<PAGE>

                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, DC. 20549
                                     FORM 10-QSB


(MARK ONE)

     [X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
          ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996, OR

     [ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT FOR THE TRANSITION PERIOD FROM ________ TO ________.



                           COMMISSION FILE NUMBER:  0-24738
                                           
                          LORONIX INFORMATION SYSTEMS, INC.
          (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
                                           
                                           

            NEVADA                                               33-0248747
(STATE OR OTHER JURISDICTION OF                                (IRS EMPLOYER
 INCORPORATION OR ORGANIZATION)                              IDENTIFICATION NO.)


                      820 AIRPORT ROAD, DURANGO, COLORADO 81301
                       (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                           
                      ISSUER'S TELEPHONE NUMBER:  (970) 259-6161
                                           
                                           
                                           
     CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PAST 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    
                     ---     ---

     AS OF OCTOBER 23, 1996, THERE WERE 4,661,936 SHARES OF THE ISSUER'S 
COMMON STOCK OUTSTANDING.


<PAGE>

                          LORONIX INFORMATION SYSTEMS, INC.
                                          
                                       INDEX
                                          


PART I.  FINANCIAL INFORMATION                                          PAGE NO.

         ITEM 1.  FINANCIAL STATEMENTS

                  CONDENSED CONSOLIDATED BALANCE SHEET                      1
                   AS OF SEPTEMBER 30, 1996

                  CONDENSED CONSOLIDATED STATEMENTS                         3
                   OF OPERATIONS FOR THREE AND NINE MONTHS 
                   ENDED SEPTEMBER 30, 1996 AND 1995

                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS           4
                   FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL                 5
                   STATEMENTS

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF                   6
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


PART II.  OTHER INFORMATION

          ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS      12

          ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                         12


SIGNATURES                                                                 13

<PAGE>


                            PART I - FINANCIAL INFORMATION

                          LORONIX INFORMATION SYSTEMS, INC.
                         CONDENSED CONSOLIDATED BALANCE SHEET

                                        ASSETS


                                                          SEPTEMBER 30, 
                                                              1996      
                                                          ------------- 
                                                           (UNAUDITED)  
Current assets:
 Cash and cash equivalents                                 $ 5,767,807 
 Accounts receivable:    
    Trade, net of allowance for doubtful accounts
        of $177,025                                          1,449,335 
    Officers and employees                                     146,187 
  Contracts in progress with earned revenue
     exceeding related progress billings                     2,437,339 
  Inventory, net                                               942,831 
  Prepaid expenses and other assets                             87,577 
  Deferred income taxes                                        100,000 
                                                           ----------- 
            Total current assets                            10,931,076 

  Construction in progress                                     208,951 
  Property and equipment, net of accumulated
     depreciation of $827,427                                2,996,135 
  Software development costs, net of accumulated
     amortization of $503,188                                  469,111 
 Deposits and other assets                                      38,259 
 Goodwill, net of accumulated amortization 
    of $47,525                                                   9,919 
                                                           ----------- 

            Total assets                                   $14,653,451 
                                                           ----------- 
                                                           ----------- 


     See accompanying notes to condensed consolidated financial statements



                                       1
<PAGE>

                     LORONIX INFORMATION SYSTEMS, INC.
                   CONDENSED CONSOLIDATED BALANCE SHEET

                   LIABILITIES AND STOCKHOLDERS' EQUITY


                                                      SEPTEMBER 30, 
                                                          1996      
                                                      ------------- 
                                                       (UNAUDITED)  

Current liabilities:
 Accounts payable                                      $   668,676 
 Accrued commission payable                                153,558 
 Income tax payable                                        118,700 
 Accrued liabilities                                       148,996 
                                                       ----------- 

         Total current liabilities                       1,089,930 

 Deferred maintenance revenue                               23,308 
                                                       ----------- 
    
          Total liabilities                              1,113,238 

Stockholders' equity:
 Preferred stock, $.001 par value,     
   authorized 2,000,000 shares, no shares
   issued and outstanding                                        - 
 Common stock, $.001 par value, authorized            
   20,000,000 shares, issued and outstanding,
   4,661,936 shares                                          4,662 
 Additional paid-in capital                             15,259,432 
 Notes receivable from stockholders                       (214,981)
 Accumulated deficit                                    (1,508,900)
                                                       ----------- 

         Total stockholders' equity                     13,540,213 
                                                       ----------- 

         Total liabilities and stockholders' equity    $14,653,451 
                                                       ----------- 
                                                       ----------- 






  See accompanying notes to condensed consolidated financial statements


                                      2 
<PAGE>

                           LORONIX INFORMATION SYSTEMS, INC.
                    CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
                                                    THREE MONTHS ENDED            NINE MONTHS ENDED
                                                       SEPTEMBER 30,                 SEPTEMBER 30,
                                                 -------------------------     -------------------------
                                                    1996           1995           1996            1995
                                                 ----------     ----------     ----------     -----------
                                                        (UNAUDITED)                   (UNAUDITED)
<S>                                              <C>             <C>            <C>            <C>
Systems, supplies and maintenance
 revenue                                         $2,959,933     $1,547,208     $8,504,213     $ 4,529,670
                                                 ----------     ----------     ----------     -----------
Operating costs and expenses:
  Cost of products sold                           1,323,197        863,354      3,944,281       2,347,561
  Operations and customer support                   219,678        202,802        725,687         644,814
  Selling, general and administrative               784,815      1,012,749      2,343,364       2,351,048
  Research and development                          235,625        251,221        682,603         619,888
                                                 ----------     ----------     ----------     -----------
       Total cost and expenses                    2,563,315      2,330,126      7,695,935       5,963,311

       Income (loss) from operations                396,618       (782,918)       808,278      (1,433,641)
                                                 ----------     ----------     ----------     -----------

Other income (expense):
  Interest income                                    68,004        108,035        225,538         347,155
  Other                                                 405            (18)          (363)           (435)
                                                 ----------     ----------     ----------     -----------
                                                     68,409        108,017        225,175         346,720
                                                 ----------     ----------     ----------     -----------

       Income (loss) before income taxes            465,027       (674,901)     1,033,453      (1,086,921)

Income (tax) benefit                                (50,025)        (1,064)      (174,038)        105,236
                                                 ----------     ----------     ----------     -----------

       Net income (loss)                         $  415,002     $ (675,965)    $  859,415     $  (981,685)
                                                 ----------     ----------     ----------     -----------
                                                 ----------     ----------     ----------     -----------

Income (loss) per share - primary and
 fully diluted                                   $     0.09     $    (0.14)    $     0.18     $     (0.21)
                                                 ----------     ----------     ----------     -----------
                                                 ----------     ----------     ----------     -----------

Weighted average shares outstanding               4,747,390      4,670,936      4,676,642       4,670,936
                                                 ----------     ----------     ----------     -----------
                                                 ----------     ----------     ----------     -----------
</TABLE>

    See accompanying notes to condensed consolidated financial statements


                                       3

<PAGE>

                      LORONIX INFORMATION SYSTEMS, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
                                                                     NINE MONTHS ENDED
                                                                        SEPTEMBER 30,
                                                                       1996         1995
                                                                   -------------------------
                                                                   (UNAUDITED)   (UNAUDITED)
<S>                                                                <C>            <C>
Cash flows from operating activities:
  Net income (loss)                                                $   859,415   $  (981,685)
 Adjustments to reconcile net income (loss) to net cash used in
   operating activities:
    Depreciation and amortization                                      591,659       329,604
    Changes in operating assets and liabilities:    
      Decrease in accounts receivable, net                             425,219       427,126
      Increase in contracts in progress with earned revenue
       exceeding related progress billings                          (1,546,877)            -
      Decrease in inventory, net                                       307,346        89,061
      Decrease in prepaid expenses and other assets                     33,254       138,917
      Decrease (increase) in deferred income taxes                      54,000      (106,000)
      Decrease in accounts payable                                    (286,853)     (159,623)
      Increase (decrease) in accrued liabilities                       233,817       (62,662)
      Decrease in customer deposits                                          -        (3,270)
      Increase (decrease) in deferred revenue                          (15,829)        5,263
                                                                   -----------   -----------
        Net cash provided by (used in) operating activities            655,151      (323,269)
                                                                   -----------   -----------

Cash flows from investing activities:
  Construction in progress                                            (208,951)     (609,316)
  Capital expenditures                                                (649,155)     (409,680)
  Deposits and other assets                                             (1,008)      (18,145)
  Software development costs                                          (245,000)     (173,500)
                                                                   -----------   -----------
        Net cash used in investing activities                       (1,104,114)   (1,210,641)
                                                                   -----------   -----------

Cash flows from financing activities:
  Payments on notes payable                                                  -       (68,429)
  Payments for offering costs                                                -        (1,332)
                                                                   -----------   -----------
        Net cash used in financing activities                                -       (69,761)
                                                                   -----------   -----------

Net decrease in cash and cash equivalents                             (448,963)   (1,603,671)
Cash and cash equivalents, beginning of year                         6,216,770     8,887,944
                                                                   -----------   -----------
Cash and cash equivalents, end of  September                       $ 5,767,807   $ 7,284,273
                                                                   -----------   -----------
                                                                   -----------   -----------
</TABLE>

Noncash investing activities:
  In 1996 and 1995, the Company transferred inventory valued at $44,952 and
  $286,578 respectively, to property and equipment.


     See accompanying notes to condensed consolidated financial statements



                                      4


<PAGE>

                          LORONIX INFORMATION SYSTEMS, INC.
                 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (SEPTEMBER 30, 1996 - UNAUDITED)



NOTE 1:   BASIS OF PRESENTATION

     The accompanying condensed consolidated financial statements have been 
prepared in accordance with Securities and Exchange Commission requirements 
for interim financial statements.  Therefore, they do not include all of the 
information and footnotes required by generally accepted accounting 
principles for complete financial statements.  The financial statements 
should be read in conjunction with Loronix Information Systems, Inc.'s Form 
10-KSB for the year ended December 31, 1995.

     The results of operations for the interim periods shown in this report 
are not necessarily indicative of results to be expected for the full year.  
In the opinion of management, the information contained herein reflects all 
adjustments necessary to make the results of operations for the interim 
periods a fair statement of such operations.  All such adjustments are of a 
normal recurring nature.

                                       5

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis should be read in conjunction with 
Loronix Information Systems, Inc.'s (the "Company") condensed consolidated 
financial statements and the notes related thereto included herein.


RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED 
SEPTEMBER 30, 1995


     REVENUE

     The Company's revenue is derived from sales of systems and supplies and 
from maintenance services.  Historically, systems and supplies have accounted 
for greater than 90% of total revenue, with system sales accounting for a 
substantial majority of total revenue.  The Company expects this trend to 
continue for the foreseeable future.  Revenue increased from $1.55 million in 
the third quarter of 1995 to $2.96 million in the third quarter of 1996, 
representing a 91% increase.  Revenue in the third quarter of 1996 included 
approximately $1.57 million associated with a contract between the Company 
and a U.S. subsidiary of a Middle Eastern multinational corporation which 
provides for the sale of security systems (the "Middle East Contract").  The 
Company believes it will record substantially all of the revenue under the 
Middle East Contract by year-end 1996.  The remaining revenue of $1.39 
million in the third quarter of 1996 consisted of $344,400 in original 
equipment manufacturer ("OEMs") revenue and $1.05 million in revenue from all 
other channels.


     COSTS AND EXPENSES

     COST OF PRODUCTS SOLD.  The cost of products sold, consisting 
principally of the costs of hardware components and supplies as well as 
software amortization, increased from $863,400 in the third quarter of 1995 
to $1.3 million in the third quarter of 1996, and represented 56% and 45% of 
revenue, respectively.  The margin improvement was primarily attributable to 
(i) a higher percentage of software sales which have relatively high margins, 
and (ii) a combination of reduced purchase costs and increases in end-user 
pricing on certain supplies and hardware items.

     OPERATIONS AND CUSTOMER SUPPORT.  Operations and customer support 
expenses increased from $202,800 in the third quarter of 1995 to $219,700, 
net of expense credits associated with the Middle East Contract, in the third 
quarter of 1996, and represented 13% and 7% of revenue, respectively.  The 
percentage decrease was the result of a 91% increase in revenue without a 
commensurate increase in expenses.  Gross expenses increased from $202,800 in 
the third quarter of 1995 to $250,600 in the third quarter of 1996.  The 
increase in such expenses resulted primarily from headcount and 
compensation-related increases and an increase in depreciation.

     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and 
administrative expenses decreased from $1.01 million in the third quarter of 
1995 to $784,800, net of expense credits associated with the Middle East 
Contract, in the third quarter of 1996, and represented 65% and 27% of 
revenue, respectively.  The percentage decrease was partly attributable to a 
91% increase

                                       6

<PAGE>

in revenue without a commensurate increase in expenses.  Further, the third 
quarter of 1995 included a charge of $267,000 for bad debt expense.  This 
expense was the result of (i) a charge related to the write off of certain 
receivables associated with the discontinuance of operations by the Company's 
European distributor, and (ii) an increase in the general allowance for 
doubtful accounts.

     RESEARCH AND DEVELOPMENT.  Research and development expenses, net of 
capitalized software costs, decreased from $251,200 in the third quarter of 
1995 to $235,600, net of expense credits associated with the Middle East 
Contract, in the third quarter of 1996, and represented 16% and 8% of 
revenue, respectively. The percentage decrease was the result of a 91% 
increase in revenue without a commensurate increase in expenses.  Gross 
expenses increased from $284,800 in the third quarter of 1995 to $388,500 in 
the third quarter of 1996.  The increase in such expenses resulted primarily 
from headcount and compensation-related increases and an increase in 
depreciation.

     INTEREST INCOME.  Interest income decreased from $108,000 in the third 
quarter of 1995 to $68,000 in the third quarter of 1996.  This decrease was 
due to a reduction in cash available for investment.

     INCOME TAX.  Income tax expense of $50,000 for the third quarter of 1996 
was estimated to be 11% of pretax earnings.  The Company's U.S. tax rate is 
less than the statutory federal rate of 34% primarily because of the benefit 
of net operating loss carry-forwards and research and experimentation credits.

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 
30, 1995

     REVENUE

     Revenue increased from $4.53 million in the first nine months of 1995 to 
$8.50 million in the first nine months of 1996, representing an 88% increase. 
Revenue in the first nine months of 1996 included approximately $4.85 million 
associated with the Middle East Contract. The Company believes it will record 
substantially all of the revenue under the Middle East Contract by year-end 
1996.  The remaining revenue of $3.65 million in the first nine months of 
1996 consisted of $929,500 in OEM revenue and $2.72 million in revenue from 
all other channels.

     COSTS AND EXPENSES

     COST OF PRODUCTS SOLD.  The cost of products sold increased from $2.35 
million in the first nine months of 1995 to $3.94 million in the first nine 
months of 1996, and represented 52% and 46% of revenue, respectively. The 
margin improvement was primarily attributable to a combination of reduced 
purchase costs and increases in end-user pricing on certain supplies and 
hardware items.

     OPERATIONS AND CUSTOMER SUPPORT.  Operations and customer support 
expenses increased from $644,800 in the first nine months of 1995 to 
$725,700, net of expense credits associated with the Middle East Contract, in 
the first nine months of 1996, and represented 14% and 9% of revenue, 
respectively.  The percentage decrease was the result of an 88% increase in 
revenue 

                                     7

<PAGE>

without a commensurate increase in expenses.  Gross expenses increased from 
$644,800 in the first nine months of 1995 to $777,700 in the first nine 
months of 1996.  The increase in such expenses resulted primarily from 
headcount and compensation-related increases and an increase in depreciation.

     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and 
administrative expenses decreased from $2.35 million in the first nine months 
of 1995 to $2.34 million, net of expense credits associated with the Middle 
East Contract, in the first nine months of 1996, and represented 52% and 28% 
of revenue, respectively. The percentage decrease was primarily the result of 
an 88% increase in revenue without a commensurate increase in expenses.  
Gross expenses increased from $2.35 million in the first nine months of 1995 
to $2.42 million in the first nine months of 1996.  Without the $267,000 bad 
debt expense incurred in the third quarter of 1995, gross expenses increased 
approximately $334,000 for the nine month period ended September 30, 1996 
over the same period in 1995.  The increase in such expenses resulted 
primarily from headcount and compensation-related increases and an increase 
in depreciation.

     RESEARCH AND DEVELOPMENT.  Research and development expenses, net of 
capitalized software costs, increased from $619,900 in the first nine months 
of 1995 to $682,600, net of expense credits associated with the Middle East 
Contract, in the first six months of 1996, and represented 14% and 8% or 
revenue, respectively.  The percentage decrease was the result of an 88% 
increase in revenue without a commensurate increase in expenses.  Gross 
expenses increased from $778,500 in the first nine months of 1995 to $1.07 
million in the first nine months of 1996.  The increase in such expenses 
resulted primarily from headcount and compensation-related increases and an 
increase in depreciation.

     INTEREST INCOME.  Interest income decreased from $347,200 in the first 
nine months of 1995 to $225,500 in the first nine months of 1996.  This 
decrease was due to a reduction of cash available for investment.

     INCOME TAX/BENEFIT.  An income tax benefit for the first nine months of 
1995 was estimated to be 10% of the pretax loss.  An income tax expense of 
$174,000 for the first nine months of 1996 was estimated to be 17% of the 
pretax earnings. The Company's U.S. tax rate is less than the statutory 
federal rate of 34% primarily because of the benefit of net operating loss 
carry-forwards and research and experimentation credits.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

     During the nine months ended September 30, 1995 and 1996, the Company 
financed its operations primarily from working capital.

     The Company's principal uses of cash during the nine months ended 
September 30, 1995 and 1996 were to (i) in 1995, fund operating activities; 
(ii) acquire property and equipment; (iii) invest in the development of 
software; and (iv) in 1995, repay debt.  

     During the first nine months of 1995, the Company's cash and cash 
equivalents decreased from $8.9 million at December 31, 1994 to $7.3 million 
at September 30, 1995.  Net cash used in operating activities of $323,300 
consisted primarily of a net loss of $982,000 and an increase in deferred 
income taxes of $106,000 and decreases in accounts payable and accrued 
liabilities of 

                                     8

<PAGE>

$222,000, offset by decreases in accounts receivable, inventory and prepaid 
expense of $655,000.  Net cash used in investing activities of $1,211,000 
consisted primarily of $609,000 of construction-in-progress associated with 
the Company's new facility, $410,000 of capital expenditures and $174,000 of 
software development costs.  Net cash used in financing activities of $70,000 
consisted primarily of a final payment for land purchased in June 1992.
               
     During the first nine months of 1996, the Company's cash and cash 
equivalents decreased from $6.2 million at December 31, 1995 to $5.8 at 
September 30, 1996.  Net cash provided by operating activities of $655,000 
consisted primarily of net income of $859,000 and decreases in accounts 
receivable, inventory, prepaid expenses and other assets and deferred income 
taxes of $820,000, and an increase in accrued liabilities of $234,000, offset 
by an increase in contracts in progress billings of $1.5 million and a 
decrease in accounts payable of $287,000.  Net cash used in investing 
activities of $1.1 million consisted primarily of $209,000 of construction in 
progress associated with the Company's new CCTVware-TM- products, $649,000 of 
capital expenditures and $245,000 of software development costs.

     The Company  anticipates capital expenditures for the remainder of 1996 
of approximately $250,000.  The Company believes it has sufficient cash to 
meet its capital requirements and fund operations for at least the next 
twelve months.

CERTAIN FACTORS BEARING ON FUTURE RESULTS

     The statements in the third sentence and the second to last sentence 
under the caption "Revenue" on page 6 and the fifth paragraph under the 
caption "Financial Condition, Liquidity and Capital Resources" on page 9 are 
forward-looking statements.  In addition, the Company may from time to time 
make oral forward-looking statements.  The following are certain important 
factors that could cause actual results to differ materially from those 
projected in any such forward-looking statements.

     OEM RELATIONSHIPS.  Sales through OEMs have historically accounted for a 
significant portion of the Company's revenue.  The Company believes its 
success in penetrating markets for its digital identification and video image 
management systems depends in large part on its ability to maintain its OEM 
relationships and to cultivate additional, similar relationships.  There can 
be no assurance that OEMs, most of which have significantly greater financial 
and marketing resources than the Company, will not develop and market 
products in competition with the Company or will not otherwise discontinue 
their relationships with the Company.  One of the Company's OEMs has elected 
to produce its own imaging products and may compete with the Company in the 
future.  The loss of any further OEM relationships could have a negative 
impact on the Company's revenue stream.

     INTERNATIONAL SALES.  The Company is seeking to expand its international 
presence by developing new distribution channels in certain foreign countries 
where it has not previously had a presence.  For instance, the Company has 
established a wholly owned subsidiary in the United Kingdom and entered into 
the Middle East Contract.  International sales are subject to a number of 
risks, including political and economic instability, unexpected changes in 
regulatory requirements, tariffs and other trade barriers, fluctuating 
exchange rates and the possibility of greater difficulty in accounts 
receivable collection.  There can be no assurance that these and

                                     9

<PAGE>

other factors will not have a material adverse effect on the Company's future 
international sales, if any, and, consequently, the Company's business, 
operating results and financial condition.

     DEPENDENCE ON A SINGLE CUSTOMER.  The Middle East Contract accounted for 
57% of the Company's revenue in the first nine months of 1996.  The Company 
currently has no reason to believe that it will not be successful in 
fulfilling all of its obligations due to be performed under the Middle East 
Contract or receiving all the payments to be made thereunder; however, there 
can be no assurance that events or conditions may not occur which could 
threaten the Company's ability to complete the Middle East Contract or 
collect all amounts owed thereunder.  If such events or conditions occur, the 
Company's business, operating results and financial condition would be 
materially adversely affected.  In addition, there can be no assurance that 
any further new business will arise after September 1996 from this customer.

     COMPETITION.  The Company's competitors include a broad range of 
companies that develop and market products for the identification and 
surveillance markets including: (i) in the film-based systems market, 
Polaroid Corporation and Eastman Kodak, Co., and (ii) in the digital 
identification and badge issuance systems market, Polaroid Corporation, 
Eastman Kodak, Co., Data Card Corporation, Dactek International, Inc., Image 
Base, Inc., G&A Imaging, Goddard Technology Corporation and Laminex, Inc., 
and (iii) in the surveillance market, TVX, Inc., Prima Facie, Inc., Silent 
Witness Enterprises, Inc., and Dedicated Micros, Inc. Certain of the 
Company's current and prospective competitors have substantially greater 
technical, financial and marketing resources than the Company.  In addition, 
there can be no assurance that the Company's products will be competitive in 
the face of advances in product technology developed by the Company's current 
or future competitors.  Moreover, while the Company believes that the 
price/performance characteristics of its products are currently competitive, 
increased competition from low-cost, low-functionality identification systems 
have created, and will continue to create, pricing pressures which could 
materially and adversely affect the Company's business, operating results and 
financial condition.

     PROPRIETARY RIGHTS.  The Company is not aware that its products, 
trademarks or other proprietary rights infringe on the proprietary rights of 
any third parties.  However, there can be no assurance that third parties 
will not assert infringement claims against the Company in the future with 
respect to current or future products.  As the number of software products in 
the industry increases and the functionality of these products further 
overlaps, the Company believes that software developers may become 
increasingly subject to infringement claims. Any such claims, with or without 
merit, could result in costly litigation or might require the Company to 
enter into royalty or licensing agreements.  Such royalty and licensing 
agreements, if required, may not be available on terms acceptable to the 
Company.

     PRODUCT OBSOLESCENCE.  The Company's current products and products under 
development are limited in number and concentrated primarily in the markets 
for identification and surveillance products.  The life cycles of the 
Company's products are difficult to estimate due in large measure to changing 
and developing technology as well as the unknown future effect of products 
introduced by the Company's competition.  Price reductions or declines in 
demand for the Company's products, whether as a result of competition, 
technological change or otherwise, would have a materially adverse effect on 
the Company's results of operations or financial position.

                                      10 
<PAGE>

     DEPENDENCE ON NEW PRODUCTS.  The market for the Company's products is 
characterized by ongoing technological development and evolving industry 
standards. The Company's success will depend upon its ability to enhance its 
current products and to introduce new products which address technological 
and market developments and satisfy the increasingly sophisticated needs of 
customers. For instance, the Company expects to release several products in 
the next few months based on its CCTVware-TM- technology. This technology 
provides for digital recording and storage that eliminates the need for video 
tapes and VCRs in surveillance environments and allows for high-speed access 
and retrieval of the stored video. There can be no assurance that the Company 
will be successful in developing and marketing, on a timely basis, its new 
CCTVware products or any other fully functional product enhancements or new 
products that respond to the technological advances by others, or that the 
Company's new products will be accepted by customers.

     VARIABILITY OF OPERATING RESULTS.  The Company's revenue and operating 
results have fluctuated significantly from quarter to quarter, and may 
continue to fluctuate, due to a combination of factors. These factors include 
relatively long sales cycles for certain products, the timing or cancellation 
of orders from major customers, the timing of new product introductions by 
the Company or its competitors, the Company's use of third-party distribution 
channels, the fulfillment of large one-time orders to particular customers 
and general economic conditions and other factors affecting capital spending. 
For example, the Company may not receive any further new business from the 
Middle East contract. Additionally, other than the Middle East contract, the 
Company generally ships orders in the quarter in which such orders are 
received, and accordingly, revenue in any quarter is substantially dependent 
on the orders booked and shipped in that quarter. A small variation in 
revenue can cause significant variations in operating results from quarter to 
quarter and may result in losses.

     LEGAL PROCEEDINGS.  The Company is currently in litigation with the 
Company's former Vice President of Marketing and Sales, who filed a lawsuit 
against the Company alleging breach of contract and fraud. This individual, 
who terminated his employment with the Company in May 1994 alleges that he 
was promised, but never received, options to purchase shares of the Company's 
Common Stock at a significant discount from fair market value and that he was 
deprived of certain sales commissions. A jury trial was scheduled to begin on 
September 30, 1996 but it was postponed and is currently scheduled to begin 
on March 10, 1997. Although the Company believes that this individual's 
claims are without merit and is defending this action vigorously, an adverse 
result in the litigation could have a negative impact on the financial 
position and the results of operations.

     MANAGEMENT AND EMPLOYEES.  The Company's future success depends in 
significant part upon the continued service of its key technical and 
senior management personnel and its continuing ability to attract and retain 
highly qualified technical and managerial personnel in the future. The 
Company has in the past encountered some difficulties in fulfilling its 
hiring needs in the Durango, Colorado employment market, and there can be no 
assurance that the Company will be successful in hiring and retaining 
qualified employees in the future.

     CAPITAL REQUIREMENTS.  The Company believes that it has sufficient cash 
to meet its requirements for at least the next twelve months. While operating 
activities may provide cash in certain periods, to the extent the Company 
experiences growth in the future, it anticipates that it may require 
additional cash in its operating and investing activities, and accordingly, 
the Company 

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<PAGE>


     DEPENDENCE ON NEW PRODUCTS.  The market for the Company's products is 
characterized by ongoing technological development and evolving industry 
standards.  The Company's success will depend upon its ability to enhance its 
current products and to introduce new products which address technological 
and market developments and satisfy the increasingly sophisticated needs of 
customers.  For instance, the Company expects to release several products in 
the next few months based on its CCTVware-TM- technology.  This technology 
provides for digital recording and storage that eliminates the need for video 
tapes and VCRs in surveillance environments and allows for high-speed access 
and retrieval of the stored video.  There can be no assurance that the 
Company will be successful in developing and  marketing, on a timely basis, 
its new CCTVware products or any other fully functional product enhancements 
or new products that respond to the technological advances by others. There 
also can be no assurance that the Company's new CCTVware or other new 
products will be accepted by customers. 

     VARIABILITY OF OPERATING RESULTS.  The Company's revenue and operating 
results have fluctuated significantly from quarter to quarter, and may 
continue to fluctuate, due to a combination of factors.  These factors 
include relatively long sales cycles for certain products, the timing or 
cancellation of orders from major customers, the timing of new product 
introductions by the Company or its competitors, the Company's use of 
third-party distribution channels, the fulfillment of large one-time orders 
to particular customers and general economic conditions and other factors 
affecting capital spending.  For example, the Company may not receive any 
further new business from the Middle East Contract after September 1996.  
Additionally, other than the Middle East Contract, the Company generally 
ships orders in the quarter in which such orders are received, and 
accordingly, revenue in any quarter is substantially dependent on the orders 
booked and shipped in that quarter.  A small variation in revenue can cause 
significant variations in operating results from quarter to quarter and may 
result in losses.

     LEGAL PROCEEDINGS.  The Company is currently involved in litigation with 
the Company's former Vice President of Marketing and Sales, who filed a 
lawsuit against the Company alleging breach of contract and fraud.  This 
individual, who terminated his employment with the Company in May 1994 
alleges that he was promised, but never received, options to purchase shares 
of the Company's Common Stock at a significant discount from fair market 
value and that he was deprived of certain sales commissions.  A jury trial 
was scheduled to begin on September 30, 1996 but it was postponed and is 
currently scheduled to begin on March 10, 1997.  Although the Company 
believes that this individual's claims are without merit and is defending 
this action vigorously, an adverse result in the litigation could have a 
negative impact on the financial position and the results of operations.

     MANAGEMENT AND EMPLOYEES.  The Company's future success depends in 
significant part upon the continued service of its key technical and senior 
management personnel and its continuing ability to attract and retain highly 
qualified technical and managerial personnel in the future.  The Company has 
in the past encountered some difficulties in fulfilling its hiring needs in 
the Durango, Colorado employment market, and there can be no assurance that 
the Company will be successful in hiring and retaining qualified employees in 
the future.

     CAPITAL REQUIREMENTS. The Company believes that it has sufficient cash 
to meet its requirements for at least the next twelve months.  While 
operating activities may provide cash in certain periods, to the extent the 
Company experiences growth in the future, it anticipates that it may require 
additional cash in its operating and investing activities, and accordingly, 
the Company 

                                     11

<PAGE>

may require additional capital resources.  There can be no assurance that 
such capital resources will be available to the Company on favorable terms, 
if at all.

     VOLATILITY OF STOCK PRICE.  In recent months, the stock market in 
general, and the market for shares of technology companies in particular, 
have experienced extreme price fluctuations, which have often been unrelated 
to the operating performance of the affected companies.  In addition, factors 
such as quarterly variations in operating results, announcements of 
technological innovations or new products by the Company or its competitors, 
as well as other events or factors, may have a significant impact on the 
market price of the Company's Common Stock.  There can be no assurance that 
the trading price of the Company's stock will remain at or near its current 
level.

PART II.    OTHER INFORMATION

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

               None

Item 6.     EXHIBITS AND REPORTS ON FORM 8-K

               (a)  There are no exhibits.

               (b)  No reports on Form 8-K were filed by the Company during 
                    the quarter ended September 30, 1996.






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<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.

                                        Loronix Information Systems, Inc.


OCTOBER 28, 1996                        /S/ JONATHAN C. LUPIA
----------------                        ----------------------------------
     Date                               Jonathan C. Lupia
                                        Chief Financial Officer



















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