company"),
     the  accompanying   unaudited  consolidated  financial  statements  reflect
     adjustments  (consisting  of normal  recurring  adjustments)  necessary  to
     present fairly the financial  position of the Company at March 31, 1997 and
     the results of its operations and cash flows for the fiscal  quarters ended
     March 31,  1997 and 1996.  Certain  information  and  footnote  disclosures
     normally  included in financial  statements  have been condensed or omitted
     pursuant to rules and regulations of the Securities and Exchange Commission
     ("SEC"),  although  the  Company  believes  that  the  disclosures  in  the
     consolidated  financial  statements are adequate to ensure the  information
     presented is not misleading. These consolidated financial statements should
     be read in conjunction with the consolidated financial statements and notes
     thereto, and Management's  Discussion and Analysis of Results of Operations
     and Financial  Condition  contained in the Company's  Annual Report on Form
     10-K for the fiscal year ended  December 31, 1996,  and with the  Company's
     Current  Report on Form 8-K,  dated April 1, 1997, and filed by the Company
     with the SEC on April 1, 1997.  The results of  operations  for the interim
     periods are not  necessarily  indicative of the  operating  results for the
     year.

2.   Certain  reclassifications  have been made to the prior year's consolidated
     financial statements to conform with the current year's presentation.

3.   Net loss per share was based  upon the  weighted  average  number of actual
     shares of common stock outstanding.

4.   The  $16.0  million  merger,   restructuring  and  write-off  of  purchased
     in-process  research and development costs for the three months ended March
     31,  1996,  consisted  of $10.0  million  for the  write-off  of  purchased
     in-process  research and  development  costs related to the  acquisition of
     International  Financial  Systems,  Ltd.  ("IFSL"),  $4.2 million in merger
     costs related to the acquisition of Saros Corporation  ("Saros"),  and $1.8
     million in  restructuring  costs related to the  acquisitions  of Saros and
     Watermark Software, Inc. ("Watermark").

5.   During  April 1997 the  Company  announced a  restructuring  plan to reduce
     operating   expenses  by  consolidating   the  Watermark   business  unit's
     Burlington, Massachusetts engineering and marketing functions with those at
     FileNet's Costa Mesa,  California  location as well as reduce  headcount in
     certain  other areas of the  Company.  In  connection  with this plan,  the
     Company  plans to record an  estimated  $6.0 million of  restructuring  and
     other  charges   during  the  second  quarter  ended  June  30,  1997.  The
     restructuring  charge will consist primarily of severance costs,  write-off
     of impaired assets, and facility closing costs.

6.   During 1997, the Financial  Accounting Standards Board issued Statement No.
     128 (SFAS 128),  "Earnings  Per Share." Under SFAS 128, the Company will be
     required to disclose  basic  earnings  per share and diluted  earnings  per
     share for all periods for which an income  statement  is  presented,  which
     will replace disclosure currently being made for primary earnings per share
     and fully diluted earnings per share. SFAS 128 requires adoption for fiscal
     periods ending after  December 15, 1997.  There is expected to be no impact
     on primary or fully  diluted  earnings per share for the three months ended
     March 31, 1997 and 1996.

                                      4

<PAGE>

7.   In October 1994, Wang Laboratories,  Inc. ("Wang") filed a complaint in the
     United States  District  Court for the District of  Massachusetts  alleging
     that the Company is infringing five patents held by Wang. On June 23, 1995,
     Wang amended its complaint to include an additional related patent. On July
     2, 1996,  Wang filed a complaint in the same court alleging that Watermark,
     formerly a  wholly-owned  subsidiary  that was merged into the Company,  is
     infringing three of the same patents asserted in the initial complaint.  On
     October  9,  1996,  Wang  withdrew  its claim  that one of the  patents  it
     initially  asserted  is  infringed  by the  Company's  products  which were
     commercialized  before the initial  complaint was filed.  Wang reserved the
     right to assert that patent against the Company's  products  commercialized
     after that date in a separate lawsuit.  Based on the Company's  analysis of
     these  Wang  patents  and their  respective  file  histories,  the  Company
     believes that it has meritorious  defenses to Wang's claims;  however,  the
     ultimate  outcome or any resulting  potential  loss cannot be determined at
     this time.

     In March 1997,  Eastman Kodak Company ("Kodak")  purchased the Wang imaging
     business unit that has responsibility  for this litigation.  The patents in
     the suit have been  transferred  to a Kodak  subsidiary,  Kodak  Limited of
     England,  which in turn has  exclusively  licensed  them to  another  Kodak
     subsidiary, Eastman Software, Inc. in the United States. The Company cannot
     predict what, if any, impact this will have on the litigation. If it should
     be determined that the patents at issue in the litigation are valid and are
     infringed by any of the Company's  products,  including Watermark products,
     the  Company  will,  depending  on the  product,  redesign  the  infringing
     products or seek to obtain a license to market the  products.  There can be
     no  assurance  that the  Company  will be able to obtain  such a license on
     acceptable terms.
 
     On December 20,  1996,  plaintiff  Michael I. Goldman  filed a class action
     complaint  against the Company and certain of its officers and directors in
     the Superior  Court of California,  County of Orange (the "State  Action").
     The action was purportedly  filed on behalf of a class of purchasers of the
     Company's  common stock during the period  October 19, 1995 through July 2,
     1996. Plaintiff alleges that the Company and other defendants violated Cal.
     Corp. Code Sections 25400 and 25500, Cal. Civ. Code Sections  1709-1710 and
     Cal. Bus. & Prof.  Code Sections  17200 et seq. in connection  with various
     public  statements  made by the  Company and  certain of its  officers  and
     directors during the putative class period. The complaint seeks unspecified
     compensatory  and  punitive  damages,  interest,  attorneys'  fees,  expert
     witness fees, costs, and equitable or injunctive relief.

     On April 1, 1997,  plaintiff  Michael I. Goldman filed another class action
     complaint  against the Company and certain of its officers and directors in
     the United  States  District  Court for the Central  District of California
     (the "Federal  Action").  The action purportedly was filed on behalf of the
     same class of purchasers of the Company's common stock as the State Action.
     The  allegations  contained  in the Federal  Action are very similar to the
     allegations  contained in the State Action,  except that the Federal Action
     asserts claims under  Sections  10(b) and 20(a) of the Securities  Exchange
     Act and Rule 10b-5. The complaint seeks unspecified  compensatory  damages,
     interest,  attorneys'  fees,  expert  witness fees,  costs and equitable or
     injunctive  relief.  The Company has not yet  responded to the complaint in
     the Federal Action.

     In the State Action,  on April 14, 1997, the Company filed a motion to stay
     all  proceedings  in light of the filing of the Federal  Action by the same
     plaintiff. This motion was denied without prejudice by the Court on May 13,
     1997,  and the case was  assigned to the Complex  Case Panel of Judges.  On
     April 15,  1997,  the Company  filed a demurrer and motion to strike in the
     State Action which are  scheduled to be heard by the Court on July 1, 1997,
     but may be  delayed  in light of the newly  assigned  judge.  Discovery  is
     proceeding in the State Action.
      
                                        5

<PAGE>

     The  Company  believes  that  all  of  the  allegations  contained  in  the
     complaints  filed in the State and Federal  Actions  are without  merit and
     intends to defend the actions vigorously.

     The Company, in the normal course of business,  is subject to various other
     legal  matters.  While the  results  of  litigation  and  claims  cannot be
     predicted with  certainty,  the Company  believes that the final outcome of
     these  other  matters  will not have a  materially  adverse  effect  on the
     Company's consolidated results of operations or financial condition.

                                       6

<PAGE>

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

                               FILENET CORPORATION

The following  should be read in  conjunction  with the  unaudited  consolidated
financial  statements  and notes thereto  included in Part I--Item 1 and Certain
Considerations  in  Part  II--Item  5 of  this  Quarterly  Report,  the  audited
consolidated   financial   statements,   and  notes  thereto,  and  Management's
Discussion  and  Analysis  of  Results of  Operations  and  Financial  Condition
contained  in the  registrant's  Annual  Report on Form 10-K for the fiscal year
ended  December 31, 1996,  and with the  Company's  Current  Report on Form 8-K,
dated April 1, 1997, and filed by the Company with the SEC on April 1, 1997.

Results of Operations

Revenue

Domestic  and  international  revenues  decreased  approximately  29%  and  27%,
respectively,  in the first quarter of 1997, when compared to the  corresponding
period in 1996.  International revenue constituted  approximately 32% and 31% of
total revenues in the first quarter of 1997 and 1996,  respectively.  Management
expects that the Company's  international  operations will continue to provide a
significant portion of total revenues; however,  international revenues could be
adversely  affected  if  the  U.S.  dollar  strengthens  against   international
currencies.
<TABLE>
<CAPTION>
(Dollars in millions)                First Quarter    First Quarter     
                                         1997             1996          % Change
                                     -------------    -------------     --------
<S>                                     <C>              <C>              <C> 
Software revenue                        $22.1            $37.1            (40%)
 ................................................................................
    Percentage of total revenue           46%              56%
 ................................................................................
Service revenue                         $18.3            $17.2              6%
 ................................................................................
    Percentage of total revenue           39%              26%
 ................................................................................
Hardware revenue                        $ 7.2            $12.4            (42%)
 ................................................................................
    Percentage of total revenue           15%              18%
 ................................................................................
Total revenue                           $47.6            $66.7            (29%)
 ................................................................................
</TABLE>

Software revenue decreased 40% for the quarter ended March 31, 1997, compared to
the same  period of 1996.  The  decrease  was due to a  weakness  in new  orders
experienced  both  domestically  and  internationally.  Software  revenue  as  a
percentage  of total  revenue  decreased to 46% for the quarter  ended March 31,
1997,  from 56% in the same  quarter  last year due to the  decrease in software
revenue cited above.

Service revenue  increased 6% for the quarter ended March 31, 1997,  compared to
the same period of 1996.  Service revenue  consists of revenue from software and
hardware  maintenance  services  provided to the  Company's  customers and other
revenue that includes professional services, training, repairs and supplies. The
increase was due to the growth of the Company's  installed  base and an increase
in repairs of spare parts associated with the transition of hardware maintenance
to  HP  and  others.  The  increase  was  partially  offset  by  a  decrease  in
professional  services revenue  associated with lower software revenue.  Service
revenue as a percentage of total revenue  increased to 39% for the quarter ended
March  31,  1997,  from 26% in the same  quarter  last  year due to the  current
quarter decrease in software and hardware revenue cited herein.

                                       7

<PAGE>
Hardware revenue decreased by 42% for the quarter ended March 31, 1997, compared
to the same period of 1996 due to similar  reasons  discussed above for software
revenue.   Additionally,   hardware  revenue  for  1996  included  a  number  of
international  sales with significant  hardware  content.  Hardware revenue as a
percent of total revenue  declined due to the reasons  cited above.  The Company
expects  hardware  revenue to continue to decrease as a percentage of revenue.

Cost of Revenue.
<TABLE>
<CAPTION>
(Dollars in millions)                First Quarter    First Quarter     
                                         1997             1996          % Change
                                     -------------    -------------     --------
<S>                                     <C>              <C>              <C> 
Cost of software revenue                $ 3.0            $ 3.9            (23%)
 ................................................................................
    Percentage of software revenue        14%              11%
 ................................................................................
Cost of service revenue                 $13.1            $11.4             15%
 ................................................................................
    Percentage of service revenue         72%              66%
 ................................................................................
Cost of hardware revenue                $ 5.3            $ 8.2            (35%)
 ................................................................................
    Percentage of hardware revenue        74%              66%
 ................................................................................
Total cost of revenue                   $21.4            $23.5              9%
 ................................................................................
    Percentage of total revenue           45%              35%
 ................................................................................
</TABLE>

The cost of software  revenue  includes  royalties paid to third parties and the
cost of software  distribution.  The cost of software revenue as a percentage of
software revenue increased to 14% for the quarter ended March 31, 1997, from 11%
for same  period of 1996 due to the  decrease  in  software  revenue  without a
corresponding  decrease in fixed  costs  related to the  Company's  distribution
activities.

The cost of service revenue includes software support and professional  services
personnel,  supplies, and the cost of third party hardware maintenance. The cost
of service revenue as a percentage of service  revenue  increased to 72% for the
quarter ended March 31, 1997, from 66% for the same period of 1996. The increase
in 1997 was primarily due to lower margins experienced internationally.

The cost of hardware revenue includes the Company's cost of OSAR  manufacturing,
third-party purchased hardware,  and the cost of hardware integration personnel.
The cost of hardware  revenue as a percentage of hardware  revenue  increased to
74% for the quarter ended March 31, 1997,  from 66% for the same period of 1996.
The  increase  in 1997 was due to the  decrease in  hardware  revenue  without a
corresponding  decrease  in  fixed  costs  related  to  the  Company's  hardware
integration  activities and competitive  pricing  pressures  associated with the
hardware market.

Operating Expenses.
<TABLE>
<CAPTION>
(Dollars in millions)                First Quarter    First Quarter     
                                         1997             1996          % Change
                                     -------------    -------------     --------
<S>                                     <C>              <C>               <C> 
Research and development                $10.1            $ 8.4             20%
 ................................................................................
    Percentage of total revenue           21%              13%
 ................................................................................
Selling, general and administrative     $29.8            $30.0             (1%)
 ................................................................................
    Percentage of total revenue           63%              45%
 ................................................................................
</TABLE>
                                        8
<PAGE>
The Company's research and development expenses increased 20% in 1997 due to the
addition of development  personnel and related facilities,  depreciation expense
associated  with new  capital  equipment  additions,  and a general  increase in
salaries due to increased demand and competition for engineers.  As a percentage
of total revenue,  research and  development  expenses  increased to 21% for the
quarter  ended  March 31,  1997,  from 13% for the same  period of 1996 due to a
combination of the factors cited above and the decrease in total revenue.

Selling,  general and  administrative  expenses as a percentage of total revenue
increased  to 63% for the quarter  ended March 31,  1997,  from 45% for the same
period  of 1996.  The  increase  in 1997 is a  consequence  of the  decrease  in
revenues cited above.

MERGER,  RESTRUCTURING  AND  WRITE-OFF  OF  PURCHASED  IN-PROCESS  RESEARCH  AND
DEVELOPMENT  COSTS.  The $16.0  million  charge for  merger,  restructuring  and
write-off of purchased  in-process  research and development costs for the three
months ended March 31, 1996,  consisted  of $10.0  million for the  write-off of
purchased  in-process  research  and  development  costs  related  to  the  IFSL
acquisition,  $4.2 million in merger costs related to the Saros acquisition, and
$1.8  million  in  restructuring  costs  related  to  the  Saros  and  Watermark
acquisitions.

EFFECTIVE TAX RATE.  The Company's  combined  federal,  State and foreign annual
effective tax rate for the quarter ended March 31, 1997, was 28% compared to 37%
for the same period in 1996. The 1996 effective tax rate included non-deductible
merger and other costs for the Saros and IFSL  acquisitions.  The  effective tax
rate for 1996,  exclusive  of the merger and other  costs,  was 25%.  The higher
effective  tax rate in 1997 is  attributable  to earnings  generated  in certain
foreign jurisdictions.

NET LOSS.  Net loss for the three months ended March 31, 1997,  was $9.4 million
or $0.63 per share on 15.0 million  weighted  average common shares  outstanding
compared  to a net loss of $11.8  million  or $0.79  per  share on 14.9  million
weighted average common shares outstanding for the same period of 1996. The same
period  of  1996  included  after-tax  charges  for  merger,  restructuring  and
write-off  of  purchased  in-process  research  and  development  costs of $16.0
million.  Income for the three months ended March 31, 1996,  before the one-time
after-tax  charges was $4.2 million or $0.25 per share on 16.6 million  weighted
average common and common equivalent shares outstanding.

FOREIGN CURRENCY  FLUCTUATIONS AND INFLATION.  The Company's  performance can be
affected by changes in foreign  currency  values  relative to the U.S. dollar as
discussed above in relation to the Company's revenue and operating expenses. The
net  impact  to net  income  from  foreign  exchange  transactions  and  hedging
activities  are immaterial for all periods  reported.  Management  believes that
inflation  has not had a  significant  impact  on the  prices  of the  Company's
products,  the cost of its materials,  or its operating results for the quarters
ended March 31, 1997, and 1996

RECENT EVENT.  During April 1997, the Company announced a restructuring  plan to
reduce  operating  expenses  by  consolidating  the  Watermark  business  unit's
Burlington,  Massachusetts  engineering  and marketing  functions  with those at
FileNet's Costa Mesa, California location as well as reduce headcount in certain
other areas of the Company.  In connection  with this plan, the Company plans to
record an estimated $6.0 million of  restructuring  and other charges during the
second  quarter  ended June 30,  1997.  The  restructuring  charge will  consist
primarily of severance costs, write-off of impaired assets, and facility closing
costs.

                                       9

<PAGE>

Liquidity and Capital Resources

As of March 31, 1997,  combined cash, cash  equivalents and short- and long-term
marketable  securities  totaled $71.0 million,  an increase of $3.7 million from
$67.3  million at the end of 1996.  The  increase is  primarily a result of cash
generated  by  operating  activities  of $8.2  million,  and to a lesser  extent
through the exercise of employee stock options of $.9 million. This increase was
partially  offset by capital  expenditures  of $4.1  million and net purchase of
marketable securities of $3.0 million.

Accounts  receivable  decreased  to $43.9  million at March 31,  1997 from $75.5
million at December 31, 1996. Days sales outstanding  decreased to 84 days as of
March 31, 1997 compared to 95 days as of December 31, 1996. Current  liabilities
decreased to $41.5  million at March 31, 1997 from $59.5 million at December 31,
1996.  The decrease is primarily a result of a decrease in accounts  payable and
lower accrued  sales  commissions,  royalties and other  expenses as a result of
lower revenue.

The Company has an  unsecured  line of credit of $20  million  available  from a
commercial bank. This line of credit expires in April 1997 and is subject to the
maintenance  of  certain  financial  covenants.  The  Company  also has  several
borrowing  arrangements  with  foreign  banks  which  expire  at  various  times
throughout 1997 pursuant to which the Company may borrow up to  approximately $2
million.  As of March 31, 1997,  there were no  borrowings  against these credit
lines.

The Company  anticipates that its present cash balances together with internally
generated  funds and credit lines (which are expected to be renewed or replaced)
will be sufficient to meet its working capital and capital expenditure needs for
at least the next 12 months;  however,  the  Company  expects  cash  balances to
decline  during the year as a result of the net loss for the quarter ended March
31, 1997,  and the expected  restructuring  charge during the second  quarter of
1997.

                                       10
<PAGE>

Part II. Other Information

Item 1. Legal Proceedings.

     In October 1994, Wang filed a complaint in the United States District Court
     for the District of  Massachusetts  alleging that the Company is infringing
     five patents held by Wang. On June 23, 1995,  Wang amended its complaint to
     include  an  additional  related  patent.  On July 2,  1996,  Wang  filed a
     complaint  in  the  same  court   alleging  that   Watermark,   formerly  a
     wholly-owned  subsidiary  that was merged into the Company,  is  infringing
     three of the same patents asserted in the initial complaint.  On October 9,
     1996, Wang withdrew its claim that one of the patents it initially asserted
     is infringed by the Company's products which were commercialized before the
     initial  complaint was filed. Wang reserved the right to assert that patent
     against the Company's products commercialized after that date in a separate
     lawsuit.  Based on the  Company's  analysis of these Wang patents and their
     respective  file  histories,  the Company  believes that it has meritorious
     defenses to Wang's claims;  however,  the ultimate outcome or any resulting
     potential loss cannot be determined at this time.

     In March 1997,  Kodak  purchased  the Wang imaging  business  unit that has
     responsibility  for this  litigation.  The  patents  in the suit  have been
     transferred to a Kodak subsidiary,  Kodak Limited of England, which in turn
     has  exclusively  licensed  them  to  another  Kodak  subsidiary,   Eastman
     Software,  Inc. in the United  States.  The Company cannot predict what, if
     any,  impact this will have on the  litigation.  If it should be determined
     that the patents at issue in the  litigation are valid and are infringed by
     any of the Company's products,  including  Watermark products,  the Company
     will, depending on the product, redesign the infringing products or seek to
     obtain a license to market the products. There can be no assurance that the
     Company will be able to obtain such a license on acceptable terms.

     On December 20,  1996,  plaintiff  Michael I. Goldman  filed a class action
     complaint  against the Company and certain of its officers and directors in
     the Superior  Court of California,  County of Orange (the "State  Action").
     The action was purportedly  filed on behalf of a class of purchasers of the
     Company's  common stock during the period  October 19, 1995 through July 2,
     1996. Plaintiff alleges that the Company and other defendants violated Cal.
     Corp. Code Sections 25400 and 25500, Cal. Civ. Code Sections  1709-1710 and
     Cal. Bus. & Prof.  Code Sections  17200 et seq. in connection  with various
     public  statements  made by the  Company and  certain of its  officers  and
     directors during the putative class period. The complaint seeks unspecified
     compensatory  and  punitive  damages,  interest,  attorneys'  fees,  expert
     witness fees, costs, and equitable or injunctive relief.

     On April 1, 1997,  plaintiff  Michael I. Goldman filed another class action
     complaint  against the Company and certain of its officers and directors in
     the United  States  District  Court for the Central  District of California
     (the "Federal  Action").  The action purportedly was filed on behalf of the
     same class of purchasers of the Company's common stock as the State Action.
     The  allegations  contained  in the Federal  Action are very similar to the
     allegations  contained in the State Action,  except that the Federal Action
     asserts claims under  Sections  10(b) and 20(a) of the Securities  Exchange
     Act and Rule 10b-5. The complaint seeks unspecified  compensatory  damages,
     interest,  attorneys'  fees,  expert  witness fees,  costs and equitable or
     injunctive  relief.  The Company has not yet  responded to the complaint in
     the Federal Action.

     In the State Action,  on April 14, 1997, the Company filed a motion to stay
     all  proceedings  in light of the filing of the Federal  Action by the same
     plaintiff. This motion was denied without prejudice by the Court on May 13,
     1997,  and the case was  assigned to the Complex  Case Panel of Judges.  On
     April 15,  1997,  the Company  filed a demurrer and motion to strike in the
     State Action which are  scheduled to be heard by the Court on July 1, 1997,
     but may be  delayed  in light of the newly  assigned  judge.  Discovery  is
     proceeding in the State Action.

                                       11
<PAGE>

     The  Company  believes  that  all  of  the  allegations  contained  in  the
     complaints  filed in the State and Federal  Actions  are without  merit and
     intends to defend the actions vigorously.

     The Company, in the normal course of business,  is subject to various other
     legal  matters.  While the  results  of  litigation  and  claims  cannot be
     predicted with  certainty,  the Company  believes that the final outcome of
     these  other  matters  will not have a  materially  adverse  effect  on the
     Company's consolidated results of operations or financial condition.


Item 5. Certain Considerations.

     This quarterly report on form 10-Q contains forward-looking statements that
     involve risks and uncertainties, including those discussed below and in the
     Management's Discussion and Analysis of Results of Operations and Financial
     Condition  section and Notes to  Consolidated  Financial  Statements in the
     Company's  Annual  Report to  Stockholders.  The  actual  results  that the
     Company achieves may differ materially from any forward-looking  statements
     due to such risks and uncertainties.  All such factors should be considered
     by investors in the Company.

     RAPID  TECHNOLOGICAL  CHANGE;  PRODUCT  DEVELOPMENT.  The  market  for  the
     Company's  products is characterized by rapid  technological  developments,
     evolving industry standards,  changes in customer requirements and frequent
     new product introductions and enhancements. The Company's continued success
     will be  dependent  upon its ability to  continue  to enhance its  existing
     products,   develop  and  introduce,  in  a  timely  manner,  new  products
     incorporating  technological advances and respond to customer requirements.
     To the extent one or more of the Company's  competitors  introduce products
     that more fully address customer requirements, the Company's business could
     be adversely  affected.  There can be no assurance that the Company will be
     successful  in  developing  and  marketing  enhancements  to  its  existing
     products  or new  products  on a timely  basis or that any new or  enhanced
     products will adequately address the changing needs of the marketplace.  If
     the Company is unable to develop and introduce new products or enhancements
     to  existing  products in a timely  manner in  response to changing  market
     conditions or customer  requirements,  the Company's business and operating
     results could be adversely affected.  From time to time, the Company or its
     competitors may announce new products,  capabilities  or technologies  that
     have the  potential to replace or shorten the life cycles of the  Company's
     existing  products.  There  can  be  no  assurance  that  announcements  of
     currently  planned or other new products will not cause  customers to delay
     their  purchasing  decisions in anticipation of such products,  which could
     have a material  adverse  effect on the  Company's  business and  operating
     results.

     UNCERTAINTY  OF  FUTURE  OPERATING   RESULTS;   FLUCTUATIONS  IN  QUARTERLY
     OPERATING  RESULTS.  Prior  growth  rates  in  the  Company's  revenue  and
     operating results should not necessarily be considered indicative of future
     growth or operating results. Future operating results will depend upon many
     factors, including the demand for the Company's products, the effectiveness
     of the Company's  efforts to continue to integrate  various products it has
     developed  or  acquired  through  acquisition  of others and to achieve the
     desired levels of sales from such product integration, the level of product
     and price competition, the length of the Company's sales cycle, seasonality
     of individual  customer buying patterns,  the size and timing of individual
     transactions, the delay or deferral of customer implementations, the budget
     cycles of the Company's customers,  the timing of new product introductions
     and product  enhancements  by the Company and its  competitors,  the mix of
     sales  by  products,   services  and  distribution   channels,   levels  of
     international  sales,  acquisitions  by  competitors,  changes  in  foreign
     currency  exchange rates,  the ability of the Company to develop and market
     new  products and control  costs,  and general  domestic and  international
     economic and political conditions.  As a result of these factors,  revenues
     and operating  results for any quarter are subject to variation and are not

                                       12
<PAGE>

     predictable with any significant degree of accuracy. Therefore, the Company
     believes that period-to-period comparisons of its results of operations are
     not necessarily  meaningful and should not be relied upon as indications of
     future  performance.  Moreover,  such  factors  could  cause the  Company's
     operating results in a given quarter to be below the expectations of public
     market  analysts and investors.  In either case, the price of the Company's
     common stock could be materially adversely affected.

     COMPETITION.  The document imaging,  workflow, COLD and document management
     software markets are highly competitive,  and there are certain competitors
     of the Company with substantially greater sales, marketing, development and
     financial  resources.  The Company  believes that the  competitive  factors
     affecting  the market for its  products  and  services  include  vendor and
     product   reputation;   product   quality,   performance  and  price;   the
     availability  of  products  on  multiple  platforms;  product  scalability;
     product   integration   with   other   enterprise   applications;   product
     functionality  and  features;  product  ease-of  use;  and the  quality  of
     customer support services and training.  The relative importance of each of
     these  factors  depends  upon the  specific  customer  involved.  While the
     Company believes it competes favorably in each of these areas, there can be
     no  assurance  that it will  continue  to do so.  Moreover,  the  Company's
     present or future competitors may be able to develop products comparable or
     superior to those  offered by the  Company,  offer lower price  products or
     adapt  more  quickly  than the  Company  to new  technologies  or  evolving
     customer requirements. Competition is expected to intensify. In order to be
     successful in the future, the Company must respond to technological change,
     customer  requirements and  competitors'  current products and innovations.
     There  can be no  assurance  that it will be able to  continue  to  compete
     effectively  in its  market  or that  future  competition  will  not have a
     material  adverse effect on its business,  operating  results and financial
     condition.

     INTELLECTUAL  PROPERTY AND OTHER PROPRIETARY  RIGHTS. The Company's success
     depends in part on its  ability to protect  its  proprietary  rights to the
     technologies  used in its  principal  products.  The  Company  relies  on a
     combination  of  copyrights,  trademarks,  trade  secrets,  confidentiality
     procedures and contractual  provisions to protect its  proprietary  rights.
     There can be no assurance that the Company's existing or future copyrights,
     trademarks,  trade secrets or other intellectual property rights will be of
     sufficient scope or strength to provide meaningful protection or commercial
     advantage to the Company. FileNet has no software patents. Also, in selling
     certain of its products,  the Company relies on "shrink wrap" licenses that
     are not signed by licensees and, therefore,  may be unenforceable under the
     laws of  certain  jurisdictions.  In  addition,  the  laws of some  foreign
     countries  do not  protect  the  Company's  proprietary  rights to the same
     extent as do the laws of the United States.  There can be no assurance that
     such  factors  would not have a material  adverse  effect on the  Company's
     business or operating results.

     The Company may from time to time be notified that it is infringing certain
     patent  or  intellectual   property  rights  of  others.   Combinations  of
     technology  acquired through past or future  acquisitions and the Company's
     technology  will create new products and technology  which may give rise to
     claims of  infringement.  While no actions  other  than the ones  discussed
     below are currently  pending against the Company for infringement of patent
     or other  proprietary  rights of third  parties,  there can be no assurance
     that third  parties  will not  initiate  infringement  actions  against the
     Company in the future.  Infringement actions can result in substantial cost
     to and diversion of resources of the Company.  If the Company were found to
     infringe upon the rights of others, no assurance can be given that licenses
     would be obtainable on acceptable terms or at all, that significant damages
     for past  infringement  would not be  assessed or that  further  litigation
     relative  to any such  licenses  or usage  would not occur.  The failure to
     successfully  defend  any  claims or  obtain  necessary  licenses  or other
     rights, the ultimate  disposition of any claims or the advent of litigation
     arising out of any claims of  infringement,  could have a material  adverse
     effect  on the  Company's  business,  financial  condition  or  results  of
     operations.

                                       13
<PAGE>

     In October 1994, Wang filed a complaint in the United States District Court
     for the District of  Massachusetts  alleging that the Company is infringing
     five patents held by Wang. On June 23, 1995,  Wang amended its complaint to
     include  an  additional  related  patent.  On July 2,  1996,  Wang  filed a
     complaint  in  the  same  court   alleging  that   Watermark,   formerly  a
     wholly-owned  subsidiary  that was merged into the Company,  is  infringing
     three of the same patents asserted in the initial complaint.  On October 9,
     1996, Wang withdrew its claim that one of the patents it initially asserted
     is infringed by the Company's products which were commercialized before the
     initial  complaint was filed. Wang reserved the right to assert that patent
     against the Company's products commercialized after that date in a separate
     lawsuit.  Based on the  Company's  analysis of these Wang patents and their
     respective  file  histories,  the Company  believes that it has meritorious
     defenses to Wang's claims;  however,  the ultimate outcome or any resulting
     potential loss cannot be determined at this time.

     In March 1997,  Kodak  purchased  the Wang imaging  business  unit that has
     responsibility  for this  litigation.  The  patents  in the suit  have been
     transferred to a Kodak subsidiary,  Kodak Limited of England, which in turn
     has  exclusively  licensed  them  to  another  Kodak  subsidiary,   Eastman
     Software,  Inc. in the United  States.  The Company cannot predict what, if
     any,  impact this will have on the  litigation.  If it should be determined
     that the patents at issue in the  litigation are valid and are infringed by
     any of the Company's products,  including  Watermark products,  the Company
     will, depending on the product, redesign the infringing products or seek to
     obtain a license to market the products. There can be no assurance that the
     Company will be able to obtain such a license on acceptable terms.

     DEPENDENCE ON CERTAIN RELATIONSHIPS.  The Company has entered into a number
     of  co-marketing  relationships  with  other  companies  such as  Microsoft
     Corporation,  Compaq Computer Corporation, SAP AG, HP and Sun Microsystems,
     Inc.  There can be no  assurance  that these  companies  will not reduce or
     discontinue  their  relationships  with or support of the  Company  and its
     products.  Disruption of these  relationships could have a material adverse
     effect on the Company's business and operating results.

     DEPENDENCE ON KEY MANAGEMENT AND TECHNICAL PERSONNEL. The Company's success
     depends to a significant degree upon the continued contributions of its key
     management,  marketing,  technical  and  operational  personnel,  including
     members of senior management and technical personnel of acquired companies.
     The Company has no agreements  providing  for the  employment of any of its
     key  employees or any fixed term  contracts and the Company's key employees
     may voluntarily  terminate  their  employment with the Company at any time.
     The loss of the services of one or more key employees could have a material
     adverse  effect  on the  Company's  operating  results.  The  Company  also
     believes  its future  success will depend in large part upon its ability to
     attract  and  retain  additional  highly  skilled  management,   technical,
     marketing,  product development and operational personnel.  Competition for
     such  personnel is intense,  and there can be no assurance that the Company
     will be successful in attracting and retaining such personnel.

     INTERNATIONAL SALES.  Historically,  the Company has derived  approximately
     one-third of its total  revenues from  international  sales.  International
     business is subject to certain risks including varying technical standards,
     tariffs and trade  barriers,  political and economic  instability,  reduced
     protection  for   intellectual   property  rights  in  certain   countries,
     difficulties in staffing and maintaining foreign  operations,  difficulties
     in managing foreign  distributors,  potentially  adverse tax  consequences,
     currency exchange fluctuations, the burden of complying with a wide variety
     of complex  operations,  foreign  laws,  regulations  and  treaties and the
     possibility of difficulties in collecting accounts receivable. There can be
     no assurance  that any of these  factors  will not have a material  adverse
     effect on the Company's business or operating results.

                                       14
<PAGE>

     ACQUISITION-RELATED  RISKS. The  acquisitions of Watermark,  Saros and IFSL
     have  presented  and will  continue to present the  Company  with  numerous
     challenges,  including  difficulties in the assimilation of the operations,
     technologies and products of the acquired  companies and managing  separate
     geographic  operations.  The  challenges  have absorbed and may continue to
     absorb significant  management  attention that would otherwise be available
     for the ongoing  development  of the Company's  business.  If the Company's
     management does not respond to these challenges effectively,  the Company's
     results of operations could be adversely affected.  Moreover,  there can be
     no assurance  that the  anticipated  benefits of the  acquisitions  will be
     realized.   The  Company  and  the  acquired   companies  could  experience
     difficulties  or delays in integrating  their  respective  technologies  or
     developing and introducing new products. In particular,  one of the reasons
     for FileNet's  acquisition of Saros was the perceived  market potential for
     Saros' new products,  including the recently announced @mezzanine and Saros
     Document  Server  for  BackOffice,  which  have  yet  to be  proven  in the
     marketplace, as well as other products currently under development.  Delays
     in or non-completion  of the development of these new products,  or lack of
     market  acceptance of such  products,  could have an adverse  impact on the
     Company's  future  results of operations and result in a failure to realize
     anticipated benefits of the acquisitions.

     PRODUCT   LIABILITY.   The  Company's  license  agreements  with  customers
     typically contain provisions  designed to limit their exposure to potential
     product liability claims.  However,  it is possible that such limitation of
     liability  provisions  may not be  effective  under  the  laws  of  certain
     jurisdictions.  Although  the  Company  has  not  experienced  any  product
     liability  claims to date,  the sale and  support of  products  by them may
     entail  the risk of such  claims,  and there can be no  assurance  that the
     Company  will not be subject to such  claims in the  future.  A  successful
     product  liability  claim brought against the Company could have a material
     adverse effect upon the Company's business, operating results and financial
     condition.

     STOCK  PRICE  VOLATILITY.  The Company  believes  that a variety of factors
     could  cause  the  price  of  its  common  stock  to   fluctuate,   perhaps
     substantially,   including   quarter-to-quarter   variations  in  operating
     results;   announcements   of   developments   related  to  its   business;
     fluctuations  in its order levels;  general  conditions  in the  technology
     sector  or  the   worldwide   economy;   announcements   of   technological
     innovations,  new  products or product  enhancements  by the Company or its
     competitors;  key  management  changes;  changes  in  joint  marketing  and
     development   programs;   developments   relating   to   patents  or  other
     intellectual property rights or disputes; and developments in the Company's
     relationships with its customers,  distributors and suppliers. In addition,
     in recent years the stock  market in general,  and the market for shares of
     high  technology  stocks  in  particular,  has  experienced  extreme  price
     fluctuations  which have often been unrelated to the operating  performance
     of affected companies.  Such fluctuations could adversely affect the market
     price of the Company's common stock.


Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

         The  list of exhibits  contained in the accompanying  Index to Exhibits
         is herein incorporated by reference.

     (b) No reports on Form-8K  were filed  during the first  quarter of fiscal
         1997.

                                       15
<PAGE>

                               FILENET CORPORATION

                                    Signature

Pursuant  to the  requirement  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:


FILENET CORPORATION

By: /s/ Mark S. St. Clare
        -----------------
Mark S. St. Clare
Chief Financial Officer and Sr. Vice President, Finance
(Principal Financial Officer)

Date: May 14, 1997




                                       16
<PAGE>

                                Index to Exhibits

Exhibit 
  No.     Description
-------   ----------------------------------------------------------------------

3.1*      Restated  Certificate of  Incorporation,  as amended (filed as Exhibit
          3.1  to  Form  S-4  filed  on  January  26,  1996;   Registration  No.
          333-00676).
3.1.1*    Certificate of Amendment of Restated  Certificate  of  Incorporation
          (filed  as  Exhibit  3.1.1 to Form  S-4  filed on  January  26,  1996,
          Registration No. 333-00676).
3.2*      Bylaws  (filed  as  Exhibit  3.2  of  the  Registrant's   registration
          statement on Form S-1, Registration No. 33-15004 (the "Form S-1")).
4.1*      Form of certificate  evidencing  Common Stock (filed as Exhibit 4.1 to
          the Form S-1, Registration No. 33-15004).
4.2*      Rights  Agreement,  dated  as of  November  4,  1988  between  FileNet
          Corporation and the First National Bank of Boston,  which includes the
          form of Rights  Certificate  as Exhibit A and the Summary of Rights to
          Purchase  Common Shares as Exhibit B (filed as Exhibit 4.2 to Form S-4
          filed on January 26, 1996; Registration No. 333-00676).
10.1*     Amended and Restated  Credit  Agreement  (Multicurrency)  by and among
          the  Registrant  and  Bank  of  America  National  Trust  and  Savings
          Association  dated  August 8, 1995,  effective  May 1, 1995  (filed as
          Exhibit 10.1 to Form 10-Q for the quarter ended July 2, 1995).
10.2*     Waiver and Second  Amendment  dated  December 18, 1996, to the Amended
          and  Restated  Credit  Agreement  (Multicurrency)  by  and  among  the
          Registrant and Bank of America National Trust and Savings  Association
          dated  August 8, 1995  (filed as  exhibit  10.2 to  Form 10-K filed on
          April 4, 1997).
10.3*     Business  Alliance Program Agreement between the Registrant and Oracle
          Corporation  dated July 1, 1996,  as amended by Amendment  One thereto
          (filed as Exhibit  10.4 to Form 10-QA for the  quarter  ended June 30,
          1996).
10.4*     Runtime   Sublicense   Addendum  between  the  Registrant  and  Oracle
          Corporation  dated July 1, 1996,  as amended by Amendment  One thereto
          (filed as Exhibit  10.4 to Form 10-QA for the  quarter  ended June 30,
          1996).
10.5*     Full Use and  Deployment  Sublicense  Addendum  between the Registrant
          and Oracle Corporation dated July 1, 1996, as amended by Amendment One
          thereto  (filed as Exhibit  10.4 to Form 10-QA for the  quarter  ended
          June 30, 1996).
10.6*     Lease  between  the  Registrant  and C. J.  Segerstrom  & Sons for the
          headquarters  of the  Company,  dated April 30, 1987 (filed as Exhibit
          10.19 to the Form S-1).
10.7*     Third  Amendment  to the  Lease  between  the  Registrant  and  C.  J.
          Segerstrom & Sons dated April 30, 1987, for  additional  facilities at
          the  headquarters  of the  Company,  dated  October 1, 1992  (filed as
          exhibit 10.7 to Form 10-K filed on April 4, 1997).
10.8      Fifth  Amendment  to the  Lease  between  the  Registrant  and  C.  J.
          Segerstrom & Sons dated April 30, 1987,  for the extension of the term
          of the lease, dated  March 28, 1997.
10.9*     1989  Stock  Option  Plan  for   Non-Employee   Directors  of  FileNet
          Corporation,  as amended  by the First  Amendment,  Second  Amendment,
          Third  Amendment  thereto  (filed as Exhibit 10.9 to Form S-4 filed on
          January 26, 1996; Registration No. 333-00676).
10.10*    Amended and Restated 1995 Stock Option Plan of FileNet  Corporation as
          approved by stockholders at the Registrant's  Annual Meeting on May 8,
          1996 (filed as Exhibit 99.1 to Form S-8 filed on July 29, 1996).
--------------------------------------------
* Incorporated herein by reference

                                       17
<PAGE>

Exhibit
  No.     Description
-------   ----------------------------------------------------------------------
10.11*    Second   Amended  and   Restated   Stock  Option  Plan  of  FileNet
          Corporation,  together  with  the  forms  of  Incentive  Stock  Option
          Agreement and Non-Qualified Stock Option Agreements (filed as Exhibits
          4(a), 4(b) and 4(c),  respectively,  to the Registrant's  Registration
          Statement on Form S-8,  Registration No.  33-48499),  and an Amendment
          thereto  (filed  as  Exhibit  4(d)  to the  Registrant's  Registration
          Statement  on Form S-8,  Registration  No.  33-69920),  and the Second
          Amendment  thereto  (filed as  Appendix  A to the  Registrant's  Proxy
          Statement for the  Registrant's  1994 Annual Meeting of  Stockholders,
          filed on April 29, 1994).
10.12*    Agreement for the Purchase of IBM products  dated  December 20, 1991
          (filed on May 5, 1992 with the Form 8 amending the Company's Form 10-K
          for the fiscal year ended December 31, 1991).
10.13*    Amendment   #A1011-941003-01  dated  September  30,  1994,  to  the
          Agreement  for  the  Purchase  of  IBM  products  dated  December  20,
          1991(filed as exhibit 10.12 to Form 10-K filed on April 4, 1997).
10.14*    Development and Initial Supply Agreement  between the Registrant and
          Quintar  Company dated August 20, 1992 (filed as Exhibit 10.21 to Form
          10-K for the year ended January 3, 1993).
10.15*    Amendment  dated  December 22, 1992 to the  Development  and Initial
          Supply  Agreement  between the  Registrant  and Quintar  Company dated
          August  20,  1992  (filed as  Exhibit  10.22 to Form 10-K for the year
          ended January 3, 1993).
10.16*    Product License  Agreement  between the Registrant and Novell,  Inc.
          dated  May 16,  1995  (filed  as  Exhibit  10.26 to Form  10-Q for the
          quarter ended July 2, 1995).
10.17*    Agreement and Plan of Merger  between the  Registrant  and Watermark
          Software Inc. dated July 18, 1995 (filed as Exhibit 10.27 to Form 10-Q
          for the quarter ended July 2, 1995).
10.18*    Agreement  and Plan of  Merger  between  the  Registrant  and Saros
          Corporation,  as  amended,  dated  January 17, 1996 (filed as Exhibits
          2.1, 2.2, 2.3, and 2.4 to Form 8-K on March 13, 1996).
10.19*    Stock  Purchase  Agreement  by and Among  FileNet  Corporation,  IFS
          Acquisition Corporation, Jawaid Khan and Juergen Goersch dated January
          17, 1996 and Amendment 1 to Stock Purchase Agreement dated January 30,
          1996 (filed as Exhibit  10.2 to form 10-K for the year ended  December
          31, 1995).
27        Financial Data Schedule
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* Incorporated herein by reference
  
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