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 June 30, 1997

                                       OR

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

     For the transition period from ________ to ___________

                         Commission file number: 0-15997


                               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                                       15,253,550 at August 8, 1997



<PAGE>

                               FILENET CORPORATION
                                      Index

                                                                           Page
                                                                          Number
                                                                          ------

PART I.  FINANCIAL INFORMATION

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

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

         Consolidated Statements of Cash Flows
         for the six months ended June 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................................................... 12

Item 4.  Submission of Matters to a Vote of Securities Holders............... 12

Item 5.  Certain Considerations.............................................. 13

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

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

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


<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
                               FILENET CORPORATION
                           Consolidated Balance Sheets
                      (In thousands, except share amounts)
<TABLE>
<CAPTION>
                                                     June 30,       December 31,
                                                       1997             1996
                                                   -----------      ------------
                     ASSETS                        (Unaudited)
<S>                                                 <C>                <C>
Current assets:
     Cash and cash equivalents...................   $ 40,009           $ 28,530
     Short-term marketable securities............     30,368             22,037
                                                      ------             ------
         Total cash and short-term marketable
          securities.............................     70,377             50,567
                                                      ------             ------
     Accounts receivable, net....................     43,661             75,469
     Inventories.................................      6,058              8,794
     Prepaid expenses and other..................      7,834              8,336
     Deferred income taxes.......................      6,065              5,641
                                                       -----              -----
Total current assets.............................    133,995            148,807
                                                     -------            -------
Net property and equipment.......................     27,882             28,329
Long-term marketable securities..................      5,498             16,705
Other............................................        881              1,838
                                                         ---              -----
Total assets.....................................   $168,256           $195,679 
                                                    ========           ======== 
             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable............................   $  8,964           $ 16,752 
     Accrued liabilities:
         Compensation............................     13,004             10,728
         Unearned maintenance revenue............      7,443              5,554
         Royalties...............................      2,884              4,531
         Other...................................     15,359             21,903
                                                      ------             ------
Total current liabilities........................     47,654             59,468
                                                      ------             ------
Deferred income taxes............................      3,400              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
      15,434,905 and 15,230,566 shares at
      June 30, 1997 and December 31, 1996,
      respectively...............................    129,310            127,813
     Retained earnings (accumulated deficit).....     (5,400)             7,874
     Other.......................................     (2,140)             1,687
                                                      ------              -----
                                                     121,770            137,374
     Less 200,000 treasury shares at cost........      4,568              4,568
                                                       -----              -----
Total stockholders' equity.......................    117,202            132,806
                                                     -------            -------
Total liabilities and stockholders' equity.......   $168,256           $195,679
                                                    ========           ========
</TABLE>
See notes to consolidated financial statements.
                                       1
<PAGE>
                               FILENET CORPORATION
                      Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                  Three Months Ended         Six Months Ended
                                ---------------------      ---------------------
                                 June 30,    June 30,      June 30,    June 30,
                                   1997        1996          1997        1996
                                 -------     -------       -------     --------
<S>                              <C>         <C>           <C>         <C>
Revenue:

  Software revenue............    $31,075     $33,035      $ 53,157    $ 70,153
  Service revenue.............     23,256      20,093        41,493      37,308
  Hardware revenue............      8,119      11,869        15,362      24,280
                                   -----       ------        ------      ------
Total revenue.................     62,450      64,997       110,012     131,741
                                   ------      ------       -------     -------
Costs and expenses:
  Cost of software revenue....      3,166       4,781         6,165       8,644
  Cost of service revenue.....     13,765      12,344        26,896      23,794
  Cost of hardware revenue....      4,838       7,378        10,167      15,597
  Research and development....      9,593       9,057        19,733      17,479
  Selling, general and
    administrative............     31,021      28,849        60,787      58,876
  Merger, restructuring and
    write-off of purchased
    in-process research and
    development costs.........      6,000           -         6,000      16,011
                                    -----       -----         -----      ------
Total costs and expenses......     68,383      62,409       129,748     140,401
                                   ------      ------       -------     -------
Operating income (loss).......     (5,933)      2,588       (19,736)     (8,660)

     Other income, net........        580         763         1,301       1,594
                                      ---         ---         -----       -----
Income (loss) before income
  taxes.......................     (5,353)      3,351       (18,435)     (7,066)

Provision (benefit) for income
  taxes.......................     (1,499)        838        (5,161)      2,241
                                   ------         ---        ------       -----
Net income (loss).............    $(3,854)    $ 2,513      $(13,274)   $ (9,307)
                                  =======     =======      ========    ======== 
Net income (loss) per share...    $ (0.25)    $  0.15      $  (0.88)   $  (0.62)
                                  =======     =======      ========    ======== 
Weighted average common and
  common equivalent shares
  outstanding.................     15,195      16,366        15,120      15,021
                                   ======      ======        ======      ======
</TABLE>
See notes to consolidated financial statements.

                                       2
<PAGE>

                               FILENET CORPORATION
                      Consolidated Statements Of Cash Flows
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                        Six Months Ended
                                                  ------------------------------
                                                  June 30, 1997    June 30, 1996
                                                  -------------    -------------
<S>                                                 <C>              <C> 

Cash flows from operating activities:
     Net loss..................................     $(13,274)        $ (9,307)
     Adjustments to reconcile net loss to net
      cash (used by) provided by operating
      activities:
        Write-off of purchased in-process
          research and development costs.......            -           10,011
        Depreciation and amortization..........        6,689            5,995

        Changes in operating assets and
          liabilities, net of acquisition:
              Accounts receivable..............       29,580          (12,268)
              Inventories......................        2,852             (751)
              Prepaid expenses and other.......          145           (3,616)
              Accounts payable.................       (7,457)          (2,200)
              Accrued liabilities:
                  Compensation.................        2,430            1,066
                  Unearned maintenance revenue.        1,921            2,081
                  Royalties....................       (1,647)           1,033
              Other............................       (4,871)           2,805
                                                      ------            -----
Net cash provided by (used by) operating
  activities...................................       16,368           (5,151)
                                                      ------           ------ 
Cash flows from investing activities:
     Proceeds from sale of equipment...........          124            2,715
     Capital expenditures......................       (6,930)          (9,273)
     Payment for purchase of IFSL..............            -          (11,711)
     Purchase of marketable securities.........      (16,215)         (15,214)
     Proceeds from sales and maturity of
       marketable securities...................       19,170           18,805
                                                      ------           ------
Net cash used by investing activities..........       (3,851)         (14,678)
                                                      ------          ------- 
Cash flows from financing activities-
     Proceeds from issuance of common stock....        1,497            3,285
Effect of exchange rate changes on cash and
  cash equivalents.............................       (2,535)              26
                                                      ------               --
Net increase (decrease) in cash and cash
  equivalents..................................       11,479          (16,518)
Cash and cash equivalents, beginning of year...       28,530           43,378
                                                      ------           ------
Cash and cash equivalents, end of period.......     $ 40,009         $ 26,860
                                                    ========         ========
Supplemental cash flow information:
     Interest paid.............................     $    160         $    217
     Income taxes paid.........................     $  2,461         $  2,440
</TABLE>
See notes to consolidated financial statements.

                                       3
<PAGE>

                               FILENET CORPORATION
                   Notes To Consolidated Financial Statements



1.   In the opinion of the management of FileNet  Corporation  ("the  Company"),
     the  accompanying   unaudited  consolidated  financial  statements  reflect
     adjustments  (consisting  of normal  recurring  adjustments)  necessary  to
     present  fairly the financial  position of the Company at June 30, 1997 and
     the results of its  operations  for the three  months and six months  ended
     June 30, 1997 and 1996 and its cash flows for the six months ended June 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 year ended December 31, 1996, and with the Company's Current Report
     on Form 8-K,  dated April 1, 1997, and filed by the Company with the SEC on
     April 1, 1997.  The results of operations  for the interim  periods are not
     necessarily indicative of the operating results for the year.

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

3.   Net loss per share for the second  quarter ended June 30, 1997, and for the
     six  months  ended  June 30,  1997 and 1996,  was based  upon the  weighted
     average number of actual shares of common stock outstanding. Net income per
     share for the second  quarter  ended June 30, 1996 was  computed  using the
     weighted average number of common and common equivalent shares  outstanding
     during the period.

4.   The  $16.0  million  merger,   restructuring  and  write-off  of  purchased
     in-process research and development costs for the six months ended June 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"),  $4.2 million in merger costs related to
     the  acquisition  of  Saros  Corporation  ("Saros"),  and $1.8  million  in
     restructuring  costs  related to the  acquisitions  of Saros and  Watermark
     Software Inc. ("Watermark").

5.   During 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  reduced  headcount  in  certain   other  areas  of  the  Company.   The
     restructuring  and other  charges  consists  primarily of severance  costs,
     write-off of impaired assets, and facility closing costs.

                                       4
<PAGE>

6.   During 1997, the Financial  Accounting Standards Board issued Statement No.
     128 (SFAS 128),  "Earnings  Per Share." Under SFAS 128, the Company will be
     required to disclose  basic  earnings  per share and diluted  earnings  per
     share for all periods for which an income  statement  is  presented,  which
     will replace disclosure currently being made for primary earnings per share
     and fully diluted earnings per share. SFAS 128 requires adoption for fiscal
     periods ending after December 15, 1997. There is no impact on the Company's
     primary or fully  diluted  earnings per share for the second  quarter ended
     June 30, 1997 and the six months  ended June 30,  1997 and 1996.  Basic and
     diluted  earnings per share,  as computed  under SFAS 128,  would have been
     $0.17 and $0.15 per share, respectively,  for the second quarter ended June
     30, 1996.

 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.  to be  substituted  in the
     litigation  in place of Wang and Kodak  Limited  of  England.  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").

                                       5
<PAGE>

     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 intend to file a motion to dismiss the complaint on
     August 29, 1997.

     In the State Action,  on April 14, 1997, the Company filed a motion to stay
     all  proceedings  in light of the filing of the Federal  Action by the same
     plaintiff. This motion was denied without prejudice by the Court on May 13,
     1997,  and the case was  assigned  to the  Complex  Case  Panel of  Judges.
     Defendants demurred to the Complaint and moved to stay the action, in light
     of the  parallel  federal  case.  Plaintiff  has  filed a motion  for class
     certification. Discovery is proceeding in the State Action.

     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 Operations.

                               FILENET CORPORATION

The following  should be read in  conjunction  with the  unaudited  consolidated
financial  statements  and notes thereto  included in Part I--Item 1 and Certain
Considerations  in  Part  II--Item  5 of  this  Quarterly  Report,  the  audited
consolidated   financial   statements,   and  notes  thereto,  and  Management's
Discussion  and  Analysis  of  Results of  Operations  and  Financial  Condition
contained  in the  registrant's  Annual  Report on Form 10-K for the 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.

Domestic  revenues  increased 9% in the second quarter and decreased 11% for the
first six months of 1997 while  international  revenues decreased 29% and 28% in
the second quarter and first six months of 1997, respectively,  when compared to
the  corresponding   periods  in  1996.   International   revenues   constituted
approximately  25% and 34% of total revenues in the second  quarters of 1997 and
1996, respectively, and 28% and 32% of total revenues in the first six months of
1997 and 1996, respectively. Management expects that the Company's international
operations  will  continue to provide a significant  portion of total  revenues;
however,  international  revenues could be adversely affected if the U.S. dollar
strengthens against international currencies.

<TABLE>
<CAPTION>
(In Millions)                         ---- Second Quarter ----      ------- Six Months -------
                                      1997      1996    Change        1997      1996    Change
<S>                                   <C>      <C>       <C>       <C>       <C>         <C>
Software revenue                      $31.1    $33.0     (6%)      $ 53.1     $ 70.1     (24%)
 ................................      ........................      ..........................
     Percentage of total revenue        50%      51%                  48%        53%
 ................................      ........................      ..........................
Service revenue                        23.3     20.1     16%         41.5       37.3      11%
 ................................      ........................      ..........................
     Percentage of total revenue        37%      31%                  38%        28%
 ................................      ........................      ..........................
Hardware revenue                        8.1     11.9    (32%)        15.4       24.3     (37%)
 ................................      ........................      ..........................
     Percentage of total revenue        13%      18%                  14%        19%
 ................................      ........................      ..........................
Total revenue                         $62.5    $65.0     (4%)      $110.0     $131.7    (16%)
 ................................      ........................      ..........................
</TABLE>

Software  revenue  decreased by 6% for the quarter  ended June 30, 1997 over the
same  period  of 1996 due to a  continued  weakness  in new  orders  experienced
internationally,  specifically  in  Germany  and the United  Kingdom.

                                       7
<PAGE>

Service  revenue  increased by 16% for the quarter  ended June 30, 1997 over the
same  period  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 and an increase in spare parts
repairs.  Service revenue as a percentage of total revenue  increased to 37% for
the quarter  ended June 30, 1997 from 31% in the same  quarter  last year due to
the decrease in software and hardware revenue cited herein.

Hardware  revenue  decreased by 32% for the quarter ended June 30, 1997 over the
same period of 1996  primarily  due to weakness in new orders  experienced  both
domestically  and  internationally  and the Company's  focus on  increasing  its
higher  margin  software  revenues.  Additionally,  hardware  revenue  for  1996
included a number of  international  sales with  significant  hardware  content.

For the six month period ended June 30, 1997, total revenue  decreased by 16% to
$110.0  million over the same period in 1996.  Software  revenue  decreased 24%,
service  revenue  increased 11%, and hardware  revenue  decreased 37% due to the
reasons cited above.

Cost of Revenue.
<TABLE>
<CAPTION>
(In Millions)                          ---- Second Quarter ----      ------- Six Months -------
                                       1997      1996    Change        1997      1996    Change
<S>                                    <C>      <C>       <C>       <C>       <C>         <C>
Cost of software revenue               $ 3.2    $ 4.8     (33%)      $ 6.2     $ 8.6      (28%)
 .....................................  ........................      ..........................
  As a percentage of software revenue    10%      15%                  12%       12%
 .....................................  ........................      ..........................
Cost of service revenue                 13.8     12.3      12%        26.9      23.8       13%
 .....................................  ........................      ..........................
  As a percentage of service revenue     59%      61%                  65%       64%
 .....................................  ........................      ..........................
Cost of hardware revenue                 4.8      7.4     (35%)       10.1      15.6      (35%)
 .....................................  ........................      ..........................
  As a percentage of hardware revenue    59%      62%                  66%       64%
 .....................................  ........................      ..........................
Total cost of revenue                  $21.8    $24.5     (11%)      $43.2     $48.0      (10%)
 .....................................  ........................      ..........................
  As a percentage of total revenue       35%      38%                  39%       36%
 .....................................  ........................      ..........................
</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 second quarter of 1997 decreased to 10% from 15% in the
same period of 1996 due to a product mix during 1996 that included products with
higher royalty costs.

                                       8
<PAGE>

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 second quarter of
1997  decreased  to 59%  from 61% in the same  period  of 1996 due to  favorable
margins  related to the  revenue  derived  from the repair of spare  parts cited
above.

The cost of hardware revenue includes the Company's cost of OSAR  manufacturing,
third-party  purchased hardware and the cost of hardware integration  personnel.
The cost of hardware  revenue as a percentage of hardware revenue for the second
quarter of 1997  decreased to 59% from 62% in the same period of 1996  primarily
due to the product mix that included a greater  percentage of higher margin OSAR
sales.

The cost of software revenue as a percentage of software revenue and the cost of
service revenue as a percentage of service revenue for the six months ended June
30, 1997,  remained  consistent  with the same period in 1996. For the six month
period ended June 30,  1997,  the cost of hardware  revenue as a  percentage  of
hardware revenue increased to 66% from 64% in the same period of 1996 due to the
decrease in hardware revenue without a corresponding decrease in the fixed costs
related to the Company's hardware integration  activities and due to competitive
pricing pressures associated with the hardware market.

Operating Expenses.
<TABLE>
<CAPTION>
(In Millions)                          ---- Second Quarter ----      ------- Six Months -------
                                       1997      1996    Change        1997      1996    Change
<S>                                    <C>      <C>       <C>        <C>       <C>         <C>
Research and development               $ 9.6    $ 9.1      5%        $19.7     $17.5       13%
 .....................................  ........................      ..........................
     As a percentage of total revenue    15%       14%                 18%       13%
 .....................................  ........................      ..........................
Selling, general and administrative    $31.0     $28.8     8%        $60.8     $58.9        3%
 .....................................  ........................      ..........................
     As a percentage of total revenue    50%       44%                 55%       45%
 .....................................  ........................      ..........................
</TABLE>

Research and Development. Research and development expenses increased 5% for the
second  quarter  of 1997  compared  to the same  period of 1996 due to a general
increase  in salaries  resulting  from an  increased  demand for  engineers  and
depreciation expense associated with capital equipment  additions.  Research and
development  costs as a percentage of total revenue remained  consistent for the
second quarter of 1997 compared to the same period of 1996.

For the six month period ended June 30, 1997, research and development  expenses
increased by 13% over the same period of 1996 due to the reasons cited above and
an addition of development personnel and related facilities.  As a percentage of
total revenue,  research and development  costs increased to 18% compared to 13%
for the same period last year due to a  combination  of the factors  cited above
and the lower revenue experienced in the first half of 1997.

                                       9
<PAGE>

Selling,  general and  administrative  expenses  increased  by 8% for the second
quarter of 1997 compared to the same period of 1996.  The increase was primarily
due  to  the  Company's  continued  efforts  to  expand  internationally.  As  a
percentage  of total  revenue,  selling,  general  and  administrative  expenses
increased to 50% compared to 44% for the same period last year  primarily due to
the reasons cited above and the lower revenue experienced in the quarter.

For  the  six  month  period  ended  June  30,   1997,   selling,   general  and
administrative  expenses  increased  by 3% 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 55%  compared to 45% for the same period
last year due to the reasons cited above.

Merger,  Restructuring  and  Write-off  of  Purchased  In-process  Research  and
Development  Costs. The $6.0 million in restructuring  and other charges for the
second  quarter  ended  June 30,  1997 is 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 six  months  ended June 30,  1996  consist of a $10.0
million  charge  for  the  write-off  of  purchased   in-process   research  and
development and acquisition  costs related to the IFSL purchase and $6.0 million
for fees and expenses related to the Saros acquisition and  restructuring  costs
in  connection  with the  consolidation  of  certain  operations  of  Saros  and
Watermark.

Effective Tax Rate.  The Company's  combined  federal,  State and foreign annual
effective  tax rate for the quarter  ended June 30, 1997 was 28% compared to 45%
for the same period in 1996. The 1996 effective tax rate included non-deductible
merger and other costs for the Saros and IFSL  acquisitions.  The  effective tax
rate for 1996, exclusive of the 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 Loss.  Net loss for the second quarter ended June 30, 1997 was $3.9 million,
or 25 cents per share on 15.2 million shares outstanding  compared to net income
of $2.5 million or 15 cents per share on 16.4 million  weighted  average  common
and  common   equivalent   shares  for  the  same  period  in  1996.   Excluding
restructuring  and other  charges  net of related tax  benefit,  the Company had
income for the June 30,  1997  quarter  of $0.5  million or 3 cents per share on
15.4 million weighted average common and common equivalent  shares.  For the six
months ended June 30, 1997, FileNet had a net loss after restructuring and other
charges of $13.3 million,  or 88 cents per share on 15.1 million  average shares
outstanding  compared with a net loss of $9.3 million,  or 62 cents per share on
15.0 million average shares outstanding for the same period last year.

                                       10
<PAGE>

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 are immaterial
for all periods  reported.  Management  believes  that  inflation  has not had a
significant  impact on the  prices of the  Company's  products,  the cost of its
materials,  or its  operating  results for the quarters  ended June 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
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 June 30, 1997 and June
30, 1996.

Liquidity and Capital Resources

As of June 30, 1997,  combined cash,  cash  equivalents and short- and long-term
marketable  securities  totaled $75.9 million,  an increase of $8.6 million from
$67.3  million at the end of 1996.  The  increase is  primarily a result of cash
provided by operating activities of $16.4 million offset by capital expenditures
of $6.9 million.

Accounts  receivable  decreased  to $43.7  million  at June 30,  1997 from $75.5
million at December 31, 1996. Days sales outstanding  decreased to 63 days as of
June 30, 1997 compared to 95 days as of December 31, 1996.  Current  liabilities
decreased to $47.7  million at June 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  sales  commissions,  royalties and other  expenses as a result of
lower revenue.

The Company has an  unsecured  line of credit of $20  million  available  from a
commercial  bank.  This line of credit expires in 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 June 30, 1997,  there were no  borrowings  against  these credit
lines.

The Company  anticipates that its present cash balances together with internally
generated  funds and credit lines will be sufficient to meet its working capital
and capital expenditure needs throughout 1997.


                                       11
<PAGE>
Part II.  Other Information

Item 1. Legal Proceedings.

See notes to financial statements.

Item 4.   Submission of Matters to a Vote of Security Holders.

     (a)  The 1997 Annual Meeting of the Stockholders of the Company was held at
          9:00 a.m. on May 20, 1997, in Costa Mesa, California.

     (b)  At the annual meeting,  the following four individuals were elected to
          the  Company's  Board of  Directors,  constituting  all members of the
          Board of Directors:
          ----------------------------------------------------------------------
              Nominee               Affirmative Votes       Votes Withheld
          ----------------------------------------------------------------------
          Theodore J. Smith            12,259,814               585,320
          ----------------------------------------------------------------------
          Frederick K. Fluegel         12,278,339               566,795
          ----------------------------------------------------------------------
          John C. Savage               12,279,960               565,174
          ----------------------------------------------------------------------
          William P. Lyons             12,278,189               566,945
          ----------------------------------------------------------------------

     (c)  The  following  additional  proposals  were  considered  at the Annual
          Meeting and were  approved  according  to the  respective  vote of the
          stockholders.
          1.   Proposal to approve an  amendment to the 1995 Stock Option Plan (
               the "1995  Plan") to (i)  increase the number of shares of Common
               Stock  issuable  under  the 1995  Plan by an  additional  600,000
               shares,  (ii)  render  non-employee  Board  members  eligible  to
               receive  option  grants  and  direct  stock  issuances  under the
               Discretionary  Option Grant and Stock Issuance Programs in effect
               under the 1995 Plan,  (iii) remove  certain  restrictions  on the
               eligibility  of  non-employee  Board  members  to  serve  as Plan
               Administrator, (iv) eliminate the existing limitation of the 1995
               Plan which  precludes  the grant of  additional  incentive  stock
               options  under the  federal  tax laws  once the  total  number of
               shares  issued  under the  plan,  whether  as vested or  unvested
               shares,  exceeded  3,050,000  shares  and (v)  effect a series of
               additional  changes to the provisions of the 1995 Plan (including
               the stockholder  approval  requirements  and  transferability  of
               non-statutory  options) in order to take  advantage of the recent
               amendments  to  Rule  16b-3  of  the   Securities   and  Exchange
               Commission   which   exempts   certain   officer   and   director
               transactions  under the 1995 Plan from the short-swing  liability
               provisions of the federal securities laws.
          ----------------------------------------------------------------------
           Votes for      Votes Against       Abstentions       Broker Non-Votes
          ----------------------------------------------------------------------
           8,909,797        3,393,928           181,457              359,952
          ----------------------------------------------------------------------

          2.   Proposal to approve an amendment to the 1988  Employee  Qualified
               Stock Purchase Plan ( the "Purchase Plan") to increase the number
               of shares of Common Stock  issuable under the Purchase Plan by an
               additional 150,000 shares.
          ----------------------------------------------------------------------
           Votes for      Votes Against       Abstentions       Broker Non-Votes
          ----------------------------------------------------------------------
          11,111,046        1,192,067           182,069              359,952
          ----------------------------------------------------------------------

                                       12
<PAGE>
Item 5. Certain Considerations.

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

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

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

                                       13
<PAGE>

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

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

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

                                       14
<PAGE>

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

     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.  to be  substituted  in the
     litigation  in place of Wang and Kodak  Limited  of  England.  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.

                                       15
<PAGE>

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

     DEPENDENCE ON KEY MANAGEMENT AND TECHNICAL PERSONNEL. The Company's success
     depends to a significant degree upon the continued contributions of its key
     management,  marketing,  technical  and  operational  personnel,  including
     members of senior management and technical personnel of acquired companies.
     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 is intense,  and there can be no assurance that the Company
     will be successful in attracting and retaining such personnel.

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

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

                                       16
<PAGE>

      in or non-completion of the development of these new products,  or lack of
      market  acceptance of such  products,  could have an adverse impact on the
      Company's  future results of operations and result in a failure to realize
      anticipated benefits of the acquisitions.

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

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


Item 6.  Exhibits and Reports on Form 8-K

      (a) Exhibits

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

       (b)         Reports on Form 8-K

         The  Company  filed a Form 8-K dated  April 1,  1997,  relating  to its
         announcement of an estimated loss for the first quarter ended March 31,
         1997 and plan to restructure.


                                       17
<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
August 14, 1997

                                       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.
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

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<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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