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, 1998

                        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 15, 1998 (based on the closing sales price as reported on
the NASDAQ National Market System) was $118,846,045.

The number of shares outstanding of the registrant's class of common stock as of
April 15, 1998 was 13,251,297.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant's  Proxy  Statement  for the 1998 Annual  Meeting of
Shareholders are incorporated by reference into Part III.

                   The Index to Exhibits begins on Page 29
<PAGE>




                      EXCALIBUR TECHNOLOGIES CORPORATION

                          ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED JANUARY 31, 1998

                                TABLE OF CONTENTS
                                                                      Page

                                   PART I

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

Item 2.     Properties.........................................       11

Item 3.     Legal Proceedings..................................       11

Item 4.     Submission of Matters to a Vote of 
            Security Holders...................................       11


                                     PART II

Item 5.     Market for  Registrant's  Common  Equity and 
            Related Stockholder Matters........................      12

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

Item 7.     Management's Discussion and Analysis of Financial 
            Condition and Results of Operations................      15

Item 8.     Financial Statements and Supplementary Data........      27

Item 9.     Changes in and Disagreements with Accountants on 
            Accounting and Financial Disclosure................      27

                                   PART III

Item 10.    Directors and Executive Officers of the Registrant.      28

Item 11.    Executive Compensation ............................      28

Item 12.    Security Ownership of Certain Beneficial 
            Owners and Management..............................      28

Item 13.    Certain Relationships and Related Transactions.....      28

                                     PART IV

Item 14.    Exhibits, Financial Statement Schedules 
            and Reports on Form 8-K............................      28



<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   software  solutions.   Excalibur's
comprehensive  suite of knowledge  retrieval  products which includes  Excalibur
RetrievalWare,  Excalibur  RetrievalWare  FileRoom,  Excalibur  Internet Spider,
Excalibur EFS and Excalibur Visual RetrievalWare,  enable individuals to quickly
access,  search and retrieve  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 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 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.  Excalibur  EFS is a  multi-platform,  commercial,  end-user
software application for document imaging and information  retrieval.  Excalibur
offers its software solutions to information systems for workgroups, enterprises
and distributed wide area networks, including the Internet and World Wide Web.

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
knowledge retrieval  capabilities available today. The combined technology power
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.  As of January 31, 1998, more than
950 customers were using the Company's software  products,  approximately 300 of
which use the flagship Company product RetrievalWare.

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
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 which 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  in the three  month  period  ended  July 31,  1997.  The excess of the
purchase  price  over  the  fair  value  of  the  net  assets  of  Interpix  was
approximately  $545,000. This amount represents intangible assets related to the
completed  technology base, the assembled  workforce and tradenames acquired and
has been recorded as goodwill which is being amortized on a straight-line  basis
over five years.  The  purchase  method of  accounting  has been applied to this
acquisition transaction and, accordingly,  the results of operations of Interpix
have been included in the Company's  consolidated  results of operations for the
period  ended  January  31,  1998 from the date of  acquisition.  The results of
operations for Interpix prior to the acquisition were not material.

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 FileRoom,  Excalibur Internet Spider and
Excalibur EFS (Electronic  Filing Software) 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.  With the  planned  release of a
suite of video  applications  is fiscal  1999,  the Company  will target  media,
entertainment and broadcasting companies.

Text Products:

Excalibur's   text  retrieval   products   contributed  97%,  96%  and  100%  of
consolidated revenue in 1998, 1997 and 1996 respectively.

Excalibur RetrievalWare

Excalibur  RetrievalWare offers an advanced  componentized approach to knowledge
retrieval and an alternative to traditional search and retrieval systems.  It is
a comprehensive  software solution designed for enterprise  knowledge  retrieval
and intended to empower users to find mission critical data across multiple data
types. 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  6.5, was  released in the third  quarter of the fiscal
year ended January 31, 1998 and among other enhancements extends RetrievalWare's
capabilities to include browsing, searching and viewing paper-based assets in an
online "fileroom." Users can access and retrieve both paper-based and electronic
documents  using  an  industry  standard  web-browser.  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 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 400,000 word meanings, 50,000 language idioms and 1.6
million word associations.  Users enter  straight-forward  plain English queries
that are  automatically  enhanced  by the  related  terms and  concepts  thereby
increasing  the  opportunity  for the  return of  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

                                       3
<PAGE>

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 knowledge retrieval 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 document, 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.

                                       4
<PAGE>

Excalibur Internet Spider
-------------------------

Excalibur   Internet  Spider  is  a  fully  automated,   scalable  web  "spider"
application that explores and returns multimedia documents from designated areas
of intranets and the World Wide Web. The highly  configurable and  multithreaded
Excalibur  Internet  Spider  allows  users to  monitor  topics  of  interest  on
intranets  or the  Internet  based on  knowledge  profiles.  It can also monitor
an unlimited  number of  internal and  external  Web pages and  actively  gather
specific  documents  which are then  automatically  indexed  for  filtering  and
retrieval using Excalibur RetrievalWare or an alternate data management system.

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 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 3% and 4% of  consolidated
revenue in 1998 and 1997. No revenue was recorded for visual products in 1996.

Excalibur Visual RetrievalWare

Leveraging the APRP(TM)  technology,  Excalibur Visual RetrievalWare is a visual
retrieval engine and a comprehensive  image processing  library that enables the
development of  client/server  knowledge  retrieval  systems that  automatically
index and  retrieve  digital  images.  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 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.  Visual  RetrievalWare SDK
2.1 released in the second  quarter of fiscal year 1998  contained  enhancements
including Java support, multi-threaded support for multi-processor computers and
improvements in the accuracy of fuzzy  searching of similar images.  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.

                                       5

<PAGE>

Video Analysis Applications

In the fourth quarter of fiscal year 1998,  the Company  announced its intention
to deliver  video  applications  that will  include  the Video  Analysis  Engine
("VAE"),  a  comprehensive  software  developers kit and a suite of applications
utilizing both the VAE and  RetrievalWare,  designed to enable  organization and
end users to rapidly analyze,  index, retrieve and manipulate analog and digital
video assets in an intranet/Internet  environment. The VAE is designed for large
integrators and OEMs interested in developing  leading edge video  applications.
The  Company  plans to  release a suite of video  applications  in fiscal  1999,
initially targeted to media,  entertainment and broadcasting  companies who need
to automate the analysis, indexing, cataloging, viewing, searching and retrieval
of their video assets.

SERVICES

Technical Support, Implementation Support and Training

Excalibur provides technical support,  or maintenance,  to customers through its
technical support  organization  located in the Company's  Carlsbad,  California
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  and general
service  updates.  The web site  also  provides  electronic  forms  for  opening
technical   support   cases  and   suggesting   product,   service  and  Company
enhancements.

The Company also provides  installation and consulting services to its customers
on-site through  employee and independent  consultants who have been trained and
certified by the Company.  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.  Installation and
consulting services are offered as a package or on a  time-and-materials  basis.
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  RetrievalWare  products  and  services,  which  are  designed  as  an
enterprise  knowledge  retrieval solution,  to end-user customers.  The targeted
customer  group  for  the  Company's   products   include  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.


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<PAGE>

Marketing  efforts  focus  on  building  brand  awareness  and  demand  creating
activities 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 RetrievalWare products,  conduct on-line demonstrations
of products and enroll in training  courses as well as access  passworded  areas
for technical and other customer support.

The Company leverages  relationships with distributors of its software products,
and the strategic  partners  discussed below,  for a substantial  portion of its
revenues.  Many of these strategic partner  relationships  began as distribution
arrangements for Excalibur EFS.  Beginning in fiscal year 1997 and continuing in
fiscal year 1998, a number of these  agreements  were amended to provide for the
resale of Excalibur RetrievalWare products as well.

The  Company's  GSA  Contract  provides a  contractual  vehicle  for  government
agencies to place orders for EFS with the Company. It includes information about
the Company and its products and  establishes  pricing,  terms and conditions of
sales.

Strategic Alliances

In January 1998, the Company  announced a marketing and  distribution  agreement
with  Microsoft  whereby  Excalibur will  integrate its  Video  Analysis  Engine
("VAE") with  Microsoft  NetShow  (3.0) and the combined  offering  will be made
available to Microsoft NetShow developers and users.  Microsoft NetShow provides
the ability to stream  multimedia  content  across  intranets  and the Internet,
giving  content  providers,  developers  and web  professionals  the  ability to
integrate audio and video into any web  application or site.  Under the terms of
the  agreement, an  evaluation  copy  of  VAE  for  Microsoft  NetShow  will  be
distributed with each license of Microsoft NetShow.  Microsoft NetShow users can
elect to license software  development kits and deployment  licenses for VAE for
Microsoft NetShow directly from Excalibur.

In January  1998,  the Company  announced  an alliance  with Oracle  Corporation
whereby  Excalibur will deliver its Video Analysis  Engine (VAE) as an extension
to the Oracle Video Server(TM) for analysis of video content. VAE, a development
environment for managing analog and digital video assets,  allows  developers to
create an integrated  application with Oracle Video Server, a software  solution
enabling  application users to store, manage and deliver real-time,  full screen
video and  high-fidelity  audio to  web  browsers,  PCs on networks  and set-top
boxes.

In October  1997,  the Company  entered  into an  agreement  with  International
Business  Machines  in the  United  Kingdom  ("IBM-UK")  whereby  IBM-UK  is the
exclusive  reseller of the  Company's  Knowledge  Retrieval  Products to certain
government  intelligence agencies in the United Kingdom.  Under the terms of the
one year  agreement,  IBM-UK  agreed to pay a  minimum  prepaid  royalty  to the
Company with  provisions for ongoing  royalty rates when the prepaid  royalty is
depleted.  Revenues  derived from the Company's  agreement with IBM-UK were less
than 10% of the  Company's  total  revenues in the fiscal year ended January 31,
1998.

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<PAGE>

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, 1998.

In January 1997, the Company entered into an agreement with Computer Associates,
International  ("CA") to integrate Excalibur  RetrievalWare and Excalibur Visual
RetrievalWare  into CA Jasmine,  CA's  object-oriented  database and application
development  environment.  Included  with  each  license  of  CA  Jasmine  is an
evaluation  copy of Excalibur  RetrievalWare  for Jasmine and  Excalibur  Visual
RetrievalWare's  Image  Search  Class  Library.  CA  Jasmine  users can elect to
license software  developer kits and deployment  licenses for  RetrievalWare and
Visual RetrievalWare directly from Excalibur.

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 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.
The shareholders of ETNV include  Professional  Computer Systems B.V. ("PCS"), a
software  distributor  that contributed its operations to ETNV. In May 1994, PCS
entered into a software  distribution  agreement with the Company  pertaining to
the  Benelux  region of Europe  that was  superseded  by the  License.  Revenues
recognized by the Company under its distribution licenses with both ETNV and PCS
were less than 10% of total  revenues in each of the three  fiscal  years in the
period ended January 31, 1998.

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)).

                                       8
<PAGE>

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
RetrievalWare 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
intends to deliver  advanced  video analysis  technologies  based on its pattern
recognition technology to enable organizations and end users to rapidly analyze,
index,   retrieve  and  manipulate   analog  and  digital  video  assets  in  an
intranet/Internet environment.

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  $6.4  million,  $6.3  million  and $4.4
million,  respectively,  in the fiscal years ended  January 31,  1998,  1997 and
1996.

                                       9
<PAGE>

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.  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  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 Fulcrum  Technologies Inc. and
Verity,  Inc. in the  information  search and  retrieval  market.  Additionally,
Microsoft has announced its intention to market  information  retrieval software
that will compete with Excalibur's products.  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.

Employees

The Company had 168  employees at January 31, 1998,  of whom 56 were in research
and development, 61 in sales and marketing, 29 in technical support and training
and  22 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.

                                       10

<PAGE>

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 lease commenced in May 1996.

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 1998 to sublease  7,122 square
feet of the  space in its  Carlsbad  location  to a third  party.  The  sublease
agreement expires 4/30/98. 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.
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 800 square feet, respectively.  The
two leases for the Windsor  offices  expire in 1999 and the  Vitrolles  lease is
renewable  every three years over a nine year period,  but may be canceled  with
six months notice.

During the fiscal  years ended  January 31, 1997 and 1996,  the Company  vacated
leased facilities  located in McLean,  Virginia and San Diego,  California.  The
leases for the two facilities expired in May 1997 and January 1998 respectively.

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, 1998.



                                       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 System under the symbol EXCA.

The following table sets forth,  for the period February 1, 1996 through January
31,  1998,  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, 1998, was 1,202. 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  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

         Fiscal  1997  
         (February 1, 1996 - January 31, 1997)

         First Quarter....................      $ 32         $ 22  1/4
         Second Quarter...................        26  3/4      14  1/4
         Third Quarter....................        18  3/4      13  5/8
         Fourth Quarter...................        19           12





Item 6.  Selected Financial Data.

The selected  financial  data  presented  below are 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. The selected  financial  data presented  below as of
January 31, 1996,  1995 and 1994 and for the fiscal years ended January 31, 1995
and 1994 have been derived from consolidated financial statements of the Company
not contained  herein.  All of the historical  information  has been restated to
reflect the pooling of interests with ConQuest Software, Inc. ("ConQuest").

                                       12

<PAGE>
<TABLE>
<CAPTION>
                                  Fiscal Years Ended January 31,
                        ----------------------------------------------------
                           1998       1997       1996       1995       1994
                        ---------  ---------  ---------  ---------  --------- 
                               (in thousands, except per share data)
<S>                     <C>        <C>         <C>        <C>        <C>  
Statement of Operations Data:
Revenues:
  Software............. $17,202    $ 15,866    $15,004    $ 10,133   $ 10,878
  Maintenance..........   5,215       4,393      3,671       2,505      1,407
                        ---------  ---------   --------   ---------  ---------
                         22,417      20,259     18,675      12,638     12,285
                        ---------  ---------   --------   ---------  ---------
Expenses:
  Sales and marketing..  13,184      14,430      8,752       9,343     10,049
  Research and product
    development........   6,405       6,288      4,416       4,597      4,948
  Acquired in-process
    research and
    development........   1,284           -          -           -          -
  General and  
    administrative.....   4,884       3,906      3,330       5,597      3,758
  Cost of software
    revenues...........   3,039       1,630      1,064         767        884
  Cost of maintenance
    revenues...........   1,219       1,618      1,398       1,498      1,428
  Restructuring costs..     577           -        653         776          -
  Merger costs.........       -           -        490           -          -
                        ---------  ---------   --------   ---------  ---------
                         30,592      27,872     20,103      22,578     21,067
                        ---------  ---------   --------   ---------  ---------

Operating loss.........  (8,175)     (7,613)    (1,428)     (9,940)    (8,782)

Interest income, net...     374         781        544         344        463
Equity in net loss of
  affiliate............    (525)       (341)         -           -          -
Other income...........       -           -          -         208          -
                        ---------  ---------   --------   ---------  ---------
Net loss                 (8,326)     (7,173)      (884)     (9,388)    (8,319)

Preferred stock
  dividends............      14          14         14          14         14
                        ---------  ---------   --------   ---------  ---------
Net loss applicable to
  common stock......... $(8,340)   $ (7,187)   $  (898)   $ (9,402)  $ (8,333)
                        =========  =========   ========   =========  =========
Basic and diluted net 
  loss per share of
  common stock......... $ (0.64)   $  (0.58)   $ (0.08)   $  (0.85)  $  (0.79)
                        =========  =========   ========   =========  =========
Weighted average number
  of shares of common
  stock outstanding....  12,934      12,351     11,496      11,094     10,532
                        =========  =========   ========   =========  =========
</TABLE>
                                       13
<PAGE>
<TABLE>
<CAPTION>


Balance Sheet Data
 (at end of period) <F1>:
<S>                     <C>        <C>         <C>        <C>        <C>  
Cash and cash
  equivalents.......... $ 4,939    $  2,685    $ 2,903    $  2,645   $  1,280
Working capital........   9,747      14,566     12,973       6,908      1,788
Total assets...........  20,045      26,147     23,046      17,951     18,015
Accumulated deficit.... (51,945)    (43,619)   (36,446)    (35,367)   (25,965)
Total shareholders'
  equity <F2>..........  13,098      18,563     15,251       9,475     12,363

-------------
<FN>
<F1> The  Company  had no significant long-term  debt  for  any of the  periods
presented.  
<F2> No dividends have been declared or paid on the Company's  common stock.
</FN>
</TABLE>


                                       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.

The Company  believes that it is the  technology  leader in providing  accurate,
scalable, secure,  knowledge-retrieval  software solutions capable of supporting
knowledge assets of most media types including paper documents, text, images and
video.  Excalibur's  products enable users to search and retrieve these types of
data through  intranets,  local-area and wide-area  networks,  extranets and the
Internet.  It believes that these qualities  differentiate its software products
from other search engines,  toolkits and text retrieval products.  The Company's
Excalibur  RetrievalWare and Excalibur Visual  RetrievalWare  products deliver a
unified software solution for text and visual knowledge  retrieval.  The Company
is  committed  to  empowering  organizations  by  enabling  people to  transform
information  into  knowledge  and is focused on the  high-end  of the market for
knowledge retrieval.

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. The market today
for the Company's products  generally  consists of two segments,  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.

                                       15
<PAGE>

The Company  analyzes its business  based on these two business  segments.  Text
knowledge  retrieval  products include the RetrievalWare  family of products and
EFS. Visual products  include Visual  RetrievalWare,  VAE and the suite of video
applications to be released in fiscal year 1999.

The following chart  represents  revenues and expenses (in thousands of dollars)
attributable to the text and visual  businesses for the years ending January 31,
1998,  1997 and 1996.  Expenses for each business  consist of expenses  directly
attributable   to  the  business  unit  and   allocated   expenses  and  exclude
restructuring   costs,   merger  costs  and  acquired  in-process  research  and
development costs.

<TABLE>
<CAPTION>

                           Text Business                Visual Business
                        Fiscal Years Ending           Fiscal Years Ending
                            January 31,                   January 31,
                     1998      1997      1996       1998      1997      1996
                     ----      ----      ----       ----      ----      ----
<S>                <C>       <C>       <C>        <C>       <C>       <C>
Total Revenue      $21,791   $19,351   $18,675    $   626   $   908   $     -
Operating Expenses  24,209    22,879    15,926      4,522     4,993     3,034
                   -------   -------   -------     ------    ------    ------
Operating Income
  (Loss)           $(2,418)  $(3,528)  $ 2,749    $(3,896)  $(4,085)  $(3,034)

</TABLE>


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, if
video becomes a more common data type, these two markets may 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 for year ended January 31, 1998 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.  The charge
consisted of severance pay and benefits for terminated  employees.  All payments
associated with the restructuring charge were paid prior to the fiscal year end.


                                       16
<PAGE>

In July 1995, the Company  acquired  ConQuest  Software,  Inc, 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  optionholders  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.

Results of Operations

For the fiscal year ended January 31, 1998, total  revenues were $22,417,000, an
increase of 11% over total revenues of $20,259,000 in the prior fiscal year. The
net loss for the fiscal year ended January 31, 1998 was $8,326,000, or $0.64 per
common share,  compared to a net loss of $7,173,000,  or $0.58 per common share,
for the same period  last fiscal  year.  Excluding  a charge of  $1,284,000  for
in-process research and development expenses related to the Interpix acquisition
and $577,000 for restructuring  charges,  the net loss for the fiscal year ended
January  31,  1998  was  $6,465,000.   The  prior-year   total  revenues  amount
represented an 8% increase over total revenues of $18,675,000 in the fiscal year
ended January 31, 1996. The net loss for fiscal year 1996 was $884,000, or $0.08
per common share.


                                       17
<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, 1998 and the  percentage
changes in the amounts between fiscal years (dollars in thousands).


<TABLE>
<CAPTION>
                                                                     Increase
                                                                    (Decrease) 
                                                                    From fiscal
                           Fiscal years ended January 31,              year                                   
                 ------------------------------------------------   ------------
                      1998             1997             1996        1997   1996
                 --------------   --------------   --------------   ----   ----
                     $       %       $        %       $        %     %       %
                 -------   ----   -------   ----   -------   ----   ----   ---- 
<S>              <C>       <C>    <C>       <C>    <C>       <C>   <C>    <C> 
Revenues:
RetrievalWare    $15,083    67%   $ 8,572    42%   $ 4,792    26%    76%    79%
EFS                1,591     7%     6,474    32%    10,212    55%   -75%   -37%
Visual Products      
  Group              528     2%       820     4%        --     --   -36%    --%
                 -------   ----   -------   ----   -------   ----   ----   ---- 
Total software    17,202    77%    15,866    78%    15,004    80%     8%     6%
    
Maintenance        5,215    23%     4,393    22%     3,671    20%    19%    20%
                 -------   ----   -------   ----   -------   ----   ----   ----
Total revenues   $22,417   100%   $20,259   100%   $18,675   100%    11%     8%
                 =======   ====   =======   ====   =======   ====   ====   ====
Expenses:
 Sales and        
  marketing      $13,184    59%   $14,429    71%   $ 8,752    47%    -9%    65%

 Research and
  product
  development      6,405    29%     6,289    31%     4,416    24%     2%    42%

 Acquisition of 
  In-process
  research and   
  development      1,284     6%        --     --       --     --      --    --

 General and
  administrative   4,884    22%     3,906    19%     3,330    18%    25%    17%
   
 Cost of
  revenues         4,258    19%     3,248    16%     2,462    13%    31%    32%
    
 Restructure &
  merger costs       577     3%        --    --      1,143     6%     -   -100%
                 -------   ----   -------   ----   -------   ----   ----  ----- 
Total expenses   $30,592   136%   $27,872   138%   $20,103   108%    10%    39%
                 =======   ====   =======   ====   =======   ====   ====  =====
</TABLE>
                                       18
<PAGE>


Software  revenues  increased 8% in the current fiscal year to $17,202,000  from
$15,866,000  in the prior  fiscal  year.  During  fiscal  year 1998 the  Company
effectively   transitioned   from  the  EFS  product   line  to  the   Excalibur
RetrievalWare  product  family.  RetrievalWare  revenue  growth  was  positively
impacted by the introduction of the RetrievalWare  FileRoom product in the third
quarter of fiscal 1998,  which  allowed the EFS  customer  base to make a smooth
transition to RetrievalWare. Product revenue from RetrievalWare increased 76% to
$15,083,000  in  fiscal  year 1998  from  $8,572,000  last  year.  Revenues  for
RetrievalWare were $4,792,000 in fiscal year 1996.  Excalibur  RetrievalWare has
emerged as the  Company's  dominant  product line  representing  88% of software
revenues in fiscal 1998  compared to 54% and 32%, in fiscal years 1997 and 1996,
respectively.

The Company  continued to attract some of the world's largest  organizations  as
customers in fiscal year 1998.  Some of Excalibur's  new customers  include Sony
Marketing  of Japan  and  Applied  Materials.  Excalibur  was  chosen as the key
retrieval technology for Anheuser Busch, Boeing and the United States Department
of  Agriculture.   In  the  broadcasting  and  entertainment  industry,   Turner
Entertainment   and  Viacom  were  new   customers  in  fiscal  year  1998.   In
telecommunications, the Company forged new agreements with GTE, Northern Telecom
and Geo-Com.

The Company also earns  revenues  through  software  distribution  licenses with
strategic  partners.  In the  second  quarter  of fiscal  year 1998 the  Company
announced its new partners' program,  Excalibur  Edge(TM).  The Program provides
partners  with the  Excalibur  RetrievalWare  family of  products  and  includes
marketing opportunities,  comprehensive sales support, product certification and
entry  into  the  knowledge  retrieval  market.  Some  of  the  world's  largest
technology   companies  have  become  Excalibur  partners  including  Microsoft,
Computer Associates,  Sony Marketing of Japan,  Sequent Computer Systems,  Inc.,
Informix  Software Inc.,  Korea  Electric  Power Data Network Co. Ltd.  ("KDN"),
Trion Technologies, Inc., BTG Inc. and KPMG Peat Marwick LLP.

Revenue growth continued during fiscal year 1998 for the Company's international
sales  operation,   Excalibur   Technologies   International,   Ltd.   ("ETIL"),
headquartered in the United Kingdom.  Revenues were  $7,838,000,  $5,940,000 and
$3,551,000,  respectively, in fiscal years 1998, 1997 and 1996. The increases in
revenues in fiscal years 1998 and 1997 over the  previous  fiscal years were 32%
and 67%, respectively. Overall revenue of the Company's international operations
increased in spite of the Asian financial  crisis which had a negative impact on
Excalibur sales in the Pacific Rim. Revenues in the Pacific Rim were 15% less in
fiscal year 1998 compared to 1997.  Pacific Rim revenues increased 97% in fiscal
year 1997  compared  to 1996.  During  this  three-year  period,  revenues  from
international  operations have been provided primarily by software licenses with
various  European  commercial  and government  customers and a  well-established
European reseller network.

Excalibur  continued to expand its government  market  presence both in the U.S.
and abroad. This included new installations  supporting the U.S. Army, Navy, Air
Force and intelligence  community,  along with new  installations for government
entities in Sweden.

                                       19
<PAGE>
The Company's  transition to the  Excalibur  RetrievalWare  product line and the
introduction of RetrievalWare  FileRoom resulted in the continued downward trend
of EFS software product revenue in fiscal year 1998. Revenues from the licensing
of Excalibur EFS software products,  expressed as a percentage of total software
revenue was 9% in fiscal year 1998,  compared to 41% and 68%,  respectively,  in
fiscal years 1997 and 1996. The Company continued to focus development and sales
and  marketing  expenditures  in fiscal  year 1998 on  RetrievalWare  and Visual
RetrievalWare  software  products.  The  decline in EFS  revenues  was more than
offset by increased sales of RetrievalWare products.

Software  maintenance and customer support revenues were $5,215,000,  $4,393,000
and $3,671,000, respectively, in fiscal years 1998, 1997 and 1996. The increases
in revenues in fiscal  years 1998 and 1997 over the  previous  fiscal years were
19%  and  20%,  respectively.  Additions  to  the  RetrievalWare  customer  base
accounted for the increased revenues.

Sales and marketing costs decreased 9% in fiscal year 1998, from  $14,429,000 in
fiscal year 1997 to  $13,184,000  in fiscal year 1998.  A reduction in marketing
programs that do not directly  relate to revenues in the current fiscal year was
a major component of the decrease.  The  reorganization  in the first quarter of
fiscal year 1998 resulted in significant  organizational and management changes.
As part of a  company-wide  workforce  reduction of 10%, the number of sales and
marketing  personnel  decreased  from 66 at the end of fiscal year 1997 to 61 at
the end of fiscal year 1998. As a result, salaries,  benefits,  travel and other
employee related costs were reduced.

In fiscal year 1997, sales and marketing  costs increased by 65% to  $14,429,000
from  $8,752,000  in fiscal year 1996.  During  fiscal year 1997 the Company was
focused on building the sales,  marketing  and business  development  staffs.  A
total of 15 people  were  added to these  departments.  As a  result,  salaries,
benefits,  travel,  recruiting  fees and certain other employee costs  increased
significantly  between fiscal years.  The Company  incurred  increased  costs in
connection  with its  product  promotion  and brand  recognition  programs.  The
Company  was very  active  in  demonstrating  its  products  at trade  shows and
industry  meetings,  creating new product literature and advertising in computer
industry trade  publications.  The Company also engaged the services of a public
relations firm to assist its marketing efforts resulting in increased consulting
costs. In fiscal year 1997, the Company also recorded employee  severance costs,
including salaries and benefits, amounting to approximately $358,000, related to
the termination of certain sales, marketing and business development personnel.

During fiscal year 1998,  the Company  continued to develop new products and new
product  features while  increasing  research and product  development  expenses
modestly.  Research and product  development  costs  increased 2% in fiscal year
1998 to $6,405,000 from $6,289,000 in fiscal year 1997. Continued development of
the Excalibur  RetrievalWare  products was  emphasized in fiscal year 1998 while
EFS product  development  was  significantly  curtailed.  The reduction in costs
associated  with the  development  of the EFS product line was offset by similar
increases  in costs for the  development  of Excalibur  RetrievalWare  products.
During  the  year, the Company  introduced  Excalibur  RetrievalWare  6.5  which
features  several major  enhancements  including the  introduction  of Excalibur
RetrievalWare FileRoom. The FileRoom option represents an upgrade path for users
of the  Company's  EFS  product and is  designed  to help  organizations  better
utilize  all of their  knowledge  assets by  enabling  them to  search  for both
paper-based  and  electronic  documents  as a  unified  view  using an  industry
standard web-browser. In addition, Excalibur RetrievalWare 6.5 delivers enhanced
summarization capabilities, search client improvements and metadata clustering.

                                       20
<PAGE>

In the second  quarter of fiscal  year 1998,  the  Company  recorded a charge to
expense  of  $1,284,000  for the cost of  in-process  research  and  development
acquired in the merger with Interpix. The purchase 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.  Including the
acquired Interpix  employees,  personnel in the research and product development
decreased by one person, to 85 in fiscal year 1998.

In fiscal year 1997, the Company made a major investment in product  development
in order to develop new products and enhance  existing  products.  During fiscal
year 1997 the  Company  introduced  RetrievalWare  Version 6.0 as well as Visual
RetrievalWare, an application development environment product that enables users
to search for visual information  directly from their intranets,  corporate data
bases,  the  Internet  and other  sources.  As a result,  research  and  product
development  costs  increased  42%  in  fiscal  year  1997  to  $6,289,000  from
$4,416,000 in fiscal year 1996.  Most of the increase was due to the addition of
25  employees  to  the  technical  staff,  including  software  engineering  and
management personnel and to the expansion of the product development facilities.
Consequently,  salaries and other employee costs increased between years as well
as office rent, equipment costs and computer equipment depreciation.

General and  administrative  expenses  increased from  $3,330,000 in fiscal year
1996 to  $3,906,000  in fiscal year 1997 and to  $4,884,000 in fiscal year 1998.
The increases were primarily due to 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 1998,
1997 and 1996 was $250,000, $150,000 and $91,000, respectively.

In fiscal year 1998,  the cost of revenues,  expressed as a percentage  of total
revenues, was 19%, a 3% increase over the 16% recorded in fiscal year 1997. Cost
of revenues  was $4,258,000 and $3,248,000,  respectively,  in fiscal years 1998
and  1997.  The  increase  relates  primarily  to  the  formation  of a  product
implementation  group late in fiscal year 1997, which grew to 8 employees by the
end  of  fiscal  year  1998,   resulting   in   additional   salaries   expense,
implementation  project  subcontractors  expense,  as well as increased overhead
costs. Additionally, cost of revenues in fiscal year 1998 contained amortization
expense of intangible  assets  associated  with the  acquisition of Interpix.  A
series of Excalibur  RetrievalWare  releases  shipped  throughout  the year also
factored into the increase. Costs of electronic media, documentation and related
shipping costs all increased as a result. Reorganization and streamlining of the
customer  support  group in the first  quarter of the  current  fiscal  year cut
expenses  and  decreased  the  costs  of   maintenance   as  compared  with  the
corresponding costs in fiscal year 1997.

The cost of revenues, expressed as a percentage of total revenues, increased 3%,
to 16% in  fiscal  year 1997 from 13% in fiscal  year  1996.  Upgraded  training
facilities and additional  staffing in the education  services  department  were
primarily  responsible  for  the  increase.   Increased  costs  associated  with
supporting the larger installed base of Excalibur  RetrievalWare  end-users were
also a contributing factor.

                                       21
<PAGE>

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 $577,000 in the first  quarter.  The charge  consisted of  severance  pay and
benefits for terminated  employees.  In fiscal year 1996, the Company recorded a
restructuring  charge of $653,000  related to the relocation of its headquarters
from  California  to the  Washington,  D.C.  area and the  consolidation  of the
technical teams into two facilities.  The costs consisted primarily of severance
payments to terminated  employees and leased  facility  abandonment  costs.  The
Company also incurred  $490,000 in legal,  accounting and other costs associated
with the merger with ConQuest.

The activities for fiscal year 1998,  including those discussed above,  resulted
in total  expenses  of  $30,592,000,  a 10%  increase  from  total  expenses  of
$27,872,000  in the previous  fiscal year. In fiscal year 1997,  total  expenses
increased by 39% to $27,872,000  from $20,103,000 in fiscal year 1996. The total
number of employees decreased from 173 employees at the beginning of the current
fiscal year to 168 at January 31, 1998. The Company had 126 employees at January
31, 1996.

As a result of a decreased  level of  investments  held during fiscal year 1998,
net interest income decreased to $374,000 from $781,000 in fiscal year 1997. Net
interest income increased  $237,000 in fiscal year 1997, from $544,000 in fiscal
year 1996,  primarily due to a higher level of invested  funds.  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, 1998. This charge in fiscal 1998,  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, 1998,
was $525,000.

Liquidity and Capital Resources

In the fiscal year ended  January 31, 1998,  the Company's  combined  balance of
cash, cash  equivalents and  investments in marketable  securities  decreased by
$4,677,000 to $6,435,000 as summarized below (in thousands). At January 31, 1998
and 1997,  investments in marketable  securities consisted of U.S.Treasury Bills
with maturities of less than one year.

                         January 31     January 31
                            1998           1997        Change
                         ----------    -----------   -----------
          Cash and cash
            equivalents  $   4,939     $    2,685    $   2,254
          Investments        1,496          8,427       (6,931)
                         ----------    -----------   -----------
            Total        $   6,435     $   11,112    $  (4,677)
                         ==========    ===========   ===========


                                       22
<PAGE>

Cash of  $4,376,000,  used to fund  operations for the fiscal year ended January
31, 1998, was  significantly  less than the $8,326,000 net loss for the year due
primarily to several non-cash charges.  Those charges, which totaled $3,350,000,
included acquired research and development costs of $1,284,000, depreciation and
amortization  of $1,540,000 and the Company's  share of the net loss of ETNV and
amortization  of  ETNV  warrants  totaling  $525,000.   Reductions  in  accounts
receivable and prepaid expenses provided $781,000. In fiscal year 1997 cash used
in operations was $8,703,000, consisting primarily of the $7,173,000 loss.

In fiscal year 1998, the exercise of employee stock options  provided  $613,000.
In fiscal year 1997,  $9,722,000 was provided from the issuance of common stock.
In March 1996,  the Company  completed  a private  placement  sale of its common
stock that  provided  net cash  proceeds  of  approximately  $8,388,000  and the
exercise of stock options by employees provided $1,334,000.

For the year ended January 31, 1998,  net cash was provided from the maturity of
Treasury  Bills of  $6,931,000.  Net cash of $55,000 was provided as a result of
the acquisition of Interpix. In the current year, cash was also used to purchase
computer and other equipment with a total cost of $757,000 and to make a $95,000
loan to ETNV. In fiscal year 1997 fixed asset additions totaled $2,394,000. Cash
was used to fund the purchase of furniture, equipment and leasehold improvements
for the Company's new corporate headquarters in Vienna,  Virginia. In July 1996,
the  Company  made  a  cash   investment   of  $488,000  in  ETNV  and  incurred
organizational costs of approximately  $68,000 in connection with its formation,
thereby acquiring approximately 13.2% of the outstanding voting capital stock.

The  number of days sales  outstanding  ("DSO") at  January  31,  1998  declined
significantly from the number at January 31, 1997.  Management believes that the
allowance for doubtful accounts of $527,000 at January 31, 1998 is adequate.

The Company's  current  balances of cash,  cash  equivalents and investments 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 1999, the Company's
balance of cash,  cash  equivalents  and  marketable  securities  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.


                                       23
<PAGE>


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  dependant  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  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.

Primarily due to large operating losses incurred by the Company,  its balance of
cash, cash  equivalents and  investments  has declined  substantially  since the
proceeds  of the  private  placement  discussed  above  were  received.  Various
factors,  including those discussed above,  have somewhat  inhibited the overall
revenue growth that management had expected for the last four quarters.


                                       24
<PAGE>

As a  result,  near the end of the  first  quarter  of  fiscal  year  1998,  the
short-term  revenue  expectations  of  management  were  moderated  and  planned
expenditures  were reduced.  As discussed  previously,  the Company  reduced its
workforce by  approximately  10% from the number of employees at April 30, 1997.
In addition,  the Company  postponed certain  long-range  programs and curtailed
other  expenses  in order to  achieve  an  overall  reduction  in  expenditures.
Marketing  efforts were focused on the  increase of current year  revenues.  The
text  development  staff was  focused on the  completion  of version  6.5 of the
Excalibur  RetrievalWare product and the related FileRoom option, a product that
management  believes has  facilitated  the transition of the installed  customer
base of Excalibur  EFS to  Excalibur  RetrievalWare.  The Company  began to ship
these  products to customers in October 1997.  The Company has also released the
Excalibur  Internet  Spider,  a product  that  enhances the web crawling and web
publishing  capabilities  of Excalibur  RetrievalWare,  or other data management
systems,  in Internet and intranet  environments.  In addition,  the Company has
made  other  organizational  changes  in order to  sharpen  the focus of product
development and business  development  efforts on selected video applications of
the Excalibur Visual RetrievalWare technology.

Management  believes that the changes and  initiatives  discussed  above and the
investments of time and money in the training of the sales force, improved sales
productivity and the overall financial performance of the Company in the second,
third and  fourth  quarters  of fiscal  year  1998.  Revenues  for each of these
quarters were increased  from first quarter  revenues and the level of quarterly
costs and expenses was reduced.  As a result,  operating  losses were reduced in
the  second  and  third  quarters  of  fiscal  year  1998 and net  income of $80
thousand, or $0.01 per common share was recorded in the fourth quarter of fiscal
year 1998.  The use of cash was slowed  during this  period.  Consequently,  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 used primarily 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.

As of  January  31,  1998,  the  Company  had  significant  net  operating  loss
carryforwards  ("NOLs") of  approximately  $67,066,000.  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  $8,326,000  for the fiscal  year ended  January  31, 1998 and has
incurred  cumulative  losses of  approximately  $16,383,000  over the last three
fiscal  years.  The  accumulated  deficit of the Company at January 31, 1998 was
$51,945,000.  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.

                                       25
<PAGE>

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

The Company is in the process of identifying  operating and application software
challenges  related to the year 2000.  While the Company expects to resolve year
2000 compliance issues substantially  through normal replacement and upgrades of
software,  there can be no  assurance  that  there will not be  interruption  of
operations or other limitations of system functionality or that the Company will
not  incur  substantial  costs  to  avoid  such  limitations.   Any  failure  to
effectively monitor, implement or improve the Company's operational,  financial,
management and technical support systems could have a material adverse effect on
the Company's business and consolidated results of operations.

New Accounting Pronouncements

In February 1997, the Financial Accounting Standards Board, ("FASB") issued SFAS
No.  128,  "Earnings  Per  Share."  SFAS  No.  128 is  effective  for  financial
statements  issued for periods  ending after  December  15,  1997.  SFAS No. 128
requires  dual  presentation  of basic and diluted  earnings per share  ("EPS").
Basic EPS 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.  The Company has implemented  SFAS No.
128 in fiscal year 1998 and it has had no material impact.

In June 1997, SFAS No. 130, "Reporting  Comprehensive Income," and SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" were issued
and are  effective for the fiscal year ending  January 31, 1999.  The Company is
evaluating  these  statements  to  determine  the  impact on its  reporting  and
disclosure requirements.

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.  SOP 97-2,  "Software  Revenue  Recognition,"  is
effective  for revenue  transactions  entered  into by the Company in its fiscal
year ending January 31, 1999.  Management believes that the changes contained in
SOP 97-2 will not have a material adverse financial impact on the Company.




                                       26
<PAGE>



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.




                                       27

<PAGE>


                                   PART III

Item 10. Directors and Executive Officers of the Registrant.

Information on directors and executive  officers of the Company will be included
under the  heading  "Election  of  Directors"  and  elsewhere  in the  Company's
definitive Proxy Statement  relating to the Annual Meeting of Shareholders to be
held on June 18, 1998 (the "Proxy  Statement")  which is incorporated  herein by
reference.

Item 11. Executive Compensation.

Information  on  executive  compensation  will be  included  under  the  heading
"Executive   Compensation"  of  the  Proxy  Statement   incorporated  herein  by
reference.

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

Information of beneficial  ownership of the Company's voting  securities by each
director and all  officers  and  directors as a group and by any person known to
beneficially  own more than 5% of any class of voting  security  of the  Company
will be included  under the heading  "Security  Ownership of Certain  Beneficial
Owners and Management" in the Proxy Statement incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

Information  relating to certain  relationships and related transactions will be
included under the heading "Certain  Relationships and Related  Transactions" in
the Proxy Statement incorporated herein by reference.


                                   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
         Report of Independent Public Accountants
         Consolidated Balance Sheets
         Consolidated Statements of Operations
         Consolidated Statements of Shareholders' Equity
         Consolidated Statements of Cash Flows
         Notes to Consolidated Financial Statements


                                       28
<PAGE>

      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

         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.

          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)

         10.04    Consulting  Agreement  with James W. Dowe III, dated 
                  July 1, 1990. (1)

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

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

         10.07    Employment  Agreement,  dated July 20,  1995,  with Edwin R.
                  Addison.  (4)

         10.08    1995 Incentive Plan, dated November 1995. (3)

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

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

                                       29
<PAGE>

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

         10.12    Office Lease (1921 Gallows Road,  Vienna,  Va.),  commencing
                  May 1996. (4)

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

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

         22.01    Subsidiaries of Excalibur Technologies Corporation.

         23.01    Consent  of  Arthur   Andersen   LLP,   Independent   Public
                  Accountants.
----------------------

(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.



 (b)  Reports on Form 8-K.

None.


                                       30
<PAGE>



Index to Consolidated Financial Statements                           Page

Reports of Independent Public Accountants                             F-1, F-21

Consolidated Balance Sheets
      As of January 31, 1998 and 1997                                 F-2

Consolidated Statements of Operations
      For the fiscal years ended January 31, 1998, 1997 and 1996      F-3

Consolidated Statements of Shareholders' Equity
      For the fiscal years ended January 31, 1998, 1997 and 1996      F-4

Consolidated Statements of Cash Flows
      For the fiscal years ended January 31, 1998, 1997 and 1996      F-5

Notes to Consolidated Financial Statements                            F-7

Schedule II - Valuation and Qualifying Accounts
      For the fiscal years ended January 31, 1998, 1997 and 1996      F-22




                                       31
<PAGE>



                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Excalibur Technologies Corporation:

We have  audited  the  accompanying  consolidated  balance  sheets of  Excalibur
Technologies Corporation (a Delaware corporation) and subsidiaries as of January
31,  1998 and 1997,  and the  related  consolidated  statements  of  operations,
shareholders'  equity and cash  flows for each of the three  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 1997, and the results of
their  operations and their cash flows for each of the three 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-1

<PAGE>
<TABLE>
<CAPTION>
                      EXCALIBUR TECHNOLOGIES CORPORATION
                               AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share data)

                                                            January 31,
                                                      ------------------------
                    ASSETS                              1998           1997
                                                      ---------      ---------
<S>                                                   <C>            <C>   
Current Assets:
   Cash and cash equivalents....................      $  4,939       $  2,685
   U.S. government securities, at cost..........         1,496          8,427
   Accounts receivable, net.....................         9,189          9,383
   Prepaid expenses and other ..................         1,071          1,655
                                                      ---------      ---------
        Total current assets....................        16,695         22,150

Equipment and Leasehold Improvements, net.......         2,267          2,939
Other Assets....................................         1,083          1,058
                                                      ---------      ---------
                                                      $ 20,045       $ 26,147
                                                      =========      =========

     LIABILITIES AND SHAREHOLDERS' EQUITY 
Current Liabilities:
   Accounts payable.............................      $  2,106       $  1,680
   Accrued expenses.............................         1,886          2,310
   Deferred revenues............................         2,708          2,693
   Deferred compensation........................           247            901
                                                      ---------      ---------
        Total current liabilities...............         6,947          7,584
                                                      ---------      ---------

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; 13,179 and 12,449
         shares issued and outstanding..........           132            124
   Additional paid-in capital...................        64,714         61,830
   Accumulated deficit .........................       (51,945)       (43,619)
   Cumulative translation adjustment............           (74)           (43)
                                                      ---------      ---------
        Total shareholders' equity..............        13,098         18,563
                                                      ---------      ---------
                                                      $ 20,045       $ 26,147
                                                      =========      =========

     The accompanying notes to the consolidated financial statements are an
               integral part of these consolidated balance sheets.

</TABLE>

                                      F-2
<PAGE>
<TABLE>
                       EXCALIBUR TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
<CAPTION>
                                   For the Fiscal Years Ended January 31,
                                   --------------------------------------
                                      1998          1997          1996
                                    --------      --------      --------
<S>                                 <C>           <C>           <C>
Revenues:     
   Software .....................   $ 17,202      $ 15,866      $ 15,004
   Maintenance ..................      5,215         4,393         3,671
                                    --------      --------      --------
                                      22,417        20,259        18,675
                                    --------      --------      --------
Expenses:
   Sales and marketing ..........     13,184        14,430         8,752
   Research and product
     development ................      6,405         6,288         4,416
   Acquired in-process research
     and development ............      1,284          --            --
   General and administrative ...      4,884         3,906         3,330
   Cost of software revenues ....      3,039         1,630         1,064
   Cost of maintenance revenues..      1,219         1,618         1,398
   Restructuring costs ..........        577          --             653
   Merger costs .................       --            --             490
                                    --------      --------      --------
                                      30,592        27,872        20,103
                                    --------      --------      --------

Operating loss ..................     (8,175)       (7,613)       (1,428)

Other income (expenses):
   Interest income, net .........        374           781           544
   Equity in net loss of
    affiliate ...................       (525)         (341)           --
                                    --------      --------      --------

Net loss ........................     (8,326)       (7,173)         (884)

Dividends on preferred stock ....         14            14            14
                                    --------      --------      --------
Net loss applicable to
   common stock .................   $ (8,340)     $ (7,187)     $   (898)
                                    ========      ========      ========
Basic and diluted net loss per
   common share .................   $  (0.64)     $  (0.58)     $  (0.08)
                                    ========      ========      ========
Weighted-average number of
   common shares outstanding ....     12,934        12,351        11,496
                                    ========      ========      ========

       The  accompanying notes to the consolidated  financial  statements are an
            integral part of these consolidated statements.
</TABLE>

                                      F-3
<PAGE>
<TABLE>
                      EXCALIBUR TECHNOLOGIES CORPORATION
                               AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                (in thousands)
<CAPTION>
                                                                  
                         Preferred Stock   Common Stock     Add'l                          Cumulative
                         ---------------   ------------   Paid-in  Deferred   Accumulated  Translation
                           Shares     $    Shares    $    Capital    Comp.      Deficit     Adjust.     Total
                           ------   -----  ------   ----  --------  -------    ---------    ------     --------
<S>                            <C>  <C>    <C>      <C>    <C>       <C>       <C>          <C>        <C>    
Balance, January 31, 1995.     27   $ 271  11,231   $112   $44,523   $  (38)   $(35,367)    $ (26)     $ 9,475

Issuance of common stock
upon exercise of options..      -       -     714      7     6,726        -          -          -        6,733
Issuance of common stock  
for services..............      -       -       8      -        36        -          -          -           36
Amortization of deferred
compensation..............      -       -       -      -       (13)      38          -          -           25
Accrued dividends paid....      -       -       -      -         -        -         (14)        -          (14)
Translation adjustment....      -       -       -      -         -        -          -         61           61
Adjustment for change in
ConQuest fiscal year......      -       -       -      -         -        -        (181)        -         (181)
Net loss..................      -       -       -      -         -        -        (884)        -         (884)
                           ------   -----  ------   ----   --------  -------   ---------    ------     --------  
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
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
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
                           ======   =====  ======   ====   ========  =======   =========    ======     ========

      The  accompanying notes to the consolidated  financial  statements are an
                 integral part of these consolidated statements.
</TABLE>

                                      F-4
<PAGE>
<TABLE>
                       EXCALIBUR TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<CAPTION>
                                                   For the Fiscal Years Ended
                                                            January 31,
                                               ---------------------------------
                                                  1998        1997       1996
                                               ---------   ---------   ---------
<S>                                            <C>         <C>         <C>      
Cash Flows from Operating Activities:
Net loss ...................................   $ (8,326)   $ (7,173)   $   (884)
Adjustments to reconcile net loss to net
cash used in operating activities:
   Depreciation and amortization ...........      1,540       1,367       1,048
   Acquired in-process research and   
   development costs........................      1,284          --          --
   Equity in net loss of affiliate .........        525         341          --
   Loss on disposal of assets ..............          2          36          66
   Compensation paid in common stock .......         --          --          36
   Amortization of deferred compensation ...         --          --          25
Changes in operating assets and liabilities:
   Accounts receivable, net ................        254      (2,324)     (3,289)
   Prepaid expenses and other ..............        527        (767)       (476)
   Accounts payable and accrued expenses ...       (193)        (97)        (41)
   Deferred revenues .......................         11         (86)       (244)
   Adjustment for change in fiscal year 
   of ConQuest..............................         --          --        (181)
                                               --------    --------    --------
   Net cash used in operating activities ...     (4,376)     (8,703)     (3,940)
                                               --------    --------    --------

Cash Flows from Investing Activities:
   Purchase of investments .................    (22,301)    (17,959)    (12,023)
   Proceeds from maturities of investments..     29,231      19,873      10,287
   Purchases of equipment and leasehold       
   improvements.............................       (757)     (2,394)       (541)
   Loan to/Investment in affiliate .........        (95)       (556)         --
   Acquisition, net of cash used ...........         55          --          --
                                               --------    --------    --------
   Net cash provided by (used in)
   investing activities.....................      6,133      (1,036)     (2,277)
                                               --------    --------    --------

Cash Flows from Financing Activities:
   Proceeds from notes payable .............         --          --         238
   Proceeds from the issuance of 
   common stock.............................        613       9,722       6,688
   Dividends paid ..........................         --          --         (14)
   Repayment of notes payable ..............        (40)        (39)       (549)
                                               --------    --------    --------
   Net cash provided by financing
   activities...............................        573       9,683       6,363
                                               --------    --------    --------
The Effect of Exchange Rate Changes
on Cash.....................................        (76)       (162)        112
                                               --------    --------    --------
Net Increase (Decrease) in Cash and      
Cash Equivalents............................      2,254        (218)        258

Cash and Cash Equivalents,
beginning of period.........................      2,685       2,903       2,645
                                               --------    --------    --------

Cash and Cash Equivalents, end of period ...   $  4,939    $  2,685    $  2,903
                                               ========    ========    ========


       The  accompanying notes to the consolidated  financial  statements are an
            integral part of these consolidated statements.
</TABLE>

                                      F-5
<PAGE>
<TABLE>

                       EXCALIBUR TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (continued, in thousands)
<CAPTION>

                                                   For the Fiscal Years Ended
                                                            January 31,
                                               ---------------------------------
                                                  1998        1997       1996
                                               ---------   ---------   ---------
<S>                                            <C>         <C>         <C>     
Supplemental Disclosures of Cash Flow
Information:
   Cash paid for interest...................   $      2    $     11    $     61
                                               =========   =========   =========

Supplemental Disclosures of Noncash
Investing and Financing Activities:

   Issuance of warrants to purchase         
   common stock.............................   $      -    $    758    $      -
                                               =========   =========   =========
   Stock options exercised under
   deferred compensation arrangements.......   $    457    $     83    $     45
                                               =========   =========   =========

   Issuance of common stock to acquire      
   Interpix.................................   $  1,822    $      -    $      -
                                               =========   =========   =========



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

</TABLE>


                                      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. Certain
amounts   presented  in  the  prior  years'   financial   statements  have  been
reclassified to conform with the fiscal year 1998 presentation.

The Company designs,  develops and markets knowledge retrieval software products
capable of supporting  paper,  text,  image and video data.  The Company  offers
consulting, training, product maintenance and systems 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  $16.4 million over
the last  three  fiscal  years and the  accumulated  deficit  of the  Company at
January 31, 1998 was $51.9  million.  The  Company's  operations  are subject to
certain risks and uncertainties including, among others, the dependence upon the
timing  of  the  closing  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  current  balances of cash,  cash  equivalents and investments 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 1999, the Company's
balance of cash,  cash  equivalents  and  marketable  securities  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.

                                      F-7
<PAGE>

Acquisition of Interpix Software Corporation

On May  5,  1997,  the  Company  acquired  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
has been applied to this acquisition  transaction and, accordingly,  the results
of  operations  of Interpix  have been  included in the  Company's  consolidated
results of  operations  for the period  ended  January 31, 1998 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 which  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 in the three month  period  ended July 31,
1997.  The excess of the purchase price over the fair value of the net assets of
Interpix was approximately  $545,000.  This amount represents  intangible assets
related to the completed technology base, the assembled workforce and tradenames
acquired and is being  amortized on a straight-line  basis over five years.  The
amount of  amortization  for the year ended  January 31, 1998 was  approximately
$81,000.

Acquisition of ConQuest Software, Inc.

In July  1995,  Excalibur  acquired  ConQuest,  a  private  company  located  in
Columbia,  Maryland,  engaged in the business of providing natural language text
management   software  tools.  The  former  shareholders  of  ConQuest  received
approximately  1,427,000 shares of common stock of Excalibur in exchange for all
of the common stock of ConQuest. Outstanding options to purchase common stock of
ConQuest were converted into options to purchase approximately 572,000 shares of
Excalibur  common  stock.  The  acquisition  was  accounted  for as a pooling of
interests  and, as such,  the  accompanying  consolidated  financial  statements
reflect the combined results of the pooled businesses for the respective periods
presented.  In fiscal year 1996, the Company  recorded a charge of approximately
$490,000 for the estimated  transaction  costs of completing  the merger between
Excalibur  and  ConQuest.  The  costs  included  legal,   accounting  and  other
professional fees of $363,000 and other costs of $127,000. These costs were paid
by January 31, 1996.


                                      F-8

<PAGE>

Separate  results of  Excalibur  and  ConQuest  for the  periods  preceding  the
acquisition are as follows (in thousands):

                                             Fiscal quarter     
                                                  ended           
                                             April 30, 1995  
         Revenues:                           --------------   
           Excalibur, previously reported        $  2,801 
           ConQuest ......................            840       
                                                 ---------      
         Total, as restated ..............       $  3,641   
                                                 =========        

          Net Loss:
            Excalibur, previously reported       $   (466)        
            ConQuest .....................           (137)       
                                                 ---------    
          Total, as restated .............       $   (603)      
                                                 =========    

Prior to its acquisition by Excalibur,  ConQuest reported operating results on a
calendar year basis.  ConQuest's  separate results for prior years have not been
restated  to conform  to the fiscal  year of  Excalibur.  Therefore,  ConQuest's
separate  results of  operations  for the month  ended  January 31, 1995 are not
reflected in the consolidated  statement of operations for the fiscal year ended
January 31, 1996. The revenues,  operating loss and net loss of ConQuest for the
month ended January 31, 1995 were $138,000, $177,000 and $181,000, respectively.


 (2)   SIGNIFICANT ACCOUNTING POLICIES

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

Revenues  from  the sale of  computer  software  licenses  are  recognized  upon
shipment of product provided that no significant  vendor  obligations remain and
that  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.

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.  SOP 97-2,  "Software  Revenue  Recognition,"  is
effective  for revenue  transactions  entered  into by the Company in its fiscal
year ending January 31, 1999.  Management believes that the changes contained in
SOP 97-2 will not have a material adverse financial impact on the Company.

                                      F-9
<PAGE>

Research and Development Costs

No product  development  costs were  capitalized  and there were no  capitalized
costs not yet  amortized,  during the fiscal years ended January 31, 1998,  1997
and 1996.

Cash and Cash Equivalents

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.

Marketable Securities

Under Statement of Financial  Accounting Standard ("SFAS") No. 115,  "Accounting
for Certain  Investments in Debt and Equity  Securities," 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 and 1997,  the  aggregate  fair value of the  securities  based upon quoted
market prices was $1,497,000 and $8,428,000 respectively.

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.

Depreciation and Amortization

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 term of the applicable lease.

                                      F-10
<PAGE>

Net Loss Per Common Share

In February 1997, the Financial Accounting Standards Board, ("FASB") issued SFAS
No.  128,  "Earnings  Per  Share."  SFAS  No.  128 is  effective  for  financial
statements  issued for periods  ending after  December 15, 1997. The Company has
implemented  SFAS No.  128 in fiscal  year  1998.  SFAS No.  128  requires  dual
presentation of basic and diluted earnings per share ("EPS"). Basic EPS 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  2,631,636  shares of common
stock,  and 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, 1998 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 government  agencies and to major  corporations,
including  distributors  that serve a wide variety of U.S. and foreign  markets.
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 $527,000 and $367,000  respectively,  at January 31, 1998
and 1997.

Impairment of Long-lived Assets

The  Company  complies  with SFAS No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to be Disposed  of." SFAS No. 121
requires that long-lived  assets and certain  identifiable  intangibles held and
used by an entity be  reviewed  for  impairment  whenever  events or  changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  To determine  recoverability of its long-lived assets, the Company
evaluates  whether  future  undiscounted  net cash  flows  will be less than the
carrying amounts of net assets. Impairment is measured at fair value.


                                      F-11
<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 seven  years but only if ETNV  achieves  certain  financial
objectives.  The value of the  warrants  was  estimated  to be  $758,000  and is
included at January 31, 1998 in the  investment  in  affiliate  account,  net of
amortization, contained in the accompanying consolidated balance sheets.

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 options to
sell their  shares to the Company  according  to a  revenue-based  formula.  The
Company  recorded  revenue of  approximately  $1,656,000  and  $1,191,000 in the
fiscal  years  ended  January 31,  1998 and 1997,  respectively,  related to the
License.

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.

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, 1998 and January 31, 1997
is included in equity in net loss of affiliate in the accompanying  consolidated
statements of operations  for the fiscal year ended January 31, 1998 and January
31, 1997. At January 31, 1998, the investment balance,  included in other assets
in the accompanying  consolidated balance sheets net of accumulated amortization
and the  Company's  share of the net loss of ETNV, was $544,000.  At January 31,
1997,  the  investment  balance,  included in other  assets in the  accompanying
consolidated  balance sheets net of accumulated  amortization  and the Company's
share of the net loss of ETNV, was $973,000.

                                      F-12
<PAGE>

(4)    CAPITALIZATION

Stock Offerings

On March 8, 1996, the Company completed a private placement of 350,000 shares of
the Company's  common stock at an offering price of $25.00 per share,  resulting
in net  proceeds  of  approximately  $8,388,000.  Allen &  Company  Incorporated
("Allen"),  a shareholder of the Company,  acted as the placement  agent in this
transaction and received a fee of approximately $350,000.

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, 1998
is approximately $42,000.

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.


(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,  among other things,  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 1998 or 1997. Of the total number of shares
authorized  for  stock  options,   options  to  purchase  2,631,636  shares  are
outstanding  and 723,631 shares are available for future  grants,  including the
1,000,000 shares authorized by the Company's shareholders in June 1996.

Each  qualified  incentive  stock  option  granted  pursuant to the plans has an
exercise price equal to the fair market value of the 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  non-qualified options
and other  stock-based  compensation  based on the  difference  between the fair
market value of the 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 years 1998 and 1997.
There was $61,000 of such expense recorded in fiscal year 1996.

                                      F-13
<PAGE>

The  following  table  summarizes  the  Company's  activity for all of its stock
option awards:
<TABLE>
<CAPTION>                                                    
                                                                    Weighted-   
                                    Number of      Range of          Average
                                     Options    Exercise Prices   Exercise Price
                                   ----------   ---------------   --------------
<S>                                 <C>         <C>                  <C>  

      Balance, January 31, 1995     2,416,896     1.00 - 17.02         9.22

      Granted                         912,150     7.44 - 26.21        15.72
      Exercised                      (713,905)    1.00 - 16.91         9.50
      Canceled                       (197,363)    7.44 - 16.64        11.42
                                   ----------   ---------------   --------------
      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
                                   ==========   ===============   ==============

</TABLE>

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  common stock of  Excalibur,  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  1,530,918,  1,738,246 and 1,534,235 shares of the Company's
common stock were vested and  exercisable  at January 31,  1998,  1997 and 1996,
respectively, at weighted-average per share exercise prices of $8.89, $10.56 and
$9.37, respectively.


                                      F-14
<PAGE>

The  following  table  summarizes  additional  information  about stock  options
outstanding at January 31, 1998:

 <TABLE>
<CAPTION>
                             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
------------------  -----------   -----------  ---------  -----------  ---------
<S>                 <C>           <C>           <C>        <C>          <C>    
$ 1.04 to $ 4.63      319,223     7.41 years    $  3.54      200,847    $  2.93
$ 4.75              1,218,825     7.47             4.75      655,204       4.75
$ 4.88 to $10.38      488,325     7.94             8.16      127,499       7.44
$10.50 to $17.02      505,013     4.85            14.84      447,275      15.21
$20.56 to $22.50      100,250     8.11            21.53      100,093      21.53
 -----------------  -----------   -----------  ---------  -----------  ---------
                    2,631,636     7.07 years    $  7.81    1,530,918    $  8.89
                    ===========   ===========  =========  ===========  ========= 
</TABLE>


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 1998,  1997 and 1996  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).

                                            1998      1997      1996
                                          --------  --------  --------
    Net loss, as reported ..............  $ 8,326   $ 7,173   $   884
    Pro forma compensation expense......    3,898     2,533     1,141
                                          --------  --------  --------
    Pro forma net loss..................  $12,224   $ 9,706   $ 2,025
                                          ========  ========  ========

    Basic and diluted net loss per share,
       as reported.......................  $ 0.64    $ 0.58    $ 0.08
    Basic and diluted net loss per share,
       pro forma........................     0.95      0.79      0.18


                                      F-15
<PAGE>

The fair  value of each  option  is  estimated  on the date of grant  using  the
Black-Scholes  option-pricing model. The following assumptions were used for the
grants that occurred in fiscal year 1998; no dividend yield, expected volatility
of 65%, risk-free interest rates ranging from 5.7% to 6.5% and expected lives of
five  years.  Grants  that  occurred  in  fiscal  years  1997 and 1996  used the
following  assumptions;  no  dividend  yield,  expected  volatility  of  60%,  a
risk-free  interest rate of approximately 6.5% and expected lives of four years.
The  weighted  average  fair value per share for stock  option  grants that were
awarded  in fiscal  years  1998,  1997  and 1996  was  $4.24,  $9.76 and  $7.17,
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, 40,252 shares
were  purchased  by  employees  in fiscal  year  1998.  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 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 1998, 1997 and
1996, deferred compensation of $654,000, $99,000 and $45,000,  respectively, was
settled.  The deferred consulting portion of the deferred  compensation  balance
was settled in fiscal year 1998. Pursuant to the merger with ConQuest,  deferred
compensation of $88,000 was paid in cash in fiscal year 1996.  Effective January
1,  1993,   ConQuest   revised  the  deferred   compensation   arrangements  and
discontinued  the  accrual of interest on  deferred  compensation  balances  for
employees only. Accrued interest, which is included in the deferred compensation
balances on the accompanying  consolidated statements,  was $11,000, $73,000 and
$60,000 at January 31, 1998, 1997 and 1996, respectively.

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.  During  fiscal  year  1996,  the  Company  made a
discretionary  contribution  of  $3,000  to the  savings  plan;  no  other  such
contributions  were made for fiscal  years 1998 or 1997.  ConQuest had a similar
plan  established  for the  benefit of its  employees  that was merged  into the
Company's plan effective December 31, 1996.



                                      F-16
<PAGE>


(6)   INCOME TAXES

As the Company  incurred  pretax  losses for the fiscal year  periods  presented
herein,  there are no income taxes  provided in the  accompanying  statements of
operations.   At  January  31,  1998,   the  Company  had  net  operating   loss
carryforwards ("NOLs") of approximately $67,066,000 that expire at various dates
beginning in fiscal year 1999 through fiscal year 2013.  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 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, 1998 and 1997 were
as follows (in thousands):
<TABLE>
<CAPTION>
                                                  1998              1997
                                                ---------         ---------
<S>                                             <C>               <C>
      Deferred tax assets
          Net operating loss carryforwards of    
             Excalibur, not yet utilized        $ 24,256          $ 21,186
          Net operating loss carryforwards of
             ConQuest, not yet utilized            1,229             1,229
          Other                                      427             1,113
                                                ---------         ---------
             Total deferred tax assets            25,912            23,528
          Valuation reserve                      (25,819)          (23,464)
                                                ---------         ---------
                                                      93                64
                                                     (93)              (64)
      Deferred tax liabilities                  ---------         ---------  
             Net deferred tax assets            $      -          $      - 
                                                =========         =========
</TABLE>

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.



                                      F-17
<PAGE>


(7)    COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company conducts its operations using leased office  facilities.  The leases
terminate  at various  dates  through  fiscal year 2003.  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,  1998,  net of sublease  payments,  are as follows (in
thousands):

                         Year Ending
                         January 31,
                         -----------
                             1999           $  1,138
                             2000              1,009
                             2001                777
                             2002                463
                             2003                  8
                                           ----------
                                            $  3,395
                                           ==========

Total  rental  expense  under  operating  leases,  net of sublease  income,  was
approximately $1,190,000, $1,070,000 and $870,000 in fiscal years 1998, 1997 and
1996, respectively.


Employment Agreements

In connection with the merger with ConQuest, the Company entered into employment
agreements  with four former  officers of ConQuest.  The employment  agreements,
which  expired  in July 1997,  provided  for  minimum  aggregate  annual  salary
compensation of $548,000 plus incentive compensation.


(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.


                                      F-18
<PAGE>

In fiscal year 1996,  the Company  completed an  assessment of its personnel and
facilities  requirements and finalized a corporate  restructuring and relocation
plan. This plan included the relocation of the Company's corporate  headquarters
from San Diego,  California to Northern  Virginia and the  consolidation  of the
product development and related customer support teams into two facilities.  The
relocation was made to move corporate  management  closer to the Company's major
domestic and European  customers and to better  organize the technical  staff to
support  major  product  development  initiatives.   Consequently,  the  Company
recorded a  restructuring  charge of $653,000  in fiscal year 1996.  This charge
consisted of severance  payments to  terminated  employees,  including a balance
payable to the  Company's  former Chief  Executive  Officer  under an employment
agreement  and lease  abandonment  costs.  A  substantial  amount of the balance
accrued at January 31, 1996,  was paid during  fiscal year 1997,  the  remaining
balance was paid prior to the end of fiscal year 1998.


(9)    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,  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,
                                       ---------------------------------
                                          1998        1997        1996
                                       ---------   ---------   ---------
Sales to unaffiliated customers:
  North American operations            $ 14,579    $ 14,319    $ 15,124
  ETIL                                    7,838       5,940       3,551
                                       ---------   ---------   ---------
                                       $ 22,417    $ 20,259    $ 18,675
                                       =========   =========   =========

Net loss:
  North American operations            $ (8,165)   $ (7,054)   $   (597)
  ETIL                                     (161)       (119)       (287)
                                       ---------   ---------   ---------
                                       $ (8,326)   $ (7,173)   $   (884)
                                       =========   =========   =========

Identifiable assets:
  North American operations            $ 13,639    $ 21,942    $ 20,528
  ETIL                                    6,406       4,205       2,518
                                       ---------   ---------   ---------
                                       $ 20,045    $ 26,147    $ 23,046
                                       =========   =========   =========



                                      F-19

<PAGE>

(10)   OTHER FINANCIAL DATA

a) Equipment and leasehold  improvements at January 31, 1998 and 1997 consist of
   the following (in thousands):

                                                 1998       1997
                                                ------     ------
Computer equipment                              $6,297     $5,693
Office furniture                                 1,220      1,118
Leasehold improvements                             364        307
                                                ------     ------
                                                 7,881      7,118

Less accumulated depreciation                    5,614      4,179
                                                ------     ------
                                                $2,267     $2,939
                                                ======     ======


b) Accrued  liabilities  at January 31, 1998 and 1997 
   consist of the following (in thousands):

                                                 1998       1997
                                                ------     ------
Accrued compensation                            $1,292     $1,503
Accrued taxes                                      171        199
Accrued restructuring costs                         --         41
Other                                              423        567
                                                ------     ------
                                                $1,886     $2,310
                                                ======     ======


c) The Company paid legal fees and expenses totaling  approximately $221,000 and
$361,000  in fiscal  years 1997 and 1996  respectively  to a law firm in which a
former  director of the Company was a partner.  No such fees were paid in fiscal
year 1998.

d) Revenues  derived from  contracts  and orders  issued by agencies of the U.S.
Government   were   approximately   $5,379,000,   $6,004,000   and   $4,255,000,
respectively,  in the fiscal years ended January 31, 1998, 1997 and 1996.  These
revenues,  expressed as a percentage of total revenues for the fiscal year, were
approximately 24%, 30% and 23%,  respectively.  No single customer accounted for
10% or more of the Company's revenue in the fiscal years ended January 31, 1998,
1997 and 1996.


(11)  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997,  SFAS No. 130,  "Reporting  Comprehensive  Income," and SFAS No.
131,  "Disclosure  about  Segments of an Enterprise  and Related  Information"
were issued and are  effective  for the fiscal year ending  January 31,  1999.
The Company is  evaluating  these  statements  to determine  the impact on its
reporting and disclosure requirements.


                                      F-20
<PAGE>


                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Excalibur Technologies Corporation:

    We have audited in accordance with generally  accepted  auditing  standards,
the financial statements of Excalibur Technologies  Corporation 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, 1998, 1997 AND 1996
            ------------------------------------------------------
<TABLE>
<CAPTION>
                                                            Translation
                        Balance at  Additions   Deductions  Adjustment  Balance
                        Beginning    Charged       From       During    at End
Description              of Year    to Expense   Reserves   the Period  of Year
------------             -------    ----------   --------   ----------  -------
<S>                       <C>       <C>        <C>            <C>       <C>
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

1996
----
Deducted from
accounts receivable:
  For doubtful accounts   $374,000  $ 91,000   $ 96,000 (a)   $ 6,000   $375,000


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

</TABLE>



                                      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 22, 1998

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 22, 1998
---------------------        Officer and Director                 --------------
Patrick C. Condo             (Principal Executive Officer)

/s/Donald R. Keough                                               April 23, 1998
----------------------       Chairman of the Board                --------------
Donald R. Keough                                                  
             
/s/James H. Buchanan         Chief Financial Officer              April 22, 1998
---------------------        Secretary and Treasurer (Principal   --------------
James H. Buchanan            Financial and Accounting Officer)  
                        
/s/Richard M. Crooks, Jr.                                         April 13, 1998
-------------------------    Director                             --------------
Richard M. Crooks, Jr.

/s/John S. Hendricks                                              April 15, 1998
---------------------        Director                             --------------
John S. Hendricks

/s/W. Frank King III                                              April 22, 1998
---------------------        Director                             --------------
W. Frank King III

/s/John G. McMillian                                              April 23, 1998
---------------------        Director                             --------------
John G. McMillian

/s/Philip J. O'Reilly                                             April 13, 1998
---------------------        Director                             --------------
Philip J. O'Reilly

/s/Shaun C. Viguerie                                              April 16, 1998
---------------------        Director                             --------------
Shaun C. Viguerie