UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION 
                      Washington, D.C. 20549

                            FORM 10-K

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

            For the Fiscal Year Ended January 31, 1999

                  Commission File Number 0-9747


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


                 Delaware                              85-0278207
      (State or other jurisdiction of               (I.R.S. Employer
      incorporation or organization)                Identification No.)


      1921 Gallows Road, Suite 200, Vienna, Virginia           22182
         (Address of principal executive offices)            (Zip Code)

  Registrant's telephone number, including area code: (703) 761 - 3700

 Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock

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 the  filing
requirements for the past 90 days. Yes |X| No __

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of  registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  as of April 7, 1999 (based on the closing sales price as reported on
the NASDAQ National Market System) was $191,229,080.

The number of shares outstanding of the registrant's class of common stock as of
April 7, 1999 was 14,316,976.



             The Index to Exhibits begins on Page 31

<PAGE>



                 EXCALIBUR TECHNOLOGIES CORPORATION

                     ANNUAL REPORT ON FORM 10-K
             FOR THE FISCAL YEAR ENDED JANUARY 31, 1999

                          TABLE OF CONTENTS
                                                                    Page

                              PART I

Item 1.    Business .............................................      1

Item 2.    Properties ...........................................     10

Item 3.    Legal Proceedings ....................................     10

Item 4.    Submission of Matters to a Vote of Security Holders ..     10


                               PART II

Item 5.    Market for Registrant's Common Equity and Related
           Stockholder Matters ..................................     11

Item 6.    Selected Financial Data ..............................     12

Item 7.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations ..................     13


Item 7A.   Market Risk ..........................................     21


Item 8.    Financial Statements and Supplementary Data ..........     22

Item 9.    Changes in and Disagreements with Accountants on 
           Accounting and Financial Disclosure ..................     22

                              PART III

Item 10.   Directors and Executive Officers of the Registrant ...     23

Item 11.   Executive Compensation ...............................     26

Item 12.   Security  Ownership  of Certain  Beneficial  Owners
           and Management .......................................     29

Item 13.   Certain Relationships and Related Transactions .......     31

                               PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on
           Form 8-K .............................................     31



<PAGE>
                              PART I


Item 1. Business

This  report  contains  forward  looking   statements  that  involve  risks  and
uncertainties.  The  statements  contained  in this  report  that are not purely
historical are forward looking  statements  within the meaning of Section 27A of
the  Securities  Act of 1933,  as  amended  and  section  21E of the  Securities
Exchange  Act of 1934,  as  amended,  including  without  limitation  statements
regarding the  expectations,  beliefs,  intentions  or strategies  regarding the
future of Excalibur Technologies Corporation ("Excalibur" or the "Company"). All
forward  looking  statements  included in this  report are based on  information
available  to the  Company  on the  date  hereof  and  the  Company  assumes  no
obligation to update any such forward looking  statements.  The Company's actual
results could differ  materially from those anticipated in these forward looking
statements as a result of certain  factors,  including those set forth elsewhere
in this report.

Overview

Excalibur designs,  develops,  markets and supports  enterprise-wide,  accurate,
scalable and secure  knowledge-retrieval  and digital asset management  software
solutions.  Excalibur's comprehensive suite of products which includes Excalibur
RetrievalWare,   Excalibur  RetrievalWare  WebExpress,  Excalibur  RetrievalWare
FileRoom,   Excalibur   Internet   Spider,   Excalibur  EFS,   Excalibur  Visual
RetrievalWare,  Excalibur  Screening Room and Excalibur  Video Analysis  Engine,
enables individuals to quickly capture, analyze, index, catalog, browse, access,
search,  retrieve  and use  relevant  information  residing  on an  enterprise's
networks, intranets,  extranets and the Internet. Retrievable assets or document
data types include paper documents,  text, databases, word processing documents,
PDF (Portable Document Format) files,  newsfeeds,  groupware  systems,  e-mails,
images,  and video.  Excalibur's  software  solutions  deliver  capabilities for
real-time  profiling and retrospective  search,  combined full-text and database
searching,   word  meaning-based  semantic  searching,   fault-tolerant  pattern
recognition-based   searching,   statistical  searching  and  a  full  suite  of
traditional keyword and Boolean search techniques.  Excalibur RetrievalWare, the
Company's  flagship product,  has a modular  architecture that supports parallel
processing  on  distributed,  multi-threaded  servers and is designed to support
both very large databases and large information systems with thousands of users.
It offers users a web-based  unified view of all information  assets and enables
highly  accurate  search and retrieval over these assets.  Excalibur  offers its
software  solutions  to  information  systems for  workgroups,  enterprises  and
distributed  wide area networks,  including the Internet and World Wide Web. The
Company also offers training,  consulting and maintenance services to facilitate
implementation and use of Excalibur technology.

Excalibur's software products combine two unique and complementary technologies:
semantic  network  and  Adaptive  Pattern  Recognition   Processing  (APRP(TM)).
Semantic network leverages lexical knowledge at the highest level using built-in
knowledgebases  to search for specific word  meanings  enriched by related terms
and  concepts.  The APRP(TM)  technology  identifies  patterns in digital  data,
providing  the  capability to build  content-based  retrieval  applications  for
virtually any type of digital information.  By integrating these two approaches,
Excalibur believes that it delivers the most complete, powerful, yet easy to use
search and  retrieval  capabilities  available  today.  The combined  technology
powers most Excalibur applications.

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<PAGE>

Excalibur  licenses its software products directly to commercial  businesses and
government  agencies  throughout  North  America,  Europe and other parts of the
world and also  distributes  its software  products to end users through license
agreements with value-added  resellers,  system integrators,  original equipment
manufacturers and other strategic partners.  Revenues derived from contracts and
orders  issued  by  agencies  of the U.S.  Government  were  approximately  $4.5
million, $5.4 million and $6.0 million,  respectively, in the fiscal years ended
January 31, 1999, 1998 and 1997.  These  revenues,  expressed as a percentage of
total  revenues  for the  fiscal  year,  were  approximately  16%,  24% and 30%,
respectively. Financial information about the Company's operations by geographic
area is presented in Note 9 to the consolidated  financial  statements contained
herein.

On May 5, 1997, the Company acquired Interpix Software Corporation ("Interpix"),
located in Santa Clara, California, a privately owned company and developer of a
commercial  technology  enabling  the  collection,   indexing,   management  and
presentation  of multimedia  data on the Internet and corporate  intranets.  The
purchase method of accounting was applied to this  acquisition  transaction and,
accordingly,  the results of  operations  of Interpix  have been included in the
Company's  consolidated results of operations from the date of acquisition.  The
shareholders of Interpix received 275,000 shares of common stock of Excalibur in
exchange for all of the  outstanding  common  stock of  Interpix.  Approximately
$1,284,000  of the purchase  price was  allocated  to research  and  development
projects in process and was expensed in the second quarter of fiscal year 1998.

In July 1995,  the Company  acquired  ConQuest  Software,  Inc.,  ("ConQuest") a
private  company  engaged in the business of  providing  natural  language  text
management  software tools.  The acquisition was effected  through the Company's
issuance  of common  stock and options to  purchase  common  stock to the former
ConQuest  shareholders and option holders in exchange for all of the outstanding
common  stock of ConQuest.  The  business  combination  was  accounted  for as a
pooling of interests  and,  accordingly,  the Company's  consolidated  financial
statements and the discussion and analysis of such statements  contained  herein
reflect the  combined  results of the pooled  businesses  for all of the periods
presented.

Excalibur's  wholly owned  subsidiary  located in the United Kingdom,  Excalibur
Technologies   International,   Ltd.  ("ETIL")  conducts   international   sales
activities.  Except as  otherwise  noted,  Excalibur  and its  subsidiaries  are
collectively referred to hereinafter as the "Company."

The Company can be contacted via email at invest@excalib.com  and visited at its
web site at www.excalib.com.




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<PAGE>

PRODUCTS

Excalibur's suite of text retrieval software components which includes Excalibur
RetrievalWare,   Excalibur  RetrievalWare  WebExpress,  Excalibur  RetrievalWare
FileRoom,  Excalibur  Internet Spider, and Excalibur EFS, is being utilized in a
wide-range of applications and solutions including electronic publishing, online
information systems, global corporate intranets, intelligence analysis and paper
archival   systems.   Markets   include   publishing,    legal,   manufacturing,
pharmaceutical,  insurance,  transportation,  financial services, government and
many  others.  The  Company  provides a visual  retrieval  solution  to the same
markets with Excalibur Visual  RetrievalWare,  which enables users to search for
visual  information  directly from their  intranet,  a corporate  database,  the
Internet, or other sources using images or video clips as clues. Excalibur Video
Analysis Engine (VAE) targets developers, programmers and owners of video assets
with the need to construct  applications  capable of analyzing video content and
detecting event changes.  Excalibur  Screening  Room's markets include media and
entertainment  companies,   broadcasting/news  organizations,  video  production
companies, corporations and government agencies.


Text Products:

Excalibur's  text  retrieval  products  contributed  94%,  97%, and 96% of total
consolidated revenue in 1999, 1998 and 1997, respectively.

Excalibur RetrievalWare

Excalibur  RetrievalWare offers an advanced  componentized approach to knowledge
retrieval,  an enabling technology to knowledge  management.  A high-performance
scalable, more accurate alternative to traditional search and retrieval systems,
Excalibur  RetrievalWare  is a  comprehensive  software  solution  designed  for
enterprise  knowledge  retrieval  and intended to empower  users to find mission
critical  data across  multiple  data  types,  all  through a unified  view.  By
integrating   the  APRP(TM)  and  semantic   network   technologies,   Excalibur
RetrievalWare  delivers superior levels of power and performance  throughout the
entire  information  management  process,  from data  capture  and  indexing  to
searching,  retrieval  and  dissemination.  The latest  version of the  product,
Excalibur  RetrievalWare  6.6, was released in the second  quarter of the fiscal
year 1999. It extends access and retrieval from major  groupware  platforms such
as Microsoft  Exchange  and Lotus Notes.  Other  enhancements  include  extended
security  features,  the ability to  recognize  and  highlight  proper names and
entities and an enhanced user interface.  Overall,  Excalibur  RetrievalWare now
supports  more  than  200  document  formats  including  Microsoft  Office  '97.
Excalibur  RetrievalWare  provides  real time  profiling  which enables users to
create  and save Real Time  Agent  Queries  (Profiles)  that will  automatically
collect  incoming  documents of interest.  The  RetrievalWare  Profiling  Server
filters,  stores  and  distributes  incoming  data  from  any  source  including
real-time   newsfeeds,   relational   databases,   paper  repositories  and  the
RetrievalWare Internet Spider.

With Excalibur's semantic networks,  users can easily and automatically find the
required information in text databases by using all of the power and richness of
natural  language  processing.   Excalibur  RetrievalWare  incorporates  syntax,
morphology  and the actual  meaning of words.  The  baseline  semantic  network,
created from complete  dictionaries,  a thesaurus and other  reference  sources,
gives users a built-in knowledge base of 500,000 word meanings,  50,000 language

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<PAGE>

idioms and 1.6 million  word  associations.  Users enter  straightforward  plain
English  queries  that are  automatically  enhanced  by the  related  terms  and
concepts  thereby  increasing the  opportunity for the return of highly relevant
data. The software  recognizes words at the root level,  idioms and the multiple
meanings of words.  An important  benefit of this approach is the elimination of
the costs associated with defining keywords,  building topic trees, establishing
expert rules and sorting and labeling information in database fields.  Excalibur
RetrievalWare also enables the integration of specialized  semantic networks for
legal, medical, finance, engineering and other disciplines.

APRP(TM) identifies patterns in digital  information.  In text applications,  it
provides  fuzzy  searching  with a high degree of precision  and recall,  giving
end-users the ability to retrieve even  approximations  of search queries with a
high degree of confidence that all of the requested information will be returned
regardless  of errors in spelling or the existence of "dirty data." The software
works at high  speed  and  supports  the  rapid  development  of  multi-language
text-retrieval systems.

Excalibur  RetrievalWare  provides  access to both  unstructured  and structured
information  across  enterprise  networks,  workgroup  LANs, and intranets.  The
software  may be  deployed  on a single  server  or on any  number  of  physical
servers.  Excalibur  RetrievalWare  server  solutions  can be  run  on  multiple
platforms including leading UNIX and Windows NT platforms.

The Excalibur RetrievalWare product family includes the following components:

Excalibur RetrievalWare SDK

The Excalibur  RetrievalWare  SDK (Software  Developer's Kit) is a comprehensive
set of tools for building advanced content management solutions.  At its core is
a highly scalable,  distributed client/server  architecture.  Independent server
processes maximize the efficiency and reliability of document loading,  indexing
and query  handling  and support  security and  encryption/decryption  features.
Dedicated  server  processes  enable  integration  of text search and relational
database (DBMS) storage  capabilities  through an open DBMS gateway.  The client
environment  is optimized  for the  development  of graphical  interfaces  using
industry standard tools such as Java and Visual Basic.  Excalibur  RetrievalWare
delivers Visual Basic custom  controls,  remote  procedure calls and open server
capabilities as well as engine-level,  high-level and client/server  application
program interfaces (APIs).  These features speed the development of systems that
can support thousands of users and contain custom functionality.

Excalibur RetrievalWare FileRoom

Excalibur RetrievalWare FileRoom is built on Excalibur RetrievalWare  technology
and is an optional  component to allow loading,  indexing,  viewing and managing
scanned  documents,  images  and  text.  Users  access  the  FileRoom  through a
hierarchy consisting of fileroom documents,  where each tier in the hierarchy is
a container for storing documents.  Users can directly view the scanned image of
a retrieved document from the FileRoom. Graphs, diagrams,  handwritten notations
and signatures in the retrieved  document are  immediately  accessible.  "Fuzzy"
searching  capabilities  provided  by  APRP(TM)  give  users  a  high  level  of
confidence  that their  queries  will  return all of the  requested  information
regardless  of  the  quality  of  Optical  Character   Recognition  (OCR)  data.
Document-level  security lets organizations  control user access at the fileroom
(library), cabinet, drawer, folder and document level.

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<PAGE>

Excalibur RetrievalWare WebExpress

Excalibur  RetrievalWare  WebExpress is a search and retrieval tool designed for
online  service  providers  and  content-rich  Internet  portals.  RetrievalWare
WebExpress  offers  superior  search  accuracy,   performance  and  scalability,
supporting high numbers of concurrent  users  searching large and  heterogeneous
document collections.

Excalibur Internet Spider

Excalibur Internet Spider is a multimedia,  high-performance  web spider/crawler
for augmenting the knowledge retrieval capabilities of Excalibur  RetrievalWare,
for stand-alone use, or for integration with other applications.  In addition to
HTML-based web pages,  Excalibur Internet Spider also retrieves word processing,
PDF, and multimedia  assets  including audio,  video,  and images.  It is highly
configurable and multi-threaded and can crawl as deeply,  broadly,  and as often
as is necessary.  Users who want immediate  notification  when items of interest
arrive can post Agent  Profiles  to pull  links to  related  documents  to their
desktops.   Components  can  be  deployed  on  multiple   machines  for  optimum
performance and bandwidth.

Excalibur Electronic Filing Software (EFS)

Excalibur  EFS  version  3.7 is the  latest  version  of the  product  which was
originally  introduced in 1991 and is in the process of being phased out.  Users
of EFS are being migrated to RetrievalWare with the FileRoom option. EFS enables
text and images to be entered into the system from computer  files,  scanners or
facsimile  machines  (after the scanned  image is  converted  to text by optical
character  recognition  software) and are  automatically  filed and indexed in a
replica of a physical file room with file cabinets, drawers, folders, in-baskets
and wastebaskets,  utilizing a graphical user interface. EFS provides users with
multiple  methods  for  document  retrieval  and  operates  under  leading  UNIX
operating  systems and Windows NT in a  client/server  environment.  Client-only
implementations  are available on personal  computers  running Microsoft Windows
and Apple Macintoshes. EFS also provides links to leading external databases and
APIs  that  give  users  the  ability  to  integrate  EFS  with  other  software
applications  and  products.  A  variation  of this  software  product  provides
document image management capability for the World Wide Web.


Visual Products:

Excalibur's  visual  retrieval  products  contributed  6%,  3% and  4% of  total
consolidated revenue in 1999, 1998 and 1997, respectively.

Excalibur Visual RetrievalWare

Leveraging the APRP(TM)  technology,  Excalibur Visual RetrievalWare is a visual
retrieval engine and a comprehensive  image processing  library and programmer's
toolkit that enables the development of client/server systems that automatically
index and retrieve digital images.  Applications range from electronic  shopping
and digital libraries to document imaging and positive identification. Users can
search  for  visual  information  directly  from  their  intranet,  a  corporate
database,  the Internet,  or other sources using images or video clips as clues.
Visual data is reduced to a searchable  index that is typically less than 10% of


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<PAGE>

the size of the  original  image and is  automatically  recognized  based on its
shape, color and texture.  Users submit queries using examples of visual data or
by authoring a visual clue with a graphical  product.  Based on the shape, color
and texture of the visual clue, a list of similar or exact  matches is returned.
The product delivers its advanced retrieval  capabilities in an open,  flexible,
scalable and secure  architecture  and is designed to be easy to  implement  and
ready for extension.

Excalibur Video Analysis Engine (VAE)

Excalibur  Video  Analysis  Engine  is a toolkit  that  enables  developers  and
programmers to construct applications that analyze and re-purpose video content.
VAE  analyzes  any kind of  multi-media/video  asset  whether  it is  analog  or
digital,  allows  programmers  to  create  multi-threaded  applications  and has
enhanced scalability.  The toolkit is available as a Microsoft DirectShow filter
or C Library Developer's Kit. Based on the APRP(TM)  technology,  VAE plugs into
applications,  enabling  highly  accurate  event-change  detection.  VAE  uses a
caching  technique  which  compares a series of video  frames  based upon "event
detectors" dynamically selected by the calling program. The event detectors look
for specific occurrences in the video,  triggering "event alarms" appropriate to
the developer's application. Events include cuts, fades, and dissolves.

Excalibur Screening Room

Excalibur  Screening Room, which became generally available in the third quarter
of fiscal  year 1999,  is a  comprehensive  solution  for  real-time  capturing,
analyzing,  cataloguing,  browsing,  searching and retrieving  video, as well as
related  closed-caption text and metadata,  over corporate  intranets/extranets.
Excalibur    Screening   Room   is   aimed   at   entertainment    organizations
(film/television),  news organizations,  video production companies, advertising
agencies, publishing companies,  government agencies, Global 1,000 organizations
and  universities   with  large  video  archives  in  enterprise   training  and
communications departments. It enables users to easily capture analog or digital
video, automatically create an intelligent video storyboard, and play it back in
any of the industry's standard video file formats. Screening Room users can then
automatically  browse,  search, and retrieve precisely what video clips they are
looking for without having to play or watch the video in its entirety. Excalibur
Screening  Room  combines  the  APRP(TM)  technology  for  video  analysis  with
Excalibur  RetrievalWare's  indexing  capabilities.   Excalibur  Screening  Room
consists of four components:  Capture Client,  Edit Client,  Browser Client, and
Video Asset Server. The Capture Client captures, analyzes and storyboards analog
or digital video assets, including live feeds and associated closed caption text
and annotations,  for fast,  efficient  playback.  The Edit Client is for use by
persons  responsible for quality  assurance and editorial control of storyboards
and  metadata.  It  allows  browsing,  searching,  editing,  and  annotation  of
storyboards.  Users can  additionally  output new rough cut edit segments to EDL
(Edit Decision  Lists) for import into  higher-end  offline editing systems like
AVID and Media 100. The Browser  Client  allows user access to catalogs of video
assets  through any  standard Web  browser.  The Video Asset Server  indexes and
stores captured video assets for instantaneous browsing, search and retrieval in
a client/server  environment.  Excalibur Screening Room version 1.1, released in
the third quarter of fiscal year 1999,  features  expanded  streaming  media and
database  support for the  RealNetworks  G2 Media  Player,  the Sybase  Adaptive
Server, and added server support for the Sun Solaris platform.


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SERVICES

Technical Support, Implementation Support and Education

Excalibur provides technical support,  or maintenance,  to customers through its
technical  support  personnel  located in the  Company's  Carlsbad,  California;
Columbia,  Maryland and Windsor,  United Kingdom  facilities and through certain
product  distributors.  Technical  support  consists  of bug  fixing,  telephone
support and product  enhancements.  Technical  support  typically is provided to
customers  under  a  renewable  annual  contract.  All  Excalibur  service  plan
customers have access to the Excalibur Online Technical  Support Web site, which
provides the latest product information,  general service updates and Web forums
for  technical  discussions.  The web site also  provides  electronic  forms for
opening  technical  support cases and  suggesting  product,  service and Company
enhancements.

The Company also provides on-site  implementation and consulting services to its
customers through employee and independent consultants who have been trained and
certified by the Company.  Implementation and consulting services are offered as
a package  or on a  time-and-materials  basis.  The  Company  conducts  training
seminars at its offices in Vienna, Virginia; Carlsbad,  California; and Windsor,
UK, as well as on-site  training,  for its  customers and  distribution  channel
partners.  Training customers  typically pay on a per-course basis for regularly
scheduled classes and on a per-day basis for on-site or dedicated courses.


Marketing and Distribution

The  Company's  sales and  marketing  strategy  emphasizes  the  direct  sale of
Excalibur  products to end-user  customers.  The targeted customer group for the
Company's  products  includes the world's  largest  corporations  and comparable
government agencies and other institutions.  Members of the North American sales
team are located  throughout the United States.  Most of the overseas sales team
is located in the United Kingdom.  The Company typically  licenses its Excalibur
RetrievalWare  product  family  to end users as  either  an  enterprise-wide  or
work-group level solution.

Marketing efforts focus on building brand awareness and establishing  demand for
the Company's products and include public relations,  trade show  participation,
direct mail campaigns and telemarketing/lead  management activities. The Company
also has a home page on the  World  Wide Web at  www.excalib.com  as part of its
marketing  and sales  efforts.  Customers  are able to learn  about the suite of
Excalibur  RetrievalWare and Visual products,  conduct on-line demonstrations of
products and enroll in training  courses as well as access  passworded areas for
technical and other customer support.  Excalibur Video Analysis Engine (VAE) and
technical support for VAE can be purchased via the website.

The Company leverages  relationships with distributors of its software products,
and the strategic  partners  discussed below,  for a substantial  portion of its
revenues.


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<PAGE>


Strategic Alliances

In the fourth  quarter of fiscal year 1999, the Company signed an agreement with
Inso Corporation  whereby Inso will integrate  Excalibur  RetrievalWare with the
Inso Media Bank media asset  management  solution  and with their  product  data
management  solution.  The  arrangement  also  provides  the basis for  advanced
functionality in the form of HTML (Hypertext  Markup Language) export and viewer
technology to be included in future versions of all Excalibur products.

In the fourth  quarter of fiscal year 1999,  the Company  completed an agreement
with FileNET Corporation.  As part of the development agreement,  Excalibur will
integrate  RetrievalWare  with FileNET Panagon,  FileNET's  document  management
software.  This new synchronizer product enables end users to seamlessly execute
a single search for information in a variety of FileNET  document  repositories,
and other libraries and databases, including Lotus Notes and Microsoft Exchange,
and externally on the Internet.

In August  1998,  the  Company  announced  a  multi-year,  multi-million  dollar
licensing,  development  and  distribution  agreement  with  Storage  Technology
Corporation  ("StorageTek"),  a provider of network storage. The agreement gives
StorageTek rights to bundle  Excalibur's  advanced search and retrieval products
with its high-performance network storage products and then sell the packages as
enhanced  solutions  for knowledge  management  and digital  content  management
initiatives.  Under the agreement,  StorageTek gains distribution rights for the
full Excalibur  product line,  including  Excalibur  RetrievalWare and Excalibur
Screening Room.

In August  1998,  the Company  announced  an  agreement  with  Lernout & Hauspie
("L&H") whereby L&H will distribute  Excalibur  RetrievalWare and also integrate
RetrievalWare  into its multilingual  language  libraries  enabling it to create
products capable of simultaneous cross-lingual searches.  Cross-lingual searches
are  of  particular  benefit  to  online  publishing  applications  as  well  as
multinational corporate intranet implementations.

In  September  1997,   Sony  Marketing   (Japan)  Inc.   ("SMOJ")   announced  a
comprehensive licensing, integration and reseller agreement with the Company for
Excalibur's  family  of  knowledge   retrieval   software  products,   Excalibur
RetrievalWare and Excalibur Visual RetrievalWare.  Under the agreement, SMOJ has
licensed  Excalibur  RetrievalWare  and Excalibur Visual  RetrievalWare  and has
integrated  the  Japanese   morphology   system  and  dictionary   into  it  for
localization and resale in Japan.

In July 1997, the Company  entered into an agreement  with Saucedo  Enterprises,
who provides integration services to GTE Enterprise Solutions, a division of GTE
Corporation,  for the development of a GTE Enterprise  Solutions' product called
"The  Bastille".  The  Bastille is a web-based  service  available to all United
States law  enforcement  agencies  that  offers a secure,  private  network  for
information   sharing   and   communication   among  law   officers.   Excalibur
RetrievalWare  provides search,  retrieval and real-time profiling  capabilities
across several  different data  repositories  and allows  officers to share this
information  via a private  network on the Internet.  Revenues  derived from the
Company's agreement with Saucedo Enterprises were less than 10% of the Company's
total revenues in the fiscal year ended January 31, 1999.


                                       8
<PAGE>
In  July  1996,  the  Company  authorized  the  use of  its  name  by  Excalibur
Technologies N. V. ("ETNV"), a Belgian company incorporated in June 1996 for the
purpose of selling and marketing the  Company's  products and services  within a
large territory  including most of Northern Europe and Italy. In connection with
the formation of ETNV, the Company acquired approximately 13.2% of ETNV's voting
capital stock.  The Company accounts for the investment in ETNV under the equity
method since it exercises significant influence over the operating and financial
policies  of  ETNV.  The  Company  granted  to ETNV an  exclusive  license  (the
"License") to distribute certain of the Company's products,  including Excalibur
EFS and  RetrievalWare,  to other  authorized  resellers  and  end-users  in the
territory for approximately  five years. The License provided for the payment to
the Company of minimum  license fees of $1,475,000  for fiscal year 1997 and the
payment of additional minimum license fees in each subsequent fiscal year of the
License.  In the  fourth  quarter  of fiscal  year  1999,  ETNV did not make the
contractually required payment totaling approximately $900,000.


Product Development and Advanced Research

The  Company's  primary   technologies  are  its  semantic  network   processing
techniques and its proprietary adaptive pattern recognition  processing software
(APRP(TM)).

Excalibur's  semantic network  leverages lexical knowledge at the highest level,
offering a system to search for specific word meanings enriched by related terms
and  concepts.  With semantic  networks,  users find  information  using natural
language processing.  Semantic networks  incorporate syntax,  morphology and the
actual meaning of words as defined by published dictionaries and other reference
sources.

APRP(TM) consists of a software  architecture for processing digital information
to extract  patterns in the primary types of  computerized  data:  text,  image,
signal and video. The system provides high-speed pattern recognition that can be
used to store,  categorize,  retrieve and refine data. The processing of digital
patterns  provides  users with a way to store and use  computerized  data faster
with more  flexibility and with fewer data storage  requirements  than competing
systems.   The  Company's  pattern  recognition  methods  use  neural  computing
techniques to process data in a non-algorithmic,  parallel fashion by generating
responses to input data.  Systems utilizing these methods are unlike traditional
computer systems and are now being used in areas where traditional  systems have
been inefficient,  such as natural language,  machine vision, robotics,  pattern
matching  and signal  recognition.  Neural  computing  systems are  "trained" by
processing data, not by programming. Once the system has extracted patterns from
the  digital  data,  these  patterns  can be  sorted,  labeled  and used to make
decisions.

The  Company's  research  and  development  program  focuses  on  enhancing  and
expanding on the capabilities of its Excalibur  RetrievalWare  and Visual suites
of products  to address  additional  markets  and  exploring  and  applying  its
proprietary  pattern   recognition   technology  in  new  areas  such  as  image
recognition,  character recognition and forms recognition.  The Company believes
the  market  is  emerging  for  search  products  that can  index  and  retrieve
unstructured  text and multimedia data types. To that end, the Company has begun
development of a multimedia server architecture to provide integrated multimedia
search and retrieval.
                                       9
<PAGE>
Certain elements of the Company's  software products are supplied to the Company
by other  independent  software  vendors under license  agreements  with varying
terms. Pursuant to these agreements, the Company makes periodic royalty payments
based on either revenues or units. The  technologies  acquired by the Company in
this manner  include word  processing  filters,  optical  character  recognition
engines and dictionaries and thesauruses in electronic form.

The  Company  has  conducted   research  and  product   development  of  pattern
recognition  and  natural  language  systems  since 1980.  Research  and product
development expenditures for the development of new products and enhancements to
existing  products  were  approximately  $8.3 million,  $6.4  million,  and $6.3
million,  respectively,  in the fiscal years ended  January 31,  1999,  1998 and
1997.

Protection of Proprietary Technology

The  Company  regards its  software as  proprietary  and relies  primarily  on a
combination   of   copyright,   trademark  and  trade  secret  laws  of  general
applicability,  employee  confidentiality and invention  assignment  agreements,
software  distribution  protection  agreements and other  intellectual  property
protection  methods to  safeguard  its  technology  and software  products.  The
Company has not obtained patents on any of its technology; however on August 24,
1998, the Company filed an application  with the Patent and Trademark  Office to
obtain a patent on multimedia document  retrieval.  The Company also relies upon
its efforts to design and produce new products and upon improvements to existing
products to maintain a competitive position in the marketplace.

Competition

Competition  in the computer  and  communications  industry in general,  and the
software development industry in particular, is intense. The Company competes in
multiple markets,  including the traditional  information retrieval market. This
market has current and potential competitors who are larger and more established
than the Company and have significantly greater financial,  technical, marketing
and other  resources  than the  Company.  The Company  considers  its  principal
competitive  advantage to be the  architecture,  extensibility  to multiple data
types and performance of its products.  Specifically,  the Company believes that
compared to its primary  competition,  the Company's products provide users with
more accurate results due to the semantic network and APRP(TM) technologies,  an
environment  which is more scalable due to the distributed  search  architecture
and more comprehensive  searching due to the ability to search multiple types of
data. The Company differentiates its products by using new technology to provide
benefits  such  as  labor  savings  from  reduced   manual   pre-processing   or
organization  of data,  faster  retrieval,  access to many  kinds of data,  full
integration  with  network  architecture  and  more  forgiving   interaction  in
retrieving  information stored in computers.  The Company competes with numerous
companies  depending on the target market for their  products.  Most often,  the
Company competes directly with companies such as Verity, Inc. and Autonomy, Inc.
in the information  search and retrieval market.  The Company primarily competes
with Virage, Inc. in its visual product markets.  There can be no assurance that
the  Company  will be able to  compete  successfully  against  current or future
competitors  or that  competition  will  not  materially  adversely  affect  the
Company's operating results and financial condition.

The Company's  activities  currently are subject to no particular  regulation by
governmental agencies other than those routinely imposed on corporate businesses
and no such regulation is now anticipated.

                                       10
<PAGE>

Employees

The Company had 201  employees at January 31, 1999,  of whom 78 were in research
and development, 73 in sales and marketing, 23 in technical support and training
and  27 in  finance  and  administration.  The  employees  are  not  covered  by
collective  bargaining  agreements and the  management of the Company  considers
relations with employees to be good.  Competition for qualified personnel within
the Company's  industry is intense.  There can be no assurance  that the Company
will be able to continue to attract, hire, or retain qualified personnel and the
inability  to do so could  have a material  adverse  effect  upon the  Company's
operating results and financial condition.



Item 2. Properties.

The Company's corporate headquarters  facilities are occupied under two sublease
agreements that expire in calendar year 1999 for a total of approximately 18,700
square feet of space in an office building located at 1921 Gallows Road, Vienna,
Virginia  22182.  The  Company  has signed a new lease for the space that begins
upon  termination  of the current  sublease  in fiscal year 2000.  The new lease
expires in calendar year 2004.

The Company leases three facilities that serve primarily as software development
and customer support centers.  The Company occupies  approximately 31,000 square
feet of space in an office  building,  under a six-year  lease  that  expires in
November 2001, located at 1959 Palomar Oaks Way, Carlsbad, California 92009. The
Company  entered into an agreement in fiscal year 1999 to sublease  7,122 square
feet of the  space in its  Carlsbad  location  to a third  party.  The  sublease
agreement expires 5/31/99. The Company also occupies  approximately 8,125 square
feet of space in an office building  located at 10440 Little  Patuxent  Parkway,
Columbia,  Maryland 21044 under a five-year  lease that expires in December 2000
and 2,832 square feet in the same building under a lease assignment that expires
in March 2001.  Additionally the Company leases 2,863 square feet of space in an
office building at 4675 Stevens Creek Boulevard, Santa Clara, California 95051.
The three-year lease expires June 30, 2000.

The Company  leases office space in Windsor,  England and  Vitrolles,  France in
support of its international  sales operation.  Under these leases,  the Company
occupies approximately 3,400 square feet and 420 square feet, respectively.  The
two leases for the Windsor  offices  expire in calendar year 1999;  negotiations
are underway to extend the leases.  The  Vitrolles  lease is a rolling  contract
that requires a one-month cancellation notice.

The Company  believes  that its  facilities  are  maintained  in good  operating
condition and are adequate for its operations.

Item 3. Legal Proceedings.

There are no material pending legal proceedings to which the Company is a party.

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

There  were  no  matters  submitted  to  the  shareholders  for a  vote  in  the
three-month period ended January 31, 1999.


                                       11
<PAGE>


                              PART II

Item 5. Market  for   Registrant's   Common   Equity  and   Related
Stockholder Matters.

The  Company's  common  stock is traded in the  over-the-counter  market  and is
listed on the National Market System of the NASDAQ Stock Market under the symbol
EXCA.

The following table sets forth,  for the period February 1, 1998 through January
31,  1999,  the high and low sale prices for the common stock as reported by the
National  Market System of NASDAQ.  The number of  shareholders  of record as of
January 31, 1999 was 1,171.  The Company has never declared or paid dividends on
its common stock and anticipates  that, for the foreseeable  future, it will not
pay dividends on its common stock.


                                                   High         Low
                                                   ----         ---
        Fiscal 1999  
        (February 1, 1998 - January 31, 1999)

        First Quarter.........................  $13          $10  1/4
        Second Quarter........................   14  9/16      9  1/2
        Third Quarter.........................   11  1/2       4  1/2
        Fourth Quarter........................   12  1/16      5  1/2

        Fiscal 1998  
        (February 1, 1997 - January 31, 1998)

        First Quarter.........................  $13  5/8     $ 4
        Second Quarter........................    6  3/4       4
        Third Quarter.........................   13  11/16     5  1/2
        Fourth Quarter........................   11  7/8       7  1/2






Item 6. Selected Financial Data.

The selected  financial data presented below as of January 31, 1999 and 1998 and
for the fiscal  years ended  January 31,  1999,  1998 and 1997 have been derived
from the  Company's  consolidated  financial  statements  and  should be read in
conjunction  with such  consolidated  financial  statements  and  notes  thereto
included  elsewhere in this Annual  Report on Form 10-K.  All of the  historical
information has been restated to reflect the pooling of interests with ConQuest.


                                       12
<PAGE>

                                  Fiscal Years Ended January 31,
                        ----------------------------------------------------
                           1999       1998       1997       1996       1995   
                        ---------  ---------  ---------  ---------  --------- 
                               (in thousands, except per share data)

Statement of Operations Data:
Revenues:               
  Software............. $22,741    $17,202    $15,866    $15,004    $10,133   
  Maintenance..........   5,198      5,215      4,393      3,671      2,505   
                       ---------  ---------  ---------  ---------  ---------  
                         27,939     22,417     20,259     18,675     12,638   
                       ---------  ---------  ---------  ---------  ---------  
Expenses:               
  Cost of software       
    revenues...........   3,808      3,039      1,630      1,064        767 
  Cost of maintenance                                                       
    revenues...........   1,320      1,219      1,618      1,398      1,498 
  Sales and marketing..  13,501     13,184     14,430      8,752      9,343 
  Research and product                                                      
    development........   8,328      6,405      6,288      4,416      4,597 
  General and                                                               
    administrative.....   4,775      4,884      3,906      3,330      5,597 
  Acquired in-process                                                       
    research and                                                            
    development........       -      1,284          -          -          - 
  Restructuring costs..       -        577          -        653        776 
  Merger costs.........       -          -          -        490          - 
                       ---------  ---------  ---------  ---------  ---------  
                         31,732     30,592     27,872     20,103     22,578 
                       ---------  ---------  ---------  ---------  ---------
                        
Operating loss.........  (3,793)    (8,175)    (7,613)    (1,428)    (9,940)
                                                                      
Interest income, net...     239        374        781        544        344  
Equity in net loss of 
  affiliate............    (300)      (525)      (341)         -          -  
Other income...........       -          -          -          -        208  
                       ---------  ---------  ---------  ---------  ---------
Net loss...............  (3,854)    (8,326)    (7,173)      (884)    (9,388)
                        
Dividends on cumulative,
  convertible, preferred
  stock................      14         14         14         14         14
                        
Net loss applicable to  
  common stock......... $(3,868)   $(8,340)   $(7,187)   $  (898)   $(9,402)  
                       =========  =========  =========  =========  =========  
Basic and diluted net   
  loss per common share $ (0.29)   $ (0.64)   $ (0.58)   $ (0.08)   $ (0.85) 
                       =========  =========  =========  =========  =========
Weighted average number 
  of common shares   
  outstanding..........  13,526     12,934     12,351     11,496     11,094
                       =========  =========  =========  =========  =========


                                       13
<PAGE>
      
                                               
Balance Sheet Data      
 (at end of period) (1)

Cash and cash           
  equivalents.......... $ 5,851    $ 4,939    $ 2,685    $ 2,903    $ 2,645  
Working capital........   8,006      9,748     14,566     12,973      6,908  
Total assets...........  19,712     20,045     26,147     23,046     17,951  
Accumulated deficit.... (55,854)   (51,945)   (43,619)   (36,446)   (35,367) 
Total shareholders'   
  equity (2)...........  13,174     13,098     18,563     15,251      9,475  
 
                        
-------------           
(1)  The  Company  had no significant long-term  debt  for  any of the  periods
presented.  
(2)  No dividends have been declared or paid on the Company's  common stock.





                                       14
<PAGE>

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

Overview

The  statements  contained  in this  report that are not purely  historical  are
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the  Securities  Exchange Act of 1934,  including
without  limitation  statements  about  the  Company's  expectations,   beliefs,
intentions or strategies  regarding the future. All  forward-looking  statements
included in this report are based on information available to the Company on the
date  hereof  and  the  Company   assumes  no  obligation  to  update  any  such
forward-looking  statements.  The  forward-looking  statements  contained herein
involve  risks and  uncertainties.  The  Company's  actual  results could differ
materially  from those  anticipated  in these  forward-looking  statements  as a
result of certain factors, including those set forth in this report.

The Company  principally  earns  revenues  from the  licensing  of its  software
products to commercial  businesses  and  government  agencies  throughout  North
America,  Europe and other parts of the world. The Company licenses its software
to end-users directly and also distributes its software products through license
agreements with value-added  resellers,  system integrators,  original equipment
manufacturers and other strategic partners. Revenues are provided under software
licenses with new  customers  and from the related sale of product  maintenance,
training  and  implementation  support  services.  Additions  to the  number  of
authorized users,  upgrades to newer product versions and the renewal of product
maintenance arrangements by customers pursuant to existing licenses also provide
revenues to the Company.  Under software  maintenance  contracts,  customers are
typically  entitled to receive  telephone  support,  software  bug fixes and new
releases of particular software products when and if they are released.

The Company's  software  products are designed to enable  individuals to quickly
search and  retrieve  relevant  information  residing  on a  LAN/WAN,  intranet,
paper-based archive,  extranet,  video archive or the Internet through a unified
web-based  user  interface.  There  are  generally  two  markets  today  for the
Company's  products,  text knowledge retrieval and video indexing and retrieval.
The  market  for  text  knowledge  retrieval  products  consists  of  electronic
publishing,  online  information  services,  global corporate  intranets,  paper
archival systems as well as market,  business and government  intelligence.  The
market for video  indexing and  retrieval  solutions  includes  application  and
website  developers,  certain  government  agencies as well as commercial media,
entertainment  and broadcasting  companies.  Text knowledge  retrieval  products
include the  RetrievalWare  family of products and EFS. Visual products  include
Visual  RetrievalWare,  VAE and Screening Room, an advanced  end-to-end solution
for  real-time  capturing,  analyzing,  cataloguing,   browsing,  searching  and
retrieving video over intranets and extranets, that began shipping in the second
quarter of fiscal year 1999.

The following chart  represents  revenues and expenses (in thousands of dollars)
attributable  to the text and visual  product lines for the years ending January
31,  1999,  1998 and 1997.  Expenses for each product line consist of direct and
allocated  expenses  and exclude  restructuring  costs and  acquired  in-process
research and development costs.




                                       15
<PAGE>


                            Text Products                  Visual Products
                         Fiscal Years Ending             Fiscal Years Ending
                             January 31,                     January 31,
                    ----------------------------    ----------------------------
                      1999      1998      1997        1999      1998      1997
                    ----------------------------    ----------------------------
Total Revenue       $26,206   $21,791   $19,351     $ 1,733   $   626   $   908
Operating Expenses   24,888    24,209    22,879       6,844     4,522     4,993
                    ----------------------------    ----------------------------
Operating Income
 (Loss)             $ 1,318   $(2,418)  $(3,528)    $(5,111)  $(3,896)  $(4,085)
                    ----------------------------    ----------------------------
 Note:  Excludes acquired  in-process R&D and restructuring costs
 -----------------------------------------------------------------

The Company believes that in addition to other competitive advantages,  it holds
a competitive  advantage in that the Company's products accommodate the indexing
and  retrieval of multiple  data types.  The Company  expects that over time, as
video becomes a more common data type, these two markets will merge.

On May 5, 1997, the Company acquired Interpix Software  Corporation,  located in
Santa Clara, California, a privately owned company and developer of a commercial
technology  enabling the collection,  indexing,  management and  presentation of
multimedia data on the Internet and corporate intranets.  The purchase method of
accounting was applied to this  acquisition  transaction and,  accordingly,  the
results  of   operations  of  Interpix  have  been  included  in  the  Company's
consolidated   results  of  operations  from  the  date  of   acquisition.   The
shareholders of Interpix received 275,000 shares of common stock of Excalibur in
exchange for all of the  outstanding  common  stock of  Interpix.  Approximately
$1,284,000  of the purchase  price was  allocated  to research  and  development
projects in process and was expensed in the second quarter of fiscal year 1998.

The Company  reorganized  its sales force and made other  changes to the overall
organization  at the end of the first quarter of fiscal year 1998. In connection
with these changes,  the Company reduced its workforce by approximately  10% and
recorded a restructuring charge of $577,000 in the first quarter of fiscal 1998.
The charge consisted of severance pay and benefits for terminated employees. All
payments associated with the restructuring  charge were paid prior to the end of
fiscal year 1998.


Results of Operations

For the fiscal year ended January 31, 1999,  total  revenues were $27.9 million,
an increase  of 25% over total  revenues  of $22.4  million in the prior  fiscal
year.  The net loss for the fiscal year ended January 31, 1999 was $3.9 million,
or $0.29 per common share,  compared to a net loss of $8.3 million, or $0.64 per
common share,  for the same period last fiscal year.  Excluding a charge of $1.3
million for in-process research and development expenses related to the Interpix
acquisition  and $0.6 million for  restructuring  charges,  the net loss for the
fiscal year ended  January 31, 1998 was $6.5 million.  Total  revenues in fiscal
year 1998 increased 11% from fiscal year 1997 revenues of $20.3 million. The net
loss for fiscal year 1997 was $7.2 million, or $0.58 per common share.



                                       16
<PAGE>

The following chart  summarizes the components of revenues and the categories of
expenses, including the amounts expressed as a percentage of total revenues, for
the three fiscal years in the period ended  January 31, 1999 and the  percentage
changes in the amounts between fiscal years (dollars in thousands).


<TABLE>
<CAPTION>   

                                                                                Increase
                                                                               (Decrease)
                                                                               -----------
                                   Components of Revenue and Expenses          From    From
                                      Fiscal years ended January 31,           1998    1997
                            ------------------------------------------------    to      to
                                 1999             1998             1997        1999    1998
                            --------------   --------------   --------------   -----   ----- 
                               $       %       $        %       $        %        %      %
                            --------------   --------------   --------------   -----   ----- 
<S>                         <C>       <C>    <C>       <C>    <C>       <C>    <C>     <C> 
Revenues:
 RetrievalWare              $20,859    75%   $15,083    67%   $ 8,572    42%     38%    76%
 EFS                            318     1%     1,591     7%     6,474    32%    -80%   -75%       
 Visual Products Group        1,564     6%       528     2%       820     4%    196%   -36%    
                            --------------   --------------   --------------    ----   ---- 
Total software              $22,741    81%    17,202    77%    15,866    78%     32%     8%  
    
Maintenance                   5,198    19%     5,215    23%     4,393    22%      0%    19%    
                            --------------   --------------   --------------    ----   ---- 
  Total revenues            $27,939   100%   $22,417   100%   $20,259   100%     25%    11%    
                            ==============   ==============   ==============    ====   ==== 
Expenses:

 Cost of sales              $ 5,128    18%   $ 4,258    19%   $ 3,248    16%     20%    31%         
 Sales and marketing         13,501    48%    13,184    59%    14,430    71%      2%    -9%  
 Research and product
   development                8,328    30%     6,405    29%     6,288    31%     30%     2%  
 General and administrative   4,775    17%     4,884    22%     3,906    19%     -2%    25%
 Acquired In-process   
   research and development       -     -      1,284     6%         -     -    -100%     -
 Restructuring costs              -     -        577     3%         -     -    -100%     - 
                            --------------   --------------   --------------   -----   ---- 
  Total expenses            $31,732   114%   $30,592   136%   $27,872   138%      4%    10%  
                            ==============   ==============   ==============   =====   ==== 
</TABLE>


Revenues

Software  revenues  increased  from $15.9  million in fiscal  year 1997 to $17.2
million  in fiscal  year 1998 and to $22.7  million  in fiscal  year  1999.  The
increase in software  revenues in each  period was  attributable  to  increasing
market  awareness  and  acceptance  of the Company's  text  knowledge  retrieval
products,  contributions  from  existing  OEM partners  and  alliances  with new
partners  who chose the  Company as the key search  component  in their  product
offering.

                                       17
<PAGE>

RetrievalWare,  which emerged as the Company's  dominant  product line in fiscal
year 1998,  continued that trend into fiscal year 1999.  Software  revenues from
RetrievalWare  increased  38% in fiscal  year 1999 to $20.9  million  from $15.1
million in the prior year. Software revenues for RetrievalWare were $8.6 million
in fiscal year 1997.  RetrievalWare  product  revenue now  represents 92% of all
software  revenues,  compared  to 88% and 54%,  in fiscal  years  1998 and 1997,
respectively.  With the  availability of  RetrievalWare  FileRoom,  EFS software
revenues  represented  only 1% of total  software  revenue in fiscal  year 1999,
compared to 9% and 41%,  respectively,  in fiscal years 1998 and 1997.  Software
revenues from the Visual  Products  Group  increased 196% in fiscal year 1999 to
$1.6  million from $0.5  million in the prior  fiscal  year.  Revenues  from the
Visual  Products Group were 7% of software  product  revenue in fiscal year 1999
compared to 3% and 5%, respectively, in fiscal years 1998 and 1997.

The  Company  generated  record  revenues  by  continuing  to attract  prominent
corporate customers in fiscal year 1999. While maintaining the Company's current
customer  base,  Excalibur  attracted new  customers  seeking  industry  leading
retrieval  technology  including ABC Inc.,  Copley Press, ICI Chemical,  British
Gas, the Capital Group and Virginia Power. In October 1998, the Company released
RetrievalWare  WebExpress,  a  high-performance,  search and retrieval  software
solution developed specifically for web publishers,  online services and content
providers  seeking more  accurate and  comprehensive  access to large volumes of
diverse  information  ranging from scanned paper to electronic text,  images and
video.  New  Excalibur   customers   choosing  Excalibur   WebExpress   included
Encyclopedia  Britannica,  Powerize.com,  Careerpath.com  and several government
online customers.

In fiscal year 1999,  the Company  generated  increased  revenues  through major
integration and software  distribution licenses with strategic partners. In July
1998, the Company signed a strategic  licensing,  development  and  distribution
agreement  with  Storage  Technology  Corporation  ("StorageTek").   Excalibur's
advanced retrieval software has been coupled with StorageTek's  high-performance
network storage products to create advanced solutions called Network Appliances.
StorageTek  committed to a prepaid license for licensing fees over 18 months and
will also pay  royalties  on resale of  current  Excalibur  products  and future
products to be jointly developed.  The Company recognized $2.3 million in fiscal
year 1999 related to the  agreement  using the  percentage-of-completion  method
based on the  relationship  of actual costs incurred to total costs estimated to
be incurred  over the  duration of the  contract;  the  remainder of the prepaid
license  payments will be recognized in fiscal year 2000. In the fourth  quarter
of fiscal  year 1999,  the Company  signed an  agreement  with Inso  Corporation
whereby Inso will  integrate  Excalibur  RetrievalWare  with the Inso Media Bank
media asset management solution and with their product data management solution.
The arrangement  also provides the basis for advanced  functionality in the form
of HTML export and viewer  technology  to be included in future  versions of all
Excalibur  products.  The  Company  recognized  $3 million  of revenue  from the
agreement in the fourth quarter of fiscal year 1999 relative to a five-year paid
up license to Inso Corporation.

Revenues  from  international  operations  are  provided  primarily  by software
licenses  with  various  European  commercial  and  government  customers  and a
well-established  European reseller network.  The Company's  international sales
operation, Excalibur Technologies International, Ltd. ("ETIL"), headquartered in
the United Kingdom  experienced  decreased  revenues in the current fiscal year.
International  revenues  excluding Canada dropped 6% in fiscal year 1999 to $7.3


                                       18
<PAGE>

million from $7.8 million in fiscal year 1998.  International revenues excluding
Canada were $5.9 million in fiscal year 1997.  International  software  revenues
were  negatively  impacted by  financial  difficulties  of ETNV,  the  Company's
primary continental European  distribution  channel. The Company recognized $0.8
million of  software  revenue  related to the ETNV  contract in fiscal year 1999
compared to $1.5  million in fiscal year 1998. A payment of  32,000,000  Belgian
Francs, or approximately $0.9 million, was due from ETNV to Excalibur in January
1999.  The  payment  was not made and  accordingly,  no  revenue  from  ETNV was
recorded  in the fourth  quarter.  The  Company's  revenues  from  international
operations  were also  negatively  affected by the Asian  financial  crisis that
impacted  Excalibur sales in the Pacific Rim. Revenues from the Pacific Rim were
10% less in fiscal year 1999  compared to 1998 and  decreased 15% in fiscal year
1998 compared to fiscal year 1997.

Software  maintenance and customer  support revenues were $5.2 million in fiscal
year 1999 and $5.2 million and $4.4 million,  respectively, in fiscal years 1998
and 1997.  Flat  maintenance  revenues in fiscal year 1999 compared to 1998 were
attributable  to the transition of the business from EFS to  RetrievalWare.  The
EFS customer base in general is not renewing their maintenance contracts.  While
this is  somewhat  offset  by growth in the  RetrievalWare  base of  maintenance
contracts  as  RetrievalWare  license  sales  grow,  the  overall  effect  was a
flattening  of  maintenance  in the current  fiscal year.  Maintenance  revenues
increased 19% in fiscal year 1998 compared to 1997. That increase was attributed
to additions to the RetrievalWare customer base.

Operating Expenses

Cost of sales increased from $3.2 million in fiscal year 1997 to $4.3 million in
fiscal year 1998 and to $5.1 million in fiscal year 1999,  representing 16%, 19%
and 18% of total sales, respectively.  The cost of sales increase in fiscal year
1999 was  attributable  to the higher  revenues and increased ETIL cost of sales
due to higher royalties for new language  versions of RetrievalWare  and greater
use of  partners.  The  increase  in cost of sales in fiscal  year 1998  related
primarily  to the  formation  of a  product  implementation  group at the end of
fiscal year 1997 which resulted in additional  salaries expense,  implementation
project  subcontractors  expense,  and increased  overhead  costs in fiscal year
1998. Additionally, due to the acquisition of Interpix in fiscal year 1998, cost
of sales contained associated amortization expense of intangible assets.

Sales and  marketing  expenses  increased  2% in fiscal  year  1999,  from $13.2
million in fiscal year 1998 to $13.5  million in fiscal year 1999.  The increase
in expenses resulted from personnel growth in ETIL and the marketing department.
Sales and  marketing  expenses were 48% of revenues in fiscal year 1999 compared
to 59% in fiscal  year 1998.  In fiscal  year 1998,  sales and  marketing  costs
decreased  9% to $13.2  million  from  $14.4  million in fiscal  year 1997.  The
reduction in expenses in fiscal year 1998  resulted from the  reorganization  in
the first quarter of fiscal year 1998.

Research and product  development  costs  increased  from $6.3 million in fiscal
year 1997 to $6.4 million in fiscal year 1998 and to $8.3 million in fiscal year
1999, representing 31%, 29% and 30% of revenues,  respectively.  The majority of
the increase in fiscal year 1999 was  attributable to the  establishment  of the
joint  development  lab  with  StorageTek.  The  lab has  integrated  StorageTek
products with Excalibur's advanced products for crawling,  indexing,  searching,
retrieving and distributing all enterprise  digital content,  to create advanced
solutions that make enterprise-wide information assets easier to archive, access

                                       19
<PAGE>

and leverage.  Established  in the third quarter of fiscal 1999, the lab focused
efforts to complete  development of StorageTek network appliance  products,  the
first of which was  delivered in March of 1999.  Text and visual  expenses  also
increased  as  the  Company  continued  to  invest  in  the  enhancement  of its
RetrievalWare  and  visual  product  lines.  In  fiscal  year  1998,   continued
development of Excalibur RetrievalWare products was emphasized while EFS product
development was  significantly  curtailed.  Increased costs  associated with the
development of  RetrievalWare  products were offset by the  diminished  expenses
associated with the EFS products. As a result,  research and product development
costs increased only 2% in fiscal year 1998.

General and  administrative  expenses  decreased  2% in fiscal year 1999 to $4.8
million  from $4.9  million  in fiscal  year 1998,  representing  17% and 22% of
revenues, respectively. The majority of the decrease in fiscal year 1999 was due
to a  reduction  in  corporate  expenses.  In  fiscal  year  1998,  general  and
administrative expenses increased 25% from $3.9 million in fiscal year 1997. The
increase was the result of increased  staffing and related  expenditures  in the
areas of human resources, information systems and financial analysis required to
support the Company's  growth.  Bad debt expense in fiscal years 1999,  1998 and
1997 was $493,000, $250,000, and $150,000, respectively.

In the second  quarter of fiscal year 1998,  the Company  recorded an expense of
$1.3 million for the cost of in-process research and development acquired in the
merger  with  Interpix.  This  acquisition  facilitated  the  broadening  of the
Company's  product line with the  introduction of Excalibur  Internet  Spider, a
multimedia  web crawler that  enables end users and  application  developers  to
access and leverage multimedia  information published on intranets and the World
Wide Web. Cost cutting  measures  taken in the first quarter of fiscal year 1998
helped offset the additional expenses  associated with the Interpix  development
group. Streamlining of the services department and a reduction of the work force
reduced employee related expenses of research and development.

The Company  reorganized  its sales force and made other  changes to the overall
organization  at the end of the first  quarter of fiscal year 1998.  The Company
reduced its workforce by approximately  10% and recorded a restructuring  charge
of $0.6 million in the first quarter.  The charge consisted of severance pay and
benefits  for  terminated   employees.   All   expenditures   relative  to  this
restructuring charge were made in fiscal year 1998.

The activities for fiscal year 1999,  including those discussed above,  resulted
in total expenses of $31.7  million,  a 4% increase from total expenses of $30.6
million in the prior fiscal year. In fiscal year 1998, total expenses  increased
by 10% from $27.9  million in fiscal year 1997.  The total  number of  employees
increased from 168 at the beginning of the current fiscal year to 201 at January
31, 1999. The Company had 173 employees at January 31, 1997.

Due to a decreased level of invested funds,  net interest income  decreased from
$0.8  million in 1997 to $0.4  million in 1998 and to $0.2  million in 1999.  As
discussed in Note 3 to the consolidated  financial  statements contained herein,
the Company recorded its equity in the net loss of its affiliate,  ETNV, for the
fiscal year ended  January 31, 1999.  This charge in fiscal 1999,  including the
amortization of the excess of the Company's  investment over the Company's share
of the underlying  net assets of ETNV and the  elimination by the Company of its
share of its gross profit  included in ETNV's prepaid license balance at January
31, 1999, was $0.3 million.  The corresponding charge was $0.5 million in fiscal
year 1998 and $0.3 million in fiscal year 1997.

                                       20
<PAGE>


Liquidity and Capital Resources

In the fiscal year ended  January 31, 1999,  the Company's  combined  balance of
cash, cash  equivalents and  investments in marketable  securities  decreased by
$0.6 million to $5.9 million as summarized below (in thousands).  At January 31,
1998 investments in marketable  securities consisted of U.S. Treasury Bills with
maturities of less than one year.

                              
                          January 31,  January 31,
                             1999         1998       Change
                           --------    ---------   ---------
         Cash and
          cash equivalents  $ 5,851     $  4,939    $    912          
         Investments              -        1,496      (1,496)
                           --------    ---------   ---------
          Total             $ 5,851     $  6,435    $   (584)
                           ========    =========   =========


The  Company's  operating  activities  used cash of $3.0  million in fiscal year
1999.  The net loss of $3.9  million  was  offset by  non-cash  charges  of $1.8
million,  including $1.5 million in depreciation and amortization,  $0.5 million
in bad debt expense and $0.3 million for the Company's  share of the net loss of
ETNV and  amortization  of ETNV  warrants.  Reductions  in  accounts  receivable
provided  $2.3 million  while  increases in prepaid  expenses used $3.4 million.
Reductions in accounts payable, accrued expenses and deferred revenues used $0.3
million.

In  fiscal  year  1998,  cash  of $4.4  million  used  to  fund  operations  was
significantly  less than the $8.3 million net loss for the year due primarily to
several non-cash charges.  Those charges,  which totaled $3.4 million,  included
acquired  research  and  development  costs of $1.3  million,  depreciation  and
amortization of $1.5 million and the Company's share of the net loss of ETNV and
amortization  of ETNV warrants  totaling  $0.5  million.  Reductions in accounts
receivable and prepaid expenses provided $0.5 million.

During fiscal year 1999,  investing  activities provided $0.1 million.  Net cash
provided  from the maturity of U.S.  Treasury  Bills  totaled $1.5 million while
purchases  of  computer  and other  equipment  used $1.1  million.  Loans to and
investments in the Company's  affiliate,  ETNV,  included in other assets,  used
$0.2 million. In fiscal year 1998,  investing  activities provided $6.1 million.
Net cash of $6.9 million was provided from the maturity of U.S.  Treasury Bills.
Cash of $0.1  million  was also  provided  as a  result  of the  acquisition  of
Interpix.  Cash was used to purchase computer and other equipment  totaling $0.8
million and to make a $0.1 million loan to ETNV.

Financing  activities  provided  $3.8  million in fiscal  year  1999.  A private
placement  of  325,000  shares  of  common  stock to an  unaffiliated  financial
institution at a purchase price of $10.00 per share provided $3.3 million.  Cash
of $0.6 million was provided  from the  exercise of employee  stock  options and
issuances of stock under the employee  stock purchase plan. In fiscal year 1998,
the exercise of employee stock options and issuances of stock under the employee
stock purchase plan provided $0.6 million.


                                       21
<PAGE>

The number of days sales  outstanding  ("DSO")  at  January  31,  1999 was 61, a
decrease  from  116 days at  January  31,  1998.  Management  believes  that the
allowance for doubtful accounts of $0.7 million at January 31, 1999 is adequate.

As of January 31, 1999, the Company's  balances of cash and cash equivalents was
$5.9 million. The Company completed a private placement of 500,000 shares of its
common stock in March 1999 at a purchase price of $10 per share. Net proceeds of
$4.7 million from the  placement  will be used to fund  ongoing  operations  and
general  corporate  purposes of the Company.  The current  balance of cash, cash
equivalents  and  investments is expected to be sufficient to fund the Company's
current projected cash needs for the next fiscal year.

Historically,  the  Company  has  primarily  used cash  provided by sales of its
common stock to fund its  operating  losses.  If the actions taken by management
are not effective in achieving  profitable operating results, the Company may be
required to pursue  additional  external  sources of  financing in the future to
support its operations and capital requirements. There can be no assurances that
external  sources of  financing  will be  available  if  required,  or that such
financing will be available on terms acceptable to the Company.


Factors That May Affect Future Results

The Company's  business  environment is  characterized  by intense  competition,
rapid technological  changes,  changes in customer requirements and emerging new
market segments.  Consequently,  to compete  effectively,  the Company must make
frequent  new  product  introductions  and  enhancements  while  protecting  its
intellectual  property,  retain its key personnel and deploy sales and marketing
resources  to take  advantage of new business  opportunities.  Future  operating
results  will be  affected  by the  ability of the Company to expand its product
distribution  channels and to manage the expected growth of the Company.  Future
results may also be impacted by the  effectiveness  of the Company in  executing
future  acquisitions  and integrating the operations of acquired  companies with
those of the Company.  Failure to meet any of these  challenges  could adversely
affect future operating results.

The Company's quarterly operating results have varied  substantially in the past
and are likely to vary  substantially  from quarter to quarter in the future due
to a variety of factors. In particular, the Company's period-to-period operating
results  are  significantly  dependent  upon the timing of the  closing of large
license  agreements.  In this regard, the purchase of the Company's products can
require a significant  capital  investment  from a potential  customer which the
customer  generally  views  as a  discretionary  cost  that can be  deferred  or
canceled due to budgetary or other  business  reasons and can involve long sales
cycles of six  months or more.  Estimating  future  revenues  is also  difficult
because the Company  ships its products  soon after an order is received and, as
such does not have a significant  backlog.  Thus, quarterly license fee revenues
are  heavily  dependent  upon a  limited  number of  orders  for large  licenses
received  and  shipped  within  the same  quarter.  Moreover,  the  Company  has
generally  recorded a  significant  portion of its total  quarterly  license fee
revenues in the third month of a quarter, with a concentration of these revenues
occurring in the last half of that third month.  This  concentration of revenues
is influenced by customer tendencies to make significant capital expenditures at
the end of a fiscal  quarter.  The Company  expects  these  revenue  patterns to
continue for the foreseeable  future.  Despite the  uncertainties in its revenue


                                       22
<PAGE>

patterns,  the Company's  operating expenses are based upon anticipated  revenue
levels  and  such  expenses  are  incurred  on an  approximately  ratable  basis
throughout  a  quarter.  As a result,  if  expected  revenues  are  deferred  or
otherwise  not  realized in a quarter for any reason,  the  Company's  business,
operating  results  and  financial  condition  would  be  materially   adversely
affected.

As of January  31,  1999,  the  Company  had net  operating  loss  carryforwards
("NOLs") of approximately $67,957,000.  The deferred tax assets representing the
benefits of the NOLs have been offset completely by a valuation allowance due to
the Company's lack of an earnings  history.  The Company  incurred a net loss of
$3,854,000 for the fiscal year ended January 31, 1999. The  accumulated  deficit
of the Company at January  31,  1999 was  $55,798,000.  The  realization  of the
benefits of the NOLs is dependent on sufficient  taxable income in future fiscal
years.  Lack of future  earnings,  or a change in the  ownership of the Company,
could  adversely  affect the  Company's  ability to utilize  the NOLs.  Further,
because there was a change in the ownership of ConQuest in fiscal year 1996, the
Company's  ability  to  utilize  NOLs  relating  to  ConQuest  of  approximately
$3,233,000 may be limited.  Despite the NOL carryforwards,  the Company may have
income tax liability in future years due to the  application of the  alternative
minimum tax rules of the Internal Revenue Code.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

The Company believes that inflation has not had a material effect on the results
of its operations to date.


Other Factors

Year 2000

On July 29, 1998,  the  Securities  and Exchange  Commission  issued  additional
guidance on disclosures  that public  companies  should make related to the Year
2000.  The new release was effective for the Company's  October 31, 1998 interim
reporting.  In addition  to  historical  information,  the  disclosure  contains
forward-looking statements within the meaning of the "safe harbor" provisions of
the Private Securities  Litigation Reform Act of 1995. Such statements are based
on  management's  current  expectations  and are subject to a number of factors,
risks and  uncertainties  which could cause actual results to differ  materially
from those described in the forward-looking statements.

State of Readiness
The  Company  currently  has  facilities  in six  locations,  each of  which  is
responsible for its own development information technology systems, herein known
as "Non-IT systems",  while corporate  information  technology  systems,  herein
known as "IT  systems",  are  managed by the  Company's  Management  Information
Systems  department  ("MIS").  For the  purposes  of Year 2000  compliance,  the
corporate  MIS  department  is managing the task of  verifying  that all Company
systems are date  compliant,  including  reviewing and analyzing all development


                                       23
<PAGE>

platforms,  not directly under MIS control.  This umbrella process was initiated
in order to ensure the Company would be able to continue developing its products
without  disruption  after January 1, 2000. To ensure that Non-IT and IT systems
are, or will be,  compliant;  the Company  has  undertaken  a full survey of all
systems within the Company at all locations. This survey covers all user desktop
and laptop systems; all IT systems, servers, and operating systems; all critical
applications,   including  financial,   accounting,  corporate  database,  human
resources and administrative systems; and all Non-IT systems, servers, operating
systems and third party coding products.  The majority of the Company's  efforts
regarding  Year 2000  readiness are  associated  with  internal data  processing
systems.  In all material  respects,  products  manufactured  by the Company are
already  Year 2000  compliant,  although  the  individual  platforms  upon which
product(s) are developed are still under review and analysis.  Due to the recent
upgrade of many of the  Company's IT systems,  the majority of these systems are
either currently  prepared for Year 2000 in all material  respects or are in the
process of being upgraded to standardized  systems and  applications  which will
meet this objective. Most IT systems and applications which are deemed Year 2000
compliant  by the  software  vendors are tested by the  Company to verify  these
claims.  At this time,  critical  financial,  accounting and corporate  database
systems have been tested, and Non-IT systems are in the process of being tested.
These testing  proportions  are related to both the magnitude and perceived risk
of system non-compliance and future testing will be scheduled in accordance with
these criteria.  For the remaining IT systems and the Non-IT systems, plans with
critical dates are being developed to monitor the Company's  progress toward the
overall objective of Year 2000 compliance.  The Company's  anticipates readiness
for Year 2000 by early in the fourth quarter of fiscal year 2000.

Costs to Address Year 2000 Issues
Historical  and  estimated  costs of  remediation  to this  point  have not been
material.  The Company has resolved IT systems  compliance issues through normal
replacement  and upgrades of software.  Non-IT systems are being  addressed on a
case by case basis through the use of existing MIS resources. Most of the Non-IT
systems remedial  activity to this point has involved  applying low or zero cost
patches to operating  systems and  platforms  using  existing  MIS  resources to
achieve a date compliance  level. The Company will continue to monitor Year 2000
remediation costs and will update its estimate of future  remediation  costs, if
any, as it completes its Non-IT systems analysis.

Key Considerations and Contingency Plans
At the current time, the Company's Year 2000  readiness  plan  anticipates  that
both IT and Non-IT systems and  applications  will be Year 2000 compliant in all
material  respects  by early in the  fourth  quarter of fiscal  year 2000.  This
assessment is based on the Company's  analysis to date and detailed  findings at
its  Vienna,  Virginia  and  Columbia,  Maryland  locations.  There  can  be  no
assurance, however, of complete compliance based on the status to date. However,
since the Company is not  dependent  upon any single IT or Non-IT system for the
majority  of its  revenue,  it is unlikely  that any single  system will have an
adverse  effect on the Company as a whole.  Contingency  plans will  involve the
procurement  of newer  platforms  for Non-IT  systems and the  temporary  use of
standardized  commercial  off-the-shelf  replacement modules for IT applications
and  business  functions.  While at present  there are no  indications  that any
contingency  plans will be necessary or that there will be revenue  disruptions,
there can be no assurances that this will necessarily be the case.


                                       24
<PAGE>

EURO Conversion

On January 1, 1999, the exchange rates of eleven countries (Germany, France, the
Netherlands,  Austria,  Italy, Spain, Finland,  Ireland,  Belgium Portugal,  and
Luxembourg)  were fixed  amongst one another  and became the  currencies  of the
EURO.  The currencies of the eleven  countries will remain in circulation  until
mid-2002.  The EURO currency will be introduced on January 1, 2002.  The Company
does not expect future  balance sheets and statements of earnings and cash flows
to be materially impacted by the EURO Conversion.


New Accounting Pronouncements

The Company adopted  Statement of Financial  Accounting  Standards  ("SFAS") No.
130, "Reporting  Comprehensive Income," during the first quarter of fiscal 1999.
SFAS 130 requires  additional  disclosures  with  respect to certain  changes in
assets and  liabilities  that  previously  were not  required  to be reported as
results of operations for the period.

In 1998, the Company  adopted  Statement of Financial  Accounting  Standards No.
131,  "Disclosures about Segments of an Enterprise and Related Information." FAS
131  supercedes  FAS  14,  "Financial  Reporting  for  Segments  of  a  Business
Enterprise",  replacing the "industry  segment"  approach with the  "management"
approach.  The management approach designates the internal  organization that is
used by management for making operating  decisions and assessing  performance as
the  source  of  the  Company's  reportable  segments.  FAS  131  also  requires
disclosures  about products and services,  geographic areas and major customers.
The  adoption  of FAS 131 did not affect  results  of  operations  or  financial
position  but did affect the  disclosures  of segment  information.  The Company
accounts for all operations as one segment.

In June 1998, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative  Instruments and Hedging Activities," which will
be effective  for the Company's  fiscal year 2001.  This  statement  establishes
accounting and reporting standards  requiring that every derivative  instrument,
including  certain  derivative  instruments  embedded  in  other  contracts,  be
recorded in the balance  sheet as either an asset or  liability  measured at its
fair value.  The statement also requires that changes in the  derivative's  fair
value be recognized in earnings  unless specific hedge  accounting  criteria are
met. The Company  believes the adoption of SFAS No. 133 will not have a material
effect on the financial statements.

The American  Institute of Certified Public  Accountants has issued Statement of
Position 98-9,  "Modification of SOP-97-2,  Software Revenue  Recognition,  With
Respect to Certain Transactions." SOP 98-9 is effective for revenue transactions
entered into in the  Company's  fiscal year 2001.  The Company has evaluated SOP
98-9 and does not  believe  its  adoption  will  have a  material  effect on the
financial statements.



                                       25
<PAGE>

Item 7A.  Market Risk

The Company's market risk is principally confined to changes in foreign currency
exchange  rates and  potentially  adverse  effects of differing tax  structures.
International revenues from ETIL, the Company's foreign sales subsidiary located
in the United Kingdom,  were  approximately  26% of total revenue in fiscal year
1999.  International sales are made mostly from the Company's foreign subsidiary
and  are  typically   denominated  in  British   pounds,   the  local  currency.
Additionally,  the subsidiary incurs most of its expenses in the local currency.
Accordingly, the local currency is ETIL's functional currency.

The Company's exposure to foreign exchange rate fluctuations arises in part from
intercompany  accounts in which costs  incurred in the United States are charged
to ETIL. The Company is also exposed to foreign  exchange rate  fluctuations  as
the financial results of ETIL are translated into U.S. dollars in consolidation.
As exchange rates vary, those results when translated may vary from expectations
and adversely impact overall expected profitability.


Item 8. Financial Statements and Supplementary Data.

Financial  statements and  supplementary  data of the Company are submitted as a
separate section of this Annual Report on Form 10-K.


Item 9. Changes in and Disagreements with Accountants on Accounting and 
        Financial Disclosure.

None.






                                       26
<PAGE>


                             PART III

Item 10.   Directors and Executive Officers of the Registrant.

Information Concerning Directors and Executive Officers


Name                        Age       Position
----                        ---       --------

Donald R. Keough            72        Chairman of the Board of Directors

Patrick C. Condo            42        President and Chief Executive Officer,
                                      Director
                                    
Richard M. Crooks, Jr.      59        Director

John S. Hendricks           47        Director

W. Frank King III           59        Director

John G. McMillian           72        Director

Philip J. O'Reilly          61        Director


Donald R. Keough has been  Chairman of the Board of Directors  and a Director of
the  Company  since  June 1996.  Mr.  Keough has been an advisor to the Board of
Directors of the  Coca-Cola  Company  since April 15, 1993,  and Chairman of the
Board of Allen & Company  Incorporated,  a New York investment banking firm that
is the Company's largest  shareholder,  since April 15, 1993. Mr. Keough retired
as President, Chief Operating Officer and a Director of the Coca-Cola Company on
April 15, 1993,  where he had been  employed  since 1950.  From 1986 to 1993, he
also served as Chairman of the Board of Coca-Cola Enterprises, Inc., the world's
largest bottling system.  Mr. Keough serves on the Board of Directors of Allen &
Company   Incorporated,   H.J.  Heinz  Company,  The  Washington  Post  Company,
McDonald's Corporation and USA Networks, Inc.

Patrick C. Condo was named  President  and Chief  Executive  Officer in November
1995,  and a Director in January 1996.  Mr. Condo was President from May 1995 to
November 1995. He became  Executive Vice President in January 1995 after serving
as the Director of Business Development from November 1992. From October 1987 to
November  1992,  Mr.  Condo held several  manager  level  positions  for Digital
Equipment  Corporation's  Image,  Video and  Voice  Business  Unit and  Software
Business Group in New Hampshire.

Richard M.  Crooks,  Jr. has been a Director of the Company  since June 1990 and
was  Chairman  of the Board  from June 1990 to June  1996.  Mr.  Crooks has been
President of RMC  Consultants,  a financial  advisory  services firm, since June
1990.   Mr.  Crooks  is  a  director  of  and  consultant  to  Allen  &  Company
Incorporated.  Mr.  Crooks  served  as a  Managing  Director  of Allen & Company
Incorporated  for more than  five  years  prior to June  1990.  Mr.  Crooks is a
director  of  Cypress  Bioscience  Inc.,  a  biotechnology  company  engaged  in
developing,   manufacturing   and  marketing   products  for  the  treatment  of
immune-related diseases and cancers.

                                       27
<PAGE>
John S. Hendricks was appointed as a Director of the Company in May 1997. He has
been Chairman and Chief Executive Officer of Discovery  Communications,  Inc., a
privately held,  diversified media company, since he founded the company in 1982
in order to develop a new cable television  service.  The effort resulted in the
launch of the  Discovery  Channel in 1985,  which has become one of the  world's
largest cable  television  networks.  Mr. Hendricks is a member of the boards of
various cable  television  industry groups,  educational  institutions and other
organizations  promoting natural history and science.  Mr. Hendricks is Chairman
of the Board of Governors of the National Academy of Cable Programming.

W. Frank  King III was  elected a Director  of the  Company in June 1992.  He is
presently a private  investor.  Dr. King served as  President,  Chief  Executive
Officer,  and a  Director  of PSW  Technologies,  Inc.,  a leading  provider  of
technology for open systems  computing,  from 1992 to August 1998.  From 1988 to
November  1991,  Dr. King was a Senior Vice  President of  Development  of Lotus
Development Corporation. Prior to joining Lotus, Dr. King held various positions
with IBM over 19 years,  the most recent as Vice President of Development in its
Entry  Systems  Division.  Dr. King is a director of SystemSoft  Corporation,  a
software engineering company; Auspex, Inc., a computer server manufacturer; Best
Software  Inc.,  a provider  of human  resource,  asset and  payroll  management
software  solutions;  and Natural  Microsystems,  Inc., a developer of telephony
products.

John G. McMillian was elected a Director in June 1996. Mr. McMillian owns a half
interest in Peter Hughes Diving Company, a charter company, and Contender Boats,
Inc.,  a boat  manufacturer.  He was  Chairman  and Chief  Executive  Officer of
Allegheny  &  Western   Energy   Corporation,   a  natural  gas  production  and
distribution company, from July 1987 until July 1995, when the company was sold.
Mr. McMillian serves on the Advisory Committee of Sun Trust Miami, N.A.

Philip J.  O'Reilly  has been a Director  of the Company  since April 1988.  Mr.
O'Reilly is a partner in the law firm of O'Reilly,  Marsh,  Kearney & Corteselli
P.C., in Mineola,  New York. Mr. O'Reilly has been in private  practice for more
than the past five years. Mr. O'Reilly is a director of Cypress Bioscience Inc.,
a  biotechnology  company  engaged in  developing,  manufacturing  and marketing
products for the treatment of immune-related diseases and cancers.

Information Concerning the Board of Directors and Its Committees

The Board of Directors  held six meetings  during the fiscal year ended  January
31, 1999. Each incumbent director attended more than 75% of the aggregate number
of meetings of the Board of Directors  and  appropriate  Committees  held during
fiscal year 1999 since their election.

The  Board of  Directors  has  established  a number  of  Committees.  The Audit
Committee,  consisting of Mr. McMillian  (Chairman),  Dr. King and Mr. O'Reilly,
met seven times  during  fiscal year 1999.  The Audit  Committee  meets with the
Company's management, including its Chief Financial Officer, and its independent
accountants  several times a year to discuss  internal  controls and  accounting
matters,  the Company's financial  statements,  and the scope and results of the
auditing programs of the independent  accountants.  The Compensation  Committee,
currently composed of three directors, Messrs. Crooks (Chairman),  Hendricks and
O'Reilly,  administers management compensation and makes recommendations in that
regard to the Board.  The  Compensation  Committee met on two  occasions  during
fiscal 1999. The Stock Option Plan  Administration  Committee,  which  currently
consists of Messrs.  Crooks  (Chairman) and O'Reilly,  administers the Company's
Stock Option Plans. The Stock Option  Administration  Committee met twice during
fiscal 1999.
                                       28
<PAGE>

Each  non-employee  director is paid $5,000 for each meeting of the Board or its
Committees  attended,  whether  in person or by  telephone,  up to a maximum  of
$20,000 per fiscal year.  Messrs.  Keough and Crooks are not paid the  foregoing
fees. All directors are  reimbursed for their expenses in attending  meetings of
the Board or its Committees.  Each  non-employee  director  receives  options to
purchase  25,000 shares of common stock of Excalibur  upon joining the Board and
additional  options to purchase 25,000 shares of common stock of Excalibur after
each  subsequent  five-year  period of  service  as a member of the  Board.  The
Chairman may be granted  additional  options to purchase 25,000 shares of common
stock of  Excalibur  upon  being  elected  Chairman  and after  each  subsequent
five-year period of service. Mr. Keough has not been granted any stock options.


Executive Officers and Key Employees of the Registrant

Each year, the Board of Directors appoints the executive officers of the Company
to serve  until  the  next  Annual  Meeting  of  Shareholders  and  until  their
successors  have been duly  appointed and qualified.  The following  information
indicates the  position,  age and business  experience of the current  executive
officers,  Messrs.  Condo,  Buchanan and Nelson, as well as key employees of the
Company. There are no family relationships between any of the executive officers
of the Company.


Name                     Age       Position
----                     ---       --------

Patrick C. Condo         42        President  and Chief  Executive Officer

James H. Buchanan        43        Vice President, Chief Financial Officer,
                                   Treasurer and Secretary

Paul E. Nelson           36        Senior Vice President, Product Development

Daniel C. Agan           46        Vice President, Worldwide Marketing

Steven S. Biegler        50        Vice President, Customer Services

Kamran Khan              35        Vice President, Worldwide Sales

David Nunnerley          42        Vice President, Visual Product Development



See the discussion included in the preceding section for the business experience
of Mr. Condo.

James H.  Buchanan  joined the Company as Chief  Financial  Officer in September
1995.  Mr.  Buchanan  was  elected  Secretary  and  Treasurer  of the Company on
November  17,  1995.  From  March 1991 to August  1995,  Mr.  Buchanan  was Vice
President,   Controller  and  Treasurer  of  Legent   Corporation,   a  software
development  company.  Prior  to  that,  he held  several  financial  management
positions  with Norfolk  Southern  Corporation  and PepsiCo.  Mr.  Buchanan is a
certified public accountant.



                                       29
<PAGE>
Paul  E.  Nelson  was  named  the  Company's  Senior  Vice  President,   Product
Development in January 1998. Mr. Nelson served as a Director of the Company from
January 1, 1997 to July 21, 1997. He joined the Company as Vice President,  Text
Products in July 1995 in connection  with the Company's  acquisition of ConQuest
Software,  Inc. ("ConQuest"),  a company that Mr. Nelson co-founded in 1990. Mr.
Nelson was  Senior  Vice  President  of Product  Development  and a Director  of
ConQuest.

Daniel C. Agan  joined the Company as Vice  President,  Worldwide  Marketing  in
September  1996.  From 1991  through  1996,  Mr.  Agan was  President  and Chief
Executive Officer of Agan Associates,  Limited, a marketing consulting firm with
experience  providing  executive-level  service to a diverse range of clients in
the technology,  on-line and  broadcasting  industries.  Prior to this, Mr. Agan
spent fifteen years with the Public  Broadcasting  Service (PBS) where he served
in a variety of  capacities,  most notably as Senior Vice President for National
Programming and Promotion.

Steven S. Biegler was named Vice President,  Customer Services in February 1998.
Since joining the Company in May 1996 as Director of Professional  Services, Mr.
Biegler has  overseen  technical  support,  implementation  services,  education
services and software manufacturing,  shipping and receiving. From 1995 to 1996,
Mr. Biegler was Vice President of Operations for Seiko Computer  Systems.  Prior
to that, he was Vice President of Product Support and  Installations  for Summit
Information Systems since 1993.

Kamran Khan was named Vice President,  Worldwide Sales in May 1997.  Previously,
Mr. Khan held several sales  management  positions  since joining the Company in
September   1993.   Mr.  Khan  served  as  general   manager  of  the  Company's
international   sales   operation   and   wholly-owned    subsidiary   Excalibur
Technologies,  Ltd.,  located in the United Kingdom,  from August 1995 until his
appointment  to Vice  President.  Prior to joining  the  Company,  Mr. Khan held
various positions,  including  regional business manager,  with PAFEC Limited, a
leading  firm  in  the  United  Kingdom   involved  with  the   development  and
implementation of computer-aided engineering and engineering document management
software systems.

David Nunnerley was named Vice President, Visual Product Development in February
1998  and has been  instrumental  in the  development  of the  Company's  visual
products since joining the Company in 1996. From 1994 to 1996, Mr. Nunnerley was
Vice  President of  Engineering  for  Videopress  Software,  a software  company
providing  video delivery  products and solutions to cable  companies  deploying
cable   modems.   Prior  to   that,   Mr.   Nunnerley   held   various   product
management/marketing  roles and  management  positions  with  Digital  Equipment
Corporation.

Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities  Exchange Act of 1934 and regulations of the SEC
thereunder require the Company's  executive officers and directors,  and persons
who own more that ten  percent of a  registered  class of the  Company's  equity
securities,  to file reports of initial  ownership and changes in ownership with
the SEC.  Based  solely on its  review of copies of such forms  received  by the
Company,  or on written  representations  from certain reporting persons that no
other reports were required for such persons,  the Company  believes that during
or with  respect to the period from  February 1, 1998 to January 31, 1999 all of
the Section 16(a) filing  requirements  applicable  to its  executive  officers,
directors and ten percent shareholders were complied with on a timely basis.

                                       30
<PAGE>

Item 11.   Executive Compensation.

Summary Compensation Table

The following  table presents  information  concerning the  compensation  of the
Chief Executive Officer and each of the other most highly compensated  executive
officers  during  the 1999  fiscal  year  (collectively,  the  "Named  Executive
Officers") for services rendered in all capacities to the Company for the fiscal
year ended January 31, 1999, as well as the previous two fiscal years:
<TABLE>
<CAPTION>
                                                                     Long Term Compensation
                                                             ----------------------------------------  
                                   Annual Compensation              Awards               Payouts 
                               ----------------------------  ----------------------  ----------------
                                                    Other                Securities            All
                                                    Annual   Restricted  Under-                Other     
                                                    Compen-  Stock       lying        LTIP     Compen-
Name and Principal      Fiscal                      sation   Award(s)    Options/     Payouts  sation
Position                Year   Salary($)  Bonus($)    ($)      ($)         SAR's(#)    ($)       ($)      
--------------------    ----   ---------  --------  -------  ----------  ----------   -------  -------
<S>                     <C>    <C>        <C>         <C>      <C>       <C>            <C>      <C>
Patrick C. Condo        1999   225,000    71,281      --       --          --           --       --
Chief Executive         1998   200,000    86,000      --       --        400,000 <F1>   --       --
Officer and President   1997   200,000    46,200      --       --          --           --       --

James H. Buchanan       1999   180,000    57,024      --       --         10,000        --       --
Vice President, Chief   1998   165,514    70,950      --       --        150,000 <F2>   --       --
Financial Officer,      1997   155,688    34,650      --       --          --           --       1,395 <F3>
Secretary and Treasurer

Paul E. Nelson          1999   165,000    81,800      --       --          --           --       --
Senior Vice President,  1998   157,500    69,586      --       --         84,750 <F4>   --       --
Product Development     1997   150,000    34,650      --       --          --           --       --


<FN>
<F1> This amount includes  options to purchase  300,000 shares that were granted
     in prior years and subsequently repriced on May 8, 1997.

<F2> This amount includes  options to purchase  100,000 shares that were granted
     in prior years and subsequently repriced on May 8, 1997.

<F3> Other  compensation  includes  the  reported  value of a quota  club  trip
     attended by the officer's spouse.

<F4> Represents  options to purchase  84,750  shares that were granted in prior
     years and subsequently repriced on May 8, 1997.
</FN>
</TABLE>


                                       31
<PAGE>

Option Grants in Last Fiscal Year

The following table sets forth certain  information  concerning  options granted
during fiscal 1999 to the Named Executive Officers.


                                               
                                                            Potential Realizable
                Individual Grants                             Value at Assumed
                -----------------                              Annual Rates of
                          % of Total                             Stock Price
                          Options                              Appreciation for
                          Granted to       Exercise              Option Term(2)
             Options      Employees in     or Base   Expiration  -------------
  Name       Granted (#)  Fiscal Year (1)  Price        Date     5%($)  10%($)
-----------  -----------  ---------------  --------  ----------  -----  ------
Patrick C.
  Condo           --             --            --         --       --      --


James H.
  Buchanan     10,000           4.0%         $6.25     9/01/08   39,306  99,609


Paul E.
  Nelson          --             --            --         --       --      --

-------------------------------------------

(1) These  options vest in equal  12-1/2%  increments  every six months from the
    dates of original grant.

(2) The amounts shown are hypothetical gains that would exist for the respective
    options if exercised  at the end of the option term.  The assumed 5% and 10%
    rates of stock price  appreciation  are mandated by rules of the  Securities
    and Exchange  Commission  and do not  represent  the  Company's  estimate or
    projection of future increases in the price of its Common Stock.





                                       32
<PAGE>

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values


The following  table sets forth,  as of January 31, 1999,  the number of options
and the value of exercised and  unexercised  options held by the Named Executive
Officers.

------------------------------------------------------------------

                                          
                                          Number of
                                          Securities 
                                          Underlying       Value of
                                          Unexercised      Unexercised   
                     Shares               Options/SARS     In-the Money
                    Acquired              at Fiscal        Options/SARS at
                       on      Value      Year-End (#)     Fiscal Year-End ($) 
                    Exercise  Realized    Exercisable/     Exercisable/     
      Name            (#)        ($)      Unexercisable    Unexercisable (1)
----------------   --------   --------   ---------------   -------------------

Patrick C. Condo       --         --     287,500/112,500   $1,742,988/$494,212


James H. Buchanan      --         --      87,500/ 72,500     $516,387/$334,693


Paul E. Nelson         --         --      74,156/ 10,594     $468,147/ $66,880



(1) The closing price of the Company's common stock on January 29, 1999, the
    last trading day of the Company's fiscal year, was $11.063 per share.


Employment Agreements

Under an agreement between the Company and Patrick C. Condo, President and Chief
Executive  Officer  entered  into in May 1998,  Mr. Condo will be paid an amount
equal to twelve months of base salary plus bonus  compensation  and continuation
of his employee  benefits for one year in the event Mr.  Condo's  employment  is
terminated or he is removed from his position as Chief Executive  Officer within
six months following certain "change of control" events relating to the Company.
Such  arrangement was approved by the full Board of Directors.  For fiscal 1999,
Mr. Condo's annual salary and bonus amounted to $296,281.

The offer of employment  letter dated  September 7, 1995 for James H.  Buchanan,
Chief Financial Officer, Secretary and Treasurer of the Company, stipulates that
Mr.  Buchanan  will be paid an amount  equal to twelve  months of base salary in
semi-monthly  installments  should his  employment  be terminated by the Company
without cause.


                                       33
<PAGE>

Compensation Committee Interlocks and Insider Participation

The  members of the  Compensation  Committee  during  fiscal  1999 were  Messrs.
Crooks,  Hendricks and  O'Reilly,  none of whom is an officer or employee of the
Company  or its  subsidiaries.  No  member  of  the  Compensation  Committee  or
executive  officer of the Company has a  relationship  that would  constitute an
interlocking  relationship  with  executive  officers  or  directors  of another
entity.


Item 12. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth, as of March 29, 1999, information concerning the
ownership of Common Stock of the Company of (i) all persons known to the Company
to beneficially own 5% or more of the Company's Common Stock, (ii) each director
of the Company,  (iii) each Named  Executive  Officer and (iv) all directors and
executive officers of the Company as a group.

                                                        
                                  Amount and Nature      Percent   
Name and Address                  of Beneficial          of Class
of Beneficial Owner               Ownership (1)           Owned
-------------------               -------------           -----

Allen & Company Incorporated      3,725,846 (2)(3)        26.6%
711 Fifth Avenue
New York, NY 10022

Alliance Capital Management L.P.    818,100 (4)            5.9%

Donald R. Keough                    130,000 (5)              *

Patrick C. Condo                    313,997 (6)            2.2%

Richard M. Crooks, Jr.              399,750 (7)            2.9%

John S. Hendricks                    25,000 (8)              *

W. Frank King III                    38,000 (9)              *

John G. McMillian                    40,000 (10)             *

Philip J. O'Reilly                   55,000 (11)             *

James H. Buchanan                   110,062 (12)             *

Paul E. Nelson                      363,185 (13)           2.6%

All directors and executive    
officers as a group (9 persons)   1,474,994 (14)          10.2%


*   Represents less than one percent of the outstanding common stock.

                                       34

<PAGE>
(1) To  the  Company's  knowledge,  each  person  listed  has  sole  voting  and
    investment power as to the shares indicated, except as described below.

(2) Does not include  shares  owned by  persons,  including  Messrs.  Keough and
    Crooks and entities which, together with Allen & Company  Incorporated,  may
    be  considered  a "group,"  as such term is defined by Section  13(d) of the
    Securities  Exchange Act of 1934, because (as reported on Schedule 13D filed
    with the SEC on July 21,  1997) many of these  persons or entities are Allen
    stockholders, officers, directors, relatives or affiliates of the foregoing.
    No person or entity included in this possible "group," with the exception of
    Allen &  Company  Incorporated,  owns 5% or more of the  outstanding  common
    stock.

(3) Includes  271,800 shares of common stock issuable upon  conversion of 27,180
    shares of the Company's cumulative convertible preferred stock.

(4) Based on  information  contained in a Schedule 13G filed with the Securities
    and  Exchange  Commission  on February 16, 1999 by The  Equitable  Companies
    Incorporated  and other  entities as parent  holding  companies  of Alliance
    Capital Management L.P.

(5) Does not include shares owned by Allen & Company Incorporated,  of which Mr.
    Keough is Chairman of the Board, and as to which shares Mr. Keough disclaims
    beneficial ownership.

(6) Includes  (a) 10,000  shares of common stock owned  beneficially  but not of
    record upon exercise of stock options at a price of $4.75 per share expiring
    November 13, 2002; (b) 15,000 shares of common stock owned  beneficially but
    not of record upon  exercise of stock options at a price of $4.75 per share,
    expiring   January  4,  2004;  (c)  75,000  shares  of  common  stock  owned
    beneficially  but not of record upon exercise of stock options at a price of
    $4.75 per share,  expiring  December  6, 2004;  (d) 87,500  shares of common
    stock owned beneficially but not of record,  issuable upon exercise of stock
    options at a price of $4.75 per  share,  expiring  June 2, 2005;  (e) 87,500
    shares of common stock owned  beneficially but not of record,  issuable upon
    exercise of stock options at a price of $4.75 per share expiring November 1,
    2005;  and (f) 37,500 shares of common stock owned  beneficially  but not of
    record,  issuable  upon  exercise  of stock  options at a price of $7.63 per
    share expiring August 13, 2007.

(7) Includes  (a) 50,000  shares of common stock owned  beneficially  but not of
    record, issuable upon exercise of stock options of the Company at a price of
    $16.10 per share  expiring  June 28, 2000,  and (b) 50,000  shares of common
    stock  issuable  upon exercise of stock options of the Company at a price of
    $20.56 per share expiring  November 27, 2005.  Does not include shares owned
    by Allen & Company Incorporated, of which Mr. Crooks is a director and as to
    which shares Mr. Crooks disclaims beneficial ownership.

(8) Includes 25,000 shares of common stock owned beneficially but not of record,
    issuable upon exercise of stock options the Company at a price of $4.875 per
    share expiring June 2, 2007.

(9) Includes  (a) 13,000  shares of common stock owned  beneficially  but not of
    record, issuable upon exercise of stock options of the Company at a price of
    $12.50 per share,  expiring  July 2, 2002;  and (b) 25,000  shares of common
    stock owned beneficially but not of record,  issuable upon exercise of stock
    options of the Company at a price of $4.75 per share, expiring May 8, 2007.

                                       35
<PAGE>

(10)Includes  (a) 25,000  shares of common stock owned  beneficially  but not of
    record, issuable upon exercise of stock options of the Company at a price of
    $22.50 per share,  expiring  June 28, 2006,  and (b) 10,000 shares of common
    stock owned beneficially but not of record,  issuable upon exercise of stock
    options of the Company at a price of $14.00 per share,  expiring October 28,
    2006.

(11)Includes  (a) 25,000  shares of common stock owned  beneficially  but not of
    record, issuable upon exercise of stock options of the Company at a price of
    $13.00 per share  expiring  March 12, 2003;  and (b) 25,000 shares of common
    stock owned beneficially but not of record,  issuable upon exercise of stock
    options of the  Company at a price of $6.75 per share  expiring  December 1,
    2008.

(12)Includes  (a) 26,250  shares of common stock owned  beneficially  but not of
    record, issuable upon exercise of stock options of the Company at a price of
    $4.75 per share  expiring  September  13,  2005;  (b)  61,250  shares  owned
    beneficially  but not of record,  issuable upon exercise of stock options of
    the Company at a price of $4.75 per share  expiring  November  1, 2005;  (c)
    18,750 shares of common stock owned beneficially but not of record, issuable
    upon  exercise of stock options of the Company at a price of $4.75 per share
    expiring  August  13,  2007;  and (d) 2,500  shares of  common  stock  owned
    beneficially  but not of record,  issuable upon exercise of stock options of
    the Company at a price of $6.25 per share expiring September 1, 2008.

(13)Includes  74,156  shares  of  common  stock  owned  beneficially  but not of
    record, issuable upon exercise of stock options of the Company at a price of
    $4.75 per share expiring July 20, 2005.

(14)Includes  743,406  shares  of common  stock  owned  beneficially  but not of
    record,  issuable  upon the exercise of options to purchase  common stock of
    the Company.



Item 13.   Certain Relationships and Related Transactions.

Donald R. Keough, the Chairman of the Board of Directors of the Company,  is the
Chairman  of the Board of Allen & Company  Incorporated  ("Allen").  Richard  M.
Crooks,  Jr., a director  of the  Company,  is a director of and  consultant  to
Allen.

The  Company's  policy is that it will not make  loans to, or enter  into  other
transactions  with  directors,  officers  or  affiliates  unless  such  loans or
transactions   are  approved  by  a  majority  of  the   Company's   independent
disinterested  directors, may reasonably be expected to benefit the Company, and
will be on terms no less  favorable to the Company  than could be obtained  from
unaffiliated third parties.

See also "Compensation Committee Interlocks and Insider Participation" above.


                                       36
<PAGE>

                              PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)   Documents filed as part of Form 10-K

      1.Financial Statements:

        The  following  financial  statements  of the Company are submitted in a
        separate section pursuant to the requirements of Form 10-K, Part I, Item
        8 and Part IV, Items 14(a) and 14(d):

        Index to Consolidated Financial Statements
        Reports of Independent Public Accountants
        Consolidated Balance Sheets
        Consolidated Statements of Operations and 
          Other Comprehensive Income (Loss)                          
        Consolidated Statements of Shareholders' Equity
        Consolidated Statements of Cash Flows
        Notes to Consolidated Financial Statements

      2.Schedules Supporting Financial Statements:

        The  following  schedule is filed as part of this Annual  Report on Form
        10-K and should be read in conjunction  with the Company's  consolidated
        financial statements:

        Report of  Independent  Public  Accountants on Schedule II for the years
        ended January 31, 1998 and 1997

        Schedule II, Valuation and Qualifying Accounts

        All other  schedules  are omitted  because  they are not  required,  are
        inapplicable,  or the information is otherwise shown in the consolidated
        financial statements or notes to the consolidated financial statements.

      3.Exhibits:

Exhibit Number and Description


         2.01   Agreement and Plan of Merger Between Excalibur,  Excalibur
                Acquisition   Corporation  and  ConQuest  Software,
                Inc., dated July 5, 1995. (2)

         2.02   Agreement  of  Merger   Between   Excalibur,   EXCA
                Acquisition   Corporation  and  Interpix   Software
                Corporation dated May 2, 1997. (7)

         3.01   Certificate   of    Incorporation    of   Excalibur
                Technologies Corporation. (1)

         3.02   Amendment of the Certificate of Incorporation dated 
                June 28, 1996. (6)

         3.03   Bylaws of Excalibur Technologies Corporation. (1)

                                       37
<PAGE>

        10.01   Incentive Stock Option Plan, dated April 1989. (1)

        10.02   Agreement  and Plan of  Merger  Between  Excalibur,
                Excalibur  Acquisition   Corporation  and  ConQuest
                Software, Inc., dated July 5, 1995. (2)

        10.03   1995 Incentive Plan, dated November 1995. (3)

        10.04   ConQuest Incentive Stock Option Plan, dated August 19, 1993. (4)

        10.05   Office Lease (10440 Little Patuxent Parkway,  Suite 800,
                Columbia,  Maryland),  commencing  January 1, 1996. (4)

        10.06   Office  Lease  (1959  Palomar  Oaks Way,  Carlsbad,
                California), commencing November 15, 1995. (4)

        10.07   Excalibur Technologies Corporation Employee Stock
                Purchase Plan, effective August 1, 1996. (5)

        10.08   Office  Lease (4675 Stevens Creek Boulevard, Santa Clara,
                California 95051), commencing July 1, 1997. (7)

        10.09   Office Lease (1921 Gallows Road, Vienna, Virginia 22182),
                commencing May 1, 1999.

        10.10   Employment agreement with James H. Buchanan, 
                dated September 7, 1995.

        21.01   Subsidiaries of Excalibur Technologies Corporation.

        23.01   Consent of PricewaterhouseCoopers LLP, Independent Public 
                Accountants.

        27.01   Financial Data Schedule

----------------------

(1)   Incorporated  herein by reference to Form 10-K for the year ended  January
      31, 1991, filed April 22, 1991.

(2)   Incorporated herein by reference to Form 8-K, filed August 4, 1995.

(3)   Incorporated  herein  by  reference  to the Proxy  Statement  for the 1995
      Annual Meeting of Shareholders, dated October 16, 1995.

(4)   Incorporated  herein by reference to Form 10-K for the year ended  January
      31, 1996, filed April 30, 1996.

(5)   Incorporated  herein  by  reference  to the Proxy  Statement  for the 1996
      Annual Meeting of Shareholders, dated May 28, 1996.

(6)   Incorporated  herein by reference to Form 10-K for the year ended  January
      31, 1997, filed April 28, 1997.

(7)   Incorporated  herein by reference to Form 10-K for the year ended  January
      31, 1998, filed April 23, 1998.

                                       38
<PAGE>


(b)  Reports on Form 8-K.

Two Forms 8-K were  filed  during  the last  quarter  of fiscal  year  1999.  On
November  4,  1998,  the  Company  filed a Form  8-K for Item 4,  reporting  the
disengagement  of its  independent  accounting  firm.  On November 9, 1998,  the
Company  filed  a Form  8-K for  Item 4,  reporting  the  engagement  of its new
independent accounting firm.




Index to Consolidated Financial Statements                            Page
------------------------------------------                            ----

Reports of Independent Public Accountants                             F-1, F-2, 
                                                                      F-21
                                                         
Consolidated Balance Sheets
      As of January 31, 1999 and 1998                                 F-3

Consolidated Statements of Operations and Other 
      Comprehensive Income (Loss)
      For the fiscal years ended January 31, 1999, 1998 and 1997      F-4

Consolidated Statements of Shareholders' Equity 
      For the fiscal years ended January 31, 1999, 1998 and 1997      F-5

Consolidated Statements of Cash Flows
      For the fiscal years ended January 31, 1999, 1998 and 1997      F-6

Notes to Consolidated Financial Statements                            F-7

Schedule II - Valuation and Qualifying Accounts 
      For the fiscal years ended January 31, 1999, 1998 and 1997      F-22







                                       39
<PAGE>





                               F-3

                Report of Independent Accountants


To the Stockholders and Board of Directors of
Excalibur Technologies Corporation:


In our  opinion,  the  consolidated  financial  statements  listed  in the index
appearing under Item 14(a)(1)  present  fairly,  in all material  respects,  the
financial position of Excalibur Technologies Corporation and its subsidiaries at
January 31, 1999,  and the results of their  operations and their cash flows for
the  year  then  ended,  in  conformity  with  generally   accepted   accounting
principles.  In addition,  in our opinion,  the financial statement schedule for
the year  ended  January  31,  1999,  listed in the index  appearing  under Item
14(a)(2)  presents fairly, in all material  respects,  the information set forth
therein  when  read in  conjunction  with  the  related  consolidated  financial
statements.  These financial statements and financial statement schedule are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these financial  statements and financial statement schedule based on
our  audit.  We  conducted  our audit of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audit  provides a reasonable  basis for the opinion  expressed
above.





/s/PricewaterhouseCoopers LLP

McLean, Virginia
February 26, 1999, except for Note 1, Paragraph 4, as to which the date is 
March 30, 1999.








                                      F-1
<PAGE>






            REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Excalibur Technologies Corporation:

We have  audited  the  accompanying  consolidated  balance  sheet  of  Excalibur
Technologies Corporation (a Delaware corporation) and subsidiaries as of January
31, 1998, and the related consolidated  statements of operations,  shareholders'
equity and cash flows for each of the two years in the period ended  January 31,
1998.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  financial  position  of  Excalibur  Technologies
Corporation  and  subsidiaries  as of January 31, 1998, and the results of their
operations  and their cash  flows for each of the two years in the period  ended
January 31, 1998 in conformity with generally accepted accounting principles.


                                          /s/ARTHUR ANDERSEN LLP


Washington, D.C.,
February 27, 1998



                                      F-2
<PAGE>


                       EXCALIBUR TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except per share data)

                                   
                                                           January 31,  
                                                      --------------------    
                 ASSETS                                 1999        1998
                                                      --------    --------    
Current Assets:
   Cash and cash equivalents .......................  $  5,851    $  4,939    
   U.S. government securities, at cost .............        --       1,496
   Accounts receivable, net ........................     6,402       9,189
   Prepaid expenses and other ......................     2,291       1,071
                                                      --------    --------    
       Total current assets ........................    14,544      16,695
                                                        
Equipment and leasehold improvements, net ..........     2,034       2,267
Other assets .......................................     3,134       1,083
                                                      --------    --------    
                                                      $ 19,712    $ 20,045    
                                                      ========    ========    
  LIABILITIES AND SHAREHOLDERS' EQUITY                  
Current Liabilities:                                    
   Accounts payable ................................  $  1,933    $  2,106    
   Accrued expenses ................................     1,829       1,886
   Deferred revenues ...............................     2,690       2,708
   Deferred compensation ...........................        86         247
                                                      --------    --------    
       Total current liabilities ...................     6,538       6,947
                                                      --------    --------    
                                                        
Commitments and Contingencies                           
                                                        
Shareholders' Equity:                                   
   5% Cumulative convertible preferred stock,           
      $0.01 par value, preference in liquidation        
      $10 per share, 1,000 shares authorized;           
      27 shares issued and outstanding .............       271         271    
   Common stock, $0.01 par value, 40,000                
      shares authorized; 13,689 and 13,179 
      shares issued and outstanding ................       137         132    
   Additional paid-in capital ......................    68,631      64,714
   Accumulated deficit .............................   (55,798)    (51,945)
   Accumulated other comprehensive loss ............       (67)        (74)
                                                      --------    --------    
       Total shareholders' equity ..................    13,174      13,098
                                                      --------    --------    
                                                      $ 19,712    $ 20,045
                                                      ========    ========

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


                                      F-3
<PAGE>
                       EXCALIBUR TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS AND
                        OTHER COMPREHENSIVE INCOME (LOSS)
                      (in thousands, except per share data)

                                                 For the Fiscal Years Ended
                                                         January 31,
                                              --------    --------    --------
                                                1999        1998        1997
                                              --------    --------    --------
Revenues:
  Software ................................   $ 22,741    $ 17,202    $ 15,866
  Maintenance .............................      5,198       5,215       4,393
                                              --------    --------    --------
                                                27,939      22,417      20,259
                                              --------    --------    --------
Expenses:
  Cost of software revenues ...............      3,808       3,039       1,630
  Cost of maintenance revenues ............      1,320       1,219       1,618
  Sales and marketing .....................     13,501      13,184      14,430
  Research and product development ........      8,328       6,405       6,288
  General and administrative ..............      4,775       4,884       3,906
  Restructuring costs .....................       --           577        --
  Acquired in-process research
    and development .......................       --         1,284        --
                                              --------    --------    --------
                                                31,732      30,592      27,872
                                              --------    --------    --------

Operating loss ............................     (3,793)     (8,175)     (7,613)

Other income (expenses):
  Interest income, net ....................        239         374         781
  Equity in net loss of affiliate .........       (300)       (525)       (341)
                                              --------    --------    --------
Net loss ..................................   $ (3,854)   $ (8,326)   $ (7,173)

Dividends on preferred stock ..............         14          14          14
                                              --------    --------    --------
Net loss applicable to common stock .......   $ (3,868)   $ (8,340)   $ (7,187)
                                              ========    ========    ========

Basic and diluted net loss per common share   $  (0.29)   $  (0.64)   $  (0.58)

Weighted-average number of 
   common shares outstanding...............     13,526      12,934      12,351

Other comprehensive income (loss):
Net loss ..................................   $ (3,854)   $ (8,326)   $ (7,173)
  Foreign currency translation adjustment .          7         (31)        (78)
                                              --------    --------    --------
Comprehensive loss ........................   $ (3,847)   $ (8,357)   $ (7,251)
                                              ========    ========    ========

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

                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                       EXCALIBUR TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                  (in thousands)                                Accumulated
                                                                                   Other
                                                                                  Compre-
                         Preferred Stock   Common Stock     Add'l                 hensive        
                         ---------------   ------------   Paid-in    Accumulated   Income
                           Shares     $    Shares    $    Capital      Deficit     (Loss)      Total
                           ------   -----  ------   ----  --------    ---------    ------     --------
<S>                            <C>  <C>    <C>      <C>    <C>        <C>          <C>        <C>    
Balance, January 31, 1996.     27   $ 271  11,953   $119   $51,272    $(36,446)    $  35      $15,251

Issuance of common stock
upon exercise of options..      -       -     146      1     1,416          -          -        1,417
Sale of common stock, net  
of offering costs.........      -       -     350      4     8,384          -          -        8,388
Issuance of warrants to
ETNV investors............      -       -       -      -       758          -          -          758
Foreign Currency
Translation adjustment....      -       -       -      -         -          -        (78)         (78)
Net loss..................      -       -       -      -         -      (7,173)        -       (7,173)
                           ------   -----  ------   ----   --------   ---------    ------     --------
Balance, January 31, 1997.     27   $ 271  12,449   $124   $61,830    $(43,619)    $ (43)     $18,563

Issuance of common stock
upon exercise of options..      -       -     415      4       781          -          -          785
Issuance of common stock
for acquisition of
Interpix..................      -       -     275      3     1,819          -          -        1,822
Issuance of common stock
for Employee Stock 
Purchase Plan.............      -      -       40      1       284          -          -          285
Foreign Currency
Translation adjustment....      -      -        -      -         -          -        (31)         (31)
Net loss..................      -      -        -      -         -      (8,326)        -       (8,326)
                           ------   -----  ------   ----   --------   ---------    ------     --------
Balance, January 31, 1998.     27   $ 271  13,179   $132   $64,714    $(51,945)    $ (74)     $13,098

Private Placement.........      -       -     325      3     3,247          -          -        3,250
Issuance of common stock
upon exercise of options..      -       -     167      2       533          -          -          535
Issuance of common stock
for Employee Stock 
Purchase Plan.............      -      -       19      -       137          -          -          137
Foreign Currency
Translation adjustment....      -      -        -      -         -          -          7            7
Net loss..................      -      -        -      -         -      (3,854)        -       (3,854)
                           ------   -----  ------   ----   --------   ---------    ------     --------
Balance, January 31, 1999.     27   $ 271  13,689   $137   $68,631    $(55,798)    $ (67)     $13,174
                           ======   =====  ======   ====   ========   =========    ======     ========
</TABLE>

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

                                      F-5
<PAGE>
                       EXCALIBUR TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                                 For the Fiscal Years Ended
                                                         January 31,
                                               --------------------------------
                                                 1999        1998        1997
                                               --------    --------    --------
Cash Flows from Operating
Activities:
Net loss ...................................   $ (3,854)   $ (8,326)   $ (7,173)
Adjustments to reconcile net loss to
net cash used in operating activities:
   Depreciation and amortization ...........      1,486       1,540       1,367
   Bad debt expense ........................        493         250         150
   Acquired in-process research 
   and development costs ...................        --        1,284         --
   Equity in net loss of affiliate .........        300         525         341
   Loss on disposal of assets ..............        --            2          36
Changes in operating assets and liabilities:
   Accounts receivable, net ................      2,349           4      (2,474)
   Prepaid expenses and other ..............     (3,425)        527        (767)
   Accounts payable and accrued expenses ...       (296)       (193)        (97)
   Deferred revenues .......................        (35)         11         (86)
                                               --------    --------    --------
   Net cash used in operating activities ...     (2,982)     (4,376)     (8,703)
                                               --------    --------    --------
Cash Flows from Investing Activities:
   Purchase of investments .................       (984)    (22,301)    (17,959)
   Proceeds from maturities of investments .      2,480      29,231      19,873
   Purchases of equipment and 
   leasehold improvements ..................     (1,141)       (757)     (2,394)
   Other assets ............................       (256)        (95)       (556)
   Purchase of business, net of cash used ..       --            55        --
   Net cash provided by (used in)              --------    --------    --------
    investing activities ...................         99       6,133      (1,036)
                                               --------    --------    --------
Cash Flows from Financing Activities:
   Proceeds from the issuance of common stock     3,822         613       9,722
   Repayment of notes payable ..............       --           (40)        (39)
                                               --------    --------    --------
   Net cash provided by financing activities      3,822         573       9,683
                                               --------    --------    --------
Effect of Exchange Rate Changes on Cash ....        (27)        (76)       (162)
                                               --------    --------    --------
Net Increase (Decrease) in Cash
 and Cash Equivalents ......................        912       2,254        (218)

Cash and Cash Equivalents, beginning of year      4,939       2,685       2,903
                                               --------    --------    --------
Cash and Cash Equivalents, end of year .....   $  5,851    $  4,939    $  2,685
                                               ========    ========    ========

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

                                      F-6
<PAGE>

                       EXCALIBUR TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)   THE COMPANY

Operations and Organization

The  consolidated   financial  statements  include  the  accounts  of  Excalibur
Technologies Corporation ("Excalibur") and its wholly owned subsidiaries.  These
entities  are  collectively  referred  to  hereinafter  as  the  "Company."  All
significant intercompany transactions and accounts have been eliminated.

The Company designs, develops and markets enterprise-wide accurate, scalable and
secure  knowledge  retrieval and digital  asset  management  software  solutions
capable of supporting  paper,  text,  image and video data.  The Company  offers
consulting,  training, product maintenance and system implementation services in
support of its software  products.  The Company  licenses its software  products
directly to commercial  businesses  and  government  agencies  throughout  North
America,  Europe and other parts of the world and also  distributes its software
products to end users through  license  agreements with  value-added  resellers,
system  integrators,   original  equipment  manufacturers  and  other  strategic
partners.

The Company has incurred  cumulative losses of approximately  $19.4 million over
the last  three  fiscal  years and the  accumulated  deficit  of the  Company at
January 31, 1999 was $55.8  million.  The  Company's  operations  are subject to
certain risks and uncertainties including, among others, the dependence upon the
timing of the closing on sales of large software licenses;  actual and potential
competition by entities with greater financial resources,  experience and market
presence  than the  Company;  rapid  technological  changes;  the success of the
Company's  product  marketing  and product  distribution  strategies;  the risks
associated with  acquisitions and  international  expansion;  the need to manage
growth; the need to retain key personnel and protect intellectual  property; and
the  availability  of additional  capital  financing on terms  acceptable to the
Company.

The  Company's  balances of cash and cash  equivalents  at January 31, 1999,  in
addition to net proceeds of $4.7 million from a private placement in March 1999,
are expected to provide  sufficient cash to meet the Company's current projected
needs for the next fiscal year. Historically, the Company has used cash provided
primarily  from sales of its common stock to fund its operating  losses.  If the
Company fails to achieve its operating  plan for fiscal year 2000, the Company's
balance of cash and cash equivalents may be reduced  substantially.  The Company
may be required to pursue  additional  external  sources of financing to support
its operations and capital requirements. There can be no assurance that external
sources of financing will be available to fund the Company's ongoing  operations
or other capital requirements on terms acceptable to the Company.

Acquisition of Interpix Software Corporation

On May 5, 1997, the Company acquired Interpix Software  Corporation,  located in
Santa Clara, California, a privately owned company and developer of a commercial
technology  enabling the collection,  indexing,  management and  presentation of


                                      F-7
<PAGE>

multimedia data on the Internet and corporate intranets.  The purchase method of
accounting was applied to this  acquisition  transaction and,  accordingly,  the
results of operations  of Interpix  were included in the Company's  consolidated
results of operations  from the date of  acquisition.  The results of operations
for Interpix prior to the acquisition were not material.

The  shareholders  of  Interpix  received  275,000  shares  of  common  stock of
Excalibur in exchange for all of the outstanding  common stock of Interpix.  The
total  purchase  price  included  the  value of the  Excalibur  shares  totaling
$1,822,000  and  out-of-pocket  acquisition  costs  that  totaled  $45,000.  The
purchase price was allocated to the assets purchased and the liabilities assumed
based  upon  their  fair  values  on  the  date  of  acquisition.  Approximately
$1,284,000  of the purchase  price was  allocated  to research  and  development
projects in process and was expensed upon the effective date of the acquisition.
The  excess  of the  purchase  price  over the fair  value of the net  assets of
Interpix was approximately  $575,000.  This amount represents  intangible assets
related to the completed technology base, the assembled workforce and tradenames
acquired,  is included in other assets in the consolidated balance sheet, and is
being amortized on a straight-line basis over five years.  Amortization  expense
for the year ended January 31, 1999 was  approximately  $111,000 and accumulated
amortization at January 31, 1999 was $192,000.


(2)    SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Revenue Recognition

The American  Institute of Certified Public  Accountants has issued Statement of
Position 97-2,  "Software  Revenue  Recognition,"  ("SOP 97-2") that  supersedes
Statement of Position 91-1. The Company has  implemented SOP 97-2 in fiscal year
1999 and it has not had a material financial impact on the Company.

Revenues  from  the sale of  computer  software  licenses  are  recognized  upon
shipment of product provided that the fee is fixed and determinable,  persuasive
evidence of an agreement  exists and  collection of the resulting  receivable is
considered probable.  Revenues related to agreements with customers that contain
future performance requirements are recognized when the performance requirements
are satisfied.  Revenues related to customer support agreements are deferred and
recognized ratably over the term of the respective agreements, which are usually
one year in length.

Customization is sometimes involved in the development of a software solution by
the Company. Under these circumstances,  the Company's revenues are derived from
fixed    price    contracts    and    revenue    is    recognized    using   the
percentage-of-completion  method  based  on the  relationship  of  actual  costs
incurred  to total  costs  estimated  to be  incurred  over the  duration of the
contract.

                                      F-8
<PAGE>


Research and Development Costs

Software  development  costs are  included in research and  development  and are
expensed as incurred.  Statement of Financial  Accounting Standards ("SFAS") No.
86,  "Accounting  for the  Cost of  Computer  Software  to be  Sold,  Leased  or
Otherwise Marketed" requires the capitalization of certain software  development
costs once technological feasibility is established, which the Company generally
defines  as  completion  of a  working  model.  Capitalization  ceases  when the
products  are  available  for  general  release  to  customers,  at  which  time
amortization of the capitalized  costs begins on a straight-line  basis over the
estimated  product life, or on the ratio of current  revenues to total projected
product  revenues,  whichever is greater.  To date, the period between achieving
technological feasibility and the general availability of such software has been
short, and software  development costs qualifying for  capitalization  have been
insignificant.  Accordingly,  the  Company  has  not  capitalized  any  software
development costs.

Cash, Cash Equivalents and Marketable Securities

For purposes of the  consolidated  balance  sheets and statements of cash flows,
the Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash  equivalents.  U.S.  government  securities  are
considered to be investments and are excluded from cash  equivalents  regardless
of their maturities. Cash equivalents consist of funds deposited in money market
accounts.  Consequently,  the  carrying  amount  of cash  and  cash  equivalents
approximates  fair value.  The Company  classifies its marketable  securities as
held-to-maturity  securities.  Accordingly,  marketable  securities,  consisting
entirely  of U.S.  government  securities,  are  carried at cost,  adjusted  for
premium and discount amortization. At January 31, 1998, the aggregate fair value
of the securities based upon quoted market prices was $1.5 million.

Income Taxes

Deferred taxes are provided utilizing the liability method as prescribed by SFAS
No.  109,  "Accounting  for  Income  Taxes,"  whereby  deferred  tax  assets are
recognized  for  deductible  temporary  differences  and operating  loss and tax
credit  carryforwards  and deferred tax  liabilities  are recognized for taxable
temporary  differences.  Temporary  differences are the differences  between the
reported  amounts of assets and  liabilities  and their tax bases.  Deferred tax
assets and  liabilities  are adjusted for the effects of changes in tax laws and
rates on the date of  enactment.  Deferred tax assets are reduced by a valuation
allowance  when, in the opinion of  management,  it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The Company
has provided a full valuation allowance against its net deferred tax asset as of
January 31, 1999 and 1998, respectively.

Equipment and Leasehold Improvements

Office  furniture and computer  equipment are recorded at cost.  Depreciation of
office  furniture  and equipment is provided on a  straight-line  basis over the
estimated useful lives of the assets, generally three to ten years. Amortization
of leasehold  improvements is provided on a straight-line basis over the shorter
of the term of the applicable lease or the useful life of the asset.



                                      F-9
<PAGE>

Expenditures  for normal  repairs and  maintenance  are charged to operations as
incurred.  The cost of property and equipment  retired or otherwise  disposed of
and the related  accumulated  depreciation or amortization  are removed from the
accounts and any resulting gain or loss is reflected in current operations.

Net Loss Per Common Share

Basic  earnings  per share  includes no dilution and is computed by dividing net
loss available to common  stockholders by the weighted  average number of common
shares outstanding for the period. Diluted loss per share includes the potential
dilution that would occur if securities or other contracts to issue common stock
were  exercised or converted  into common stock.  Options to purchase  2,561,423
shares of common stock, warrants to purchase 148,500 shares of common stock with
exercise  prices  ranging  from  $1.04  to  $22.50  per  share,  and  cumulative
convertible  preferred stock that were  outstanding at January 31, 1999 were not
included in the  computation  of diluted loss per share as their effect would be
anti-dilutive.  As a result,  the basic and diluted  loss per share  amounts are
identical.

Translation of Foreign Financial Statements

Assets and liabilities of foreign operations are translated at the year-end rate
of exchange.  Statements  of operations  are  translated at the average rates of
exchange  during the year.  Gains or losses from  translating  foreign  currency
financial  statements are accumulated in a separate  component of  shareholders'
equity.

Concentrations of Credit Risk

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist  primarily of cash  equivalents,  marketable  securities and
accounts  receivable.  Management believes that the Company's  investment policy
limits the  Company's  exposure to  concentrations  of credit risk.  The Company
sells its products primarily to major corporations,  including distributors that
serve a wide variety of U.S. and foreign  markets,  and to government  agencies.
The Company extends credit to its corporate  customers based on an evaluation of
the customer's  financial  condition,  generally  without requiring a deposit or
collateral.  Exposure to losses on receivables is principally  dependent on each
customer's  financial  condition.  The Company  monitors its exposure for credit
losses and  maintains an allowance  for  anticipated  losses.  The allowance for
doubtful  accounts was $660,000 and $527,000  respectively,  at January 31, 1999
and 1998.

Impairment of Long-lived Assets

The Company periodically  evaluates the recoverability of its long-lived assets.
This  evaluation  consists of a comparison  of the carrying  value of the assets
with the assets'  expected future cash flows,  undiscounted and without interest
costs.  Estimates  of expected  future cash flows  represent  management's  best
estimate based on reasonable and supportable assumptions and projections. If the
expected future cash flow,  undiscounted and without interest  charges,  exceeds
the carrying value of the asset, no impairment is recognized.  Impairment losses
are measured as the difference  between the carrying value of long-lived  assets
and their fair value.



                                      F-10
<PAGE>


(3)   INVESTMENT IN AFFILIATE

In  July  1996,  the  Company  authorized  the  use of  its  name  by  Excalibur
Technologies N. V. ("ETNV"), a Belgian company incorporated in June 1996 for the
purpose of selling and marketing the  Company's  products and services  within a
large  territory  including  most of  Northern  Europe  and Italy.  The  Company
contributed approximately $488,000 in cash to ETNV in consideration for 13.2% of
its voting  capital  stock.  In connection  with the  organization  of ETNV, the
Company issued warrants to purchase 148,500 shares of the Company's common stock
to certain  shareholders  of ETNV.  The warrants are  exercisable  at a price of
$22.00  per share for a term of seven  years but only if ETNV  achieves  certain
financial  objectives.  The  value of the  warrants  on the  date of  grant  was
estimated to be $758,000 and is included,  net of amortization,  in other assets
in the consolidated balance sheets.

The Company's  investment in ETNV is accounted for using the equity method.  The
investment  exceeded the Company's share of the underlying net assets of ETNV by
approximately  $827,000.  The excess is being amortized over a five-year period.
The  amortization  of the excess,  as well as the Company's  share of ETNV's net
loss for the period and the  elimination of the Company's  share of gross profit
included in ETNV's prepaid license fees at January 31, 1999 and 1998 is included
in equity in net loss of affiliate in the accompanying  consolidated  statements
of operations  for the fiscal years ended January 31, 1999,  1998 and 1997.  The
net  balances  of the  investment  in and  advances to ETNV is included in other
assets in the accompanying  consolidated balance sheets. At January 31, 1999 and
1998, the investment balance was $471,000 and $544,000, respectively.

The Company  granted to ETNV an exclusive  license (the "License") to distribute
certain of the Company's products to other authorized resellers and customers in
the territory for approximately five years. If the revenues of ETNV in the fifth
year exceed a certain level, the License shall  automatically be renewed. If the
License is not renewed, the other shareholders of ETNV may exercise an option to
sell their  shares to the Company  according  to a  revenue-based  formula.  The
Company  recorded  total revenues of $938,675 and $1,656,000 in the fiscal years
ended January 31, 1999 and 1998,  respectively,  related to the License.  In the
fourth quarter of fiscal year 1999, ETNV did not make its contractually required
payment totaling approximately $900,000.

After a term of approximately  five years, the Company may exercise an option to
purchase  all of the capital  stock of ETNV under  certain  conditions  and at a
price determined in accordance with a revenue-based  formula.  In the event that
the Company does not exercise its option,  the other  shareholders are permitted
to sell their shares, subject to certain limitations,  through a private sale or
public  offering.  




                                      F-11
<PAGE>

(4)   CAPITALIZATION

Stock Offerings

During the second quarter of fiscal year 1999,  the Company  completed a private
placement  of  325,000   shares  (the  "Shares")  of  its  common  stock  to  an
unaffiliated  financial  institution.  The Company sold the Shares at a purchase
price of $10.00 per share, representing the approximate fair market value of the
stock  on the  date  of  issuance,  resulting  in  proceeds  to the  Company  of
$3,250,000.  The transaction was placed directly by the Company. The Shares were
sold  pursuant  to an  exemption  from  the  registration  requirements  of  the
Securities Act of 1933.


Cumulative Convertible Preferred Stock

The Company has issued 271,000 shares of cumulative convertible preferred stock.
The cumulative  convertible  preferred stock is convertible into common stock at
the rate of 10  shares  of common  stock  per  share of  cumulative  convertible
preferred  stock.  Holders of the  cumulative  convertible  preferred  stock are
entitled to receive cumulative  dividends of $0.50 per share per annum,  payable
annually on April 1 if declared by the Board of Directors,  in cash or shares of
common stock (to be determined by the Board of Directors) valued at the lower of
$1.00 per share or the market  price on the date of  declaration.  The amount of
accumulated dividends that have not been declared or accrued at January 31, 1999
is approximately $56,000.

In the event of voluntary liquidation,  dissolution or winding-up of the Company
or upon any distribution of assets, whether voluntary or involuntary, holders of
the convertible  preferred stock would have a liquidation  preference of $10 per
share,  plus accrued and unpaid  dividends over holders of the Company's  common
stock.


(5)   EMPLOYEE BENEFIT PLANS

Stock Options

The Company has adopted certain stock option plans to attract, retain and reward
key employees.  The plans are administered by a Committee appointed by the Board
of Directors, which has the authority to determine which officers, directors and
key employees are awarded options pursuant to the plans and the terms and option
exercise prices of the stock options. In addition,  from time to time, the Board
of Directors  awards stock options outside the plans; no such awards occurred in
fiscal years 1999,  1998 or 1997. Of the total number of shares  authorized  for
stock options,  options to purchase 2,561,423 shares are outstanding and 557,530
shares are available for future grants.

Each  qualified  incentive  stock  option  granted  pursuant to the plans has an
exercise price equal to the fair market value of the underlying  common stock at
the date of grant, a ten-year term and typically a four-year  vesting period.  A
non-qualified option granted pursuant to the plans may contain an exercise price
that is below the fair  market  value of the  common  stock at the date of grant
and/or may be  immediately  exercisable.  The term of  non-qualified  options is
usually  five or ten  years.  The  Company  records  expense  related to certain


                                      F-12
<PAGE>

non-qualified options and other stock-based compensation based on the difference
between  the fair market  value of the  underlying  common  stock at the date of
award and the exercise  price,  if any,  over the vesting  period.  There was no
expense  related to  stock-based  compensation  awards  recorded in the accounts
during fiscal year 1999, 1998 or 1997.

The following table summarizes the Company's activity for all of its stock
option awards:
                                                                      Weighted-
                                                                       Average
                                        Number of       Range of       Exercise
                                         Options     Exercise Prices     Price 
                                         -------     ---------------     ----- 
Balance, January 31, 1996 ........      2,417,778     $ 1.04 - 26.21     $11.41

Granted ..........................        473,500      13.00 - 29.64      18.72
Exercised ........................       (142,455)      2.07 - 16.64      10.21
Canceled .........................        (85,665)      9.54 - 29.64      18.41
                                       ----------     ---------------    -------
Balance, January 31, 1997 ........      2,663,158       1.04 - 29.53      12.53

Granted ..........................        812,213       4.25 - 13.25       7.35
Exercised ........................       (413,060)      1.04 - 11.64       1.91
Canceled .........................       (430,675)      4.25 - 28.69      14.53
                                       ----------     ---------------    -------
Balance, January 31, 1998 ........      2,631,636       1.04 - 22.50       7.81

Granted ..........................        249,501       5.50 - 13.88       8.10
Exercised ........................       (166,815)      1.04 - 10.38       3.20
Canceled .........................       (152,899)      4.14 - 16.02       7.94
                                       ----------     ---------------    -------
Balance, January 31, 1999 ........      2,561,423     $ 1.04 - 22.50     $ 8.14
                                       ==========     ===============    =======



On May 7, 1997,  the Board of  Directors  authorized a repricing  program  which
allowed  active  current  employees  to  elect to  reprice  all or some of their
outstanding  options to purchase shares of the Company's  common stock,  granted
under the 1989 and the 1995  Incentive  Plans and ranging in exercise price from
$5.50 to $29.53 per share, to $4.75, the closing price of Excalibur common stock
on May 7, 1997.  Options to purchase  approximately  1,176,000  shares of common
stock were  repriced.  Stock options that were already  vested and repriced were
not exercisable until November 8, 1997.

Options to purchase  1,796,090,  1,530,918 and 1,738,246 shares of the Company's
common stock were vested and  exercisable  at January 31,  1999,  1998 and 1997,
respectively, at weighted-average exercise prices of $8.64, $8.89 and $10.56 per
share, respectively.



                                      F-13
<PAGE>

The  following  table  summarizes  additional  information  about stock  options
outstanding at January 31, 1999:

                           Options Outstanding          Options Exercisable
                      ------------------------------   ---------------------  
                                 Weighted-
                                 Average      Weighted-              Weighted-
                                 Remaining    Average                Average
  Range of            Number of  Contractual  Exercise   Number      Exercise 
  Exercise Prices      Options   Life         Price    Exercisable    Price
  ----------------    ---------  -----------  ------   -----------    ------
  $ 1.04 to $4.63       203,571   7.48 years  $ 4.35      171,695     $ 4.31
  $ 4.75              1,094,388   6.41          4.75      838,887       4.75
  $ 4.88 to $ 8.56      522,000   7.50          7.29      203,798       7.46
  $ 8.63 to $17.02      641,464   5.01         13.72      481,710      14.78
  $20.56 to $22.50      100,000   7.11         21.53      100,000      21.53
  ----------------    ---------  -----------  ------   -----------    ------
                      2,561,423   6.40 years  $ 8.14     1,796,090    $ 8.64
                      =========  ===========  ======   ===========    ======
                

The Company adopted the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based   Compensation,"  effective  for  the  Company's  January  31,  1997
consolidated  financial  statements.  The Company applies APB Opinion No. 25 and
related Interpretations in accounting for its plans.  Accordingly,  compensation
cost has been recognized for its stock plans based on the intrinsic value of the
stock option at date of grant (i.e.,  the difference  between the exercise price
and the fair value of the Company's common stock).

Had  compensation  cost for the Company's  stock-based  compensation  plans been
determined  based on the fair value at the grant  dates for awards  under  those
plans made in fiscal  years 1999,  1998 and 1997  consistent  with the method of
SFAS No.123, the Company's net loss and loss per share would have been increased
to the pro forma amounts  indicated below (amounts in thousands except per share
data).

                                             1999      1998      1997
                                           -------   -------   -------
          Net loss, as reported            $ 3,854   $ 8,326   $ 7,173
          Pro forma compensation expense     4,046     3,898     2,533
                                           -------   -------   -------
          Pro forma net loss               $ 7,900   $12,224   $ 9,706
                                           =======   =======   =======

          Basic and diluted net loss
          per common share, as reported    $  0.29   $  0.64   $  0.58
                                           
          Basic and diluted net loss
          per common share, pro forma      $  0.58   $  0.95   $  0.79
                                          

The fair  value of each  option  was  estimated  on the date of grant  using the
Black-Scholes  option-pricing  model.  The following table shows the assumptions
used for the grants that occurred in each fiscal year.



                                      F-14
<PAGE>

                                        1999           1998         1997
                                    ------------   ------------  ----------
       Expected volatility              65%            65%          60%
       Risk free interest rates     4.5% to 5.6%   5.7% to 6.5%     6.5%
       Dividend yield                   None          None          None
       Expected lives                 5 years        5 years       4 years
                          
The  weighted  average  fair value per share for stock  option  grants that were
awarded  in  fiscal  years  1999,  1998 and 1997 was  $4.77,  $4.24  and  $9.76,
respectively.

Employee Stock Purchase Plan

In  June  1996,   the  Company's   shareholders   approved  the  adoption  of  a
non-compensatory  stock purchase plan for all active  employees.  Of the 250,000
shares of common  stock that were  reserved  for  issuance  thereunder,  18,652,
40,252 and 3,253 shares were  purchased  by employees in fiscal year 1999,  1998
and 1997,  respectively.  The plan  provides  that  participating  employees may
purchase  common  stock each plan quarter at a price equal to 85% of the closing
price at the end of the quarterly period. Payment for the shares is made through
authorized payroll deductions of up to 10% of eligible annual compensation.

Deferred Compensation

ConQuest  Software Inc., a private software company acquired in June 1995 by the
Company,  entered into arrangements with certain of its officers,  employees and
independent  consultants  to defer a  portion  of their  compensation.  Deferred
compensation  of  employees  is  restricted  for use in the  exercise  of  stock
options. However, if an employee's options expire because the option terms lapse
or because employment  terminates,  the employee may request cash redemption one
year after expiration,  with 90 days notice.  During fiscal years 1999, 1998 and
1997, deferred compensation of $161,000, $654,000 and $99,000, respectively, was
settled. The portion of the deferred compensation balance related to independent
consultants was settled in fiscal year 1998.

Employee Savings Plan

The Company has an employee  savings plan that qualifies under Section 401(k) of
the Internal Revenue Code. Under the plan,  participating  eligible employees in
the United  States may defer up to 20 percent of their pre-tax  salary,  but not
more than  statutory  limits.  ConQuest had a similar plan  established  for the
benefit of its  employees  that was merged  into the  Company's  plan  effective
December 31, 1996.  The Company did not make any  contributions  to the employee
savings plan in fiscal years 1999, 1998, or 1997.


(6)   INCOME TAXES

As the Company  incurred  pretax losses for the fiscal years  presented  herein,
there are no income taxes provided in the accompanying  consolidated  statements
of  operations.  At  January  31,  1999,  the  Company  had net  operating  loss
carryforwards ("NOLs") of approximately $67,957,000 that expire at various dates
through  fiscal  year  2014.  The  realization  of the  benefits  of the NOLs is
dependent on sufficient  taxable  income in future fiscal years.  Lack of future
earnings,  a change in the ownership of the Company,  or the  application of the
alternative  minimum tax rules could adversely  affect the Company's  ability to

                                      F-15
<PAGE>
utilize  the NOLs.  Further,  because  there was a change  in the  ownership  of
ConQuest in fiscal year 1996,  the Company's  ability to utilize NOLs related to
ConQuest's operations of approximately $3,233,000 may be limited.

The  Company's  net  deferred  tax assets at January  31, 1999 and 1998 were as
follows (in thousands):

                                                  1999              1998  
      Deferred tax assets                       --------          -------- 
          Net operating loss carryforwards of    
             Excalibur, not yet utilized        $ 25,824          $ 24,256 
          Net operating loss carryforwards of                              
             ConQuest, not yet utilized            1,229             1,229 
          Other                                      513               427 
                                                ---------         ---------
             Total deferred tax assets            27,566            25,912 
          Valuation reserve                      (27,435)          (25,819)
                                                ---------         ---------
                                                     131                93 
                                                    (131)              (93)
      Deferred tax liabilities                  ---------         ---------  
             Net deferred tax assets            $      -          $      - 
                                                =========         =========
                                                                  
Though  management  believes that future net operating income and taxable income
of the Company may be sufficient to utilize a substantial amount of the benefits
of the Company's net operating  loss  carryforwards  and to realize its deferred
tax assets,  a valuation  allowance has been recorded to offset  completely  the
carrying  value of the  deferred tax assets due to the  Company's  lack of prior
earnings and the size of the accumulated deficit.


(7)    COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company conducts its operations using leased office  facilities.  The leases
terminate  at various  dates  through  fiscal year 2004.  The  Company  also has
operating leases for automobiles at its foreign  subsidiary that are included in
the figures below. Future minimum rental payments under non-cancelable operating
leases as of January 31, 1999 are as follows (in thousands):
                     
                    Year Ending
                    January 31,
                    -----------
                        2000         $ 1,375
                        2001           1,446
                        2002           1,035
                        2003             579
                        2004             596
                                  ----------
                                     $ 5,031
                                  ==========

Total rental expense under operating leases, net of sublease income of $102,064,
$292,425,  and $253,484 in fiscal years 1999, 1998 and 1997,  respectively,  was
approximately $1,303,000, $1,190,000 and $1,070,000, respectively.

                                      F-16
<PAGE>
Employment Agreements

Under an agreement between the Company and Patrick C. Condo, President and Chief
Executive  Officer  entered  into in May 1998,  Mr. Condo will be paid an amount
equal to twelve months of base salary plus bonus  compensation  and continuation
of his employee  benefits for one year in the event Mr.  Condo's  employment  is
terminated or he is removed from his position as Chief Executive  Officer within
six months following certain "change of control" events relating to the Company.
Such arrangement was approved by the full Board of Directors.

The offer of employment  letter dated  September 7, 1995 for James H.  Buchanan,
Chief Financial Officer, Secretary and Treasurer of the Company, stipulates that
Mr.  Buchanan  will be paid an amount  equal to twelve  months of base salary in
semi-monthly  installments  should his  employment  be terminated by the Company
without cause.


(8)   RESTRUCTURING COSTS

The Company  reorganized  its sales force and made other  changes to its overall
organization  in April  1997.  In  connection  with these  changes,  the Company
reduced its workforce by approximately  10% and recorded a restructuring  charge
of  $577,000  in the first  quarter of fiscal  year 1998.  The charge  primarily
consisted of severance pay and medical and other severance benefits for nineteen
terminated  employees  in  sales,  development,   marketing  and  administrative
functions. All payments associated with the restructuring charge were paid prior
to the end of fiscal year 1998.


(9)   SEGMENT INFORMATION

Operations by Geographic Area

The major portion of the Company's sales to overseas  customers during the three
most recent fiscal years was made by the Company's foreign subsidiary, Excalibur
Technologies  International,  Ltd. ("ETIL"), which was established in the United
Kingdom during fiscal year 1993. The following table presents  information about
the Company's operations by geographical area (in thousands):

                                  Fiscal Years Ended January 31,
                                  ------------------------------
                                     1999      1998      1997
                                     ----      ----      ----
Sales to unaffiliated customers: 
  United States                    $20,336   $14,134   $14,222
  United Kingdom                     4,490     3,460     1,915
  All Other                          3,113     4,823     4,122
                                   -------   -------   -------
                                   $27,939   $22,417   $20,259
                                   =======   =======   =======
                                  
Long-lived assets:                
  United States                    $ 5,072   $ 3,255   $ 3,897
  All Other                             96        95       100
                                   -------   -------   -------
                                   $ 5,168   $ 3,350   $ 3,997
                                   =======   =======   =======

                                      F-17
<PAGE>

Major Customers

Revenues  derived  from  contracts  and orders  issued by  agencies  of the U.S.
Government   were   approximately   $4,493,000,   $5,379,000,   and  $6,004,000,
respectively,  in the fiscal years ended January 31, 1999, 1998 and 1997.  These
revenues,  expressed as a percentage of total revenues for the fiscal year, were
approximately  16%,  24%,  and 30%,  respectively.  Revenues  derived  from Inso
Corporation in fiscal year 1999 of $2,958,000 accounted for 11% of the Company's
total revenues.  No single  customer  accounted for 10% or more of the Company's
revenue in the fiscal years ended January 31, 1998 and 1997.


(10)  OTHER FINANCIAL DATA

a) Prepaid  expenses  and other at January  31,1999  and 1998  consisted  of the
   following (in thousands):


                                    1999        1998
                                   ------      ------
Prepaid licenses                   $1,510      $   -
Prepaid other                         781       1,071
                                   ------      ------
                                   $2,291      $1,071
                                   ======      ======


b) Equipment and leasehold  improvements  at January 31, 1999 and 1998 consisted
   of the following (in thousands):

                                    1999        1998
                                   ------      ------ 
Computer equipment                 $7,269      $6,297
Office furniture                    1,348       1,220
Leasehold improvements                403         364
                                   ------      ------ 
                                    9,020       7,881

Less accumulated depreciation      (6,986)     (5,614)
                                   ------      ------ 
                                   $2,034      $2,267
                                   ======      ======


c) Other assets at January 31, 1999 and 1998 consist of the following
   (in thousands):


                                    1999        1998
                                   ------      ------ 
Prepaid licenses                   $2,214      $   -
Other                                 920       1,083
                                   ------      ------
                                   $3,134      $1,083
                                   ======      ======


                                      F-18
<PAGE>


d) Accrued expenses at January 31, 1999 and 1998 consist of the
   following (in thousands):

                                    1999        1998
                                   ------      ------ 
Accrued payroll                    $1,469      $1,292
Other                                 360         594
                                   ------      ------ 
                                   $1,829      $1,886
                                   ======      ======


e) The Company paid legal fees and expenses totaling  approximately  $221,000 in
fiscal  year 1997 to a law firm in which a former  director of the Company was a
partner. No such fees were paid in fiscal years 1999 and 1998.


(11)  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Company adopted  Statement of Financial  Accounting  Standards  ("SFAS") No.
130, "Reporting  Comprehensive Income," during the first quarter of fiscal 1999.
SFAS 130 requires  additional  disclosures  with  respect to certain  changes in
assets and  liabilities  that  previously  were not  required  to be reported as
results of operations for the period.

In 1998, the Company  adopted  Statement of Financial  Accounting  Standards No.
131,  "Disclosures about Segments of an Enterprise and Related Information." FAS
131  supercedes  FAS  14,  "Financial  Reporting  for  Segments  of  a  Business
Enterprise",  replacing the "industry  segment"  approach with the  "management"
approach.  The management approach designates the internal  organization that is
used by management for making operating  decisions and assessing  performance as
the  source  of  the  Company's  reportable  segments.  FAS  131  also  requires
disclosures  about products and services,  geographic areas and major customers.
The  adoption  of FAS 131 did not affect  results  of  operations  or  financial
position  but did affect the  disclosures  of segment  information.  The Company
accounts for all operations as one segment.

In June 1998, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative  Instruments and Hedging Activities," which will
be effective  for the Company's  fiscal year 2001.  This  statement  establishes
accounting and reporting standards  requiring that every derivative  instrument,
including  certain  derivative  instruments  embedded  in  other  contracts,  be
recorded in the balance  sheet as either an asset or  liability  measured at its
fair value.  The statement also requires that changes in the  derivative's  fair
value be recognized in earnings  unless specific hedge  accounting  criteria are
met. The Company  believes the adoption of SFAS No. 133 will not have a material
effect on the financial statements.

The American  Institute of Certified Public  Accountants has issued Statement of
Position 98-9,  "Modification of SOP-97-2,  Software Revenue  Recognition,  With
Respect to Certain Transactions." SOP 98-9 is effective for revenue transactions
entered into in the  Company's  fiscal year 2001.  The Company has evaluated SOP
98-9 and does not  believe  its  adoption  will  have a  material  effect on the
financial statements.


                                      F-19
<PAGE>

(12)  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                 (in thousands)

                                              For the Fiscal Years Ended   
                                                      January 31,
                                             -----------------------------
                                               1999       1998       1997 
                                             -------    -------    -------
Supplemental Disclosures of Cash                                
Flow Information:                                               
   Cash paid for interest..................  $    -     $     2    $   11
                                             =======    =======    =======
                                                                
Supplemental Disclosures of Noncash                             
Investing and Financing Activities:                             
                                                                
   Issuance of warrants to                                      
   purchase common stock...................  $    -     $     -    $  758
                                             =======    =======    =======
   Stock options exercised under                                
   deferred compensation arrangements......  $   100    $   457    $   83
                                             =======    =======    =======
                                                               
   Issuance of common stock to          
   acquire Interpix........................  $    -     $ 1,822    $    -
                                             =======    =======    =======





                                      F-20
<PAGE>




             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Excalibur Technologies Corporation:

    We have audited in accordance with generally  accepted  auditing  standards,
the  consolidated  balance  sheet of Excalibur  Technologies  Corporation  as of
January  31,  1998  and  the  related  consolidated  statements  of  operations,
shareholders'  equity  and cash  flows for each of the two  years in the  period
ended  January  31,  1998  included in this Form 10-K and have issued our report
thereon dated  February 27, 1998.  Our audit was made for the purpose of forming
an opinion on the basic  financial  statements  taken as a whole.  The  schedule
listed in the index is the  responsibility  of the Company's  management  and is
presented  for  purposes  of  complying   with  the   Securities   and  Exchange
Commission's  rules  and is not part of the  basic  financial  statements.  This
schedule has been subjected to the auditing  procedures  applied in the audit of
the  basic  financial  statements  and,  in our  opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.

                                          /s/ARTHUR ANDERSEN LLP


Washington, D.C.,
February 27, 1998









                                      F-21
<PAGE>


SCHEDULE II

                EXCALIBUR TECHNOLOGIES CORPORATION
                         AND SUBSIDIARIES
                 VALUATION AND QUALIFYING ACCOUNTS

      FOR FISCAL YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
      ------------------------------------------------------


                                                           Translation
                        Balance at  Additions   Deductions  Adjustment  Balance
                        Beginning    Charged       From       During    at End
Description              of Year    to Expense   Reserves   the Period  of Year
------------             -------    ----------   --------   ----------  -------
1999
----
Deducted from
accounts receivable:
  For doubtful accounts   $527,000  $493,000   $356,000 (a)   $(4,000)  $660,000

1998
----
Deducted from 
accounts receivable:
  For doubtful accounts   $367,000  $250,000   $ 93,000 (a)   $ 3,000   $527,000

1997
----
Deducted from 
accounts receivable:    
  For doubtful accounts   $375,000  $150,000   $156,000 (a)   $(2,000)  $367,000



Note (a) - Uncollected receivables written off, net of recoveries.















                                      F-22
<PAGE>


                                  SIGNATURES                                   

Pursuant to the  requirements of Section 13 or 15(d) 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.

                                     EXCALIBUR TECHNOLOGIES CORPORATION


                                     By:  /s/Patrick C. Condo
                                          -------------------
                                          Patrick C. Condo
                                          President and Chief Executive Officer
Date:  April 28, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

     Signature                        Title                           Date
     ---------                        -----                           ----

/s/Patrick C. Condo          President, Chief Executive           April 28, 1999
---------------------        Officer and Director                 --------------
Patrick C. Condo             (Principal Executive Officer)

/s/Donald R. Keough                                               April 21, 1999
----------------------       Chairman of the Board                --------------
Donald R. Keough                                                  
             
/s/James H. Buchanan         Chief Financial Officer              April 28, 1999
---------------------        Secretary and Treasurer (Principal   --------------
James H. Buchanan            Financial and Accounting Officer)  
                        
/s/Richard M. Crooks, Jr.                                         April 29, 1999
-------------------------    Director                             --------------
Richard M. Crooks, Jr.

/s/John S. Hendricks                                              April 23, 1999
---------------------        Director                             --------------
John S. Hendricks

/s/W. Frank King III                                              April 27, 1999
---------------------        Director                             --------------
W. Frank King III

/s/John G. McMillian                                              April 27, 1999
---------------------        Director                             --------------
John G. McMillian

/s/Philip J. O'Reilly                                             April 29, 1999
---------------------        Director                             --------------
Philip J. O'Reilly