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

                                   FORM 10-Q
                                        
(Mark One)

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

     For the quarterly period ended September 27, 1997

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

     For the transition period from _______ to _______

                        Commission File Number  0-23263

                          EXCEL SWITCHING CORPORATION
            (Exact name of registrant as specified in its charter)

         MASSACHUSETTS                                          04-2992806
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                          Identification Number)

                            255 INDEPENDENCE DRIVE
                         HYANNIS, MASSACHUSETTS 02601
              (Address of principal executive offices) (Zip code)

                                (508) 862-3000
             (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES: [  ]       NO: [X]

The Registrant became subject to the filing requirements of the Securities
Exchange Act of 1934 on November 4, 1997, the date its Registration Statement on
Form 8-A became effective, and has filed all reports required to be filed
thereunder since such date.

As of December 1, 1997, there were 32,589,600 shares of the Registrant's Common
Stock, $.01 par value, outstanding.

                                       1
<PAGE>
 
                          EXCEL SWITCHING CORPORATION
                                        
                                   FORM 10-Q
                                        
                               TABLE OF CONTENTS

PART I.  - FINANCIAL INFORMATION                                           PAGE

     ITEM 1.   Consolidated Condensed Financial Statements

          Consolidated Condensed Balance Sheets as of December 28, 1996
               and September 27, 1997                                        3
 
          Consolidated Condensed Statements of Income for the three 
               months and nine months ended September 30, 1996 and 
               September 27, 1997                                            4
     
          Consolidated Condensed Statements of Cash Flows for the nine
               months ended September 30, 1996 and September 27, 1997        5
 
          Notes to Consolidated Condensed Financial Statements               6
 
     ITEM 2.   Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                       8
 
     ITEM 3.   Quantitative and Qualitative Disclosures About 
                   Market Risk                                              16
 
PART II - OTHER INFORMATION
 
     ITEM 1.   Legal Proceedings                                            17
  
     ITEM 2.   Changes in Securities and Use of Proceeds                    17
 
     ITEM 3.   Defaults Upon Senior Securities                              18
 
     ITEM 4.   Submission of Matters To a Vote of Security Holders          18
 
     ITEM 5.   Other Information                                            18
 
     ITEM 6.   Exhibits and Reports on Form 8-K                             18
 
SIGNATURES                                                                  19
 
EXHIBIT INDEX                                                               20

                                       2
<PAGE>
 
PART I.  FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                          EXCEL SWITCHING CORPORATION
                     CONSOLIDATED CONDENSED BALANCE SHEETS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION> 
                                                                                     DEC. 28,         SEPT. 27,
                                                                                       1996             1997
                                                                                   ---------        ---------
<S>                                                                                 <C>              <C>
                    ASSETS
Current Assets:
     Cash and cash equivalents                                                       $ 4,069          $ 8,913
     Marketable securities                                                                --           14,451 
     Accounts receivable, net of reserves of $979 and $1,350                          10,329           10,094
     Inventories                                                                       7,358            5,298
     Deferred tax asset                                                                3,761            4,422
     Prepaid expenses                                                                    292              601
                                                                                   ---------        ---------
          Total current assets                                                        25,809           43,779

Property and equipment, net                                                            8,963            9,674

                                                                                   ---------        ---------
                                                                                     $34,772          $53,453
                                                                                   =========        =========

                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Current maturities of long-term obligations                                     $   499          $ 1,380
     Accounts payable                                                                  1,896            3,539 
     Accrued expenses                                                                  5,807           10,702
     Accrued income txes                                                               2,647            1,955
                                                                                   ---------        ---------
          Total current liabilities                                                   10,849           17,576
                                                                                   ---------        ---------
Deferred income taxes                                                                     --               93
                                                                                   ---------        ---------
Long-term obligations, less current maturities                                         3,837            3,045
                                                                                   ---------        ---------
Stockholders' Equity:
     Preferred stock, $.01 par value-
          Authorized - 10,000,000 shares
          No shares issued and outstanding                                                --               --
     Common stock, $.01 par value-
          Authorized - 100,000,000 shares
          Issued and outstanding - 28,089,600 shares                                     281              281
     Additional paid-in capital                                                          647            1,070
     Deferred compensation                                                              (192)            (533)
     Retained earnings                                                                19,350           31,921
                                                                                   ---------        ---------
          Total stockholders' equity                                                  20,086           32,739

                                                                                   ---------        ---------
                                                                                     $34,772          $53,453
                                                                                   =========        =========
</TABLE> 
  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.

                                       3

<PAGE>
 
                          EXCEL SWITCHING CORPORATION
                  CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION> 
                                                                        THREE MONTHS ENDED              NINE MONTHS ENDED
                                                                      ----------------------         ----------------------
                                                                       SEPT. 30,  SEPT. 27,           SEPT. 30,  SEPT. 27,
                                                                         1996       1997                1996       1997
                                                                      ----------  ----------          ----------  ---------
<S>                                                                   <C>         <C>                 <C>         <C>
Revenues                                                                $ 16,439    $ 23,570            $ 44,329    $62,625
Cost of revenues                                                           6,406       6,821              17,556     18,854
                                                                      ----------  ----------          ----------  ---------
     Gross profit                                                         10,033      16,749              26,773     43,771
                                                                      ----------  ----------          ----------  ---------
Operating expenses:
     Engineering, research and development                                 2,772       3,418               7,766      9,435
     Selling and marketing                                                 1,677       2,870               4,493      7,752
     General and administrative                                            1,898       2,163               4,573      6,014
                                                                      ----------  ----------          ----------  ---------
          Total operating expenses                                         6,347       8,451              16,832     23,201
                                                                      ----------  ----------          ----------  ---------
          Income from operations                                           3,686       8,298               9,941     20,570

Other income (expense)                                                      (136)        288                (237)       382
                                                                      ----------  ----------          ----------  ---------
          Income before provision for income taxes                         3,550       8,586               9,704     20,952
Provision for income taxes                                                 1,424       3,435               3,891      8,381
                                                                      ----------  ----------          ----------  ---------
Net income                                                              $  2,126    $  5,151            $  5,813   $ 12,571
                                                                      ==========  ==========          ==========  =========
Net income per share                                                      $.06        $.15                $.17       $.37
                                                                          ====        ====                ====       ====
Weighted average common and common equivalent shares outstanding          33,827      34,028              33,779     34,025
</TABLE> 
  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.

                                       4
<PAGE>
 
                          EXCEL SWITCHING CORPORATION
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)

<TABLE>
<CAPTION> 
                                                                                        NINE MONTHS ENDED
                                                                                     ----------------------
                                                                                     SEPT. 30,      SEPT. 27,
                                                                                       1996           1997
                                                                                     ---------      ---------
<S>                                                                                  <C>            <C>
Cash Flows From Operating Activities:
     Net income                                                                       $  5,813       $ 12,571
     Adjustments to reconcile net income to net cash provided
       by operating activities - 
          Depreciation and amortization                                                    724          1,620
          Deferred income taxes                                                           (180)          (568)
          Compensation expense on stock options                                             54             83
          Changes in assets and liabilities -
               Accounts receivable                                                      (1,601)           235
               Inventories                                                              (4,702)         2,059
               Prepaid taxes                                                              (634)            --
               Prepaid expenses                                                             36           (309)
               Accounts payable                                                         (1,287)         1,642
               Accrued expenses                                                          2,633          4,895
               Accrued income taxes                                                       (297)          (692)
                                                                                     ---------      ---------
                    Net cash provided by operating activities                              559         21,536
                                                                                     ---------      ---------

Cash Flows From Investing Activities:
     Purchases of property and equipment, net                                           (3,574)        (2,331)
     Purchases of marketable securities, net                                                --        (14,451)
                                                                                     ---------      ---------
                    Net cash used by investing activities                               (3,574)       (16,782)
                                                                                     ---------      ---------
Cash Flows from Financing Activities:
     Proceeds from issuance of long-term obligations                                       489            460
     Proceeds from line of credit, net                                                   4,800             --
     Payments on long-term obligations                                                    (300)          (370)
                                                                                     ---------      ---------
                    Net cash provided by financing activities                            4,989             90
                                                                                     ---------      ---------

Net increase in cash and cash equivalents                                                1,974          4,844
Cash and cash equivalents, beginning of period                                             770          4,069
                                                                                     ---------      ---------
Cash and cash equivalents, end of period                                              $  2,744       $  8,913
                                                                                     =========      =========

Supplemental disclosure of cash flow information:
     Cash paid for interest                                                           $    322       $    284  
     Cash paid for taxes                                                              $  5,075       $  9,586
</TABLE> 
  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.

                                       5
<PAGE>
 
                          EXCEL SWITCHING CORPORATION
                                        
             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                        
Note 1 - Interim Consolidated Condensed Financial Statements

     The accompanying unaudited interim consolidated condensed financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission for reporting on Form 
10-Q.  Accordingly, certain information and footnote disclosure required for
complete financial statements are not included herein.  It is recommended that
these financial statements be read in conjunction with the consolidated
financial statements and related notes of Excel Switching Corporation (the
"Company") for the year ended December 28, 1996 as reported in the Company's
Registration Statement on Form S-1 (SEC File No. 333-35791).  In the opinion of
management, all adjustments (consisting of normal, recurring adjustments)
considered necessary for a fair presentation of financial position, results of
operations and cash flows at the dates and for the periods presented have been
included.  The consolidated condensed balance sheet presented as of December 28,
1996 has been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants.  The results of
operations for the three and nine months ended September 27, 1997 may not be
indicative of the results that may be expected for the year ended December 27,
1997, or for any other period.

Note 2 - Net Income Per Share

     Net income per share was determined by dividing net income by the weighted
average common and common equivalent shares outstanding during the period.
Common equivalent shares consist of the effect of stock options based on the
treasury stock method and have been included in the calculation to the extent
that their effect is dilutive, except that pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No.  83 (SAB 83), common equivalent shares
issued during the twelve  months prior to completion of the Company's initial
public offering in November 1997 have been included in the net income per share
computations using the treasury stock method as if they were outstanding for all
periods.

     In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share.  SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly traded
common stock or potential common stock.  This statement is effective for fiscal
years ending after December 15, 1997 and early adoption is not permitted.  When
adopted, the statement will require restatement of prior years' earnings per
share.  The Company will adopt this statement for its fiscal year ending
December 27, 1997.

                                       6
<PAGE>
 
Pro forma calculations of basic and diluted earnings per share, as required
by SFAS No. 128, are as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                ------------------------------      ------------------------------
                                                  SEPT.  30,      Sept.  27,          Sept.  30,      SEPT.  27,
                                                     1996            1997                1996            1997
                                                --------------  --------------      --------------  --------------
 
<S>                                             <C>             <C>                   <C>              <C>
Net income...........................            $ 2,126         $ 5,151               $ 5,813          $12,571
                                                 =======         =======               =======          =======
Weighted average common shares
 outstanding.........................             28,090          28,090                28,090           28,090
Common equivalent shares in
 accordance with SAB 83..............              1,090           1,090                 1,090            1,090
                                                 -------         -------               -------          -------
Basic weighted a verage shares
 outstanding.........................             29,180          29,180                29,180           29,180
Weighted average common
 equivalent shares...................              4,647           4,848                 4,599            4,845
                                                 -------         -------               -------          -------
Diluted weighted average shares
 outstanding........................              33,827          34,028                33,779           34,025
                                                 =======         =======               =======          =======
                                    
Basic earnings per share............             $   .07         $   .18               $   .20          $   .43
                                                 =======         =======               =======          =======
Diluted earnings per share..........             $   .06         $   .15               $   .17          $   .37
                                                 =======         =======               =======          =======
</TABLE>
                                        

Note 3 - Initial Public Offering

     On November 10, 1997, the Company completed an initial public offering of
4,500,000 shares of common stock at a per share price of $21.  Net proceeds from
the offering were approximately $87.1 million.

Note 4 - Significant Customers

     Sales to one customer represented greater than 10% of total revenues during
the following periods:

                                            PERCENTAGE OF
                                            TOTAL REVENUE
Three months ended September 27, 1997           24.6%

Three months ended September 30, 1996           33.9%

Nine months ended September 27, 1997            31.4%

Nine months ended September 30, 1996            36.2%

    During the three months ended September 27, 1997, an additional customer
represented 10.8% of the Company's revenues.

                                       7
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

     The following discussions contain statements which may be "forward-looking"
statements and are subject to risks and uncertainties that could cause actual
results to differ significantly from expectations.  In particular, statements
contained in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" which are not historical facts, including, but not
limited to, statements regarding the anticipated adequacy of cash resources to
meet the Company's working capital requirements and statements regarding the
anticipated proportion of revenues to be derived from a limited number of
customers, may constitute forward-looking statements.  Factors that might cause
such a difference include those relating to: fluctuations in quarterly results
of operations; dependence on and concentration of relationships with application
developers, original equipment manufacturers (OEMs) and systems integrators;
length of sales cycle; management of growth and hiring of additional personnel;
and concentration of customers.  Other factors may include, but are not limited
to, those relating to the evolving market for telecommunication services;
concentrated product family; risk of new product introductions; rapid
technological change; dependence on key personnel; highly competitive market;
dependence on single and sole source suppliers; dependence on third-party
manufacturers; compliance with evolving industry standards; dependence on
proprietary rights; and other risks identified in the Company's Securities and
Exchange Commission filings including those risks identified in the section
entitled "Risk Factors" of the Company's Prospectus dated November 4, 1997.

OVERVIEW

     Excel Switching Corporation (the Company), is a leading provider of open
switching platforms for telecommunications networks worldwide.  The Company
develops, manufactures, markets and supports a family of open, programmable,
carrier-class switches that address the complex enhanced services and wireless
and wireline infrastructure needs of network providers.  Excel's products offer
network providers the flexibility to address multiple market applications and
the scalability to deploy a variety of system capacities.  The Company's
programmable switching platforms enable network providers to deliver improved
networking functionality at a lower cost than purchasing, upgrading or
reprogramming traditional, closed, central office switches.  The Company sells
to a variety of customers in the worldwide telecommunications market, including
application developers, original equipment manufacturers ("OEMs") and systems
integrators.

    Excel offers a family of programmable switching platforms that are designed
with distributed architecture and open software to maximize performance and
provide multiple levels of programmability and redundancy.  Excel's open
switching platforms integrate with a wide variety of host computer systems,
operating systems and application development environments.  The Company's
product family scales from 512 to 30,720 ports.  Using Excel's patented
Programmable Protocol Language ("PPL"), application developers can customize the
switching software to their unique requirements, allowing them to introduce new
services and applications rapidly.  As customer requirements evolve, the Excel
platform can be upgraded without requiring extensive and complex programming
changes to the underlying software.

                                       8
<PAGE>
 
     The Company sells to a variety of customers in the worldwide
telecommunications market, including application developers, OEMs and system
integrators.  Excel's customers integrate the Company's open, programmable
switching platforms with their product offerings to address a variety of market
applications for network providers, ranging from enhanced services such as voice
messaging, one number services and prepaid debit cards, to wireless and wireline
infrastructure services such as tandem switching, mobile switching centers and
intelligent base station controllers.
 
RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, the percentage
of revenues represented by certain items reflected in the Company's Consolidated
Condensed Statements of Income:

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED                    NINE MONTHS ENDED
                                      -------------------------------      ---------------------------------
                                        SEPT.  30,       Sept.  27,           Sept.  30,        SEPT.  27,
                                           1996             1997                 1996              1997
                                      ---------------  --------------      --------------    ---------------
<S>                                    <C>               <C>                  <C>               <C>
Revenues..........................      100.0%            100.0%               100.0%            100.0%
Cost of revenues..................       39.0              28.9                 39.6              30.1
                                       ------            ------               ------            ------
   Gross profit...................       61.0              71.1                 60.4              69.9
Operating expenses:
   Engineering, research and
     development..................       16.9              14.5                 17.5              15.0
   Selling and marketing..........       10.2              12.2                 10.2              12.4
   General and administrative.....       11.5               9.2                 10.3               9.6
                                       ------            ------               ------            ------
     Total operating expenses.....       38.6              35.9                 38.0              37.0
                                       ------            ------               ------            ------
     Income from operations.......       22.4              35.2                 22.4              32.9
Other income (expense)............        (.8)              1.2                  (.5)               .6
                                       ------            ------               ------            ------
     Income before provision for
     income  taxes................       21.6              36.4                 21.9              33.5
Provision for income taxes........        8.7              14.5                  8.8              13.4
                                       ------            ------               ------            ------
Net income........................       12.9%             21.9%                13.1%             20.1%
                                       ======            ======               ======            ======
</TABLE>
                                        
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 27, 1997

     Revenues.  The Company's revenues consist of sales, primarily in the United
States, of its open, programmable switching platforms and related components.
Revenues increased 43.4% from $16.4 million in the three months ended September
30, 1996 to $23.6 million for the comparable period in 1997.  This increase
resulted from the introduction of new or expanded offerings by existing
customers incorporating the Company's products, the expansion of customers'
existing markets and the introduction of applications by new and existing
customers.  In addition, revenues increased due to increased market penetration
resulting from the efforts of the Company's expanded selling and marketing
organizations.

                                       9
<PAGE>
 
    Revenues from the Company's five largest customers represented approximately
54.2% of the Company's revenues for the third quarters of 1996 and 1997.  Boston
Technology, Inc. represented approximately 33.9% and 24.6% of the Company's
revenues for these same periods, respectively.  In addition, another customer
represented approximately 10.8% of the Company's revenues for the third quarter
of 1997.  Although the Company's largest customers have varied from period to
period, the Company believes that revenues derived from current and potential
large customers will continue to represent a significant proportion of revenues,
and that its results of operations in any given period will continue to depend
to a significant extent upon sales to a limited number of customers.  There can
be no assurance that the Company's principal customers will continue to purchase
products at current levels, if at all.

     Gross Profit.  Cost of revenues consists primarily of the cost of purchased
components and subassemblies, contract manufacturing costs, labor and overhead
relating to material procurement, final assembly, testing and quality control,
and warranty and post sale support costs.  Cost of revenues increased 6.5% from
$6.4 million in the three months ended September 30, 1996 to $6.8 million for
the comparable period in 1997.  Gross margin increased from 61.0% in the third
quarter of 1996 to 71.1% in the comparable period of 1997.  The increase in
gross margins is primarily attributable to lower component prices, changes in
product mix and increased manufacturing efficiencies as the Company increased
its production volume.

     Engineering, Research and Development.  Engineering, research and
development costs consist primarily of compensation and related costs of
engineering and development personnel, materials and supplies consumed in
prototype development and related facility and depreciation costs. Engineering,
research and development costs increased 23.3% from $2.8 million in the third
quarter of 1996 to $3.4 million for the comparable period in 1997.  As a
percentage of revenues, these costs were 16.9% and 14.5%, respectively, in such
periods.  The increase in engineering, research and development costs in
absolute dollars was primarily attributable to an increase in engineering and
research personnel, partially offset by decreases in the consumption of
prototype supplies and materials.

     Selling and Marketing.  Selling and marketing costs consist primarily of
compensation and related costs for sales, marketing and customer support
personnel, travel and advertising, trade show and other promotional activities.
Selling and marketing costs increased 71.1% from $1.7 million in the third
quarter of 1996 to $2.9 million for the comparable period of 1997.  As a
percentage of revenues, these costs were 10.2% and 12.2%, respectively, in such
periods.  The increase in selling and marketing costs in absolute dollars was
primarily attributable to an increase in sales, marketing and customer support
personnel as well as trade show and promotional activities during 1997.

     General and Administrative.  General and administrative costs include
compensation and related costs of management, finance and administrative
personnel, professional services, costs to implement and maintain manufacturing
and management information systems and other general corporate expenses.
General and administrative costs increased 14.0% from $1.9 million in third
quarter of 1996 to $2.2 million for the comparable period in 1997.  As a
percentage of revenues, these costs were 11.5% and 9.2%, respectively, in such
periods.  The increase in general and

                                       10
<PAGE>
 
administrative costs in absolute dollars was primarily attributable to increases
in administrative, finance and information technology personnel.

     Other Income (Expense).  Other income (expense) is primarily composed of
interest income and interest expense.  Other income (expense) increased
approximately $424,000 from ($136,000) in the third quarter of 1996 to $288,000
for the comparable period in 1997.  This increase was primarily attributable to
an increase in interest income derived from larger balances of invested cash and
securities.  In addition, balances outstanding during 1996 under a line of
credit arrangement with a bank resulted in greater interest expense.

     Provision For Income Taxes.  The Company's effective rate for Federal and
state income taxes was approximately 40.0% for the third quarters of 1996 and
1997.

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 27, 1997

     Revenues.  Revenues increased 41.3% from $44.3 million in the first nine
months of 1996 to $62.6 million for the comparable period in 1997.  This
increase resulted from the introduction of new or expanded offerings by existing
customers incorporating the Company's products, the expansion of customers'
existing markets and the introduction of applications by new and existing
customers.  In addition, revenues increased due to increased market penetration
resulting from the efforts of the Company's expanded selling and marketing
organizations.

     Revenues from the Company's five largest customers represented
approximately 55.1% and 56.9% of the Company's revenues for the first nine
months of 1996 and 1997, respectively. Boston Technology, Inc. represented
approximately 36.2% and 31.4% of the Company's revenues for these same periods,
respectively.

     Gross Profit.  Cost of revenues increased 7.4% from $17.6 million in the
first nine months of 1996 to $18.9 million for the comparable period in 1997.
Gross margin increased from 60.4% in the first nine months of 1996 to 69.9% in
the comparable period of 1997.  The increase in gross margin is primarily
attributable to lower component prices, changes in product mix and increased
manufacturing efficiencies as the Company increased its production volume.  In
addition, gross margins for the first nine months of 1996 were impacted by the
introduction of the EXS switching system and related technology which resulted
in valuation adjustments of certain existing inventory components.

     Engineering, Research and Development.  Engineering, research and
development costs increased 21.5% from $7.8 million in the first nine months of
1996 to $9.4 million for the comparable period in 1997.  As a percentage of
revenues, these costs were 17.5% and 15.0%, respectively, in such periods.  The
increase in engineering, research and development costs in absolute dollars was
primarily attributable to an increase in engineering and research personnel,
partially offset by decreases in the consumption of prototype supplies and
materials.

     Selling and Marketing. Selling and marketing costs increased 72.5% from
$4.5 million in the first nine months of 1996 to $7.8 million for the comparable
period of 1997. As a percentage of revenues, these costs were 10.2% and 12.4%,
respectively, in such periods. The increase in

                                       11
<PAGE>
 
selling and marketing costs in absolute dollars was primarily attributable to an
increase in sales, marketing and customer support personnel as well as trade
show and promotional activities during 1997.

     General and Administrative.  General and administrative costs increased
31.5% from $4.6 million in the first nine months of 1996 to $6.0 million for the
comparable period in 1997.  As a percentage of revenues, these costs were 10.3%
and 9.6%, respectively, in such periods.  The increase in general and
administrative costs in absolute dollars was primarily attributable to increases
in administrative, finance and information technology personnel and expenditures
for professional services.

     Other Income (Expense).  Other income (expense) increased approximately
$619,000 from ($237,000 ) in the first nine months of 1996 to $382,000 for the
comparable period in 1997.  This increase was primarily attributable to an
increase in interest income derived from larger balances of invested cash and
securities.  In addition, balances outstanding during 1996 under a line of
credit arrangement with a bank resulted in greater interest expense.

     Provision For Income Taxes.  The Company's effective rate for Federal and
state income taxes was approximately 40.0% for the first nine months of 1996 and
1997.

LIQUIDITY AND CAPITAL RESOURCES

     During the nine months ended September 30, 1996, cash provided by
operations totaled $559,000 compared to $21.5 million for the comparable period
of 1997. The increase is primarily the result of a significant increase in
profitability during 1997. In addition, fluctuation in levels of inventories,
accounts payable and accrued expenses during 1997 also contributed to the
increase in operating cash flows.

     During the nine months ended September 30, 1996, cash used by investing
activities totaled $3.6 million compared to $16.8 million for the comparable
period of 1997.  This increase in 1997 is primarily the result of purchases of
marketable securities.

     During the nine months ended September 30, 1996, cash provided by financing
activities totaled $5.0 million compared to $90,000 for the comparable period in
1997.  During the first nine months of 1996, the Company borrowed $4.8 million
against an unsecured line of credit arrangement with a bank.  There have been no
amounts outstanding under this agreement during 1997.

     On June 30, 1997, the Company purchased property to be used for the
construction of an additional building.  The purchase price of $575,000 and the
estimated construction costs of $3.6 million may be financed, in part, by a $2.1
million Real Estate Promissory Note with a bank, of which $460,000 has been
advanced to the Company to date.  Borrowings under this note shall bear interest
at prime plus .25% and are secured by the property and certain other assets.
Beginning in July 1997, the Company has made monthly payments of interest, and
beginning in July 1998, monthly payments of principal and interest will be made
over a period of fifteen years.

                                       12
<PAGE>
 
     At September 27, 1997, the Company's principal sources of liquidity
consisted of cash, cash equivalents and marketable securities of approximately
$23.4 million, working capital of approximately $26.2 million and $10.0 million
of funds available under a bank line of credit.  In November 1997, the Company
completed an initial public offering of common stock which resulted in net
proceeds to the Company of approximately $87.1 million.

     The Company believes that the net proceeds of the recent public offering,
together with available funds and cash generated from operations, will be
sufficient to meet the Company's working capital requirements for at least the
foreseeable future.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

     Statements contained in this Quarterly Report on Form 10-Q that are not
historical fact may constitute forward-looking statements and are made under the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The Company's actual results of operations and financial condition may in the
future vary significantly from those stated in any forward-looking statements.
Factors that may cause such differences include, but are not limited to, the
risks, uncertainties and other information discussed within this Quarterly
Report on Form 10-Q and other risks identified in the Company's Securities and
Exchange Commission filings, including those risks identified in the Company's
Registration Statement on Form S-1 (Registration No. 333-35791) filed in
connection with its recent initial public offering.

     The following discussion of the Company's risk factors should be read in
conjunction with the financial statements and related notes thereto set forth
elsewhere in this report and in the Company's Registration Statement on Form S-1
for its recent initial public offering.  The following factors, among others,
could cause actual results to differ materially from those set forth in forward-
looking statements contained or incorporated by reference in this report and
presented by management from time to time.  Such factors, among others, may have
a material adverse effect upon the Company's business, results of operations and
financial condition:

     Fluctuations in Results of Operations.  The Company's results of operations
have varied significantly in the past and may vary significantly in the future,
on a quarterly and annual basis, as a result of a variety of factors, many of
which are outside the Company's control.  These factors include, without
limitation: (i) the timing and size of orders which are received and can be
shipped in any particular period; (ii) the commercial success of the Company's
products; (iii) delays in the introduction of products or product enhancements
by the Company and the Company's ability to introduce new products and
technologies on a timely basis; (iv) the financial stability of the Company's
major customers; (v) the timing of new product introductions or announcements by
the Company or its competitors; (vi) the availability of adequate supplies of
key components and assemblies and the adequacy of third-party manufacturing
capabilities; (vii) the seasonality of the placement of customer orders; (viii)
the timing and nature of selling and marketing expenses such as tradeshows and
advertising campaigns; (ix) the timing of development expenditures and
personnel changes; (x) the publications of opinions about the Company and its
products, or its competitors or their products, by industry analysts; (xi)
customer order deferrals in anticipation of product enhancements or 

                                       13
<PAGE>
 
new product offerings by the Company or its competitors; and (xii) customer
cancellation of orders and the gain or loss of significant customers, including
those due to industry combinations. Moreover, any downturn in general economic
conditions could precipitate significant reductions in corporate spending for
telecommunications infrastructure, which could result in delays or cancellations
of orders for the Company's products. Historically, the Company's expense levels
have been relatively fixed and have been based, in significant part, on
expectations of future revenues. Consequently, if revenue levels are below
expectations, expense levels could be disproportionately high as a percentage of
revenues, and the Company's business, financial condition and results of
operations would be materially adversely affected. The Company has historically
operated with little backlog because its products are generally shipped within
60 days of acceptance of an order by the Company. As a result, revenues in any
quarter are substantially dependent on orders booked and shipped in that quarter
and on sales by the Company's customers to end users.

     The Company also believes that the purchase of its own products generally
involves a significant commitment of a customer's capital resources.  Therefore,
any downturn in any customer's business could have a material adverse effect on
the Company's revenues, business, financial condition and quarterly results of
operations.  In addition, the Company historically has recognized a large
portion of its revenues from sales booked and shipped in the last month of a
quarter such that the magnitude of quarterly fluctuations may not become evident
until late in, or at the end of, a particular quarter.  Because a number of the
Company's individual orders are for significant amounts, the failure to ship a
significant order in a particular quarter could materially adversely affect
revenues and results of operations for such quarter.  To the extent that
significant  sales occur earlier than expected, results of operations for
subsequent quarters may be materially adversely affected.  Due to these and
other factors, the Company's quarterly revenues, expenses and results of
operations could vary significantly in the future, and period-to-period
comparisons should not be relied upon as indications of future performance.
There can be no assurance that the Company will be able to increase its revenues
in future periods or be able to sustain its level of revenues or its rate of
growth on a quarterly or annual basis.

     Due to all the foregoing factors, it is possible that in some future
quarter, the Company's results of operations will be below the expectations of
public market analysts and investors.  In such event, the market price of the
Company's Common Stock would likely be materially adversely affected.

     Dependence on Relationships with Application Developers, OEMs and Systems
Integrators.  The Company sells substantially all of its products to, and
maintains strategic relationships with, application developers, original
equipment manufacturers ("OEMs") and systems integrators which incorporate the
Company's products into their service and product offerings.  As a result, sales
of the Company's products are dependent upon the continued market acceptance of
the service and product offerings of the Company's customers.  Although the
Company maintains contractual relationships with a substantial number of its
customers, such contracts do not provide for minimum purchase requirements, nor
do they contain provisions requiring the exclusive purchase of the Company's
products. The development of an application or service for the
telecommunications market can involve a substantial amount of time and expense.
The delay or failure of a customer's application development program
incorporating

                                       14
<PAGE>
 
the Company's products could delay or prevent expected sales of the Company's
products. The inability or cessation of customers to integrate the Company's
products into their service and product offerings, product development delays by
application developers and other customers, lack of market acceptance of the
service and product offerings of the Company's customers or a customer's
decision to market products manufactured by a competitor of the Company, or the
manufacture of such products themselves, would have a material adverse effect on
the Company's business, financial condition and results of operations.

     Length of Sales Cycle.  The time between the date of initial contact with a
potential customer and large-scale commercialization of a new customer
application or system based on the Company's products is often lengthy,
typically ranging from 12 to 24 months or more, and is subject to delays over
which the Company has little or no control, including customers' budgetary
constraints, acceptance reviews, and the possibility of cancellation of projects
by customers.  The timing of the commercialization of a new customer application
or service based on the Company's products is primarily dependent on the success
and timing of a customer's own internal development program.  A delay in, or
cancellation of, the sale of the Company's products could have a material
adverse effect on the Company's business, financial condition and results of
operations and cause the Company's results of operation to vary significantly
from quarter to quarter.

     Concentration of Customers.  Approximately 24.6% and 31.4% of the Company's
revenues in the three and nine months ended September 27, 1997, respectively,
were derived from sales to Boston Technology, Inc.  In these same periods, the
Company's five largest customers accounted for approximately 54.2% and 56.9%,
respectively, of the Company's revenues.  Although the Company's largest
customers have varied from period to period, the Company anticipates that its
results of operations in any given period will continue to depend to a
significant extent upon sales to a small number of customers.  None of the
Company's customers has entered into a long-term supply agreement requiring any
of them to purchase a minimum amount of product from the Company.  There can be
no assurance that the Company's principal customers will continue to purchase
product from the Company at current levels, if at all, or that the Company will
be able to replace such purchases with sales to other customers.  The loss of
one or more major customers could have a material adverse effect on the
Company's business, financial condition and results of operations.

     Management Growth and Hiring of Additional Personnel.   The Company has
experienced growth in revenues and expansion of its operations which have placed
significant demands on the Company's management, engineering staff and
facilities.  The Company has recently hired additional engineering, marketing,
accounting and finance personnel.  The Company is also implementing additional
financial and management procedures which the Company believes will address
increasing demands on resources. However, the Company believes that further
improvements in management and operational controls are needed, and will
continue to be needed, to manage any future growth. Continued growth will also
require the Company to hire more engineering, selling and marketing and
administrative personnel, expand customer support capabilities, expand
management information systems and improve its inventory management practices.
The Company has at times experienced, and continues to experience, difficulty in
recruiting qualified personnel. Recruiting qualified personnel is an

                                       15
<PAGE>
 
intensely competitive and time-consuming process. There can be no assurance that
the Company will be able to attract and retain the necessary personnel to
accomplish its growth strategies or that it will not experience constraints that
will adversely affect its ability to satisfy customer demand in a timely fashion
or to support satisfactorily its customers and operations. If the Company's
management is unable to manage growth effectively, the Company's business,
financial condition and results of operations could be materially adversely
affected.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Not applicable.

                                       16
<PAGE>
 
PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS
 
          None

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          (d)  Use of Proceeds

     On November 4, 1997, the Company commenced an initial public offering
("IPO") of 4,500,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of the Company pursuant to the Company's final prospectus dated
November 4, 1997 (the "Prospectus").  The Prospectus was contained in the
Company's Registration Statement on Form S-1, which was declared effective by
the Securities and Exchange Commission (SEC File No. 333-35791) on November 4,
1997.  All of the 4,500,000 shares of Common Stock offered were offered and sold
by the Company.  As part of the IPO, Robert P. Madonna, the Company's President,
Chief Executive Officer and principal stockholder (the "Selling Stockholder"),
granted the several underwriters, for whom Morgan Stanley & Co. Incorporated,
Hambrecht & Quist LLC and NationsBanc Montgomery Securities, Inc.  acted as
representatives (the "Representatives"), an overallotment option to purchase up
to an additional 675,000 shares of Common Stock (the "Underwriters' Option").
The sale of the 4,500,000 shares of Common Stock by the Company to the
underwriters closed on November 10, 1997.  On November 10, 1997, the
Representatives, on behalf of the several underwriters, exercised the
Underwriters' Option, and purchased 675,000 shares of Common Stock from the
Selling Stockholder.  The sale of shares of Common Stock by the Selling
Stockholder to the underwriters pursuant to the exercise of the Underwriters'
Option closed on November 13, 1997.

     The aggregate offering price of the IPO to the public was $94,500,000
(exclusive of the Underwriters' Option), with proceeds to the Company, after
deduction of the underwriting discounts and commissions, of $87,885,000 (before
deducting offering expenses payable by the Company).  The aggregate offering
price of the Underwriters' Option exercised was $14,175,000, with proceeds to
the Selling Stockholder, after deduction of the underwriting discounts and
commissions, of $13,182,750.

     To date, the aggregate amount of expenses incurred by the Company in
connection with the issuance and distribution of the shares of Common Stock
offered and sold in the IPO have been estimated at approximately $7,415,000,
including $6,615,000 in underwriting discounts and commissions and $800,000 in
other expenses.

     None of the expenses paid by the Company in connection with the IPO or the
exercise of the Underwriters' Option were paid, directly or indirectly, to
directors, officers, persons owning ten percent or more of the Company's equity
securities, or affiliates of the Company.

     The net proceeds to the Company from the IPO, after deducting underwriting
discounts and commissions and other expenses is estimated to be approximately
$87,085,000.

                                       17
<PAGE>
 
     To date, the Company has not utilized any of the net proceeds from the
IPO.  The Company has invested all such net proceeds in investment grade,
interest-bearing securities.

     None of the net proceeds from the IPO were used to pay, directly or
indirectly, directors, officers, persons owning ten percent or more of the
Company's equity securities, or affiliates of the Company.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On September 16, 1997, by written consent in lieu of a special meeting
(the "Written Consent"), the Company's two voting stockholders unanimously
approved and adopted: (i) the Restated Articles of Organization of the Company
which among other things changed the name of the Company from Excel Inc. to
Excel Switching Corporation and authorized the Company to issue up to
100,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock;
(ii) the Restated By-Laws of the Company; (iii) the 1997 Stock Option Plan; (iv)
the 1997 Employee Stock Purchase Plan; and (v) the 1997 Non-Employee Director
Stock Option Plan.  In addition, the Company's stockholders elected not to be
governed by Chapter 110F of the Massachusetts General Laws regarding business
combinations.

ITEM 5.  OTHER INFORMATION

     None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

               Exhibit 11 - Computation of Earnings Per Share

               Exhibit 27 - Financial Data Schedule

     (b)  Reports on Form 8-K

          None

                                       18
<PAGE>
 
SIGNATURES



     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                        Excel Switching Corporation
                                                (Registrant)



Dated:  December 16, 1997               /s/ Robert P. Madonna
                                        ---------------------
                                        Robert P. Madonna
                                        President, Chief Executive Officer and
                                        Chairman of the Board of Directors 
                                        (Principal Executive Officer)


Dated:  December 16, 1997                /s/ Stephen S. Galliker
                                         -----------------------
                                         Stephen S. Galliker
                                         Vice President, Finance and 
                                         Administration and Chief 
                                         Financial Officer (Principal
                                         Financial and Accounting Officer)

                                       19
<PAGE>
 
 EXHIBIT INDEX
 -------------

 Exhibit No.                  Description                             Page
 -----------                  -----------                             ----

      11          Computation of Earnings Per Share                    21

      27          Financial Data Schedule (EDGAR)                      22