FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

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

     For the quarterly period ended September 30, 1997

                                             OR

|_|  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from ________ to ___________

                        Commission file number: 0-15997


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

Delaware                                  95-3757924
(State or other jurisdiction of           (I.R.S. Employer
incorporation or organization)            Identification No.)

3565 Harbor Boulevard
Costa Mesa, CA 92626
(Address of principal executive offices)  (Zip code)

                                 (714) 966-3400
               (Registrant's telephone number including area code)

      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  registrant's
classes of common stock, as of the latest practicable date.

Title                                     Outstanding

Common stock                              15,272,020 at November 5, 1997


<PAGE>

                               FILENET CORPORATION
                                      Index


                                   Page Number
--------------------------------------------------------------------------------

PART I.    FINANCIAL INFORMATION

Item 1.    Consolidated Balance Sheets
           as of September 30, 1997 and December 31, 1996.............         1

           Consolidated Statements of Operations
           for the quarters and nine months ended  September  30, 1997         2
           and 1996...................................................

           Consolidated Statements of Cash Flows
           for the nine months ended September 30, 1997 and 1996......         3

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

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

PART II.   OTHER INFORMATION

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

Item 5.    Other Information..........................................        11

Item 6.    Exhibits and Reports on Form 8-K...........................        14

           SIGNATURE..................................................        15

           INDEX TO EXHIBITS..........................................        16



<PAGE>
Part I.  Financial Information
Item 1.  Financial Statements

                                    FILENET CORPORATION
                                Consolidated Balance Sheets
                            (In thousands, except share amounts)
<TABLE>
<CAPTION>
                                               September 30,        December 31,
                                                   1997                1996
                                               ------------         ------------
                  ASSETS                        (Unaudited)
<S>                                               <C>                 <C>
Current assets:
   Cash and cash equivalents...................   $ 42,802            $ 28,530  
   Short-term marketable securities............     28,648              22,037
                                                    ------              ------
      Total cash and short-term marketable          
      securities...............................     71,450              50,567
                                                    ------              ------
   Accounts receivable, net....................     47,720              75,469
   Inventories.................................      5,514               8,794
   Prepaid expenses and other..................      7,111               8,336
   Deferred income taxes.......................      6,181               5,641
                                                     -----               -----
Total current assets...........................    137,976             148,807
                                                   -------             -------
Net property and equipment.....................     26,459              28,329
Long-term marketable securities................      5,618              16,705
Other..........................................        848               1,838
                                                       ---               -----
Total assets...................................   $170,901            $195,679  
                                                   =======            ========  

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable............................   $ 12,390            $ 16,752  
   Accrued liabilities:
      Compensation.............................     12,780              10,728
      Unearned maintenance revenue.............      7,341               5,554
      Royalties................................      2,502               4,531
      Other....................................     14,031              21,903
                                                    ------              ------
Total current liabilities......................     49,044              59,468
                                                    ------              ------
Deferred income taxes..........................      3,359               3,405

Stockholders' equity:
   Preferred    stock   -   $.10   par   value;
      authorized,    7,000,000   shares;   none                             
      issued and outstanding...................
   Common  stock - $.01 par value; authorized,
      100,000,000 shares; issued and outstanding,
      15,513,435 and 15,230,566 shares at
      September 30, 1997 and December 31, 1996,
      respectively.............................    130,151             127,813
   Retained earnings (accumulated deficit).....     (3,509)              7,874
   Other.......................................     (3,576)              1,687
                                                    ------               -----
                                                   123,066             137,374
   Less 200,000 treasury shares at cost........      4,568               4,568
                                                     -----               -----
Total stockholders' equity.....................    118,498             132,806
                                                   -------             -------
Total liabilities and stockholders' equity.....   $170,901            $195,679  
                                                  ========            ========  
</TABLE>
See accompanying notes to consolidated financial statements.

                                       1
<PAGE>

                               FILENET CORPORATION
                      Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                  Three Months Ended         Nine Months Ended
                                     September 30,             September 30,
                                  ------------------        -------------------
                                    1997       1996          1997        1996
                                   ------     ------        ------      ------
<S>                              <C>        <C>           <C>         <C>
Revenue:

   Software revenue............  $ 34,684   $ 32,999      $ 87,841    $103,152
   Service revenue.............    23,713     20,462        65,206      57,770
   Hardware revenue.............    6,614     11,161        21,976      35,441
                                    -----     ------        ------      ------
   Total revenue...............    65,011     64,622       175,023     196,363
                                   ------     ------       -------     -------
Costs and expenses:
   Cost of software revenue.....    4,058      3,520        10,223      12,164
   Cost of service revenue.....    14,010     13,832        40,906      37,626
   Cost of hardware revenue.....    5,063      6,729        15,230      22,326
   Research and development.....    9,613      9,104        29,346      26,583
   Selling, general and            
   administrative...............   30,624     27,492        91,411      86,368
   Merger, restructuring and
     write-off of purchased
     in-process research and
     development costs.........                              6,000      16,011
                                   ------     ------         -----      ------
   Total costs and expenses....    63,368     60,677       193,116     201,078
                                  -------    -------       -------     -------
Operating income (loss)             1,643      3,945       (18,093)     (4,715)

   Other income, net...........       984        630         2,285       2,224
                                      ---        ---         -----       -----
Income (loss) before income         
taxes..........................     2,627      4,575       (15,808)     (2,491)

Provision (benefit) for               
income taxes...................       736      1,144        (4,425)      3,385
                                      ---      -----        ------       -----

Net income (loss)..............  $  1,891   $  3,431      $(11,383)   $ (5,876)
                                 ========   ========      ========    ======== 
Net income (loss) per share      $   0.12   $   0.22      $  (0.75)   $  (0.39)
                                 ========   ========      ========    ======== 
Weighted average common and
   common equivalent shares    
   outstanding.................    15,615     15,560        15,165      14,999
                                   ======     ======        ======      ======
</TABLE>
See accompanying notes to consolidated financial statements.

                                       2
<PAGE>
                               FILENET CORPORATION
                      Consolidated Statements of Cash Flows
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                        Nine Months Ended
                                                           September 30,
                                                   -----------------------------
                                                       1997            1996
                                                   ------------     ------------
<S>                                                  <C>              <C>      
Cash flows from operating activities:
   Net loss.......................................   $(11,383)        $(5,876)  
   Adjustments to reconcile net loss to net
      cash provided by (used by) operating
      activities:
      Write-off of purchased in-process
       research and development costs.............                     10,011
      Depreciation and amortization...............      9,947           9,425
      Changes in operating assets and
        liabilities, net of acquisition:
         Accounts receivable......................     24,090         (18,315)
         Inventories..............................      3,395          (1,454)
         Prepaid expenses and other...............        882          (1,788)
         Accounts payable.........................     (3,888)         (3,860)
         Accrued liabilities:
            Compensation..........................      2,257             993
            Unearned maintenance revenue..........      1,819           1,287
            Royalties.............................     (2,029)            989
         Other....................................     (6,730)          1,561
                                                       ------           -----
   Net cash provided by (used by) operating            
   activities.....................................     18,360          (7,027)
                                                       ------          ------ 
Cash flows from investing activities:
   Proceeds from sale of equipment................        407           2,823
   Capital expenditures...........................     (9,184)        (12,539)
   Payment for purchase of IFSL...................                    (11,711)
   Purchases of marketable securities.............    (22,462)        (22,037)
   Proceeds from sales and maturities of              
     marketable securities........................     26,921          30,435
                                                       ------          ------
   Net cash used by investing activities..........     (4,318)        (13,029)
                                                       ------         ------- 
Cash flows from financing activities:
   Common stock repurchased.......................                     (4,568)
   Proceeds from issuance of common stock.........      2,338           4,118
                                                        -----           -----
   Net cash provided by (used by) financing             
   activities.....................................      2,338            (450)
Effect of exchange rate changes on cash and            
cash equivalents..................................     (2,108)            (52)
                                                       ------             --- 
Net increase (decrease) in cash and cash               
equivalents.......................................     14,272         (20,558)
Cash and cash equivalents, beginning of year......     28,530          43,378
                                                       ------          ------
Cash and cash equivalents, end of period..........   $ 42,802         $22,820   
                                                     ========         =======   

Supplemental cash flow information:
   Interest paid..................................   $    187         $   293  
   Income taxes paid..............................   $  2,768         $ 2,859  
</TABLE>
See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
                               FILENET CORPORATION
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

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 September 30, 1997
     and the  results of its  operations  for the three  months and nine  months
     ended  September  30,  1997 and 1996 and its cash flows for the nine months
     ended  September  30,  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 income per share for the third  quarter  ended  September  30, 1997 and
     1996, was computed  using the weighted  average number of common and common
     equivalent shares outstanding during the period. Net loss per share for the
     nine months ended  September  30, 1997 and 1996 was based upon the weighted
     average number of actual shares of common stock outstanding.

4.   During the second quarter ended June 30, 1997, the Company  recognized $6.0
     million in  restructuring  and other charges to  consolidate  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.   The
     restructuring  and other  charges  consist  primarily of  severance  costs,
     write-off of impaired assets, and facility closing costs.

5.   The  $16.0  million  merger,   restructuring  and  write-off  of  purchased
     in-process  research  and  development  costs  for the  nine  months  ended
     September  30,  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") and $6.0
     million in merger and  restructuring  costs related to the  acquisitions of
     Saros Corporation ("Saros") and Watermark Software Inc. ("Watermark").

6.   In February 1997, the Financial Accounting Standards Board issued Statement
     of Financial  Accounting  Standards ("SFAS") No. 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.
     The impact on the  Company's  earnings  per share for the  quarter and nine
     months ended September 30, 1997 and 1996 is immaterial.

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
     "Reporting  Comprehensive  Income,"  and SFAS No. 131,  "Disclosures  about
     Segments of an Enterprise and Related Information." The Company has not yet
     determined the impact,  if any, of adopting these  standards.  SFAS 130 and
     SFAS 131 are effective for fiscal years beginning after December 15, 1997.

                                       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. On July 30, 1997,
     the Court permitted Eastman Software,  Inc. and Kodak Limited of England to
     be  substituted  in the  litigation  in place of Wang.  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. On July 2, 1997, the court granted plaintiff's motion to
     be  appointed  "lead  plaintiff"  under the Private  Securities  Litigation
     Reform Act.

     Defendants  have filed a motion to dismiss the  complaint in its  entirety.
     Plaintiff  has filed a motion to stay the Federal  Action,  in light of the
     parallel State Action.  Both motions are scheduled to be heard by the court
     on December 8, 1997.

     In the State  Action,  the case was  assigned to the Complex  Case Panel of
     Judges.  Defendants  demurred and moved to strike the complaint.  The court
     overruled the demurrer and denied the motion to strike on October 21, 1997.

                                       5
<PAGE>

     Defendants also moved to stay the action,  in light of the parallel federal
     case.  The court  granted the motion to stay the action as to  discovery on
     September  8, 1997.  Plaintiff  has filed a motion for class  certification
     which is scheduled to be heard by the court on December 19, 1997.

     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 Financial Condition and Results
        of Operation

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 filed
by the Company with the SEC on April 1, 1997.

Results of Operations

Revenue.

(In Millions)                  Third Quarter      %      Nine Months      %
                                1997    1996   Change   1997     1996   Change
                               -------------------------------------------------
Software revenue                $34.7    $33.0    5%   $ 87.8   $103.2   (15%)
 Percentage of total revenue      53%      51%            50%      53%
Service revenue                 $23.7    $20.4   16%   $ 65.2   $ 57.8    13%
 Percentage of total revenue      37%      32%            37%      29%
Hardware revenue                $ 6.6    $11.2  (41%)  $ 22.0   $ 35.4   (38%)
 Percentage of total revenue      10%      17%            13%      18%
Total revenue                   $65.0    $64.6    1%   $175.0   $196.4   (11%)

Software revenue  increased 5% for the quarter ended September 30, 1997 over the
same  period of 1996 due to an  increase  in the  volume of  product  shipments.
Software revenue decreased 15% for the nine months ended September 30, 1997 over
the same  period of 1996 due to a decrease  in new  domestic  orders  during the
first  quarter of 1997 and a decrease  in new  international  orders  during the
first and second quarters of 1997.

Service  revenue  increased by 16% and 13% for the quarter and nine months ended
September 30, 1997, respectively, over the same periods of 1996. Service revenue
consists of revenue from software 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.  Service  revenue as a percentage of total revenue  increased to
37% for the quarter and nine months ended  September  30, 1997,  compared to 32%
and 29% over the same period of 1996 due to the  decrease  in  hardware  revenue
noted below.

Hardware revenue  decreased by 41% and 38% for the quarter and nine months ended
September 30, 1997 over the same periods of 1996  primarily due to a decrease in
new orders experienced both domestically and  internationally  and the Company's
focus on increasing its higher margin software revenues.

International  revenues constituted  approximately 32% and 30% of total revenues
in the third quarters of fiscal 1997 and 1996, respectively,  and 29% and 32% of
total  revenues  for  the  nine  months  ended  September  30,  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.

                                       7
<PAGE>

Cost of Revenue.

(In Millions)                         Third Quarter   %       Nine Months    %
                                      1997     1996 Change   1997    1996 Change
                                      ------------------------------------------
Cost of software revenue              $ 4.0   $ 3.5   14%   $10.2   $12.2  (16%)
 As a percentage of software revenue    12%     11%           12%     12%
Cost of service revenue               $14.0   $13.8    1%   $40.9   $37.6    9%
 As a percentage of service revenue     59%     68%           63%     65%
Cost of hardware revenue              $ 5.1   $ 6.7  (24%)  $15.2   $22.3  (32%)
 As a percentage of hardware revenue    77%     60%           69%     63%
Total cost of revenue                 $23.1    $24.0  (4%)  $66.3   $72.1   (8%)
 As a percentage of total revenue       36%     37%           38%     37%

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  for the  quarter and nine  months  ended  September  30, 1997
remained comparable to the same periods in 1996.

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 for the third quarter of
1997  decreased  to 59%  from 68% in the same  period  of 1996 due to the  lower
margins  experienced  internationally  in 1996 as a result of the  transition of
hardware maintenance activities to Hewlett Packard Company.

The cost of  hardware  revenue  includes  the  Company's  cost of  manufacturing
optical storage and retrieval libraries ("OSAR"), third-party purchased hardware
and the cost of hardware integration personnel.  The cost of hardware revenue as
a percentage  of hardware  revenue  increased to 77% and 69% for the quarter and
nine months ended September 30, 1997, respectively, compared to 60% and 63% over
the same  periods of 1996 due to the  decrease  in  hardware  revenue  without a
corresponding  decrease  in  fixed  costs  related  to  the  Company's  hardware
manufacturing and integration activities.

Operating Expenses.

(In Millions)                        Third Quarter   %       Nine Months    %
                                      1997    1996 Change   1997     1996 Change
                                     -------------------------------------------

Research and development             $ 9.6   $ 9.1    6%   $29.3   $26.6   10%
 As a percentage of total revenue      15%     14%           17%     14%
Selling, general and administrative  $30.6   $27.5   11%   $91.4   $86.4    6%
 As a percentage of total revenue      47%     43%           52%     44%

Research and development expenses increased 6% for the third quarter of 1997 due
to a general  increase  in  salaries  necessitated  by the  intense  competitive
environment  for  engineers in the software  industry.  As a percentage of total
revenue,  research  and  development  costs  remained  consistent  for the third
quarter of 1997 compared to the same period of 1996.

For the nine month period ended  September  30, 1997,  research and  development
expenses  increased  10% over the same period of 1996 due to the  reasons  cited
above.  As a  percentage  of  total  revenue,  research  and  development  costs
increased  to 17%  compared  to 14% for the  same  period  last  year due to the
reasons cited above and the decrease in orders  experienced during the first six
months of 1997. The Company  expects that  competition  for qualified  technical
personnel  will  remain  intense  for the  foreseeable  future and may result in
higher levels of compensation expense for the Company. The Company believes that
research  and  development  expenditures,  including  compensation  of technical
personnel,  are essential to maintaining  its  competitive  position and expects
these costs to continue to constitute a significant percentage of revenues.

Selling, general and administrative expenses increased 11% for the third quarter
of 1997  compared  to the same  period  in 1996 due to the  Company's  continued
international  expansion  and  higher  legal  costs  as a  result  of the  legal
 
                                      8
<PAGE>
proceedings discussed in the Notes to Consolidated  Financial  Statements.  As a
percentage  of total  revenue,  selling,  general  and  administrative  expenses
increased  to 47% from 43% for the same  period last year  primarily  due to the
reasons cited above.

For the nine month  period  ended  September  30,  1997,  selling,  general  and
administrative  expenses  increased 6% over the same period of 1996 for the same
reasons cited above.  As a percentage  of total  revenue,  selling,  general and
administrative  expenses  increased  to 52%  compared to 44% for the same period
last year due to the reasons cited above and the decrease in orders  experienced
during the first six months of 1997.

MERGER,  RESTRUCTURING  AND  WRITE-OFF  OF  PURCHASED  IN-PROCESS  RESEARCH  AND
DEVELOPMENT  COSTS.  Restructuring  and other charges of $6 million for the nine
months  ended  September  30,  1997,  are  related to the  consolidation  of the
Watermark  business unit's Burlington,  Massachusetts  engineering and marketing
functions with those at FileNET's Costa Mesa,  California  location as well as a
reduction in headcount in certain other areas of the Company.  The restructuring
charge consists primarily of severance costs,  write-off of impaired assets, and
facility closing costs.

Merger,  restructuring  and  write-off  of  purchased  in-process  research  and
development  costs for the nine months  ended  September  30, 1996, consisted of
$10.0 million for the write-off of purchased in-process research and development
costs  related  to the  acquisition  of IFSL  and $6.0  million  in  merger  and
restructuring costs related to the acquisitions of Saros and Watermark.

EFFECTIVE TAX RATE.  The Company's  combined  federal,  state and foreign annual
effective tax rate for the quarter ended  September 30, 1997 was 28% compared to
45% for the  same  period  in  1996.  The  1996  effective  tax  rate  reflected
non-deductible  merger and other costs for the Saros and IFSL acquisitions.  The
effective tax rate for 1996,  exclusive of the  non-deductible  merger and other
costs,  was  25%.  The  higher  effective  tax rate in 1997 is  attributable  to
earnings generated in certain foreign jurisdictions.

NET INCOME.  Net income for the third quarter ended  September 30, 1997 was $1.9
million,  or 12 cents per share on 15.6  million  weighted  average  common  and
common  equivalent shares compared to $3.4 million or 22 cents per share on 15.6
million  weighted  average  common  and  common  equivalent  shares.   Excluding
restructuring  and other  charges net of related tax benefit,  the Company had a
net loss for the nine months ended  September  30, 1997 of $7.1  million,  or 47
cents per share,  on 15.2 million  weighted  average  common shares  outstanding
compared  to income of $10.1  million,  or 62 cents per share,  on 16.5  million
weighted  average common and common  equivalent  shares for the same period last
year.

Including all  restructuring  and other charges,  FileNET had a net loss for the
nine months ended September 30, 1997, of $11.4 million, or 75 cents per share on
15.2 million  weighted  average shares  outstanding  compared with a net loss of
$5.9  million,  or 39 cents per share on 15.0 million  weighted  average  shares
outstanding for the same period last year.

FOREIGN CURRENCY  FLUCTUATIONS AND INFLATION.  The Company's  performance can be
affected by changes in foreign  currency  values  relative to the U.S. dollar in
relation to the Company's revenue and operating expenses.  The net impact to net
income from foreign exchange  transactions and hedging  activities is 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 September 30, 1997,
and 1996.

OTHER FINANCIAL  INSTRUMENTS.  The Company enters into forward foreign  exchange
contracts as a hedge against effects of fluctuating  currency  exchange rates on
monetary  assets  and  liabilities  denominated  in  currencies  other  than the
functional  currency of the  relevant  entity.  The Company is exposed to market
risk on the  forward  exchange  contracts  as a result  of  changes  in  foreign
exchange  rates;  however,  the market  risk  should be offset by changes in the
valuation  of the  underlying  exposures.  Gains and losses on these  contracts,
which equal the difference  between the forward contract rate and the prevailing
market spot rate at the time of valuation,  are  recognized in the  consolidated
statement of  operations.  The  counterparties  to these  instruments  are major

                                       9
<PAGE>

financial institutions.  The Company uses commercial rating agencies to evaluate
the credit quality of the counterparties,  and the Company does not anticipate a
loss resulting from any credit risk of these institutions.  The unrealized gains
and losses from these  contracts were  immaterial at both September 30, 1997 and
September 30, 1996.

Liquidity and Capital Resources

As of  September  30,  1997,  combined  cash,  cash  equivalents  and short- and
long-term  marketable  securities  totaled  $77.1  million,  an increase of $9.8
million  from $67.3  million at the end of 1996.  The  increase  is  primarily a
result of cash  provided by  operating  activities  of $18.4 and  proceeds  from
issuance of common stock of $2.3 million offset by capital  expenditures of $9.2
million.

Accounts receivable  decreased to $47.7 million at September 30, 1997 from $75.5
million at December 31, 1996. Days sales outstanding  decreased to 67 days as of
September  30,  1997  compared  to 95  days as of  December  31,  1996.  Current
liabilities  decreased to $49.0 million at September 30, 1997 from $59.5 million
at  December  31,  1996.  The  decrease  is  primarily a result of a decrease in
accounts  payable and lower  accrued  royalties and other expense 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 May 1999 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 September 30, 1997, there were no borrowings  outstanding against
any of the Company's credit lines.

The Company  anticipates that its present cash balances together with internally
generated  funds and credit lines will be sufficient to meet its working capital
and capital  expenditure  needs for at least the next twelve months.  On October
21, 1997 the Company  announced  that the Board of Directors has  authorized the
Company to  repurchase  up to $10 million of its  currently  outstanding  common
stock. Such repurchases may occur from time to time at prevailing market prices,
through  open market or  unsolicited  negotiated  transactions,  depending  upon
market conditions.

                                       10
<PAGE>

Part II.  Other Information

Item 1. Legal Proceedings

        See Notes to Consolidated Financial Statements.

Item 5.  Other Information

    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,
    including  without  limitation  enhancements  to certain  specified  Company
    software  products  to  achieve  year 2000  compliance.  The  Company  could
    experience  continued  difficulties  or delays in developing and introducing
    new products  integrating  some or all of the technologies and products from
    the  acquisitions  of Watermark,  Saros and IFSL with the  technologies  and
    products from the Company. Delays in or non-completion of the development of
    newly integrated 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  the  anticipated  benefits  of the
    acquisitions. 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  including  without
    limitation  enhancements to certain  existing  software  products to achieve
    year 2000 compliance,  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

                                       11
<PAGE>
    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
    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,  computer output to laser disk
    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  that 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.

                                       12
<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,  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. On July 30, 1997,
     the Court permitted Eastman Software,  Inc. and Kodak Limited of England to
     be  substituted  in the  litigation  in place of Wang.  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, Hewlett-Packard Company
     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.

     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. In general, the
     Company does not utilize employment  agreements for its key employees.  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,  particularly  engineers and other technical personnel,  is
     intense, and pay scales in the Company's industry are increasing. 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.

     PRODUCT   LIABILITY.   The  Company's  license  agreements  with  customers
     typically contain provisions  designed to limit their exposure to potential
     product

                                       13
<PAGE>

    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 8-K were filed during the third quarter of 1997.


                                       14
<PAGE>


                                   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.

                               FILENET CORPORATION

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

Date
November 14, 1997


                                       15

<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*     Second Amended and  Restated  Credit  Agreement (Multicurrency) by and
          among the Registrant and Bank of America  National  Trust and Savings
          Association  dated  June 25,  1997,  effective  June 1, 1997 (filed as
          Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 1997).
10.2*     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).
10.3*     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).
10.4*     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).
10.5*     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).
10.6*     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).
10.7*     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(filed as exhibit 10.8 to Form 10-Q
          for the quarter ended March 31, 1997).
10.8*     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).
10.9*     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

                                       16
<PAGE>

Exhibit
  No.     Description
-------   ----------------------------------------------------------------------
10.10*    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).
10.11*    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).
10.12*    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).
10.13*    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).
10.14*    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).
10.15*    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).
10.16*    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).
10.17*    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).
10.18*    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
---------------------------------------------
* Incorporated herein by reference

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