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, 1996

                                        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 4, 1996,  12,437,025 shares of the registrant's Common Stock, par
value $0.01 per share, were outstanding.



<PAGE>





                   EXCALIBUR TECHNOLOGIES CORPORATION

                       QUARTERLY REPORT ON FORM 10-Q
                 FOR THE QUARTER ENDED OCTOBER 31, 1996

                            TABLE OF CONTENTS


                     PART I .  FINANCIAL INFORMATION


Item 1.    Financial Statements:                                  Page

           Consolidated Balance Sheets
           October 31, 1996 and January 31, 1996....................3

           Consolidated Statements of Operations
           Three-month and nine-month periods ended 
           October 31, 1996 and 1995 ...............................4

           Consolidated Statements of Cash Flows
           Nine-month periods ended October 31, 1996 and 1995.......5

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

Item 2.    Management's Discussion and Analysis of Financial 
           Condition and Results of Operations.....................11



                            PART II. OTHER INFORMATION

Items 1. - 6.......................................................19


Signatures ........................................................20




                                       2

<PAGE>
<TABLE>
                        EXCALIBUR TECHNOLOGIES CORPORATION

                            CONSOLIDATED BALANCE SHEETS
                       (in thousands, except per share data)
<CAPTION>
                      ASSETS                                 
                                                      October 31,   January 31,
                                                          1996         1996
                                                       (unaudited)   
                                                         --------    -------- 
<S>                                                      <C>         <C>   
Current Assets:
   Cash and cash equivalents .........................   $  3,047    $  2,903
      U.S. government securities, at cost ............     10,856      10,341
   Accounts receivable, net of allowance for
      doubtful accounts of $386 and $375, respectively      7,823       6,942
   Prepaid expenses and other ........................        943         582
                                                         --------    --------
        Total current assets .........................     22,669      20,768

Equipment and leasehold improvements, net of
   accumulated depreciation of $3,842 and
$2,838,respectively ..................................      2,956       1,943
Investment in affiliate (Note 3) .....................      1,132        --
Other assets .........................................         67         335
                                                         --------    --------
                                                         $ 26,824    $ 23,046
                                                         ========    ========
      LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
   Accounts payable ..................................   $  1,428    $  1,005
   Accrued expenses ..................................      2,126       2,999
   Deferred revenues .................................      2,490       2,759
   Deferred compensation .............................      1,001       1,032
                                                         --------    --------
        Total current liabilities ....................      7,045       7,795
                                                         --------    --------
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; 12,418 and 11,953
        shares issued and outstanding, respectively ..        124         119
   Additional paid-in capital ........................     61,661      51,272
   Accumulated deficit ...............................    (42,208)    (36,446)
   Cumulative translation adjustment .................        (69)         35
                                                         --------    --------
        Total shareholders' equity ...................     19,779      15,251
                                                         --------    --------
                                                         $ 26,824    $ 23,046
                                                         ========    ========
     The accompanying notes to the consolidated financial statements are an
               integral part of these consolidated balance sheets.
</TABLE>
                                       3

<PAGE>
<TABLE>
                        EXCALIBUR TECHNOLOGIES CORPORATION

                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (unaudited)
                       (in thousands, except per share data)
<CAPTION>
                                          Three months ended     Nine months ended
                                              October 31             October 31            
                                           1996       1995        1996        1995
                                        --------    --------    --------    --------
<S>                                     <C>          <C>        <C>         <C>    
REVENUES:
   Software .........................   $  4,727     $ 3,940    $ 10,968    $ 10,243
   Maintenance ......................      1,084       1,066       3,163       2,662
                                        --------    --------    --------    --------
                                           5,811       5,006      14,131      12,905
                                        --------    --------    --------    --------

EXPENSES:
   Sales and marketing ..............      3,832       2,381      10,456       6,244
   Research and product development .      2,136       1,226       5,557       3,522
   General and administrative .......      1,000         861       2,940       2,610
   Cost of software revenues ........        396         456         746       1,033
   Cost of maintenance revenues .....        225         143         603         415
   Merger costs (Note 1) ............       --          --          --           490
                                        --------    --------    --------    --------
                                           7,589       5,067      20,302      14,314
                                        --------    --------    --------    --------
Operating loss ......................     (1,778)        (61)     (6,171)     (1,409)

OTHER INCOME/ (EXPENSES):
     Interest income, net ...........        177         169         591         414
     Equity in net loss of affiliate        (123)       --          (182)       --
                                        --------    --------    --------    --------

Net (loss) income ...................     (1,724)        108      (5,762)       (995)
Dividends on preferred stock ........          3           3          10          10
                                        --------    --------    --------    --------

Net (loss) income applicable to
common stock ........................   $ (1,727)   $    105    $ (5,772)   $ (1,005)
                                        ========    ========    ========    ========

Net (loss) income per common share ..   $  (0.14)   $   0.01    $  (0.47)   $  (0.09)
                                        ========    ========    ========    ========
Weighted-average number of common
shares outstanding ..................     12,413      11,540      12,321      11,403
                                        ========    ========    ========    ========


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

                                       4

<PAGE>
<TABLE>
                        EXCALIBUR TECHNOLOGIES CORPORATION

                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (unaudited)
                                  (in thousands)
<CAPTION>
                                                       For the nine months ended
                                                                October 31
                                                             1996        1995
                                                          ---------   ----------
<S>                                                       <C>         <C>      
Cash Flows from Operating Activities:
   Net loss ...........................................   $ (5,762)   $   (995)
   Adjustments to reconcile net loss to net
   cash used in operating activities:
        Depreciation and amortization .................        998         781
        Equity in net loss of affiliate ...............        182        --   
        Loss on disposal of assets ....................          7          14
        Compensation paid in common stock .............       --            65
   Changes in operating assets and liabilities:
        Accounts receivable, net ......................       (730)       (917)
        Prepaid expenses and other ....................        (59)       (298)
        Accounts payable and accrued expenses .........       (487)       (770)
        Deferred revenues .............................       (311)       (122)
   Adjustment for change in fiscal year of ConQuest ...       --          (181)
                                                          --------    --------
   Net cash used in operating activities ..............     (6,162)     (2,423)
                                                          --------    --------
Cash Flows from Investing Activities:
   Purchase of investments ............................    (14,505)     (8,600)
   Proceeds from maturities of investments ............     13,990       7,911
   Investment in affiliate ............................       (557)       --
   Purchases of equipment and leasehold improvements ..     (2,012)       (462)
                                                          --------    --------
   Net cash used in investing activities                    (3,084)     (1,151)
                                                          --------    --------
Cash Flows from Financing Activities:
   Proceeds from the issuance of common stock .........      9,603       3,346
   Proceeds from notes payable ........................       --           238
   Repayment of notes payable and capital leases ......        (14)       (540)
   Dividends paid .....................................       --           (14)
                                                          --------    --------
   Net cash provided by financing activities ..........      9,589       3,030
                                                          --------    --------
   The Effect of Exchange Rate Changes on Cash ........       (199)          9
                                                          --------    --------
Net increase (Decrease) in Cash and Cash Equivalents ..        144        (535)
Cash and Cash Equivalents, beginning of period ........      2,903       2,645
                                                          --------    --------
Cash and Cash Equivalents, end of period ..............   $  3,047    $  2,110
                                                          ========    ========
Supplemental Disclosures of Noncash Activities:
  Issuance of warrants to purchase common stock .......   $    758    $   --
  Use of deferred compensation to purchase common stock         33          45
</TABLE>
       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, 1996


(1)    THE COMPANY

Operations and Organization

The  consolidated   financial  statements  include  the  accounts  of  Excalibur
Technologies Corporation ("Excalibur");  its wholly-owned subsidiary,  Excalibur
Technologies  International,  Ltd. ("ETIL"); and the acquired company,  ConQuest
Software,  Inc.  ("ConQuest").  These  entities  are  collectively  referred  to
hereinafter as the "Company".  All  significant  intercompany  transactions  and
accounts have been eliminated. Certain amounts presented in the balance sheet at
January  31,  1996  have  been  reclassified  to  conform  to the  current  year
presentation.

As  discussed  more  completely  below in Note 3 to the  consolidated  financial
statements,  in July 1996,  the Company made an investment in an  unconsolidated
affiliate,  Excalibur  Technologies  N.V. The Company uses the equity  method of
accounting for its investment and, for the  consolidated  financial  statements,
eliminates  its share of profits  included in the ending  asset  balances of the
affiliate.

The Company designs,  develops,  markets and supports computer software products
used  for  the  knowledge  retrieval   marketplace.   The  Company  also  offers
consulting, training, maintenance and systems integration services in support of
its customers' use of its software products.  In addition,  the Company performs
research  and  development  under  contract and  licenses  proprietary  software
products for use in compound-document, digital library, positive identification,
and online  services and  knowledge  retrieval  solutions.  Distribution  of the
Company's products occurs through  value-added  resellers,  system  integrators,
original equipment manufacturers, other distributors and a direct sales force to
North American and international customers including commercial firms in various
industries and government agencies.

The  Company's  operations  are  subject  to  certain  risks  and  uncertainties
including,  among  others,  actual and  potential  competition  by entities with
greater  financial  resources,  experience and market presence than the Company;
the  success  of  the  Company's  product  marketing  and  product  distribution
strategies;  risks associated with acquisitions and international expansion; the
need to manage growth;  and certain technology risks. The Company incurred a net
loss  of  $5,762,000  in the  nine  months  ended  October  31,  1996,  incurred
cumulative  losses of  approximately  $18.6  million  over the last three fiscal
years and the  accumulated  deficit  of the  Company  at  October  31,  1996 was
$42,208,000.

Acquisition of ConQuest Software, Inc.

In July 1995,  the  Company  acquired  ConQuest,  a private  company  located in
Columbia,  Maryland,  engaged in the business of providing natural language text
management   software  tools.  The  former  shareholders  of  ConQuest  received
approximately  1,427,000 shares of common stock of Excalibur in exchange for all

                                       6
<PAGE>
of the common stock of ConQuest. Outstanding options to purchase common stock of
ConQuest were converted into options to purchase approximately 573,000 shares of
Excalibur  common  stock.  The  acquisition  was  accounted  for as a pooling of
interests  and, as such,  the  accompanying  consolidated  financial  statements
reflect the combined results of the pooled businesses for the respective periods
presented.

The  Company  recorded a charge of  approximately  $490,000 in July 1995 for the
transaction  costs to complete the merger  between  Excalibur and ConQuest.  The
costs included  legal,  accounting and other  professional  fees of $363,000 and
other costs of $127,000.

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

(2)    SIGNIFICANT ACCOUNTING POLICIES

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.

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, 1996.
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, 1996 are not necessarily indicative of the results for
the entire fiscal year ending January 31, 1997.

Revenue Recognition

Revenues  from  the sale of  computer  software  licenses  are  recognized  upon
shipment of product provided that no significant  vendor  obligations remain and
that  collection of the resulting  receivable is considered  probable.  Revenues
related  to  agreements   with  customers   that  contain   future   performance
requirements  are recognized  when the performance  requirements  are satisfied.
Revenues  related to customer  support  agreements  are deferred and  recognized
ratably  over  the  term  of  the  respective  agreements,   usually  one  year.
Maintenance  revenues that are bundled with initial  licensing fees are deferred
and recognized over the term of the related  maintenance  periods,  typically 90
days.
                                       7
<PAGE>

Research and Development Costs

No product  development  costs were  capitalized,  and there were no capitalized
costs not yet amortized,  during the three- and nine-month periods ended October
31, 1996 and 1995.

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 the Statement of Financial  Accounting  Standard ("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,  1996 and  January 31,  1996,  the  aggregate  fair value of the
securities  based upon quoted  market  prices was  $10,856,00  and  $10,345,000,
respectively.

Net (Loss) Income Per Common Share

Net (loss)  income per common share has been computed by dividing the net (loss)
income,  less 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  because  of their  anti-dilutive  effect.
Common stock equivalents were excluded from the net income per share computation
for the three months ended  October 31, 1995 because their  dilutive  effect was
immaterial.

Income Taxes

Due to the net  losses  reported  for the three- and  nine-month  periods  ended
October 31, 1996 and 1995, 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 rates
of exchange during the period. Gains or losses from translating foreign currency
financial  statements are accumulated in a separate  component of  shareholders'
equity.

Accounting Pronouncements

Effective  February 1, 1996, the Company  adopted SFAS No. 123,  "Accounting for
Stock-Based  Compensation."  This statement will require new  disclosures in the
annual  consolidated  financial  statements about certain employee stock options
based on their fair value at the date of grant.  The  Company is  continuing  to
apply  existing  accounting  rules for  stock-based  compensation  pertaining to
employees  as allowed  under SFAS No. 123.  However,  fair value  accounting  is
required  for  transactions  involving  the  issuance of stock  options or other
equity instruments to acquire goods or services from nonemployees.

                                       8
<PAGE>

Effective  February 1, 1996, the Company adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be  Disposed  of." SFAS No. 121  requires  that  long-lived  assets and  certain
identifiable  intangibles  held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be  recoverable.  The impact of adopting this statement was not
material to the Company's results of operations or financial position.


(3)    INVESTMENT IN AFFILIATE

In  July  1996,  the  Company  authorized  the  use of  its  name  by  Excalibur
Technologies N. V. ("ETNV"), a Belgian company incorporated in June 1996 for the
purpose of selling and marketing the  Company's  products and services  within a
large  territory  including  most of  Northern  Europe  and Italy.  The  Company
contributed approximately $488,000 in cash to ETNV in consideration for 13.2% of
its voting  capital  stock.  In connection  with the  organization  of ETNV, the
Company issued warrants to purchase 148,500 shares of the Company's common stock
to certain  shareholders  of ETNV.  The warrants are  exercisable  at a price of
$22.00 per share for seven  years but only if ETNV  achieves  certain  financial
objectives.  The value of the  warrants was  estimated  to be  $758,000,  and is
included at October 31, 1996 in the  investment  in  affiliate  account,  net of
amortization, contained in the accompanying balance sheet.

The Company  granted to ETNV an exclusive  license (the "License") to distribute
certain of the Company's products to other authorized resellers and customers in
the territory for  approximately  five (5) years. If the revenues of ETNV in the
fifth year exceed a certain level, the License shall be  automatically  renewed.
If the  License is not  renewed,  the other  shareholders  of ETNV may  exercise
options  to sell  their  shares  to the  Company  according  to a  revenue-based
formula. The Company recorded revenue of approximately  $335,000 and $695,000 in
the three- and nine-month periods ended October 31, 1996 related to the License.

After a term of approximately five (5) years, the Company may exercise an option
to purchase all of the capital stock of ETNV under certain  conditions  and at a
price determined in accordance with a revenue-based  formula.  In the event that
the Company does not exercise its option,  the other  shareholders are permitted
to sell their shares, subject to certain limitations,  through a private sale or
public offering.

The  excess  of the  Company's  investment  in ETNV  over its  share  of  ETNV's
shareholders' equity is estimated to be $827,000,  and is being amortized over a
five-year  period.  The  amortization  is  included  in  equity  in net  loss of
affiliate in the accompanying  statements of operations as well as the Company's
share of ETNV's net loss for the periods and the  elimination  of the  Company's
share of gross  profit  included in ETNV's  prepaid  license fees at October 31,
1996.

                                       9
<PAGE>

(4)    ISSUANCES OF COMMON STOCK

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  $8,337,000.  Allen & Company  Incorporated,  a
beneficial  owner  excluding  affiliates of  approximately  25% of the Company's
outstanding  common stock, acted as the placement agency in this transaction and
received a fee of approximately $350,000.

During  the first nine  months of the  current  fiscal  year,  Excalibur  issued
approximately  115,000  shares of common  stock  upon the  exercise  of  options
ranging from $3.11 to $16.64 per share,  resulting in total cash proceeds to the
Company of approximately $1,266,000.

                                       10
<PAGE>


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

Overview

The Company principally earns revenue from licensing its software to value-added
resellers,  system  integrators,  original  equipment  manufacturers,  strategic
partners and other customers through a direct sales force. Revenues are provided
from sales to new customers and sales to current customers for additional users,
upgrades to newer product versions,  telephone support, and other services.  End
users of the Company's  software  products  include  commercial  businesses  and
government agencies throughout North America, Northern Europe and other parts of
the world.

The  Company  believes  that it  provides  the only  enterprise-wide,  accurate,
scaleable,  secure,  knowledge-retrieval software solution capable of supporting
both text and image information assets, and that these factors differentiate its
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  information  retrieval.
The Company is  committed to  empowering  organizations  and enabling  people to
transform  information  into  knowledge and is focused on capturing the intranet
and high-end of the market for knowledge retrieval. 

Results of Operations

Total revenues for the third quarter ended October 31, 1996 were  $5,811,000,  a
16 percent  increase over total revenues of $5,006,000 in the third quarter last
year.  The net loss for the quarter  ended October 31, 1996 was  $1,724,000,  or
$0.14 per common share,  compared to net income of $108,000, or $0.01 per common
share,  for the third  quarter of the prior fiscal year.  Revenues for the first
nine months of the current  fiscal year  increased 10% to  $14,131,000  compared
with $12,905,000  reported for the same period in the prior fiscal year. The net
loss for this  nine-month  period was  $5,762,000,  or $0.47 per  common  share,
compared with a net loss of $995,000,  or $0.09 per common  share,  for the same
period last year.

                                       11
<PAGE>

The following  charts summarize 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, 1996 and 1995 (dollars in
thousands).

                                         Three months ended October 31,
                                          1996                    1995
                                  --------------------   ----------------------
                                    Amount      %         Amount        %
                                  ---------  ---------   ---------  -----------
Revenues:
  Software                        $   4,727       81 %   $   3,940       79 %
  Maintenance                         1,084       19         1,066       21
                                  =========   ========   =========   ========
                                  $   5,811      100 %   $   5,006      100 %
                                  =========   ========   =========   ========
Expenses:
  Sales and marketing             $   3,832       66 %   $   2,381       48 %
  Research and product
    development                       2,136       37         1,226       24
  General and administrative          1,000       17           861       17
  Cost of software revenues             396        8 *         456       12 *
  Cost of maintenance
    revenues                            225       21 *         143       13 *
                                  =========   ========   =========   ========
                                  $   7,589      131 %   $   5,067      101 %
                                  =========   ========   =========   ========


                                          Nine months ended October 31,
                                          1996                    1995
                                  --------------------   ----------------------
                                    Amount      %         Amount        %
                                  ---------  ---------   ---------  -----------
Revenues:
  Software                        $  10,968       78 %   $  10,243       79 %
  Maintenance                         3,163       22         2,662       21
                                  =========   ========   =========   ========
                                  $  14,131      100 %   $  12,905      100 %
                                  =========   ========   =========   ========

Expenses:
  Sales and marketing             $  10,456       74 %   $   6,244       48 %
  Research and product
    development                       5,557       39         3,522       27
  General and administrative          2,940       21         2,610       20
  Cost of software revenues             746        7*        1,033       10*
  Cost of maintenance
    revenues                            603       19*          415       16*
  Merger costs                         --         --           490        4
                                  =========   ========   =========   ========
                                  $  20,302      144 %   $  14,314      111 %
                                  =========   ========   =========   ========

 *expressed as a percentage of related revenues

                                       12
<PAGE>

Software  revenues  increased  20% in the  current  quarter to  $4,727,000  from
$3,940,000  in the  comparable  period of the prior  fiscal  year.  Sales of the
Company's  Excalibur  RetrievalWare  products  increased  significantly  in  the
quarter  with  revenues  related to this product  increasing  97% from the third
quarter last year,  and, for the first time,  Excalibur  RetrievalWare  software
revenues exceeding revenues from any other of its products. The Company believes
that Excalibur  RetrievalWare  product revenues  increased in the quarter as the
result of various factors including  product  marketing and promotion  programs,
more effective  selling efforts,  the availability of a major new release of the
product and the recent introduction of the visual version of the product. Strong
demand for the Company's  software products  overseas  continued in the quarter.
Software  revenues  obtained from the sale of products in Europe and the Pacific
Rim region  increased  109% from last  year's  revenues  in these  areas.  Major
changes made to the North  American  sales  organization  earlier in the current
fiscal year favorably affected revenues in the quarter.  Although total software
revenues  derived  from sales to  commercial  North  American  customers  in the
quarter  were  slightly  less than last  fiscal  year,  the  revenues  increased
substantially from the second quarter of the current fiscal year.  Overall,  the
average size of a software license sale increased in the quarter,  although, due
to continuing competitive pressures,  revenues related to the initial signing of
software  licenses in the  commercial  area have not been as large as originally
expected for this fiscal year.

New business developments in the current quarter included the establishment of a
long-term  agreement  with  Sequent  Computer  Systems,  Inc. to market and sell
Excalibur  RetrievalWare as a critical enabling technology to Sequent's business
information  capture,  storage and  retrieval  solutions and an expansion of the
Company's  strategic  partner  relationship with Informix whereby the Company is
developing, for resale by the Company, three Informix Universal Server Datablade
modules.  There were also  several  significant  new  applications  of Excalibur
RetrievalWare by North American  commercial  customers.  The World Bank licensed
Excalibur  RetrievalWare  in order to incorporate  the product into its intranet
and standardize the way in which 10,000 employees  worldwide can access and find
organizational  information  regardless  of its data  type or  location.  Sierra
On-Line   and   P.F.Collier   licensed   Excalibur   RetrievalWare   to  provide
high-performance   information  search  and  retrieval  in  a  new  CD-rom-based
electronic encyclopedia.

Due to the current  quarter  increase,  software  revenues  increased  7% in the
nine-month  period ended October 31, 1996 to $10,968,000 from $10,243,000 in the
corresponding nine-month period of the prior fiscal year.

Maintenance revenues were $1,084,000 and $3,163,000, respectively, in the three-
and  nine-month  periods ended October 31, 1996  compared  with  $1,066,000  and
$2,662,000, respectively, in the corresponding periods of the prior fiscal year.
The  increases  in each  period  were  due to the  expanding  base of  Excalibur
RetrievalWare and EFS customers.

In the current  quarter,  the  Company  continued  to invest in the  business as
planned  primarily  by  increasing  product  development,  sales  and  marketing
expenditures;   and  investing  in  expanded   distribution   channels  and  the
organization infrastructure.  The major investment in product development during
the current  fiscal year has resulted in new products and new product  features.
The  Company  recently  introduced  Excalibur  RetrievalWare  Version  6.0  as a
comprehensive software solution for enterprise knowledge retrieval. This product
delivers  access to a variety  of  information  resources  including  real-time,

                                       13
<PAGE>

archival and legacy data and text documents in multiple  languages.  The Company
has also  announced  the  availability  of Excalibur  Visual  RetrievalWare,  an
application  development  environment  product that enables  users to search for
visual  information  directly from their  intranets,  corporate  databases,  the
Internet and other  sources.  Yahoo!,  a leading guide to the  Internet,  is the
first to use this product to provide intelligent  image-based searching over the
Internet.  The Company has made large  expenditures  in the marketing of the new
products and the continuation of the program to significantly increase potential
customer  recognition  of the Company and the  Excalibur  RetrievalWare  product
brand name. In the current year, the Company has built what the Company believes
will be a more  effective  organization  and sales  management  team to  provide
intranet and other high-end  information  retrieval  solutions directly to large
corporate,  government  and other  institutional  customers  and to support  the
distribution of the Company's  products through major reseller  channels managed
by large strategic partners.

Consequently,  these and other  activities  resulted in total  expenses  for the
current quarter of $7,589,000,  a 50% increase from total expenses of $5,067,000
in the  corresponding  quarter of the previous fiscal year. For the year,  total
expenses increased by 42%, to $20,302,000 in the nine-month period ended October
31, 1996 from  $14,314,000  in the same period a year ago.  Total  headcount has
increased  from 126 employees at the beginning of the current fiscal year to 181
employees at October 31, 1996. The current year total expense amounts  represent
131% and 144% of total  revenues,  respectively,  for the three and nine  months
ended October 31, 1996. The comparative  percentages for the corresponding prior
fiscal year periods were 101% and 111%, respectively.

Sales and marketing costs increased 61% in the current quarter,  from $2,381,000
in the prior year quarter to $3,832,000  in the current year. In the  nine-month
period ended October 31, 1996,  sales and marketing  expenses  increased by 67%,
from  $6,244,000 in the prior fiscal year to  $10,456,000  in the current fiscal
year period.  On a net basis,  the Company has added a total of 23 people to the
sales,  marketing and business development staffs in the current fiscal year. As
a result, salaries, benefits, travel, recruiting fees and certain other employee
costs have increased  significantly  between fiscal years.  The Company incurred
increased costs in connection with its product  promotion and brand  recognition
programs.  The  Company has been very active in  demonstrating  its  products at
trade  shows  and  industry  meetings,   creating  new  product  literature  and
advertising  in  computer  industry  trade  publications.  The  Company has also
engaged the services of a public relations firm to assist its marketing  efforts
resulting  in increased  consulting  costs in the current  fiscal  year.  In the
current year third  quarter,  the Company  recorded  employee  severance  costs,
including salaries and benefits amounting to approximately $300,000,  related to
the termination of certain sales, marketing and business development personnel.

Research and product development costs increased 74% and 58%,  respectively,  in
the quarter and  nine-month  period  ended  October 31, 1996  compared  with the
corresponding  prior fiscal year  periods.  Such expenses  were  $2,136,000  and
$5,557,000, respectively, in the three- and nine-month periods ended October 31,
1996, and they were $1,226,000 and $3,522,000,  respectively,  in the comparable
periods of the prior fiscal year.  Most of the increases  relate to the addition
of new  employees to the technical  staff in the current  fiscal year and to the
expansion  of the product  development  facilities.  Consequently,  salaries and
other  employee  costs  have  increased  between  years as well as office  rent,
equipment costs and computer equipment depreciation.

                                       14
<PAGE>
General and  administrative  expenses have increased in the current fiscal year.
Such costs  increased  16% in the current  quarter to  $1,000,000  compared with
$861,000 in last year's third  quarter.  On a  year-to-date  basis,  general and
administrative  costs have increased by 13%, to $2,940,000 in the current fiscal
year  compared  with  $2,610,000  in the prior  fiscal  year.  Payroll and other
employee  costs  associated  with additions to the  administrative  staff in the
areas of human  resources,  information  systems  and  financial  analysis  have
increased  costs in the current  fiscal year.  In the current  fiscal year,  the
Company  also has  utilized  outside  firms to assist  in the areas of  investor
relations and strategic planning resulting in increased consulting expenses.

The cost of software revenues declined by $60,000 and $287,000, respectively, in
the three- and  nine-month  periods  ended  October 31,  1996.  These costs were
$396,000 and $456,000,  respectively, in the quarters ended October 31, 1996 and
1995, and $746,000 and $1,033,000, respectively, in the nine-month periods ended
October 31, 1996 and 1995. The Company  negotiated an amendment to a third-party
royalty  agreement  resulting in a reduction in the royalty rate  applicable  to
revenues  derived  from the  license of  Excalibur  RetrievalWare  products.  In
addition,  activity conducted  pursuant to development  contracts was greater in
the prior year.  The cost of maintenance  revenues  increased in the quarter and
nine-month  periods ended October 31, 1996 compared with the comparable  periods
of the prior fiscal year due primarily to the increased  costs  associated  with
supporting the larger installed base of Excalibur  RetrievalWare  end users. The
costs were $225,000 and $143,000,  respectively,  in the quarters  ended October
31, 1996 and 1995,  and they were  $603,000 and $415,000,  respectively,  in the
nine-month periods ended October 31, 1996 and 1995.

Expenses in the nine month period ended  October 31, 1995  included  $490,000 in
legal, accounting and other costs associated with the merger with ConQuest.

As a result of an increased  level of investments  and improved rates of return,
net interest  income  increased to $177,000 and $591,000,  respectively,  in the
three- and nine-month  periods ended October 31, 1996 compared with $169,000 and
$414,000,  respectively,  in the corresponding periods of the prior fiscal year.
As  discussed  in  Note 3 to the  consolidated  financial  statements  contained
herein, the Company recorded its equity in the net loss of its affiliate,  ETNV,
for the quarter and  nine-month  periods ended October 31, 1996.  These charges,
totaling $123,000 and $182,000, respectively, are contained in the other expense
section of the accompanying consolidated statements of operations.

Liquidity and Capital Resources

In the nine months ended  October 31, 1996,  the Company's  combined  balance of
cash, cash  equivalents and  investments in marketable  securities  increased by
$659,000 to $13,903,000 as summarized below (in thousands).  At October 31, 1996
and January 31, 1996,  investments  in marketable  securities  consisted of U.S.
Treasury Bills with maturities of less than one year.
                              
                         October 31,   January 31,
                            1996          1996         Change
                         ----------    -----------   -----------
          Cash and cash
            equivalents  $   3,047     $    2,903    $      144
          Investments       10,856         10,341           515
                         ==========    ===========   ===========
            Total        $  13,903     $   13,244    $      659
                         ==========    ===========   ===========

                                       15
<PAGE>


As  indicated  in  Note 4 to the  Consolidated  Financial  Statements  contained
herein,  the Company  completed a private  placement sale of its common stock in
March,  1996. The increase in investments during the current fiscal year was due
to the receipt of the net proceeds of the  offering,  approximately  $8,337,000.
The Company  also  received  approximately  $1,266,000  cash  proceeds  from the
exercise of employee stock options in the current  fiscal year.  There can be no
assurance  that the Company will be able to obtain such funds from investors and
employees in the future, if required.

Cash was used to fund the net loss for the nine month period  ended  October 31,
1996 of $5,762,000 and to pay obligations  accrued at January 31, 1996 including
commissions,  bonuses,  restructuring  costs  and  payroll  taxes  collected  in
connection with the exercise of employee stock options.  Cash was used to prepay
corporate insurance  premiums,  to purchase computer equipment and furniture for
new employees and to fund the necessary improvements made to leased office space
in Vienna, Virginia, now serving as the Company's corporate headquarters.

In July 1996,  the Company  made a cash  investment  of  $488,000  in  Excalibur
Technologies  N.V.  thereby  acquiring  approximately  13.2% of the  outstanding
voting capital stock and incurred costs of approximately  $69,000 related to the
establishment  of this affilate.  This transaction is discussed in Note 3 to the
consolidated financial statements contained herein.

Accounts receivable  increased by $892,000 to a balance of $8,209,000 at October
31,  1996,  before  reduction  for the  allowance  for  doubtful  accounts.  The
comparable balance at January 31, 1996 was $7,317,000.  The number of days sales
outstanding  rose in the period  due  primarily  to  outstanding  balances  with
extended payment terms. The Company also  reclassified the discounted  amount of
an installment payment due from a customer in June 1997, approximately $277,000,
from  noncurrent  assets to accounts  receivable in the current  fiscal year. As
indicated  above,  the Company  added  $132,000 to the  allowance  for  doubtful
accounts in the  current  fiscal year and  wrote-off  $121,000 in  uncollectible
accounts  that were  specifically  reserved for at January 31, 1996.  Management
believes  that the  allowance  for doubtful  accounts of $386,000 at October 31,
1996 is adequate.

The  Company's  current  balances of cash,  cash  equivalents  and  investments,
together with funds anticipated from future operations,  are expected to provide
sufficient cash to meet the Company's  current projected needs for the remainder
of the current fiscal year.

                                       16
<PAGE>

Factors That May Affect Future Results

The Company  believes  that the market for the  Company's  software  products is
growing rapidly and that the Company's business  environment is characterized by
rapid  technological  changes,  changes in customer  requirements,  new emerging
market segments and increased competition. Consequently, to compete effectively,
the Company must make frequent new product  introductions  and  enhancements and
deploy  sales  and  marketing  resources  to  take  advantage  of  new  business
opportunities.  The ability of the  Company to achieve  and manage the  expected
growth of the business and to develop new products  will depend on the Company's
success in retaining its key personnel and adding new employees with appropriate
skills at the right  times.  Failure to make timely  product  introductions  and
enhancements  or to  capitalize on new market  opportunities  as they emerge may
adversely affect future operating results.

The  Company's   operations   are  also  subject  to  certain  other  risks  and
uncertainties including, among others, the effectiveness of actual and potential
competition,  the  success of the  Company's  relationships  with its  strategic
partners  and  other  distributors  of the  Company's  products,  and the  risks
associated with acquisitions and international expansion. The Company's business
is  seasonal.  Typically,  revenues  in  the  first  half  of the  fiscal  year,
particularly  in the first quarter,  are lower than total revenues in the second
half of the fiscal  year.  Revenues  generated  from  product  licenses can vary
significantly within a period due to the relatively long sales cycle, variations
in  the  size  of  license  agreements,   and  the  number  of  shipments  made.
Historically, the volume of customer orders and product shipments is greatest at
the end of a reporting  period,  and the Company often  recognizes a significant
portion of license  revenue  towards  the end of each  fiscal  period.  Deferred
revenues of $2,490,000  at October 31, 1996,  related  primarily to  maintenance
agreements and training,  are not expected to cause significant  fluctuations in
future quarterly revenue.

The  Company  has  significant  net  operating  loss  carryforwards  ("NOLs") of
approximately $52,341,000.  The deferred tax assets representing the benefits of
the NOLs  have  been  offset  completely  by a  valuation  allowance  due to the
Company's  lack of an  earnings  history.  The  Company  incurred  a net loss of
$5,762,000  for the nine months  ended  October 31,  1996,  incurred  cumulative
losses of  approximately  $18,591,000  over the last three  fiscal years and the
accumulated  deficit of the  Company at October 31,  1996 was  $42,208,000.  The
realization  of the  benefits of the NOLs is  dependent  on  sufficient  taxable
income in future  fiscal  years.  Lack of  future  earnings,  or a change in the
ownership  of the  Company,  could  adversely  affect the  Company's  ability to
utilize  the NOLs.  Further,  because  there was a change  in the  ownership  of
ConQuest last year,  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.
                                       17
<PAGE>


Adoption of New Accounting Standards

In October 1995, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards  ("SFAS") No. 123,  "Accounting for Stock-Based
Compensation."  It  encourages,  but does not  require,  companies  to recognize
compensation expense for grants of stock and stock options to employees based on
new fair value  accounting  rules.  Companies  that  choose not to adopt the new
rules will continue to apply the existing accounting rules.  However, fair value
accounting is required for transactions  involving the issuance of stock options
or other equity instruments to acquire goods or services from nonemployees. SFAS
No. 123 is effective for the Company's fiscal year 1997  consolidated  financial
statements.  The Company has not adopted the new fair value  accounting rules of
SFAS No. 123 for  employee  stock  options and will  continue to apply  existing
accounting rules for stock-based compensation pertaining to employees as allowed
under SFAS No. 123.

However,  SFAS No. 123 will  require the  Company,  in its fiscal  1997  audited
consolidated  financial  statements,  to disclose pro forma net  income/loss and
earnings  per share  under the fair value  accounting  method  for stock  option
grants that occurred  subsequent  to January 31, 1995. In addition,  the Company
will be required to expand its disclosure about plan terms,  exercise prices and
the assumptions used in measuring the fair value of stock-based grants. Although
the Company has not  performed the pro forma  calculations  required by SFAS No.
123, it expects  that the pro forma  results  will be lower than the  historical
results reported herein.

Effective  February 1, 1996, the Company  adopted SFAS No. 121,  "Accounting for
the  Impairment of Long-lived  Assets and for  Long-lived  Assets to be Disposed
of." SFAS No. 121  requires  that  long-lived  assets and  certain  identifiable
intangibles  held and used by an  entity be  reviewed  for  impairment  whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable.  The impact of adopting this statement was not material
to the Company's results of operations or financial position.

                                       ###

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

                                       18

<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                                    None.


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


                                       19

<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
                                    ----------------------------------



December 5, 1996                    By: /s/ Patrick C. Condo
                                       ---------------------
                                    Patrick C. Condo
                                    President and Chief Executive Officer



December 5, 1996                    By: /s/ James H. Buchanan
                                       ----------------------
                                    James H. Buchanan
                                    Chief Financial Officer




                                       20