<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q
(Mark One)
[X]    QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
       OF 1934

For the Quarter Ended December 29, 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 No.: 0-18114
                     ----------------------------------------------------------

LASERMASTER TECHNOLOGIES, INC.
-------------------------------------------------------------------------------
               (Exact name of registrant as specified in charter)

Minnesota                                                41-1612861
-------------------------------------------------------------------------------
  (State or other jurisdiction                              (IRS Employer
of incorporation or organization)                         Identification No.)

7090 Shady Oak Road, Eden Prairie, Minnesota               55344
--------------------------------------------------------------------------------
(Address of principal executive offices)                 (zip code)

                                (612) 941-8687
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

--------------------------------------------------------------------------------
  (Former name, former address and former fiscal year, if changed since last
                                    report)

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

               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                 PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

   Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.  Yes _____     No _____

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

Class                                    Outstanding at 12/29/96
-----                                    -----------------------

Common Stock, $.01 par value                    14,225,049
<PAGE>
 
                         PART I. FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                LASERMASTER TECHNOLOGIES, INC. AND SUBSIDIARIES
                -----------------------------------------------
                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                    ---------------------------------------

<TABLE> 
<CAPTION> 
                                    ASSETS
                                    ------

                                                        December 29,        June 30,     
                                                            1996              1996      
                                                        ------------       -----------  
<S>                                                     <C>                <C>          
CURRENT ASSETS:                                                                         
  Cash and cash equivalents                              $ 2,229,863       $    90,851  
  Accounts receivable, less allowance for                                               
    doubtful accounts and sales returns of                                              
    $2,184,000 and $2,475,000, respectively               15,012,079        12,563,112  
  Inventory                                               17,415,624        13,524,314  
  Income tax receivable                                                        400,781  
  Other current assets                                     3,149,415         2,783,784  
  Deferred income taxes                                    3,304,000         3,304,000  
                                                         -----------       -----------  
       TOTAL CURRENT ASSETS                               41,110,981        32,666,842  
                                                                                        
PROPERTY AND EQUIPMENT, NET                                4,126,623         5,099,560  
                                                                                        
CAPITALIZED SOFTWARE, less accumulated                                                  
  amortization of $4,707,015 and $3,636,979,                                            
  respectively                                             3,961,326         4,150,913  
                                                                                        
DEFERRED INCOME TAXES                                      2,901,000         2,546,000  
                                                                                        
ACQUIRED TECHNOLOGY, PATENTS                                                            
AND LICENSES, less accumulated amortization                                             
of $1,355,406 and $1,000,154, respectively                 1,971,953         2,081,649  
                                                         -----------       -----------  
                                                         $54,071,883       $46,544,964  
                                                         ===========       ===========   

<CAPTION> 
                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------

CURRENT LIABILITIES:
<S>                                                      <C>               <C>          
  Notes payable                                          $ 3,627,030       $ 5,381,037  
  Notes payable-related party                                                1,765,000  
  Current maturities of long-term debt                     1,055,611         1,248,267  
  Accounts payable                                        14,771,546        16,682,191  
  Accrued payroll and payroll taxes                        1,732,037         1,915,908  
  Income taxes payable                                       299,874                    
  Other current liabilities                                1,213,638         1,200,264  
  Deferred revenue                                         1,474,497         1,894,262  
                                                         -----------       -----------  
TOTAL CURRENT LIABILITIES                                 24,174,233        30,086,929  
                                                                                        
CONVERTIBLE SUBORDINATED DEBENTURE                         2,347,830                    
                                                                                        
LONG-TERM DEBT, less current maturities                      400,379           820,095  
                                                                                        
COMMITMENTS AND CONTINGENCIES                                                           
                                                                                        
STOCKHOLDERS' EQUITY:                                                                   
  Common stock, $.01 par value; authorized                                              
    30,000,000 shares; 14,225,049 and 11,426,134                                        
    shares issued and outstanding, respectively              142,250           114,261  
  Preferred stock, $.01 par value; authorized                                           
    5,000,000 shares; no shares issued or outstanding                                   
  Additional paid-in capital                              29,635,360        17,430,555  
  Accumulated deficit                                     (2,628,169)       (1,906,876) 
                                                         -----------       -----------  
       TOTAL STOCKHOLDERS' EQUITY                         27,149,441        15,637,940  
                                                         -----------       -----------  
                                                         $54,071,883       $46,544,964  
                                                         ===========       ===========   
</TABLE>

                See notes to consolidated financial statements.

                                       2
<PAGE>
 
                LASERMASTER TECHNOLOGIES, INC. AND SUBSIDIARIES
                -----------------------------------------------
               CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
               -------------------------------------------------

<TABLE>
<CAPTION>
                                                Three Months Ended                  Six Months Ended  
                                       -------------------------------------   -------------------------
                                          December 29,        December 31,     December 29,   December 31,
                                              1996                1995             1996           1995
                                       -------------------  ----------------   -------------  ----------
<S>                                    <C>                  <C>                <C>            <C>
NET SALES                                     $24,596,638        $25,340,000    $46,048,939    $46,605,871
 
COST OF GOODS SOLD                             16,747,460         15,441,860     30,269,461     28,169,017
                                              -----------        -----------    -----------    -----------
      GROSS PROFIT                              7,849,178          9,898,140     15,779,478     18,436,854
 
OPERATING EXPENSES:
  Sales and Marketing                           4,472,868          5,065,279      8,575,035     10,466,760
  Research and Development                      1,516,550          1,624,430      2,950,119      2,921,081
  General and Administrative                    2,424,654          2,610,273      4,779,406      5,484,334
                                              -----------        -----------    -----------    -----------
                                                8,414,072          9,299,982     16,304,560     18,872,175
                                              -----------        -----------    -----------    -----------
       OPERATING (LOSS) PROFIT                   (564,894)           598,158       (525,082)      (435,321)
 
OTHER INCOME (EXPENSE):
  Interest expense                               (331,080)          (445,103)      (750,309)      (785,552)
  Interest income                                 104,060              4,428        113,983          8,907
  Other income (expense)                           72,120            (45,225)        85,115          9,689
                                              -----------        -----------    -----------    -----------
                                                 (154,900)          (485,900)      (551,211)      (766,956)
                                              -----------        -----------    -----------    -----------
 
(LOSS) EARNINGS BEFORE INCOME TAXES              (719,794)           112,258     (1,076,293)    (1,202,277)
INCOME TAX BENEFIT (PROVISION)                    237,000            (33,000)       355,000        361,000
                                              -----------        -----------    -----------    -----------
 
NET (LOSS) EARNINGS                           $  (482,794)       $    79,258    $  (721,293)   $  (841,277)
                                              ===========        ===========    ===========    ===========
 
PER COMMON SHARE:
  Net (Loss) Earnings                               $(.03)              $.01          $(.06)         $(.07)
 
Weighted average common and dilutive
common equivalent shares outstanding           14,198,535         12,181,825     13,063,688     12,133,851
</TABLE> 
 
                See notes to consolidated financial statements.

                                       3
<PAGE>
 
                LASERMASTER TECHNOLOGIES, INC. AND SUBSIDIARIES
                -----------------------------------------------
               CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
               -------------------------------------------------

<TABLE>
<CAPTION>
                                                                 Six Months Ended
                                                           ----------------------------
                                                           December 29,   December 31,
                                                               1996           1995
                                                           -------------  -------------
<S>                                                        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Loss                                                  $  (721,293)   $  (841,277)
  Adjustments to reconcile net loss to net
    cash (used in) provided by operating activities:
     Depreciation and amortization                            2,604,921      2,860,056
     Amortization of deferred financing costs                   110,693         63,141
     Loss on sale of property and equipment                      94,832         46,915
     Gain on settlement of product quality issues            (1,416,665)
     Deferred income taxes                                     (355,000)
  Change in current assets and current liabilities:
      Accounts receivable                                    (2,467,682)     2,203,935
      Inventory                                              (2,474,645)       691,142
      Other current assets                                     (476,324)      (664,797)
      Income tax receivable                                     400,781        (67,232)
      Accounts payable                                         (188,617)    (3,362,346)
      Accrued payroll and payroll taxes                        (183,871)      (403,966)
      Other current liabilities                                  13,374        (70,301)
      Income taxes payable                                      299,874       (201,768)
      Deferred revenue                                         (419,765)       684,687
                                                            -----------    -----------
NET CASH (USED IN) PROVIDED BY
 OPERATING ACTIVITIES                                        (5,179,387)       938,189
 
CASH FLOWS FROM INVESTING ACTIVITIES:
  Investment in notes receivable - related party               (585,000)
  Collection of notes receivable - related party                585,000
  Additions to property and equipment                          (318,970)    (1,048,992)
  Additions to capitalized software costs                      (880,449)    (1,486,823)
  Proceeds from sale of property and equipment                   17,443         26,988
  Additions to patents and other assets                        (245,556)      (686,007)
                                                            -----------    -----------
NET CASH USED IN INVESTING ACTIVITIES                        (1,427,532)    (3,194,834)
 
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of Common Stock                     10,252,794        334,945
  Net (payments) borrowing under revolving credit lines        (894,491)       620,072
  Proceeds from note payable to related party                                1,765,000
  Proceeds from long-term debt                                                 159,003
  Payments on long-term debt                                   (612,372)      (509,243)
                                                            -----------    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                     8,745,931      2,369,777
                                                            -----------    -----------
 
INCREASE IN CASH AND CASH EQUIVALENTS                         2,139,012        113,132
 
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD                                                      90,851        607,223
                                                            -----------    -----------
CASH AND CASH EQUIVALENTS AT END
  OF PERIOD                                                 $ 2,229,863    $   720,355
                                                            ===========    ===========
</TABLE>

                See notes to consolidated financial statements.

                                       4
<PAGE>
 
                LASERMASTER TECHNOLOGIES, INC. AND SUBSIDIARIES
                -----------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


1. Basis of presentation -

   The accompanying unaudited consolidated financial statements have been
   prepared in accordance with generally accepted accounting principles for
   interim financial information and with the instructions to Form 10-Q and Rule
   10-01 of Regulation S-X. They do not include all information and footnotes
   required by generally accepted accounting principles for complete financial
   statements. However, except as disclosed herein, there has been no material
   change in the information disclosed in the notes to consolidated financial
   statements included in the Annual Report on Form 10-K of LaserMaster
   Technologies, Inc. and subsidiaries (the "Company") for the year ended June
   30, 1996.  In the opinion of management, all adjustments (consisting of
   normal recurring accruals) considered necessary for a fair presentation have
   been included. Operating results for the three-month and six-month periods
   ended December 29, 1996 are not necessarily indicative of the results that
   may be expected for the year ending June 30, 1997.

   Effective July 1, 1996 the Company changed its accounting periods whereby
   each quarter ends on the Sunday closest to the end of the quarter, except for
   the fourth quarter which ends on June 30.  As a result, information reported
   for the second quarter of fiscal 1997 is as of December 29, 1996, and for the
   three months and six months ended December 29, 1996.  Management does not
   believe this change has a material impact on comparability to prior periods.


2. Inventory -
 
   Inventory consists of the following:

<TABLE>
<CAPTION>
                                                                  December 29,        June 30,    
                                                                      1996              1996       
                                                                   -----------       -----------   
<S>                                                               <C>                <C>           
   Raw materials                                                                                   
        Purchased printer engines                                  $   373,867      $   469,870    
        Completed subassemblies                                      2,179,519        3,053,985    
        Raw materials                                                5,718,695        5,994,178    
   Work in process                                                     700,864          436,753    
   Finished goods                                                                                  
        Hardware/software                                            3,289,137        2,273,131    
        Consumables                                                  5,153,542        1,296,397    
                                                                   -----------      -----------    
                                                                   $17,415,624      $13,524,314    
                                                                   ===========      ===========     
</TABLE>

3. Supplemental disclosure of cash flow information and non-cash financing
activities -

<TABLE>
<CAPTION>
                                                                         Six Months Ended
                                                                  ------------------------------
                                                                    December 29,    December 31,
                                                                        1996            1995
                                                                  ----------------  ------------
   <S>                                                            <C>               <C>
   The Company paid and received cash for the following items:
 
        Interest paid                                                $  709,935        $877,845
        Income tax refunds received, net                                700,655          92,000
 
   Financing transactions not affecting cash:
 
        Accounts payable converted to subordinated debenture          1,668,314
        Note payable converted to subordinated debenture                859,516
        Note payable to TMI plus accrued interest offset
           against note receivable from TMI resulting from
           stock sale plus accrued interest                           1,818,715
        Convertible subordinated debenture converted into
           common stock                                                 180,000
        Capital lease obligations                                                       152,405
</TABLE>

                                       5
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

This Management's Discussion and Analysis contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Act").  These forward looking statements are subject to a number of risks,
including the Company's continuing need for additional cash, sensitivity of the
Company to technology changes in the computer printing industry and intense
competition in that industry, the Company's dependence on sales of newer
products with untested market acceptance, dependance on numerous product
components that are available from single sources, fluctuations in quarterly
operating performance, the strength of the Company's intellectual property
protection, the costs of pending litigation, and the size of the Company's
international operations.  These and other factors which are set forth in
Exhibit 99 to this Form 10-Q have caused wide fluctuations in the market price
of the Company's common stock and can be expected to cause similar fluctuations
in the future.  Refer to Exhibit 99 of this Form 10-Q for certain important
cautionary factors, risks and uncertainties related to forward-looking
statements.

RESULTS OF OPERATIONS

Net sales for the three months ended December 29, 1996 were $24.6 million
compared to $25.3 million for the same period one year ago.  Net loss for the
three months ended December 29, 1996 was $483,000 or $.03 per share compared to
net income of $79,000 or $.01 per share for the three months ended December 31,
1995.  Net sales for the six months ended December 29, 1996 were $46.0 million
compared to $46.6 million for the same period one year ago.  Net loss for the
six months ended December 29, 1996 was $721,000 or $.06 per share compared to
$841,000 or $.07 per share for the six months ended December 31, 1995.

The following table sets forth certain items from the Company's Consolidated
Statements of Operations expressed as a percentage of net sales:

<TABLE>
<CAPTION>
                                            Three months ended                Six months ended
                                       ----------------------------    --------------------------------
                                       December 29,   December 31,      December 29,     December 31,
                                           1996           1995             1996             1995
                                       -------------  -------------    -------------  -----------------
<S>                                    <C>            <C>              <C>            <C>
Net sales                                     100.0%         100.0%         100.0%             100.0%
Cost of goods sold                             68.1           60.9           65.7               60.4
                                              -----          -----          -----              -----
  Gross profit                                 31.9           39.1           34.3               39.6
Operating expenses:
  Sales and marketing                          18.2           20.0           18.6               22.4
  Research and development                      6.2            6.4            6.4                6.3
  General and administrative                    9.8           10.3           10.4               11.8
                                              -----          -----          -----              -----
  Total operating expenses                     34.2           36.7           35.4               40.5
                                              -----          -----          -----              -----
Operating (loss) profit                        (2.3)           2.4           (1.1)              (0.9)
Other income (expense):
  Interest expense                             (1.3)          (1.8)          (1.6)              (1.7)
  Interest income                                .4            0.0             .2                0.0
  Other                                          .3           (0.2)            .2                0.0
                                              -----          -----          -----              -----
(Loss) earnings before income taxes            (2.9)           0.4           (2.3)              (2.6)
Income tax benefit provision                    0.9           (0.1)            .8                0.8
                                              -----          -----          -----              -----
 
Net (loss) earnings                            (2.0)%          0.3%          (1.5)%             (1.8)%
                                              =====          =====          =====              =====
</TABLE>

Net Sales.  During the December 1996 quarter, the Company recorded
hardware/software sales of $12.4 million or 50.4% of total net sales compared to
$15.8 million or 62.5% of total net sales in the same period one year ago and
$11.8 million or 55.0% of total net sales in the quarter ended September 29,
1996.

The decrease in hardware/software sales from the previous year is primarily
attributed to significant decreases in sales of  the Company's plain paper
typesetting products and PressMate(R), a proprietary chemical-free imagesetter
which was introduced by the Company in 1994.  In addition, sales of DisplayMaker
Professional(R) also decreased 

                                       6
<PAGE>
 
from the previous year. These decreases were partially offset by $3.1 million in
sales of DesignWinder(TM). DesignWinder is the Company's third proprietary
printer which began shipping in production quantities in the December 1996
quarter. Hardware/software sales increased from the September 1996 quarter as a
result of DesignWinder revenues despite decreases in sales in all of the
Company's other hardware products during the quarter.

The Company expects that sales of  plain-paper typesetting products, PressMate,
and DisplayMaker Professional will continue to decline throughout the next
several quarters as the Company reduces its marketing efforts for these products
in favor of more heavily promoting its proprietary Big Color(R) printers,
particularly DesignWinder.

During the December 1996 quarter, the Company recorded consumables sales,
consisting primarily of ink, media, film, maintenance contracts and spare parts,
of $12.2 million or 49.6% of total net sales compared to $9.5 million or 37.5%
of total net sales in the same period one year ago and $9.7 million or 45.0% of
total net sales in the quarter ended September 29, 1996.

The increase in consumables sales from the prior year is primarily due to an
increase in the installed base of Big Color printers, including DisplayMaker
Professional, DisplayMaker Express and DesignWinder. The increase in consumables
sales from the September 1996 quarter is primarily due to the introduction of
new ink and media offerings designed for outdoor use and the initial consumables
orders with DesignWinder shipments.

The Company expects that consumables sales will continue to increase over the
long-term as the installed base of printers increases and new consumable
products are introduced.  Consumables revenue may fluctuate from quarter to
quarter however, depending on the timing of new product introductions and
shifting marketing emphasis to proprietary engine platforms made by the Company.

During the December 1996 quarter, the Company retrofitted the majority of the
installed base of DisplayMaker Express printers with the new FloTek(TM) Jetting
System that is designed to improve the functionality and to simplify startup
procedures of the machine. The FloTek Jetting System is a software and hardware
change to assist in clearing ink jets as part of the start-up procedure. These
upgrades were made by the Company at no charge to the installed base. In
conjunction with this upgrade, the Company introduced Print & Hang(TM) media for
the DisplayMaker Express that is designed for outdoor use without expensive
overlaminates. The upgrade and additional media were well received and have
resulted in improved field performance of the machine and additional revenue
opportunities for the Company's customers.

International Sales.  The following table sets forth international sales by
region expressed in thousands and as a percentage of total net sales:

<TABLE>
<CAPTION>
                                              Three months ended                      Six months ended                   
                                              ------------------                      ----------------                   
                                    December 29,           December 31,          December 29,       December 31,         
                                       1996                   1995                  1996               1995              
                                  -----------------    -----------------       -----------------    -----------------    
<S>                               <C>         <C>      <C>         <C>         <C>        <C>       <C>         <C>        
Europe                             $ 5,033    20.5%    $ 5,172     20.4%        $ 9,571    20.8%     $ 9,186    19.7%    
Japan, Asia/ Pacific                 4,647    18.9       3,093     12.2           8,400    18.2        5,724    12.3     
Latin America                        1,912     7.8       1,287      5.1           3,298     7.2        2,203     4.7     
Canada                               1,296     5.2         849      3.4           1,643     3.6        1,603     3.4     
                                   -------    ----     -------     ----         -------   -----       ------    ----     
Total international sales          $12,888    52.4%    $10,401     41.1%        $22,912   $49.8%      18,716    40.1%    
                                   =======    ====     =======     ====         =======   =====       ======    ====      
</TABLE>

Increases in sales in Japan, Asia/Pacific and Latin America markets are
primarily due to greater sales of Big Color products, particularly DisplayMaker
Express and DesignWinder, along with related consumables.  In the six months
ended December 31, 1995, a greater percentage of the Company's revenues came
from sales of plain-paper typesetting equipment which was not as successful in
these markets as the Company's Big Color products are in fiscal 1997.  A
majority of the foreign transactions occur in U.S. dollars, and as a result
foreign currency risk is not expected to be a significant risk factor.

Gross Profit.  Gross profit, expressed as a percent of net sales, was 31.9% in
the quarter ended December 29, 1996 compared to 39.1% in the same period one
year ago and 37.0% (30.4% excluding the effects of the benefit from a warranty
claim and settlement with one of the Company's suppliers) in the September 1996
quarter.  Gross profit was negatively impacted in the December 1996 quarter
primarily from lower average selling prices on DisplayMaker Professional due to
competitive price erosion, and on DisplayMaker Express due to price breaks for
distribution and demonstration sites.   Costs incurred to upgrade the installed
base of DisplayMaker Express units with the new FloTek Jetting System also had a
negative short term impact on gross profit margins.

                                       7
<PAGE>
 
Operating Expenses.  Sales and marketing expenses for the three months ended
December 29, 1996 were $4.5 million compared to $5.1 million in the same period
one year ago. The $600,000 decrease in sales and marketing expenses is primarily
related to reductions in sales expenses achieved with the consolidation of
certain sales offices in the June 1996 quarter.

Research and development expenditures, including amounts expensed and
capitalized, were $2.0 million in the three months ended December 29, 1996
compared to $2.4 million in the same period one year ago. The decrease in
expenditures is primarily a result of cost reduction programs implemented in
fiscal 1996. Research and development expenditures capitalized for the three
months ended December 29, 1996 were $479,000 compared to $728,000 in the same
period one year ago.

General and administrative expenses were $2.4 million for the three months ended
December 29, 1996 compared to $2.6 million in the same period one year ago.

Other.  Interest expense was $331,000 for the three months ended December 29,
1996 compared to $445,000 in the same period one year ago.  Interest income was
$104,000 for the three months ended December 29, 1996 compared to essentially no
interest income in the same period one year ago.  The $218,000 decrease in net
interest expense from the same period one year ago, is primarily attributable to
$12 million in equity financing completed in the September 1996 quarter of which
a portion of the proceeds was used to pay down revolving credit lines and a
portion was invested in interest bearing instruments.

The Company's effective tax rate was 33% in the December 1996 quarter compared
to 29% in the same period one year ago.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities during the six months ended December 29,
1996 was $5.2 million compared to net cash provided from operating activities of
$938,000 in the same period one year ago. Cash flow was negatively affected by
an increase in accounts receivable of $2.5 million in the six months ended
December 29, 1996. This increase in accounts receivable is primarily attributed
to a longer collection period for sales of DisplayMaker Express. The Company
extended payment terms and furnished some free supplies while it worked through
the program for field upgrades related to the DisplayMaker Express FloTek
Jetting System. The Company expects the collection period for future
DisplayMaker Express sales to decrease as machine performance and customer
satisfaction improve for this product. The Company also increased its inventory
by $3.9 million in the six months ended December 29, 1996. The increase in
inventory is primarily related to increases in consumables. In fiscal 1997, the
Company received $1.4 million in process units and toner cartridges in a product
quality settlement with one of its suppliers. In addition, the Company has
increased its Big Color consumables, primarily with new products, including
DesignWinder wide-gamut inks, new pigmented inks for DisplayMaker Professional
and DesignWinder and Print & Hang media, all of which were introduced in fiscal
1997.

Net cash used in investing activities was $1.4 million during the six months
ended December 29, 1996 compared to $3.2 million in the same period one year
ago.  Investment in capital equipment was $319,000 in the six months ended
December 29, 1996 compared to $1.0 million in the same period one year ago.
Investment in intellectual property was $246,000 in the six months ended
December 29, 1996 compared to $686,000 in the same period one year ago.  The
Company capitalized $880,000 of software development costs in the six months
ended December 29, 1996 compared to $1.5 million in the same period one year
ago.

Net cash provided by financing activities was $8.7 million in the six months
ended December 29, 1996 compared to $2.4 million in the same period one year
ago.  Net repayments under revolving credit lines were $894,000 in the six
months ended December 29, 1996 compared to net borrowings of $620,000 in the
same period one year ago.  The Company received approximately $10 million, net
of transaction costs, from the issuance of common stock in a series of private
placements completed in the December quarter of fiscal 1997.  An additional $1.8
million from the issuance of common stock in a private placement to TimeMasters,
Inc. (TMI) was used to offset a $1.765 million term loan and $35,000 in accrued
interest owed by LaserMaster Corporation to TMI, a related party, in a non-cash
transaction.

Based on the results of operations for the first half of fiscal 1997, the
successful introduction of DesignWinder, and the Company's business plan to
expand DesignWinder distribution  for the remainder of the fiscal year,
management expects that the proceeds from the private placements of common stock
will be sufficient to fund operations throughout fiscal 1997.  The Company also
has additional credit available on the existing line of credit.

                                       8
<PAGE>
 
                          PART II. OTHER INFORMATION

ITEM 1:  LEGAL PROCEEDINGS

In prior reports on Form 10-Q and the Form 10-K, the Company has reported on a
consolidated lawsuit originally filed by a shareholder, John Becker, alleging
violations of the Securities and Exchange Act of 1934.  The suit alleges that
the Company and the named individual officers and directors knew of material,
negative, non-public information and withheld such information from the public
so as to intentionally cause a fraud on the market.  The suit further alleges
that the individual defendants personally benefitted by selling shares of
Company common stock over a one year period.  The three defendants may have the
right to indemnification from the Company for their defense and any  liability
costs.  The Company does not believe it has insurance coverage for the claims
alleged against it in this suit; however, the officers and directors may have
coverage for certain claims which have been alleged under the Directors' and
Officers' insurance policies in effect at the relevant time.  The case is in the
early stages of discovery and the plaintiffs' total damage claim has not been
articulated.  On December 5, 1996, the court issued an order certifying the
class as purchasers of common stock between December 2, 1993, and December 8,
1994 who claim to have suffered damages.  The Company believes the suit is
without merit and continues to vigorously defend the matter.  If the lawsuit is
not resolved by settlement or a final judgement within the limits and coverage
of the applicable Directors' and Officers' insurance, this matter could have a
material adverse effect on the financial condition of the Company.

In the quarter ending December 31, 1995, LMC filed a suit against Sentinel
Imaging, a division of Sentinel Business Systems, Inc. LMC has alleged, among
other things, patent infringement, trademark infringement, Lanham Act
violations, misappropriation of trade secrets, and state unfair competition
claims related to LaserMaster's patented Big Ink delivery system and
ColorMark(R) color management system. Sentinel Imaging has counterclaimed for
false advertising, patent misuse and unfair competition by LaserMaster. On
December 4, 1996 the court held that the Sentinel Color Key Ink Delivery System
does not infringe LaserMaster's patent on the Big Ink Delivery System, thereby
eliminating a claim in the suit. This order may be appealed upon final
disposition of the case. LaserMaster and Sentinel have brought cross motions for
summary judgment on remaining claims which are scheduled to be heard in March
1997. The case is expected to be scheduled for trial sometime after May 1, 1997.
If LMC does not prevail on its claims and Sentinel does prevail on the counter
claims it has alleged, the outcome of these proceedings could have a material
adverse effect on the Company.

The Company is involved in a dispute arising out of the loss of approximately
$400,000 of certain inventory components during transit prior to delivery to the
Company. At this time there is no assurance that the loss will be recovered
from any of the parties involved in the transaction, the supplier, the freight
carrier, the insurers for third parties or the insurers for the Company.

The Company is also involved in legal proceedings related to customer credit and
product warranty and performance issues in the normal course of business. The
Company believes that some of the alleged claims are precluded by the terms of
sales and warranty documents. In certain proceedings the claimants have alleged
claims for exemplary or punitive damages which may not bear a direct
relationship to the alleged actual incurred damages. If a claimant were
successful in their claim for punitive damages, such damages could have a
material adverse effect on the financial position of the Company. At this time
none of the proceedings or claims are expected to have a material effect on the
Company's financial position.

See Exhibit 99, attached, for additional discussion of risks factors related to
legal proceedings.

                                       9
<PAGE>
 
ITEM 2:  CHANGES IN SECURITIES

Nothing to report.


ITEM 3:  DEFAULTS UPON SENIOR SECURITIES

Nothing to report.


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

Nothing to report.


ITEM 5:  OTHER INFORMATION

Effective January 31, 1997, Edward Suchma, formerly the interim Chief Financial
Officer, is no longer employed by the Company.

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Listing of Exhibits
         -------------------

         10.1    Amendment to lease between Grandchildren's Realty Alternative
                 Management Program I Limited Partnership and LaserMaster
                 Corporation
 
         27      Financial Data Schedule
 
         99.     Cautionary Factors Under Private Securities Litigation Reform
                 Act of 1995.

(b)      Reports on Form 8-K
         -------------------

         None.

                                       10
<PAGE>
 
                                  SIGNATURES


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


LASERMASTER TECHNOLOGIES, INC.



/s/Melvin L. Masters
--------------------------------------
Melvin L. Masters
Chief Executive Officer



/s/Timothy N. Thurn
--------------------------------------
Timothy N. Thurn
Treasurer and Principal Financial Officer



/s/Mark Pederson
--------------------------------------
Mark Pederson
Controller



Dated:  February 10, 1997

                                       11