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 March 31, 1998

                                       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 Identification No.)
incorporation or organization)

                   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 |_|

As of April 30, 1998, there were 15,423,222  shares of the  Registrant's  common
stock outstanding.

<PAGE>


                               FILENET CORPORATION
                                      Index



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

PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Balance Sheets
         as of March 31, 1998 and December 31, 1997......................   3

         Consolidated Statements of Operations
         for the three months ended March 31, 1998 and 1997..............   4

         Consolidated Statements of Comprehensive Income
         for the three months ended March 31, 1998 and 1997..............   5

         Consolidated Statements of Cash Flows
         for the three months ended March 31, 1998 and 1997..............   6

         Notes to Consolidated Financial Statements......................   7

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.......................................  10

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings...............................................  17

Item 6.  Exhibits and Reports on Form 8-K................................  17

         SIGNATURE.......................................................  18

         INDEX TO EXHIBITS...............................................  19

                                       2

<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,
                                                   1998             1997
                                               -------------    -------------
                                                (Unaudited)
                   ASSETS
 <S>                                           <C>             <C>
 Current assets:
   Cash and cash equivalents.................  $   53,833      $  37,344
   Short-term marketable securities..........      11,662         26,600
   Accounts receivable, net..................      62,307         61,283
   Inventories...............................       3,078          3,541
   Prepaid expenses and other current assets        8,969          8,309
   Deferred income taxes.....................       6,142          6,439
                                                  --------       ---------
   Total current assets......................     145,991        143,516

 Property, net...............................      31,078         27,587
 Long-term marketable securities.............       7,879          7,826
 Other assets................................         990            941
                                                 ----------     ----------
     Total assets............................  $  185,938      $ 179,870
                                                 ==========     ==========

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
   Accounts payable.........................   $   17,769      $  15,003
   Accrued compensation.....................       14,249         14,845
   Unearned maintenance revenue.............       13,320         8,848
   Accrued royalties........................        2,149          2,743
   Other accrued liabilities................       19,545         19,190
                                                 ----------     ----------
 Total current liabilities..................       67,032         60,629

 Deferred income taxes......................          433            430

 Stockholders' equity:
   Preferred stock - $.10 par value; 7,000,000
     shares authorized; none issued or out-
     standing
   Common stock - $.01 par value; 100,000,000
     shares authorized; 15,774,626 and 15,560,838
     shares outstanding at March 31, 1998 and
     December  31, 1997, respectively.......      134,031        130,741
   Retained earnings........................        4,871          2,348
   Accumulated other comprehensive income...       (5,862)        (4,146)
                                                 ----------    -----------
                                                  133,040        128,943
   Treasury  stock,  at cost;  549,000 and
     410,000  shares at March 31, 1998 and
     December 31, 1997, respectively........      (14,567)       (10,132)
                                                 ----------    -----------
   Total stockholders' equity...............      118,473        118,811
                                                 ----------    -----------
     Total liabilities and stockholders'
     equity.................................   $  185,938      $ 179,870
                                                 ==========    ===========
</TABLE>
See accompanying notes to consolidated financial statements.
                                       3
<PAGE>
 

                              FILENET CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                    Three Months Ended March 31,
                              --------------------------------------
                                      1998                 1997
                              -----------------    -----------------
                                   (Unaudited)          (Unaudited)
 <S>                               <C>                   <C>
 Revenue:
   Software....................    $  43,247             $  22,082
   Service.....................       23,471                18,237
   Hardware....................        6,891                 7,243
                                    ----------            ----------
 Total revenue.................       73,609                47,562

 Costs and expenses:
   Cost of software revenue....        3,686                 2,999
   Cost of service revenue.....       15,346                13,131
   Cost of hardware revenue....        3,360                 5,329
   Research and development....       12,074                10,140
   Selling, general and
   administrative..............       36,567                29,766
                                    ----------            ----------
   Total costs and expenses....       71,033                61,365

 Operating income (loss).......        2,576               (13,803)

 Other income, net.............          979                   721
                                    ----------            ----------

 Income (loss) before income taxes     3,555                (13,082)

 Provision (benefit) for income
 taxes.........................        1,031                 (3,662)
                                    ----------            ----------
 Net income (loss).............    $   2,524             $   (9,420)
                                    ==========            ==========

 Earnings (loss) per share:
   Basic.......................    $    0.17             $    (0.63)
   Diluted.....................    $    0.15             $    (0.63)


 Weighted average shares outstanding:
   Basic.......................       15,102                  15,045
   Diluted.....................       16,481                  15,045

</TABLE>
See accompanying notes to consolidated financial statements.

                                       4
<PAGE>



                               FILENET CORPORATION
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (In thousands)
<TABLE>
<CAPTION>

                                                  Three Months Ended March 31,
                                                ------------------------------
                                                    1998              1997
                                                --------------    ------------
                                                 (Unaudited)       (Unaudited)
 <S>                                             <C>              <C>
 Net income (loss)........................       $   2,524        $  (9,420)
                                                  -----------      -----------

 Other comprehensive income:
   Foreign currency translation
   adjustments net of tax benefit of
   $701 and $881 in 1998 and 1997,
   respectively)..........................          (1,716)          (2,265)
   Unrealized gains (losses) on securities:
     Unrealized holding gains (losses)
     arising during period (net of tax effect
     of $3 and $(32) in 1998 and 1997,
     respectively)........................               5              (51)
     Reclassification adjustment for losses
     included in net income (net of tax
     benefit of $2).......................              (5)
                                                  -----------      -----------
 Total other comprehensive loss...........           (1,716)          (2,316)
                                                  -----------      -----------

 Comprehensive income (loss)..............        $     808        $ (11,736)
                                                  ===========      ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>
                               FILENET CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                              Three Months Ended March 31,
                                          --------------------------------------
                                               1998                 1997
                                          ------------------   -----------------
                                             (Unaudited)          (Unaudited)
 <S>                                         <C>                 <C>
 Cash flows from operating activities:
 Net income (loss).........................  $   2,524            $  (9,420)
 Adjustments to reconcile net income
   (loss) to net cash provided by operating
   activities:
     Depreciation and amortization.........      3,431                3,353
     Provision for doubtful accounts.......        447                   23
     Deferred income taxes.................        300
     Changes in operating assets and
     liabilities:
       Accounts receivable.................     (2,039)              30,090
       Inventories.........................        558                1,090
       Prepaid expenses and other current
       assets..............................       (730)                 617
       Accounts payable....................      2,915               (5,108)
       Accrued compensation................       (541)              (1,863)
       Unearned maintenance revenue........      4,472                 (954)
       Accrued royalties...................       (595)              (1,188)
       Other...............................      4,052               (8,436)
                                             -------------        ------------
 Net cash provided by operating activities.     14,794                8,204
                                             -------------        ------------
 Cash flows from investing activities:
 Proceeds from sale of equipment...........        314                   70
 Capital expenditures......................     (7,436)              (4,059)
 Purchases of marketable securities........                         (14,215)
 Proceeds from sales and maturities of
 marketable securities.....................     11,345               11,260
                                             -------------        ------------
 Net cash provided (used) by investing
 activities................................      4,223               (6,944)
                                             -------------        ------------
 Cash flows from financing activities:
 Proceeds from issuance of common stock....      3,291                  922
 Common stock repurchased..................     (4,435)
                                             -------------        ------------
 Net cash provided (used) by financing
 activities................................     (1,144)                 922
                                             -------------        ------------
 Effect of exchange rate changes on cash
 and cash equivalents.....................      (1,384)              (1,404)
                                             -------------        ------------

 Net increase in cash and cash equivalents      16,489                  778
 Cash and cash equivalents, beginning of year   37,344               28,530
                                             =============        ============
 Cash and cash equivalents, end of period.   $  53,833            $  29,308
                                             =============        ============
 Supplemental cash flow information:
 Interest paid............................   $       8            $      38
 Income taxes paid (refunds received).....   $  (2,066)           $     718

</TABLE>
See accompanying notes to consolidated financial statements.
                                       6
<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 March 31, 1998 and
     the results of its operations,  its comprehensive income and its cash flows
     for the three months ended March 31, 1998 and 1997. 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
     Financial  Condition and Results of  Operations  contained in the Company's
     Annual  Report on Form 10-K for the fiscal  year ended  December  31,  1997
     filed by the  Company  with the SEC on  March  31,  1998.  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.   The following table is a  reconciliation  of the earnings and share amounts
     used in the  calculation of basic  earnings per share and diluted  earnings
     per share for the three months ended March 31, 1998.

<TABLE>
<CAPTION>

(In thousands, except per share amounts)  Net                        Per Share
                                          Income        Shares       Amount
                                        ------------  ------------  -----------
 <S>                                    <C>           <C>           <C>
 Three months ended March 31, 1998:
     Basic earnings per share........   $  2,524        15,102      $   0.17
     Effect of dilutive stock options                    1,379
                                        ------------  ------------
     Diluted earnings per share......   $  2,524        16,481      $   0.15
                                        ============  ============
</TABLE>

     The  weighted  average  number  of  shares  outstanding  during  the  three
     months ended March 31, 1997 was  15,045,000.  Options to purchase shares of
     common stock were  outstanding  during this period but were not included in
     the computation of diluted loss per share as their effect was antidilutive.

4.   In June 1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement  of  Financial  Accounting  Standard  (SFAS) No. 130,  "Reporting
     Comprehensive   Income."  SFAS  No.  130  requires  enterprises  to  report
     comprehensive  income  and  its  components  in  general-purpose  financial
     statements.  SFAS No. 130 is effective for the Company beginning January 1,
     1998.  Accordingly,  the Company has prepared  Statements of  Comprehensive
     Income for the quarters ended March 31, 1998 and 1997 (restatement of prior
     year financial  statements is required by SFAS No. 130).  Accumulated other
     comprehensive income as of March 31, 1998 is comprised of the following:
<TABLE>
<CAPTION>
                                                                    Accumulated
                                                Unrealized Gain       Other
                                   Foreign       on Marketable     Comprehensive
(In thousands)                   Currency Items   Securities          Income
<S>                              <C>              <C>             <C>
                                 --------------   -------------   --------------
 Balance, December 31, 1997      $    (4,121)     $       (25)    $  (4,146)
 Current period changes               (1,716)                        (1,716)
                                 --------------   -------------   --------------
 Balance, March 31, 1998         $    (5,837)     $       (25)    $  (5,862)
                                 ==============   =============   ==============
</TABLE>
                                       7
<PAGE>
5.   In June 1997, the FASB issued SFAS No. 131, "Disclosures about  Segments of
     an Enterprise and  Related  Information"  which is  effective for  the year
     ending  December 31, 1998.  The Company  has not yet determined the impact,
     if any, of adopting this standard on its financial statements.

6.   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 (the  FileNET
     Case).  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 (the Watermark Case). On October 9, 1996,
     Wang  withdrew  its claim in the  FileNET  Case that one of the  patents it
     initially  asserted  is  infringed  by the  Company's  products  that  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.

     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 (Eastman).
     On July 30, 1997, the court permitted Eastman and  Kodak Limited of England
     to be substituted in the litigation in place of Wang.

     FileNET has moved for  summary judgement on  noninfringement  as to each of
     the five patents in the suit, and for  summary judgment of invalidity as to
     one of the patents.   Eastman moved for  summary judgment  as to  FileNET's
     unenforceability  defense on one of the  patents. A trial date has not been
     set.

     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.   Based on the  Company's  analysis of these
     Eastman patents  and their  respective file histories, the Company believes
     that it has meritorious defenses to Eastman's claims; however, the ultimate
     outcome or any resulting potential loss cannot be determined at this time.

     On December 20, 1996, plaintiff Michael I. Goldman (the Plaintiff)  filed a
     class   actio    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.  The Plaintiff  alleges that the Company and
     other defendants violated Cal. Corp. Code ss.ss. 25400 and 25500, Cal. Civ.
     Code ss.ss.  1709-1710 and Cal. Bus. & Prof.  Code ss.ss.  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,
     payment of attorney's fees and costs, and equitable or injunctive relief.

     On April 1, 1997,  the  Plaintiff  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.
                                       8
<PAGE>
     In the  Federal  Action,  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.  The court is scheduled to
     hear  both  of  these  motions  during  June  1998.

     In the State Action,  defendants moved to stay the action,  in light of the
     parallel  Federal  Action.  The trial court  granted the motion to stay the
     action as to discovery on September 8, 1997.  Defendants  also demurred and
     moved to strike the complaint.  The trial court  overruled the demurrer and
     denied the motion to strike on October 21, 1997.  On January 14, 1998,  the
     court entered an order  dismissing with prejudice two of plaintiff's  three
     causes of action: the claims under Cal. Civ. Code ss.ss. 1709-1710 and Cal.
     Bus. & Prof. Code ss.ss. 17200 et seq.

     On January  30,  1998,  the trial  court in the State  Action  granted  the
     Plaintiff's  motion to  certify a class  composed  of  persons  who  bought
     FileNET stock in California only between October 19, 1995 and July 2, 1996.
     This ruling is subject to revision based on the decisions to be rendered by
     the  California  Supreme  Court in Diamond  Multimedia  Systems,  et al. v.
     Superior  Court  (Pass)  and  StorMedia,  Inc.,  et al. v.  Superior  Court
     (Werczberger).  The trial court also denied the Plaintiff's  motion to lift
     the  discovery  stay.

     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.

                                       9
<PAGE>
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

The following  should be read in  conjunction  with the  unaudited  consolidated
financial  statements  and notes thereto  included in Part I--Item 1 and Factors
That May Affect Future Results in this item of this Quarterly  Report,  and with
the  audited  consolidated   financial   statements,   and  notes  thereto,  and
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.

Results of Operations

Revenue
 <TABLE>
 <CAPTION>
                                         Quarter Ended March 31,
                                --------------------------------------------
 (Dollars in millions)               1998            1997           Change
 <S>                            <C>             <C>              <C>
                                -------------   --------------   -----------
 Software revenue               $    29.5       $     13.0           127%
   International                     13.7              9.0            52%
                                -------------   --------------
   Total software revenue       $    43.2       $     22.0            96%
                                ------------    --------------
     Percentage of total
     revenue                          59%              46%

 Service revenue
   Domestic                     $    16.6       $     12.3            35%
   International                      6.9              6.0            15%
                                -------------   --------------
   Total service revenue        $    23.5       $     18.3            28%
                                -------------   --------------
     Percentage of total
     revenue                           32%              39%

 Hardware revenue
   Domestic                     $      5.0              5.2           (4%)
   International                       1.9              2.1          (10%)
                                -------------   --------------
   Total hardware revenue       $      6.9      $       7.3           (5%)
                                -------------   --------------
     Percentage of total
     revenue                            9%              15%

 Total revenue
   Domestic                     $     51.1      $      30.5           68%
   International                      22.5             17.1           32%
                                =============   ==============
   Total revenue                $     73.6      $      47.6           55%
                                =============   ==============
</TABLE>

Software revenue from the licensing of the Company's software products increased
96% for the quarter  ended March 31, 1998 over the same period of 1997 due to an
increase in the volume of product  shipments,  including the  Company's  Panagon
product  line  which was  released  during the  quarter.  The  magnitude  of the
increase in revenue  over 1997 is partially  attributable  to weakness in orders
during the first quarter of 1997 and is not indicative of future revenue growth.

Service  revenue  consists  of  revenue  from  software  maintenance   services,
professional services, training, repairs and supplies. Service revenue increased
by 28% for the quarter  ended  March 31, 1998 over the same period of 1997.  The
increase was attributable to increased  maintenance revenue due to the growth of
the Company's installed base.

Hardware revenue is generated primarily from the sale of 12-inch optical storage
and retrieval  libraries  (OSARs) and  third-party  hardware.  Hardware  revenue
decreased  by 5% for the  quarter  ended  March 31, 1998 from the same period of
1997 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.  The Company expects  hardware  revenue to continue to decline in both
absolute  dollars  and as a  percentage  of total  revenues as it  continues  to
transition its business toward software-related revenue.

                                       10
<PAGE>
International  revenues constituted  approximately 31% and 36% of total revenues
in the  quarters  ended March 31, 1998 and 1997,  respectively.  The decrease is
attributable  to the higher  level of  domestic  growth  experienced  quarter to
quarter.  Management  expects that the Company's  international  operations will
continue to account for a significant  portion of total revenues.  However,  the
current  economic  crisis in the  Asia-Pacific  region  could  adversely  affect
international  revenues. In addition,  international revenues could be adversely
affected if the U.S. dollar strengthens against international currencies.

Cost of Revenue
<TABLE>
<CAPTION>
                                         Quarter Ended March 31,
                                        --------------------------
                                          1998             1997         Change
<S>                                     <C>            <C>            <C>
                                        -----------    -----------    ----------
  (Dollars in millions)
Cost of software revenue                $   3.7        $    3.0          23%
  Percentage of software revenue             9%             14%
Cost of service revenue                $   15.3        $   13.1          17%
  Percentage of service revenue             65%             72%
Cost of hardware revenue               $    3.4        $    5.3         (36%)
  Percentage of hardware revenue            49%             73%
Total cost of revenue                  $   22.4        $   21.4           5%
  Percentage of total revenue               30%             45%
</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 for the quarter ended March 31, 1998  decreased to 9% from 14%
for the comparable  period in 1997. The decrease was primarily  attributable  to
the low  revenue  levels  in 1997  without  a  corresponding  decrease  in fixed
distribution costs. Also contributing to the decrease was the fact that software
localization  costs which were  classified  as cost of revenue in 1997 have been
classified as research and development in 1998.

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 first quarter of
1998  decreased  to 65% from 72% in the same period of 1997.  The  decrease  was
attributable  to improved  international  margins from those  experienced in the
first quarter of 1997.

The  cost  of  hardware  revenue  includes  the  cost  of  manufacturing  OSARs,
third-party  purchased hardware and the cost of hardware integration  personnel.
The cost of hardware revenue as a percentage of hardware revenue for the quarter
ended March 31, 1998  decreased  to 49% from 73% for the  comparable  quarter of
1997.  This  decrease  was due to improved  product mix and a reduction in fixed
manufacturing costs.

Operating Expenses
<TABLE>
<CAPTION>
                                       Quarter Ended March 31,
                                    ------------------------------
                                         1998           1997           Change
<S>                                 <C>             <C>             <C>
                                    -------------   --------------  -----------
  (Dollars in millions)
Research and development             $     12.1      $     10.1          20%
  Percentage of total revenue               16%             21%
Selling, general and administrative  $     36.6      $     29.8          23%
  Percentage of total revenue               50%             63%
</TABLE>

Research and development  expenses  increased 20% for the first quarter of 1998.
The  increase  was due to a general  increase  in salaries  necessitated  by the
intense  competitive  environment  for software  engineers;  increase in cost of
contract  developers;  and the  inclusion  of  software  localization  costs  in
research and development in 1998. As a percentage of total revenue, research and
development  expenses  decreased to 16% in the first quarter of 1998 from 21% in
1997.  This  decrease  is  primarily  attributable  to the  effects of the lower
revenue levels in the first quarter of 1997.

                                       11
<PAGE>
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 23% for the first quarter
of 1998 compared to the same period in 1997.  This increase was primarily due to
overall  increases  in  salaries,  higher sales  incentive  compensation  due to
increased  revenues,  and increased  marketing program costs. As a percentage of
total revenue,  selling, general and administrative expenses decreased to 50% in
1998 from 63% in 1997  primarily  due to the lower  revenue  levels in the first
quarter of 1997.

Provision for Income Taxes.  The Company's combined  federal,  state and foreign
annual  effective tax rate for the quarter ended March 31, 1998 was 29% compared
to 28% for the same period in 1997. The increase in the rate is  attributable to
a decrease in taxable  income  generated in lower tax  jurisdictions  outside of
North America.

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 impact to net
income from foreign exchange  transactions and hedging  activities is immaterial
for all periods reported. As of March 31, 1998, the Company had forward exchange
contracts outstanding totaling  approximately $39 million in 10 currencies.  All
of these contracts mature in three months.

Other comprehensive  income for the three months ended March 31, 1998 reflects a
$1.7  million   increase  in  the  unrealized  loss  due  to  foreign   currency
translation.  This increase was  primarily  attributable  to  unrealized  losses
associated  with the  weakening of the Irish  currency  against the U.S.  dollar
during the period.

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 three months ended March 31, 1998 and 1997.

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
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.

Liquidity and Capital Resources

At March 31, 1998,  combined  cash,  cash  equivalents  and short- and long-term
marketable  securities  totaled $73.4 million,  an increase of $1.6 million from
the end of 1997.  Cash  provided  by  operating  activities  during the  quarter
totaled $14.8  million and resulted  primarily  from net income;  an increase in
accounts  payable  associated with higher capital  expenditures;  an increase in
unearned  maintenance  revenue  related to the large volume of renewal  billings
which  occur  during  the  first  quarter;  and  additions  to  net  income  for
depreciation and amortization expense.  These operating cash inflows were offset
by an increase in accounts  receivable.  Cash  provided by investing  activities
totaled  $4.2  million and was a result of sales and  maturities  of  marketable
securities  offset by capital  expenditures.  Cash used by financing  activities
totaled $1.1 million and was a result of the repurchase of 139,000 shares of the
Company's common stock offset by proceeds received from the exercise of employee
stock options and purchases under the employee stock purchase plan.

                                       12
<PAGE>
Accounts  receivable  increased  to $62.3  million at March 31,  1998 from $61.3
million at December 31, 1997. Days sales outstanding was 72 days as of March 31,
1998 and December 31, 1997.  Current  liabilities  increased to $67.0 million at
March 31,  1998 from  $60.6  million at  December  31,  1997.  The  increase  is
primarily a result of increases in deferred maintenance revenue and income taxes
payable  offset by  decreases  in accrued  employee  benefit  costs and  accrued
royalties.

The Company has a $20 million  unsecured line of credit with 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 during 1998 under which the
Company may borrow approximately $2 million. As of March 31, 1998, there were no
borrowings outstanding against any of the Company's credit lines.

During the quarter ended March 31, 1998, the Company repurchased $4.4 million of
its common stock,  thereby completing its previously announced $10 million stock
repurchase program.

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.

Other Matters

Year 2000.  The Company is assessing  the  internal  readiness  of its  computer
systems  for  handling  the  year  2000.   The  Company   expects  to  implement
successfully the systems and programming  changes necessary to address year 2000
issues with respect to its  internal  systems and does not believe that the cost
of such actions will have a material  adverse effect on its financial  condition
or results of  operations.  Although  the  Company is not aware of any  material
operational  issue or costs  associated with preparing its internal  systems for
the year 2000,  there can be no assurance  that there will not be a delay in, or
increased costs associated with, the implementation of the necessary systems and
changes  to  address  the year  2000  issues,  and the  Company's  inability  to
implement  such  systems  and  changes  could have an  adverse  effect on future
results of operations.

Environmental  Matters.  The Company  is not  aware  of any  issues  related  to
environmental  matters  that have,  or are expected  to,  materially  affect its
business.

Factors That May Affect Future Results

The  Company's  business,  financial  condition  and  operating  results  can be
impacted  by a number of factors,  including  but not limited to those set forth
below and  elsewhere in this report,  any one of which could cause the Company's
actual  results to differ  materially  from recent results or from the Company's
anticipated future results.

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

                                       13
<PAGE>
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 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

                                       14
<PAGE>
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.

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 impact,  if any,
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

                                       15
<PAGE>
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
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 trading 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 trading price of the Company's common stock.

                                       16

<PAGE>
PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

See Notes to Consolidated Financial Statements.

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 first quarter of 1998.

                                       17
<PAGE>

                                    SIGNATURE

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

May 14, 1998                   By:______\s\  Mark S. St. Clare__________________
Date                              Mark S. St. Clare, Chief Financial Officer and
                                  Sr. Vice President, Finance (Principal
                                  Financial Officer)

                                     18
<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

                                       19
<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*                  Non-Statutory  Stock  Option  Agreement  (with Notice of
                        Grant of Stock  Option  and  Special  Addendum)  between
                        Registrant  and Mr. Lee Roberts  (filed as exhibit 99.17
                        to Form S-8 on August 20, 1997).

10.12*                  Non-Statutory  Stock  Option  Agreement  (with Notice of
                        Grant  of  Stock Option  and  Special Addendum)  between
                        Registrant  and  Mr. Ron Ercanbrack   (filed as  exhibit
                        99.19 to Form S-8 on August 20, 1997).

10.13*                  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).

10.14*                  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
                        for the fiscal year ended December 31, 1996).

10.15*                  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).

10.16*                  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).

10.17*                  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).
10.18*                  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).

10.19*                  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).

10.20*                  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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