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 October 31, 1997

                                      OR

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

         For the transition period from ____________ to ____________

                        Commission File Number 0-9747


                      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



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 __

As of December 5, 1997,  13,109,554 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.





                                      
<PAGE>


                   EXCALIBUR TECHNOLOGIES CORPORATION

                       QUARTERLY REPORT ON FORM 10-Q
                 FOR THE QUARTER ENDED OCTOBER 31, 1997

                            TABLE OF CONTENTS


                     PART I .  FINANCIAL INFORMATION


Item 1.    Financial Statements:                                        Page

           Consolidated Balance Sheets
           October 31, 1997 and January 31, 1997..........................3

           Consolidated Statements of Operations
           Three and nine month periods ended October 31, 1997 and 1996...4

           Consolidated Statements of Cash Flows
           Nine month periods ended October 31, 1997 and 1996.............5

           Notes to Consolidated Financial Statements.....................6

Item 2.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations.....................................12



                          PART II. OTHER INFORMATION

Items 1. - 6.............................................................22


Signatures ..............................................................23





                                       2
<PAGE>

                      EXCALIBUR TECHNOLOGIES CORPORATION

                         CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share data)

                      ASSETS                          October 31,    January 31,
                                                         1997            1997
                                                      (unaudited)
                                                      -----------    -----------
Current Assets:
   Cash and cash equivalents .......................     $  4,468      $  2,685
   U.S. government securities, at cost .............        2,998         8,427
   Accounts receivable, net of allowance for        
      doubtful accounts of $407 and $367, 
      respectively .................................        6,924         9,383
   Prepaid expenses and other ......................          860         1,655
                                                         --------      --------
        Total current assets .......................       15,250        22,150

Equipment and leasehold improvements, net of            
   accumulated depreciation of $5,295 and 
   $4,179, respectively ............................        2,461         2,939
Other assets .......................................        1,224         1,058
                                                         --------      --------
                                                         $ 18,935      $ 26,147
                                                         ========      ========

      LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
   Accounts payable ................................     $  1,116      $  1,680
   Accrued expenses ................................        2,098         2,310
   Deferred revenues ...............................        2,644         2,693
   Deferred compensation ...........................          403           901
                                                         --------      --------
        Total current liabilities ..................        6,261         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, par value $0.01, 40,000 shares
      authorized; 13,093 and 12,449 shares issued
      and outstanding, respectively ................          131           124
   Additional paid-in capital ......................       64,425        61,830
   Accumulated deficit .............................      (52,025)      (43,619)
   Cumulative translation adjustment ...............         (128)          (43)
                                                         --------      --------
        Total shareholders' equity .................       12,674        18,563
                                                         --------      --------
                                                         $ 18,935      $ 26,147
                                                         ========      ========

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

                                       3
<PAGE>


                       EXCALIBUR TECHNOLOGIES CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)
                     (in thousands, except per share data)
<TABLE>                    
<CAPTION>
                                       Three Months Ended       Nine Months Ended
                                           October 31,              October 31,
                                         1997        1996        1997        1996
                                       --------    --------    --------    --------
<S>                                    <C>         <C>         <C>         <C>     
REVENUES:
   Software ........................   $  4,976    $  4,727    $ 11,100    $ 10,968
   Maintenance .....................      1,452       1,084       3,966       3,163
                                       --------    --------    --------    --------
                                          6,428       5,811      15,066      14,131
                                       --------    --------    --------    --------

EXPENSES:
   Sales and marketing .............      3,035       3,832      10,002      10,456
   Research and product development       1,544       1,761       4,814       4,631
   Acquired in-process research and        
   development .....................       --          --         1,284        --
   General and administrative ......      1,241       1,000       3,449       2,940
   Cost of software revenues .......        859         588       2,310       1,131
   Cost of maintenance revenues ....        316         408         930       1,144
   Restructuring costs .............       --          --           577        --
                                       --------    --------    --------    --------
                                          6,995       7,589      23,366      20,302
                                       --------    --------    --------    --------
Operating loss .....................       (567)     (1,778)     (8,300)     (6,171)

OTHER INCOME/ (EXPENSES):
     Interest income, net ..........         89         177         306         591
     Equity in net loss of affiliate       (150)       (123)       (412)       (182)
                                       --------    --------    --------    --------
Net loss ...........................       (628)     (1,724)     (8,406)     (5,762)

Dividends on preferred stock .......          3           3          10          10
                                       --------    --------    --------    --------

Net loss applicable to common stock    $   (631)   $ (1,727)   $ (8,416)   $ (5,772)
                                       ========    ========    ========    ========

Net loss per common share ..........   $  (0.05)   $  (0.14)   $  (0.65)   $  (0.47)
                                       ========    ========    ========    ========

Weighted-average number of common
shares outstanding .................     13,069      12,413      12,873      12,321
                                       ========    ========    ========    ========
</TABLE>

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

                                       4
<PAGE>

                      EXCALIBUR TECHNOLOGIES CORPORATION

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (unaudited)
                                (in thousands)

                                                   Nine Months Ended October 31,
                                                             1997        1996
                                                          ----------  ----------
Cash Flows from Operating Activities:
   Net loss ............................................   $ (8,406)   $ (5,762)
   Adjustments to reconcile net loss to net cash used
      in operating activities:
        Depreciation and amortization ..................      1,173         998
        Acquired in-process research and development ...      1,284        --
        costs
        Equity in net loss of affiliate ................        412         182
        Loss on disposal of assets .....................       --             7
   Changes in operating assets and liabilities:
        Accounts receivable, net .......................      2,627        (730)
        Prepaid expenses and other .....................        743         (59)
        Accounts payable and accrued expenses ..........       (946)       (487)
        Deferred revenues ..............................        (95)       (311)
                                                           --------    --------
   Net cash used in operating activities ...............     (3,208)     (6,162)
                                                           --------    --------

Cash Flows from Investing Activities:
   Purchase of investments .............................    (14,830)    (14,505)
   Proceeds from maturities of investments .............     20,259      13,990
   Loan to / investment in affiliate ...................        (95)       (557)
   Acquisition, net of cash used .......................         55        --
   Purchases of equipment and leasehold improvements ...       (605)     (2,012)
                                                           --------    --------
   Net cash provided by (used in) investing activities .      4,784      (3,084)
                                                           --------    --------

Cash Flows from Financing Activities:
   Proceeds from the issuance of common stock ..........        436       9,603
   Repayment of notes payable ..........................        (40)        (14)
                                                           --------    --------
   Net cash provided by financing activities ...........        396       9,589
                                                           --------    --------

The Effect of Exchange Rate Changes on Cash ............       (189)       (199)
                                                           --------    --------
Net Increase in Cash and Cash Equivalents ..............      1,783         144

Cash and Cash Equivalents, beginning of period .........      2,685       2,903
                                                           --------    --------
Cash and Cash Equivalents, end of period ...............   $  4,468    $  3,047
                                                           ========    ========

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

                                       5

<PAGE>

                      EXCALIBUR TECHNOLOGIES CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               October 31, 1997

(1)    THE COMPANY

The  consolidated   financial  statements  include  the  accounts  of  Excalibur
Technologies Corporation  ("Excalibur");  Excalibur Technologies  International,
Ltd. ("ETIL"), a wholly-owned subsidiary;  ConQuest Software, Inc. ("ConQuest"),
a company that was  acquired in July 1995;  and  Interpix  Software  Corporation
("Interpix"),  a company  that was  acquired  in May 1997.  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 year's  financial  statements  have been  reclassified to
conform with the current fiscal year presentation.

The Company designs, develops, and markets knowledge retrieval software products
capable of  supporting  text and visual  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 incurred net losses of $628,000 and $8,406,000 in the three and nine
month  periods  ended  October 31,  1997,  and  incurred net losses that totaled
$17,445,000 over the last three complete fiscal years.  The accumulated  deficit
of the Company at October  31, 1997 was  $52,025,000.  The  combined  balance of
cash, cash  equivalents and investments in marketable  securities was reduced by
$3,646,000  in the nine months ended October 31, 1997 to a balance of $7,466,000
at the end of the period.

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.


(2)    SIGNIFICANT ACCOUNTING POLICIES

Financial Statement Presentation

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.

                                       6
<PAGE>


These consolidated  financial statements are unaudited and have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission  regarding  interim  financial  reporting.  Accordingly,  they do not
include all of the  information  and  footnotes  required by generally  accepted
accounting  principles for complete  financial  statements,  and it is suggested
that these  consolidated  financial  statements be read in conjunction  with the
consolidated  financial  statements,  and the  notes  thereto,  included  in the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997.
In the  opinion  of  management,  the  comparative  and  consolidated  financial
statements for the fiscal periods  presented herein include all adjustments that
are normal and recurring which are necessary for a fair statement of the results
for the interim periods.  The results of operations for the three and nine month
periods ended October 31, 1997 are not necessarily indicative of the results for
the entire fiscal year ending January 31, 1998.

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 terms of the respective agreements,  which are usually one year
in length. Maintenance revenues that are bundled with initial licensing fees are
deferred and recognized over the terms of the related maintenance periods, which
are typically 90 days.

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 is  effective  for revenue  transactions
entered into by the Company in fiscal years  beginning  after  January 31, 1998.
Management  believes  that the  changes  contained  in SOP 97-2  will not have a
material adverse financial impact on the Company.

Research and Development Costs

No product  development  costs were  capitalized,  and there were no capitalized
costs not yet  amortized,  during the nine month  periods ended October 31, 1997
and 1996.

Stock-Based Compensation

Effective  for the  financial  statements  as of January 31,  1997,  the Company
adopted Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting
for Stock-Based  Compensation." As permitted by this pronouncement,  the Company
is  continuing  to apply  the  provisions  of APB  Opinion  No.  25 and  related
Interpretations in accounting for awards to employees and outside directors made
pursuant to its employee stock plans.  However, fair value accounting is applied
to  transactions  involving  the  Company's  issuance of stock  options or other
equity  instruments  for the acquisition of goods or services from other outside
providers.


                                       7
<PAGE>

Income Taxes

Due to the net losses reported for the nine month periods ended October 31, 1997
and 1996, no income taxes were provided in the periods.

Translation of Foreign Financial Statements

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


Net Loss Per Common Share

Net loss per common  share has been  computed by dividing  the net loss for each
period,  plus dividends on preferred  stock, by the  weighted-average  number of
common shares  outstanding  during each period.  Common stock equivalents (stock
options, warrants and cumulative convertible preferred stock) were excluded from
the net loss per share  computations for the periods presented herein because of
their anti-dilutive effect.

The Company will be required to apply the provisions of SFAS No. 128,  "Earnings
Per Share," commencing with its consolidated financial statements for the fiscal
quarter and year ending  January 31, 1998.  The  pronouncement  provides for the
presentation  of basic and diluted  earnings per share  ("EPS"),  replacing  the
currently required primary and fully-diluted EPS. The basic EPS will be computed
by dividing reported earnings  available to common  shareholders by the weighted
average  number of shares  outstanding  during the  period.  Diluted EPS will be
computed in a manner similar to  fully-diluted  EPS,  except for certain changes
including the way that the treasury stock method may be applied to determine the
dilution for stock options and warrants.  Companies  will be required to restate
prior-period EPS to conform with the new statement.  The Company does not expect
that the  application of the new standard will have a material  effect on future
EPS presentations or on EPS amounts reported in prior periods.

Cash, Cash Equivalents and Marketable Securities

For purposes of the balance  sheets and  statements  of cash flows,  the Company
considers all highly liquid  investments  purchased with an original maturity of
three months or less to be cash equivalents.  Cash equivalents  consist of funds
deposited in money market accounts.  U.S.  government  securities are considered
investments  and  are  excluded  from  cash  equivalents   regardless  of  their
maturities.  Under SFAS No. 115, "Accounting For Certain Investments in Debt and
Equity   Securities,"  the  Company  considers  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 October 31, 1997 and January 31, 1997, the
aggregate  fair value of the  securities  based upon  quoted  market  prices was
$2,999,000 and $8,428,000, respectively.


                                       8
<PAGE>

Supplemental Cash Flow Information (in thousands)
                                                     Nine Months Ended
                                                           October 31,
                                                    1997          1996
                                                  ----------   ----------
Non-cash investing and financing activities:
   Use of deferred compensation to purchase       $    344     $     33
   common stock
   Issuance of warrants to purchase common stock        --          758
   Common stock issued for acquisition               1,822           --

Details of acquisition:
   Fair value of assets acquired                  $    583     $     --
   In-process research and development acquired      1,284           --
   Liabilities assumed                                  21           --
   Stock issued                                      1,822           --
                                                  ----------   ----------
   Cash paid                                            24           --
Cash acquired                                           79           --
                                                  ----------   ----------
Net cash received in acquisition                  $     55     $     --
                                                  ==========   ==========




(3)    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 three and nine month  periods  ended October 31,
1997 from the date of acquisition.  The results of operations for Interpix prior
to the acquisition were not significant.

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, $1,822,000, and
out-of-pocket  acquisition  costs,  $45,000.  It 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  amounts of
goodwill  amortization  for the three and nine month  periods  ended October 31,
1997 were approximately $27,000 and $54,000, respectively.


                                       9
<PAGE>

(4)    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 granted
to ETNV an exclusive license to distribute  certain of the Company's products to
other authorized resellers and customers in the territory for approximately five
(5) years.  The Company  contributed  approximately  $488,000 in cash to ETNV in
order to purchase 13.2% of ETNV's voting capital stock.  In connection  with the
organization  of ETNV,  the  Company  also 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.  In July 1997, the Company loaned
ETNV approximately $95,000.

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,  including  $758,000  attributable  to the value of the
warrants  discussed in the preceding  paragraph.  The excess is being  amortized
over a five-year period.

The  amortization of the excess,  the Company's share of ETNV's net loss for the
period, and the elimination of the Company's share of gross profit in the ending
balances of ETNV's  prepaid  license  fees are included in equity in net loss of
affiliate in the  accompanying  consolidated  statements of  operations  for the
three and nine month periods ended October 31, 1997 and 1996. The balance of the
investment,  included  in other  assets in the  accompanying  balance  sheets at
October 31, 1997 and January 31, 1997, was $656,000 and $973,000,  respectively,
net of accumulated amortization of $753,000 and $341,000, respectively.

For the three and nine months ended October 31, 1997, the Company recorded total
revenues of  $690,000  and  $1,261,000,  respectively,  related to the  software
license  with  ETNV  including  license  fees  and  maintenance  revenues.   The
comparable amounts for the corresponding periods of the prior year were $347,000
and $722,000, respectively.

(5)    ISSUANCES OF COMMON STOCK

During the first nine  months of the current  fiscal  year,  the Company  issued
approximately 332,000 shares of common stock upon the exercise of employee stock
options ranging in price from $1.04 to $11.64 per share, resulting in total cash
proceeds  to the  Company  of  approximately  $188,000  and the  utilization  of
$344,000 in deferred compensation.  In addition,  approximately 35,000 shares of
common stock were issued to  participants of the employee stock purchase plan at
an aggregate  purchase price of  approximately  $235,000.  The exercise of stock
options  provided  total cash proceeds of  approximately  $1,266,000 in the nine
month period ended October 31, 1996.


                                       10
<PAGE>


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 repriced were not exercisable  until November
8, 1997.

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,  a
beneficial owner of in excess of 25% of the Company's  outstanding common stock,
acted  as  the  placement  agent  in  this  transaction  and  received  a fee of
approximately $350,000.


(6)   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.  The charge  primarily  consisted of severance
pay and medical and other severance benefits for nineteen  terminated  employees
in sales, development, marketing and administrative functions. Cash expenditures
made pursuant to the restructuring  were  substantially  completed in the second
quarter of the current fiscal year.


(7)   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In  March  1997,  SFAS  No.  129,   "Disclosure  of  Information  about  Capital
Structure",  was issued and is effective  for the  Company's  fiscal year ending
January 31, 1998. 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 has not determined  the impact of the  implementation  of
these pronouncements.





                                       11
<PAGE>

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

Overview

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,
scaleable, 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.

On May 5, 1997, the Company acquired Interpix Software Corporation ("Interpix"),
located in Santa Clara, California, a privately-owned company and developer of a
commercial  technology  enabling  the  collection,   indexing,   management  and
presentation  of multimedia  data on the Internet and corporate  intranets.  The
purchase method of accounting was applied to this  acquisition  transaction and,
accordingly,  the results of  operations  of Interpix  have been included in the
Company's  consolidated  results  of  operations  for the three  and nine  month
periods ended October 31, 1997 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 the current fiscal year.

The Company  reorganized  its sales force and made other  changes to the overall
organization  at the end of the first  quarter of the current  fiscal  year.  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  primarily  consisted  of  severance  pay and  benefits for
terminated employees.

                                       12
<PAGE>

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.



Results of Operations

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 and nine  month  periods  ended  October  31,  1997 and 1996,  and the
percentage change in the amounts between fiscal periods (dollars in thousands).


                                                                 
                               Three Months Ended October 31,        Increase
                                 1997                  1996         (Decrease)
                          --------------------  ------------------- ---------
                            Amount    Percent     Amount   Percent   Percent
                          ---------- ---------  --------- --------- ---------

Revenues:
   RetrievalWare          $   4,579      71 %   $  3,061     53  %     50  %
   EFS                          397       6        1,666     28       (76)  
                          ---------- ---------  --------- --------- -------
     Total software           4,976      77        4,727     81         5  %
                                                                 
  Maintenance                 1,452      23        1,084     19        34      
                          ========== =========  ========= ========= =========
     Total revenues       $   6,428     100 %   $  5,811    100 %      11  % 
                          ========== =========  ========= ========= =========
Expenses:
   Sales and marketing    $   3,035      47 %   $  3,832     66 %     (21) %
   Research and product
    development               1,544      24        1,761     30       (12)
   General and     
    administrative            1,241      19        1,000     17        24 
   Costs of sales             1,175      18          996     17        18
                          ========== =========  ========= ========= =========
     Total expenses       $   6,995     108 %   $  7,589    130 %      (8) %
                          ========== =========  ========= ========= =========



                                       13
<PAGE>


                                                                 
                               Nine Months Ended October 31,         Increase
                                 1997                  1996         (Decrease)
                          --------------------  ------------------- ---------
                           Amount    Percent     Amount   Percent   Percent
                          ---------- ---------  --------- --------- ---------

Revenues:
   RetrievalWare          $   9,933      66 %   $  5,905      42 %    68  % 
   EFS                        1,167       8        5,063      36     (77) 
                          ---------- ---------  --------- --------- ---------
     Total software          11,100      74       10,968      78       1 
                                                                 
  Maintenance                 3,966      26        3,163      22      25 
                          ========== =========  ========= ========= =========
     Total revenues       $  15,066     100 %   $ 14,131     100 %     7   %
                          ========== =========  ========= ========= =========
Expenses:
   Sales and marketing    $  10,002      66 %   $ 10,456      74 %    (4)  %
   Research and product
    development               4,814      32        4,631      33       4
   Acquired in-process
    research and            
    development               1,284       8           --      --      n/a
   General and              
    administrative            3,449      23        2,940      21      17
   Costs of sales             3,240      22        2,275      16      42 
   Restructuring costs          577       4           --      --      n/a 
                          ========== =========  ========= ========= =========
     Total expenses       $  23,366     155 %   $ 20,302     144 %    15   %
                          ========== =========  ========= ========= =========



Total  revenues  for the  third  fiscal  quarter  ended  October  31,  1997 were
$6,428,000,  an increase of 11% over total  revenues of $5,811,000  reported for
the  corresponding  fiscal quarter last year. The Company incurred a net loss of
$628,000, or $0.05 per common share, in the third quarter compared to a net loss
of $1,724,000, or $0.14 per common share, in the third quarter last fiscal year.

For the nine months ended October 31, 1997, total revenues were $15,066,000,  an
increase of 7% over total revenues of  $14,131,000  reported for the same fiscal
period last year. The Company  incurred a net loss of  $8,406,000,  or $0.65 per
common share,  in the first nine months of the current fiscal year compared to a
net loss of  $5,762,000,  or $0.47 per common  share,  in the same fiscal period
last year.  Excluding the second  quarter  charge of $1,284,000  for  in-process
research and  development  costs  related to the  acquisition  of Interpix and a
$577,000 charge recorded in the first quarter  related to the  restructuring  of
operations,  the net  loss  for the  nine  months  ended  October  31,  1997 was
$6,545,000.

                                       14
<PAGE>

Software  revenues  increased on a world-wide  basis by 5%, to $4,976,000 in the
third quarter from $4,727,000 in last year's fiscal third quarter, due primarily
to a 79%  increase in service  revenues  that  include  implementation  support,
training and other services provided to a variety of customers. Service revenues
were approximately 13% of total software revenues in the third quarter, and were
derived primarily from activities  supporting  federal government and commercial
customers.   License  fee  revenues   decreased  1%  between   fiscal   periods.
International software revenues,  which were approximately 48% of total software
revenues in the third quarter, increased by approximately 73% compared with last
year's third quarter, primarily due to a new distribution license agreement with
IBM in the United  Kingdom,  the  expansion or renewal of several  other product
distribution  arrangements,  and increased software revenues associated with the
distribution  license with ETNV.  Software  revenues from North  American  sales
declined by 23% from the corresponding fiscal quarter of last year.

For the nine months ended October 31, 1997,  total software  revenues  increased
slightly, to $11,100,000 in the current year from $10,968,000 in the nine months
ended October 31, 1996. Service revenues, which represented approximately 17% of
total software revenues in the nine months ended October 31, 1997,  increased by
152% between years.  Software  license fee revenues  declined 10% between years.
International software revenues,  which were approximately 39% of total software
revenues for the nine months ended October 31, 1997,  increased by approximately
18% in the current year  compared with last year.  Software  revenues from North
American sales declined by 7% from the  corresponding  nine-month period of last
year.

The  Company  has nearly  completed  the  transition  of its  product  line from
Excalibur  Electronic  Filing  Software  ("EFS") to the Excalibur  RetrievalWare
family  of  products,  a new class of  advanced  knowledge  retrieval  products.
Excalibur RetrievalWare represented approximately 92% of total software revenues
in the  third  quarter,  and  71% of  total  revenues.  Excalibur  RetrievalWare
software  revenues  increased 50% in the third quarter over comparable  revenues
for the third  quarter last year.  Excalibur  RetrievalWare  represented  89% of
total  software  revenues for the nine months ended October 31, 1997, and 66% of
total revenues for the same period.  Excalibur  RetrievalWare  software revenues
increased by 68% in the nine months  ended  October 31, 1997  compared  with the
corresponding period of the prior fiscal year.

In the quarter,  Excalibur  RetrievalWare  was selected by several new customers
while the Company expanded the license arrangements with existing customers in a
variety of industries, including broadcasting,  entertainment, on-line services,
manufacturing,  telecommunications and the federal and foreign governments.  The
Company also increased its channel activity and completed or expanded agreements
with several product distribution partners,  most notably in the United Kingdom,
Spain, Korea and South America.


                                       15
<PAGE>


As  explained  in  Note 4 to the  Consolidated  Financial  Statements  contained
herein,  the Company licensed the use of its name and certain software  products
to ETNV in July 1996.  The license  agreement  provides  that ETNV make  minimum
license fee payments to the Company each quarter,  including  quarterly payments
of  $625,000  in  the  current  year  which   represent   software   revenue  of
approximately  $500,000 per quarter.  The  Company's  management  believes  that
progress has been made in starting up this operation including the establishment
of sales and support offices in several European countries and the building of a
pipeline  of  business  opportunities.  In  October,  ETNV  concluded  its  most
successful  quarter of operations  to date.  However,  the Company  continued to
record software revenues related to its license  arrangement with ETNV only when
minimum license fees are received by the Company in cash.  Software revenues for
the three and nine month periods  ended October 31, 1997 included  approximately
$509,000 and $1,011,000,  respectively,  in revenues  related to minimum license
fees that  were paid by ETNV.  Software  revenues  for the three and nine  month
periods ended October 31, 1996 contained revenues of approximately  $336,000 and
$708,000, respectively, related to the license arrangement with ETNV.

The  Company's  total  revenues  for the third  quarter  were the  highest  ever
reported by the Company, although current year revenues continue to be adversely
impacted by changes in the North American sales organization.  Due to unexpected
turnover  among  sales  personnel,  the  Company  spent  considerable  resources
training a largely  new sales force in the first  quarter of the current  fiscal
year.  The new  personnel  were  subjected  to a prolonged  and  thorough  sales
training and product  familiarization  program.  Management  believes that these
efforts  resulted  in more  effective  selling in the second and third  quarters
compared with the first quarter.  However,  there can be no assurances  that the
improvement in sales  productivity will continue at the same rate experienced in
the last two quarters of the current year.

Due  primarily  to the  expansion  of the  customer  base with the  addition  of
Excalibur  RetrievalWare  users,   maintenance  revenues  increased  by  34%  to
$1,452,000 in the third quarter from  $1,084,000 in the third quarter last year,
and by 25% to  $3,966,000  in the  nine  months  ended  October  31,  1997  from
$3,163,000 in the corresponding period of last year.

Due to cost reduction  measures taken earlier in the current fiscal year,  sales
and  marketing  costs in the third  quarter were  $797,000 less than they were a
year  ago.  Sales and  marketing  costs  were  $3,035,000  in the third  quarter
compared with $3,832,000 last year,  which  represented a 21% reduction  between
fiscal years. At the end of the current year first quarter,  the Company reduced
its workforce,  reorganized the sales personnel and postponed marketing programs
that did not directly support  short-term  revenue goals. As a result,  salaries
expense,  benefit costs, marketing program costs, and travel costs were reduced.
These cost reductions  represented the substantial portion of the total decrease
in sales and marketing costs for the quarter.  Due to the reduced level of sales
and marketing costs in the third quarter,  sales and marketing  expenses for the
nine months  ended  October 31, 1997,  decreased  by 4% compared  with the prior
fiscal year, to  $10,002,000  in the current year from  $10,456,000 in the prior
year. The Company employed 62 people in the sales and marketing areas at October
31, 1997. There were 74 sales and marketing employees at October 31, 1996.


                                       16
<PAGE>

Total research and product  development costs decreased by 12%, to $1,544,000 in
the third quarter of the current fiscal year compared with $1,761,000 last year.
In  the  third  quarter,  the  Company  significantly  reduced  the  development
activities associated with the EFS product line. This reduction more than offset
the additional costs of the Interpix product  development staff and the increase
in the costs of text products development,  and resulted in decreased salary and
benefit costs,  consulting  expenses,  equipment costs, and recruiting costs for
the  quarter.  For  the  nine  months  ended  October  31,  1997,  research  and
development  costs  increased  by 4%, to  $4,814,000  in the  current  year from
$4,631,000  in the  nine  months  ended  October  31,  1996 as the  EFS  product
reductions  were not enough to offset  the  year-to-date  increases  in text and
internet  product  development  costs.  There were 53 research  and  development
employees at October 31, 1997; there were 59 such employees at October 31, 1996.
As indicated  above,  the Company  recorded a charge to expense of $1,284,000 in
the  second  quarter  of the  current  fiscal  year for the  cost of  in-process
research and development acquired in the merger with Interpix.

In the  third  quarter  of the  current  fiscal  year,  the  Company  introduced
Excalibur RetrievalWare 6.5, which delivers enhanced summarization capabilities,
search client  improvements and metadata  clustering,  and includes the FileRoom
add-on module.  The FileRoom option  represents an upgrade path for users of the
Company's Excalibur EFS product and is designed to provide  organizations with a
unified  capability  to  access  and  search  both  paper-based  and  electronic
documents,  including office data,  Internet and intranet data,  groupware data,
relational  database  information and other digital  assets,  from a single user
interface.  The Company also broadened its product line with the introduction of
Excalibur  Internet Spider, a mutimedia web crawler,  that enables end users and
applications  developers to access and leverage mutimedia  information published
on the world-wide  web.  Beginning in the fourth  quarter,  the Company  expects
increased sales and marketing costs  associated with the introduction of its new
products,  including a new application for the management of mutimedia and video
assets that will operate in conjunction with Excalibur RetrievalWare.

General and  administrative  expenses increased by 24% in the current quarter to
$1,241,000  from  $1,000,000 in the  comparable  quarter last year. For the nine
months ended October 31, 1997,  general and  administrative  costs  increased by
17%, to $3,449,000 in the current year from  $2,940,000 in the nine months ended
October 31, 1996.  Since early last year, the Company has added employees to the
human  resources,   contracts,  management  information  systems  and  financial
planning and analysis  functions,  thereby increasing  salaries expense for both
the  current  quarter  and  year-to-date  periods.  Increased  salaries  expense
represented  a  significant  portion  of  the  total  increase  of  general  and
administrative  expenses for both the quarter and year-to-date periods.  Related
costs  also  increased  in each  current  year  period  including  office  rent,
telephone, depreciation and other equipment costs although recruiting and moving
costs have  declined.  General and  administrative  expenses  included  bad debt
expense of $134,000 and  $207,000,  respectively,  in the quarter and nine month
periods ended October 31, 1997. The comparable bad debt expense amounts recorded
last year were $1,000 and $128,000, respectively.


                                       17

<PAGE>
Costs of sales  increased  by 18% to  $1,175,000  in the  current  quarter  from
$996,000 in the third  quarter of last year.  For the nine months ended  October
31, 1997,  costs of sales  increased by 42%, to  $3,240,000  in the current year
from $2,275,000 in the nine months ended October 31, 1996. The increases  relate
primarily to the formation of a product  implementation  group late in the prior
fiscal year,  which had grown to 8 employees  at October 31, 1997,  resulting in
additional  salaries expense and increased  overhead costs.  Costs for the three
and nine  month  periods  ended  October  31,  1997 also  included  the costs of
implementation project  subcontractors,  the amortization of goodwill associated
with the  acquisition of Interpix,  and the increased costs of new users manuals
and  other  documentation  related  to the  series  of  Excalibur  RetrievalWare
releases in the current fiscal year and an updated  version of the Excalibur EFS
product.  The costs of the customer  support  group have declined in the current
fiscal year,  resulting in decreased  costs of maintenance in the three and nine
month periods ended October 31, 1997 compared with the corresponding  periods of
last year.

Net interest income declined to $89,000 and $306,000, respectively, in the three
and nine month  periods  ended  October 31,  1997 from  $177,000  and  $591,000,
respectively, in the comparable fiscal periods of last year due to a decrease in
the level of investment securities held. The Company's equity in the net loss of
ETNV was $150,000 in the current quarter, and $412,000 for the nine months ended
October 31,  1997.  The  Company's  equity in ETNV's net loss was  $123,000  and
$182,000,  respectively,  for the three and nine month periods ended October 31,
1996. ETNV did not begin operations until July 1996.


Liquidity and Capital Resources

In the nine months ended  October 31, 1997,  the Company's  combined  balance of
cash, cash  equivalents and  investments in marketable  securities  decreased by
$3,646,000 to $7,466,000 as summarized below (in thousands). At October 31, 1997
and January 31, 1997,  investments  in marketable  securities  consisted of U.S.
Treasury Bills with maturities of less than one year.

                         October 31,   January 31,
                            1997          1997         Change
                         ----------    ----------    -----------
          Cash and cash
          equivalents    $  4,468      $  2,685      $  1,783
          Investments       2,998         8,427        (5,429)
                         ==========    ==========    ===========
             Total       $  7,466      $ 11,112      $ (3,646)
                         ==========    ==========    ===========

The amount of cash used in  operations  during the nine months ended October 31,
1997,  $3,208,000,  was  substantially  less  than the net loss for the  period,
$8,406,000,  due to a significant  reduction in the level of accounts receivable
and other current assets, and several large non-cash charges. The amount of cash
provided by the $2,627,000  reduction in the balance of accounts  receivable and
the  $743,000  reduction  in the  balance  of other  current  assets  was offset
somewhat  by the use of  $946,000  cash to reduce  accounts  payable and accrued
liabilities.  The non-cash charges, which totaled $2,869,000,  included acquired
research and development  costs of $1,284,000,  depreciation and amortization of
$1,173,000,  and the  Company's  share of ETNV's  net loss of  $412,000.  In the
current year, cash was also used to purchase computer and other equipment with a
total cost of $605,000, and to make a $95,000 loan to ETNV.

                                       18
<PAGE>

In the nine  months  ended  October 31,  1997,  net cash was  provided  from the
maturity of  Treasury  Bills,  $5,429,000,  and the  exercise of employee  stock
options,  $436,000.  Net  cash  of  $55,000  was  provided  as a  result  of the
acquisition of Interpix.

Last year, cash used in operations  during the first nine months was $6,162,000,
fixed asset additions were  $2,012,000,  and the initial  investment of $557,000
was made in ETNV.  However,  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 $1,215,000 cash.

Due to the  reduction in the balance of accounts  receivable  during the current
fiscal year,  including amounts with payment terms beyond the normal practice of
30 to 45 days and amounts related to overdue accounts,  the number of days sales
outstanding  ("DSO") at October 31, 1997 declined from the number at January 31,
1997. Management expects that the Company's DSO at January 31, 1998 will be less
than the  comparable  number at January  31,  1997,  although it does expect the
number to  increase  in the  fourth  quarter  of the  current  year.  Management
believes  that the  allowance  for doubtful  accounts of $407,000 at October 31,
1997 is adequate.



Factors That May Affect Future 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.


                                       19
<PAGE>

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 inhibited the revenue growth that
management had expected for the last four quarters.

As a  result,  near  the  end of  the  first  quarter,  the  short-term  revenue
expectations  of  management  were  moderated,  and  planned  expenditures  were
reduced.  As  discussed  above  and  in  Note 6 to  the  Consolidated  Financial
Statements  contained herein, 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 will facilitate 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   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
and third  quarters  of the  current  fiscal  year.  Revenues  for each of these
quarters were significantly increased from first quarter revenues, and the level
of quarterly costs and expenses has been reduced. As a result,  operating losses
have been reduced and the use of cash has been slowed  significantly 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 remainder of the current 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.

                                       20
<PAGE>

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,
particularly its international  operations.  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  has  significant  net  operating  loss  carryforwards  ("NOLs") of
approximately $60 million.  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  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  Software,  Inc.  ("ConQuest") in July 1995,
the  Company's  ability to utilize  NOLs  relating to ConQuest of  approximately
$3,233,000 may be limited.  Despite the NOL carryforwards,  the Company may have
income tax liability in future years due to the  application of the  alternative
minimum tax rules of the Internal Revenue Code.

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

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

The Company can be contacted  via e-mail at  info@excalib.com  or visited at its
web site at www.excalib.com.






                                       21
<PAGE>





                         PART II-- OTHER INFORMATION

Item 1.     Legal Proceedings                                    None.


Item 2.     Changes in Securities                                None.


Item 3.     Defaults upon Senior Securities                      None.


Item 4.     Submission of Matters to Vote of Security Holders    None.


Item 5.     Other Information

Any  proposal  which an  eligible  shareholder  wishes to  include  in the proxy
statement for the Company's 1998 Annual Meeting of Shareholders must be received
by the Company at its principal  executive  offices at 1921 Gallows Road,  Suite
200, Vienna, Virginia 22182, not later than January 29, 1998.

Item 6.     Exhibits and Reports on Form 8-K                     None.





                                       22

<PAGE>







                                  SIGNATURES



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

                                    EXCALIBUR TECHNOLOGIES CORPORATION
                                    ----------------------------------
                                    (Registrant)


December 8, 1997                    By: /s/ Patrick C. Condo
                                        --------------------
                                        Patrick C. Condo
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)




December 8, 1997                    By: /s/ James H. Buchanan
                                        ---------------------
                                        James H. Buchanan
                                        Chief Financial Officer
                                        (Principal Financial and Accounting
                                         Officer)



                                       23
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