SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-QSB


(Mark One)

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

For the quarterly period ended September 30,1996



 ( )  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 1-11236
                       -------
                              
                      XEROGRAPHIC LASER IMAGES CORPORATION
             (Exact name of registrant as specified in its charter)

          Delaware                                       51-0319174
----------------------------                 -----------------------------------
(State or other jurisdiction                (I.R.S. Employer Identification No.)
of incorporation or
organization)


101 Billerica Avenue, 5 Billerica Park,
---------------------------------------
         North Billerica, MA                                             01862
         -------------------                                           ---------
(Address of principal executive offices)                              (Zip Code)

                                 (508) 670-5999
              ----------------------------------------------------
              (Registrant's telephone number, including area code)






Transitional Small Business Disclosure Format:
    Yes ____ No__X__




         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 requirement for the past 90 days. YES__X__  NO____





         As of the close of business on October 10, 1996,  there were  1,778,647
 shares  outstanding of the issuer's Common Stock,  $.01 par value,  and 315,238
 shares of Series A Convertible Preferred Stock, $.01 par value per share.







                      XEROGRAPHIC LASER IMAGES CORPORATION

                                      INDEX



                                                                         PAGES
PART I            FINANCIAL INFORMATION

  Item 1          Financial Statements

                  Balance Sheets as of September 30,1996
                   (unaudited) and December 31, 1995                       4

                  Statements of Operations for the nine and three
                    month periods ended September 30,1996 and
                               1995 (unaudited)                            5

                  Statements of Cash Flows for the nine and three month
                    periods ended September 30,1996 and 1995
                    (unaudited)                                            6

                  Notes to Financial Statements
                    (unaudited)                                            7

  Item 2          Management's Discussion and Analysis of
                  Financial Condition and Results of
                  Operations                                               8-9



PART II   OTHER INFORMATION

  Item 1  Legal Proceedings
  Item 2  Changes in Securities
  Item 3  Defaults Upon Senior Securities
  Item 4  Submission of Matters to a Vote of Security-Holders
  Item 5  Other Information
  Item 6  Exhibits and Reports on Form 8-K                                10


Signatures                                                                11





<TABLE>
<CAPTION>
                      XEROGRAPHIC LASER IMAGES CORPORATION

                                 Balance Sheets

<S>                                                                               <C>                 <C>
                                                                                  September 30,        December 31,
                                                                                      1996                 1995
                                                                                   (unaudited)
                           ASSETS  
Current assets:                                                                                                       
   Cash                                                                          $    11,961          $         -
   Accounts receivable, less allowance for
      doubtful accounts of $5,000 in 1996 and
      $14,033 in 1995                                                                156,021              279,271
   Finished goods inventory                                                           46,027               55,181
   Other current assets                                                                2,500                3,250
           Total current assets                                                      216,509              337,702

Property and equipment, net                                                           45,253               68,512
Other assets                                                                           9,224               12,651

           Total  assets                                                         $   270,986          $   418,865

            LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
     Notes payable                                                               $    20,500          $   101,000
     Cash overdraft                                                                        -                1,432
     Accounts payable                                                                528,430              439,228
     Accrued expenses                                                                219,828              220,694
     Accrued severance costs                                                          89,182              103,634
     Current portion of capital lease obligations                                      6,510               12,161
           Total current liabilities                                                 864,450              878,149

Capital lease obligations                                                             25,062               28,639
Subordinated notes payable                                                           283,688                    -
Accrued severance costs                                                               29,813               69,474
           Total liabilities                                                       1,203,013              976,262




Stockholders' equity (deficit)
    SeriesA  Preferred  stock,  $.01 par  value;  authorized  1,000,000  shares;
          315,238 issued and outstanding at
          September 30, 1996 and December 31, 1995.                                    3,152                3,152
    Common stock, $.01 par value; 30,000,000 shares authorized:
          1,778,647 issued and outstanding at September 30,1996
         and  1,338,647  outstanding at December 31, 1995.                            17,786               13,386          
     Additional paid- in capital                                                   8,434,353            8,423,428
     Accumlated deficit                                                           (9,387,318)          (8,997,363)
           Total stockholders' equity (deficit)                                     (932,027)            (557,397)         

             Total liabilities and stockholders' equity (deficit)                $   270,986          $   418,865


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

</TABLE>



                                        4



                      XEROGRAPHIC LASER IMAGES CORPORATION

                            Statements of Operations
                                   (unaudited)


<TABLE>
<CAPTION>



                                                           Three Months Ended September 30,       Nine Months Ended September 30,
                                                           --------------------------------      --------------------------------
                                                                 1996             1995                1996               1995


<S>                                                       <C>              <C>                      <C>         <C>           
Product revenues                                          $     57,654     $     95,436             166,495     $      301,475
Contract and license revenues                                  225,000          200,000             250,000            450,000
   Total revenues                                              282,654          295,436             416,495            751,475

Cost and expenses:
   Product costs of revenues                                    33,319           69,432             105,395            311,025
   Research and development                                     90,701           90,727             248,467            268,528
   Selling and marketing                                        13,518           37,822              33,381             79,119
   General and administrative                                  122,693           85,586             391,212            306,969
                 Total cost and expenses                       260,231          283,567             778,455            965,641
Profit  (Loss) from operations                                  22,423           11,869            (361,960)          (214,166)

Other income (expense)
     Net interest expense                                      (17,132)          (8,221)            (29,821)           (20,821)
    Other income                                                   326            2,320               1,826              2,320
Total other expense                                            (16,806)          (5,901)            (27,995)           (18,501)

Net Income(Loss)                                          $      5,617     $      5,968       $    (389,955)    $     (232,667)

Net  income(loss) per common share                        $       0.00     $       0.00       $       (0.26)    $        (0.19)

Weighted average common and common
         equivalent shares outstanding                       1,778,647        1,338,646           1,493,925          1,227,536


</TABLE>


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





                                        5


<TABLE>
<CAPTION>

                      XEROGRAPHIC LASER IMAGES CORPORATION

                            Statements of Cash Flows


                                                            Nine Months Ended           Nine Months Ended
                                                            September130,1996           September 30,1995
                                                                (unaudited)                 (unaudited)       


<S>                                                        <C>                       <C>
Cash flows from operating activities:
   Net loss                                                $      (389,955)          $          (232,667)
   Adjustments to reconcile net loss to net cash
         used in operating activities:
   Issuance of common stock for services rended                     15,325                                   
   (Increase) decrease:
       Accounts receivable                                         123,250                        39,814
       Inventory                                                     9,154                       121,309
       Other  assets                                                 4,177                       (15,144)
    Increase (decrease):
      Accounts payable                                              89,202                        81,492
      Accrued expenses                                              12,822                        17,262
      Accrued severance costs                                      (54,113)                      (94,103)
      Depreciation and amortization                                 23,259                        34,279
Net cash used in operating activities                             (166,879)                      (47,758)    


Cash flows from financing activities:
   Cash overdraft                                                   (1,432)                                  
    Procceds from issuance of Subordinated Notes                   195,000                                   
    Payments of notes payable                                       (5,500)                      (15,000)    
   Payments under capital lease obligations                         (9,228)                                  
Net cash provided by financing activities                          178,840                       (15,000)

Net increase (decrease) in cash                                     11,961                       (62,758)    
Cash at beginning of period                                              -                        75,874     
Cash at end of period                                      $        11,961           $            13,116     

Supplemental disclosure of cash flow information:
   Cash paid for interest                                  $        22,003           $            20,821

</TABLE>



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



 
                                        6




                      XEROGRAPHIC LASER IMAGES CORPORATION

                          Notes to Financial Statements

                                September 30,1996



1.  Nature of Business and Basis of Presentation

     Xerographic Laser Images plans to continue to move from being a provider of
board products to that of a technology  provider primarily to large OEMs through
ASIC, VHDL and software  products.  Monochrome and color enhancement  technology
continues  to  be  the  key  focus  of  the  Company.  XLI's  "1-bit  Grayscale"
enhancement  technology is being  implemented  in current VHDL modules and ASICs
for the printer OEMs.  This  technology  provides gray scale  enhancement  while
minimizing the memory and performance  requirements of the printer controller. A
patent  application  was filed during the quarter focused on both monochrome and
color edge enhancement.  XLI hopes to enter into additional corporate alliances,
and provide ASIC and board products to its own customer base.  ASIC  development
and  licensing/royalty   agreements  are,  by  nature,  long  term  investments,
therefore  placing a burden on short term cash flow and placing the Company in a
tenuous position. For the nine months ending September 30, 1996, the Company had
negative cash flow from operations of $166,879.

     Despite the progress made in  maintaining  current  expense  levels and the
potential revenue to be generated pursuant to the co-development agreements with
OEMs,  significant risk remains  concerning the Company's ability to continue as
an  independent  going  concern.  The  financial  statements  do not include any
adjustments  relating to the  recovery  and  classification  of  recorded  asset
amounts  or the  amounts  and  classifications  of  liabilities  that  might  be
necessary  should  the  Company be unable to  continue  as a going  concern.  At
present, the Company is exploring several funding opportunities.

         The information furnished has been prepared from the Company's accounts
without  audit.  In the opinion of  management,  all  adjustments  and  accruals
(consisting only of normal recurring adjustments) which are necessary for a fair
presentation of operating  results are reflected in the  accompanying  financial
statements.  Reference should be made to Xerographic Laser Images  Corporation's
most recent  Annual  Report on Form 10-KSB for the year ended  December 31, 1995
for a summary of significant accounting policies.

    Net Loss Per Common Share
    -------------------------

         Net loss per share is computed  based upon the weighted  average number
of common shares outstanding.



                                        7




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

RESULTS OF OPERATIONS

         XLI plans to continue  to move from being a provider of board  products
to that of a technology  provider primarily to large OEMs through ASIC, VHDL and
software products.

         The  Company's  strategy is to develop  core ideas  derived  from XLI's
current  technology,   then  design  products   incorporating  these  ideas  for
production in collaboration with strategic partners.

         XLI has  signed a  second  agreement  with  Pipeline  Associates  which
includes the development of "Superchip" (XLI's next generation enhancement ASIC)
with a Taiwan foundry,  at no cost to XLI. Both XLI and Pipeline have the rights
to sell this ASIC into the  printer  marketplace  with XLI  receiving a per unit
royalty  from  any such  sales.  XLI has also  signed  a VHDL  agreement  with a
Japanese  company  that  includes  up-front  and royalty  fees for the rights to
develop their own  enhancement  ASIC for their end user products only. A display
scaling/enhancement  technology  agreement  was signed with Samsung  Electronics
giving the rights to Samsung to incorporate  XLI technology  into future Samsung
display products. This agreement included upfront and milestone payments tied to
specific  technology  deliverables.  Samsung also signed an  additional  printer
enhancement  agreement  with  XLI  for  the  rights  to  use  XLI's  "Superchip"
enhancement technology in Samsung's ASIC.

         Revenues for the third quarter of 1996,  which ended September 30, 1996
were $282,654, a decrease of approximately 4% from 1995's third quarter revenues
of $295,436.  Revenues for the nine-month  period ended  September 30, 1996 were
$416,495,  a decrease of approximately 45% from the $751,475 of revenue recorded
for the nine months ended September 30, 1995. The Company  received  $225,000 in
Contract and License fees from Samsung in the third quarter of 1996 and $200,000
in 1995 and Contract and License  fees for the nine months ended  September  30,
1996 was $250,000 compared to $450,00 for the same period in 1995.

         The  Company  recorded a net profit of $5,617 for the third  quarter of
1996 as compared to a net profit of $5,968 for the same period in 1995.

         The  Company's  gross  margin  on  product  sales was 42% for the third
quarter of fiscal year 1996  compared  to 27% for the same  period in 1995.  The
gross margin for the nine months ended  September 30, 1996 was 37% compared to a
negative 3% in 1995 due to inventory write-offs in 1995.


         Research  and  development  costs  for  the  three-month  period  ended
September 30, 1996 were $90,701 or approximately  32% of revenues as compared to
$90,727,  or  approximately  31% of  revenues  for the  third  quarter  of 1995.
Research and development costs for the nine months ended

                                        

                                        8



September 30, 1996 were $248,467, as compared to $268,528 for the same period in
1995. The Company anticipates that its engineering  emphasis will continue to be
on the  development  of  ASICs  incorporating  the  Company's  proprietary  high
resolution technology for the OEM market and for its own board products.

         Selling  and  marketing  expenses  for  the  three-month  period  ended
September 30, 1996 were $13,518 or  approximately  5% of revenues as compared to
$37,822 or  approximately  13% of  revenues  for the  three-month  period  ended
September  30, 1995.  Selling and  marketing  expenses for the nine months ended
September 30, 1996 were  $33,381,  as compared to $79,119 for the same period in
1995.  The decrease of $45,738 is  attributed  to a reduction in board sales and
the corresponding  decrease in commissions on sales. In the future,  the Company
intends to market and sell its board products  primarily  through  telemarketing
and its ASIC technology through third party partnerships.

         General and  administrative  expenses for the three-month  period ended
September 30, 1996 were $122,693 or approximately 43% of revenues as compared to
$85,586 or  approximately  29% of  revenues  for the  three-month  period  ended
September 30, 1995.  General and  administrative  expenses for nine months ended
September  30,1996  were  $391,212,  as  compared to the same period in 1995 was
$306,969. The increase of $84,243 is primarily attributed to a charge related to
Korean Income Taxes withheld on the Samsung Contract over the amount reserved at
December 1995.


LIQUIDITY AND CAPITAL RESOURCES

         At  September  30, 1996 the Company had current  assets of $216,509 and
current liabilities of $864,450.

         At September 30, 1996, the Company had $11,961 in cash.

         During this  period,  the Company has  continued  its policy of issuing
stock to certain key employees for accepting  less cash  compensation  than they
are entitled to based on their experience and knowledge.

         The Company requires  additional cash to fund its working capital needs
and research and development efforts and is currently  investigating  additional
financing alternatives.  There can be no assurance that the Company will be able
to obtain additional funding on reasonable terms, if at all.

         In April 1996,  the Company  received  notice from Samsung  Electronics
that  $104,812.50 was withheld from the final payment on the April 1995 contract
due to payment of Korean  Income  Taxes.  The  Company  has  consulted  with its
advisors and believes that the  withholding was  inappropriate  based upon their
interpretation  of Korean tax laws.  The Company has engaged the services of the
Korean affiliate of a U.S. accounting firm to petition the Korean Government for
a refund on the Company's behalf. The potential success of this petition can not
be determined at this time.



                                        9



                            PART II OTHER INFORMATION



Item 1.      Legal Proceedings

        The Company is not currently involved in any material legal proceedings.

Item 2.      Changes in Securities

        Not Applicable

Item 3.      Defaults Upon Senior Securities.

         Not Applicable.

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

         No matters  were  submitted  to a vote of  security-holders  during the
period covered by this report.

Item 5.      Other Information.

         Not Applicable.

Item 6.      Exhibits and Reports on Form 8-K.

      (a)    There are no exhibits required to be filed herewith.

      (b)    There  were no  reports  on Form 8-K filed by the  Company  during 
the period reported on in this Report on Form 10-QSB.



                                       10



                                   Signatures




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




                                     Xerographic Laser Images Corporation
                                     ------------------------------------
                                                  (Company)



Date: November 5, 1996              By:/s/ James L. Salerno
     -----------------                 ----------------------------------
                                       James L. Salerno, Principal Financial and
                                       Accounting Officer





                                       11