<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC  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
                                            ----------------------------------

                                       OR

( )         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE
                        SECURITIES EXCHANGE ACT OF 1934
        For the transition period from              to
                                      --------------  -----------------
                      Commission file number     0-11933
                                            -----------------

                              LASERTECHNICS, INC.
       (Exact name of small business issuer as specified in its charter)
                                        
            DELAWARE                                  85-0294536
(State or other jurisdiction of                     (I.R.S Employer
incorporation or organization)                     Identification No.)

         3208 COMMANDER DRIVE
           CARROLLTON, TEXAS                             75006
(Address of principal executive offices)               (Zip Code)

                                (972) 407-6080
               (Issuer's telephone number, including area code)



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

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
   -------        --------           


                      APPLICABLE ONLY TO CORPORATE ISSUERS

Shares of common stock outstanding on November 8, 1996, 35,707,461.  Shares of
nonvoting convertible common stock outstanding on November 8, 1996, 2,249,842.

Transitional Small Business Disclosure Format (Check One);   YES        NO  X
                                                                -----     -----
<PAGE>
 
                              LASERTECHNICS, INC.

                                     INDEX

<TABLE>
<CAPTION>

                                                                                      Page
                                                                                       No.
                                                                                      ----
<S>                                                                                   <C> 
PART I.  FINANCIAL INFORMATION

     Item 1.  Condensed Consolidated Financial Statements
 
              Consolidated Balance Sheets at September 30, 1996 and December 31, 1995....3
              Consolidated Statements of Operations for the nine months ended
                September 30, 1996 and 1995..............................................5
              Consolidated Statements of Operations for the three months ended
                September 30, 1996 and 1995..............................................6
              Consolidated Statements of Cash Flows for the nine months ended
                September 30, 1996 and 1995..............................................7
              Notes to Condensed Consolidated Financial Statements.......................8
 
     Item 2.  Management's Discussion and Analysis of Financial Condition
                and Results of Operations...............................................12
 
PART II. OTHER INFORMATION..............................................................21

       Item 1.        Legal Proceedings

       Item 6.        Exhibits and Reports on Form 8-K

Signatures..............................................................................22
</TABLE>
 

                                       2
<PAGE>
 
                    PART 1. CONDENSED FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                      LASERTECHNICS, INC. & SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30,  DECEMBER 31,
                                                                       1996           1995
                                                                   -----------     ---------
<S>                                                                <C>           <C> 
                               ASSETS
Current assets:
        Cash and cash equivalents                                  $ 4,636,179     1,892,357
        Accounts receivable - trade, less allowance for doubtful
          accounts of $200,279  in 1996 and $278,263 in 1995         5,860,591     4,040,247
        Inventory                                                    5,745,289     4,454,350
        Prepaid expenses and other                                     543,281       384,948
                                                                   -----------   -----------
             Total current assets                                   16,785,340    10,771,902
                                                                   -----------   -----------
        Property, plant  & equipment, net                            3,111,366     3,000,241
        Goodwill                                                       193,019       254,546
        Other assets                                                   442,776       615,913
                                                                   -----------   -----------
             Total assets                                          $20,532,501    14,642,602
                                                                   ===========   ===========


                LIABILITIES AND STOCKHOLDERS' EQUITY
Current  liabilities:
        Convertible notes payable to stockholders                  $      --         200,000
        Notes payable                                                  452,623       402,945
        Accounts payable                                             3,507,674     3,485,328
        Accrued payroll and related expenses                           533,613       697,185
        Customer advances                                              456,919       426,978
        Product warranty reserve                                       312,676       256,003
        Capital lease obligations, current                             225,676     1,142,712
        Contract settlement payable (note 5)                           330,000          --
        Dividends payable                                              252,175          --
        Other accrued liabilities                                      956,157       478,396
                                                                   -----------   -----------
             Total current liabilities                               7,027,513     7,089,547
                                                                   -----------   -----------
Convertible debentures (note 3)                                      2,859,769     4,405,095
Capital lease obligations, noncurrent                                  978,290        35,328
Other                                                                  181,950       183,046
                                                                   -----------   -----------
             Total liabilities                                     $11,047,522    11,713,016
                                                                   -----------   -----------
</TABLE>
                                                                     (Continued)

     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                      LASERTECHNICS, INC. & SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS (CONTINUED)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                      SEPTEMBER 30,    DECEMBER 31,                    
                                                                          1996             1995      
                                                                      -------------     ----------
<S>                                                                   <C>               <C>     
Stockholders' equity (notes 2 and 4):                                                                       
Convertible preferred stock, no par; 
        7,000,000 shares authorized in 1996 and
        10,000,000 in 1995 

        Series A:  $1.30 stated value; 1,153,846
          shares  outstanding in 1996 and 1995                         $  1,500,000       1,473,394

         Series B:  $1.42 stated value; 1,056,338
          shares  outstanding in 1996 and 1995                            1,500,000       1,473,394

         Series C:  $1.51 stated value; 708,530
          shares  outstanding in 1996 and 1995                            1,069,880       1,069,880

         Series D:  $10,000.00 stated value; 835 shares
           outstanding in 1996 and none in 1995                           8,461,638            --

Common stock, $.01 par value.  56,750,000 shares authorized
          in 1996 and 41,500,000 in 1995; 33,607,396 shares
          issued and outstanding in 1996 and 28,280,798 in 1995             336,074         282,808

Nonvoting convertible common stock, $.01 par value.  2,250,000
        shares authorized in 1996 and 8,500,000 in 1995; 2,249,842
        shares issued and outstanding in 1996 and 1995.  Convertible
        into common stock on a one share for one share basis                 22,499          22,499

Paid-in Capital                                                          43,571,577      37,339,799
Accumulated deficit                                                     (46,976,689)    (38,482,188)
                                                                       ------------    ------------
                                                                          9,484,979       3,179,586
Less - treasury stock,  200,000 common shares,
         at cost (Retired on 1/1/96)                                           --          (250,000)

                                                                       ------------    ------------
             Total stockholders' equity                                   9,484,979       2,929,586
                                                                       ------------    ------------

             Total liabilities and stockholders' equity                $ 20,532,501      14,642,602
                                                                       ============    ============

</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                      LASERTECHNICS, INC. & SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                   NINE MONTHS     NINE MONTHS
                                                      ENDED           ENDED
                                                   SEPTEMBER 30,   SEPTEMBER 30,
                                                       1996            1995
                                                   ------------    ------------
<S>                                                <C>             <C> 
Sales                                              $ 14,818,140       9,944,198
Cost of sales                                        10,490,228       6,288,350
                                                   ------------    ------------

        Gross Profit                                  4,327,912       3,655,848

Expenses:
        Research and development                      2,301,910       2,700,164
        General and administrative                    4,032,894       3,151,499
        Selling and marketing                         4,073,993       3,382,442
        Loss on contract settlement (note 5)          1,000,000            --
                                                   ------------    ------------
             Operating expenses                      11,408,797       9,234,105
                                                   ------------    ------------
             Loss from operations                    (7,080,885)     (5,578,257)
                                                   ------------    ------------

Other income (expense):
        Interest income                                  53,249          24,154
        Interest expense                             (1,192,395)       (654,229)
        Other                                           142,555          (8,609)
                                                   ------------    ------------
             Other expense, net                        (996,591)       (638,684)
                                                   ------------    ------------

             Net loss                                (8,077,476)     (6,216,941)
                                                   ------------    ------------

Preferred stock dividend requirements                  (417,025)           --

             Net loss applicable to common stock   $ (8,494,501)     (6,216,941)
                                                   ============    ============


Net loss per share                                 $      (0.26)          (0.23)
                                                   ============    ============

        Shares of common stock used in computing
          net loss per share (note 1)                33,095,445      26,750,293
                                                   ============    ============

</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
                      LASERTECHNICS, INC. & SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                   THREE MONTHS    THREE MONTHS
                                                       ENDED           ENDED
                                                   SEPTEMBER 30,   SEPTEMBER 30,
                                                       1996            1995
                                                   ------------    ------------
<S>                                                <C>             <C>  
Sales                                              $  7,252,217       3,181,409
Cost of sales                                         5,659,352       1,937,677
                                                   ------------    ------------

        Gross Profit                                  1,592,865       1,243,732

Expenses:
        Research and development                        966,455         688,866
        General and administrative                    1,342,933       1,005,553
        Selling and marketing                         1,383,586       1,163,196
        Loss on contract settlement (note 5)               --              --
                                                   ------------    ------------
             Operating expenses                       3,692,974       2,857,615
                                                   ------------    ------------
             Loss from operations                    (2,100,109)     (1,613,883)
                                                   ------------    ------------

Other income (expense):
        Interest income                                  23,839           5,997
        Interest expense                               (223,692)       (236,030)
        Other                                            99,441         (22,258)
                                                   ------------    ------------
             Other expense, net                        (100,412)       (252,291)
                                                   ------------    ------------

             Net loss                                (2,200,521)     (1,866,174)
                                                   ------------    ------------

Preferred stock dividend requirements                  (215,647)           --

             Net loss applicable to common stock   $ (2,416,168)     (1,866,174)
                                                   ============    ============


Net loss per share                                 $      (0.07)          (0.07)
                                                   ============    ============

        Shares of common stock used in computing
         net loss per share (note 1)                 35,010,585      28,528,745
                                                   ============    ============

</TABLE>



     See accompanying notes to condensed consolidated financial statements.

                                       6
<PAGE>
 
                        LASERTECHNICS INC. CONSOLIDATED
                     CONSOLIDATED STATEMENTS OF CASH FLOW
                                  (UNAUDITED)
<TABLE>
<CAPTION>

                                                                        NINE MONTHS    NINE MONTHS
                                                                            ENDED          ENDED
                                                                        SEPTEMBER 30,  SEPTEMBER 30,
                                                                            1996            1995
                                                                       --------------  -------------
<S>                                                                    <C>             <C> 
Cash flows from operating activities:
      Net loss                                                         $ (8,077,476)   $ (6,216,941)
          Adjustments to reconcile net loss to net cash used by
          operating activities:
               Depreciation and amortization                                448,552         334,615
               Provision for losses on accounts receivable                  129,966         181,193
               Provision for product warranty reserve                       317,555         269,637
               Amortization of financing discount and issuance costs        633,519            --
               Accrued interest on convertible debentures                   451,449            --
               (Increase) decrease in:
                   Accounts receivable, net                              (2,082,462)         25,373
                   Inventory                                             (1,328,734)     (1,595,062)
                   Prepaid expenses and other                              (163,796)        (70,476)
                   Other assets                                             (41,083)        (47,857)
               Increase (decrease) in:
                   Accounts payable                                        (110,769)        406,518
                   Customer advances                                         15,661        (132,665)
                   Accrued payroll and related expenses                    (172,084)       (343,231)
                   Product warranty reserve                                (262,900)       (252,014)
                   Contract settlement payable                              330,000            --
                   Other current liabilities                                474,383            --
                   Other liabilities                                         47,790          51,825
                                                                       ------------    ------------
                        Net cash used by operating activities            (9,390,429)     (7,389,085)

Cash flows from investing activities:
      Capital expenditures                                                 (304,086)       (510,143)

Cash flows from financing activities:
      Borrowings under financing agreements                               1,700,000       6,242,082
      Principal payments on financing agreements                         (1,900,000)     (2,504,403)
      Proceeds from issuance of convertible debentures                    5,500,000            --
      Convertible debenture issuance costs                                 (385,000)           --
      Principal payments on capital lease obligations                      (168,138)       (101,643)
      Net proceeds from issuance of preferred and common stock            7,691,475       3,289,615
                                                                       ------------    ------------
                        Net cash provided by financing activities        12,438,337       6,925,651

                        Net increase (decrease) in cash and cash
                            equivalents                                   2,743,822        (973,577)

Cash and cash equivalents, beginning of period                            1,892,357       1,427,058
                                                                       ------------    ------------
Cash and cash equivalents, end of period                               $  4,636,179    $    453,481
                                                                       ============    ============
</TABLE>

                                                                     (Continued)

     See accompanying notes to condensed consolidated financial statements.

                                       7
<PAGE>
 
                        LASERTECHNICS INC. CONSOLIDATED
                     CONSOLIDATED STATEMENTS OF CASH FLOW
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                       NINE MONTHS   NINE MONTHS
                                                                         ENDED         ENDED
                                                                      SEPTEMBER 30,  SEPTEMBER 30,
                                                                          1996          1995
                                                                     -------------   ------------
<S>                                                                  <C>             <C> 
Supplemental information:
Cash paid during the year for interest                               $     112,059     110,518
                                                                         =========   =========

Conversions to stock:
    Debentures, net of unamortized discount and expenses                 5,534,873        --
    Notes payable                                                             --     6,000,000
    Accrued interest                                                       386,201      93,000
    Accretion attributable to Series D convertible preferred stock   $     111,638        --
                                                                         =========   =========

Conversion feature of debentures issued                              $   1,610,000        --
                                                                         =========   =========

Borrowings under capital lease obligations                           $     194,064        --
                                                                         =========   =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       8
<PAGE>
 
                              LASERTECHNICS, INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

       The accompanying condensed consolidated financial statements are
unaudited and include the accounts of Lasertechnics, Inc. ("LASX"), the holding
company, LASX's wholly owned subsidiary Lasertechnics Marking Corporation
("LMC"), LASX's 96 percent owned subsidiary Sandia Imaging Systems Corporation
("Sandia"), Sandia's wholly owned French subsidiary Sandia Imaging Systems
Europe SA ("Sandia EUR"), and LASX's wholly-owned subsidiary Quantrad
Corporation ("Quantrad") collectively, the "Company" or "Lasertechnics".
Quantrad, an inactive company, is in the process of dissolution.  All
significant intercompany accounts and transactions have been eliminated.
Information contained in the Company's condensed consolidated financial
statements and notes thereto, should be read in conjunction with the Company's
consolidated financial statements and notes thereto, contained in Lasertechnics'
Annual Report on Form 10-KSB/A-3 for the year ended December 31, 1995.

       The Consolidated Balance Sheet at September 30, 1996 and December 31,
1995, the Consolidated Statements of Operations for the three and nine month
periods ended September 30, 1996 and 1995, and the Consolidated Statements of
Cash Flows for the nine month periods ended September 30, 1996 and 1995 have
been prepared by the Company and are unaudited.  In the opinion of the Company's
management, all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the financial position at September 30, 1996,
results of operations for the three and nine month periods ended September 30,
1996 and 1995, and changes in cash flow for the nine month periods ended
September 30, 1996 and 1995 have been made.

       Loss per common share is based on weighted average common shares
outstanding and does not give effect to outstanding common stock options,
warrants and convertible debt because their inclusion would be anti-dilutive.

       Certain reclassifications have been made to prior year amounts in order
to present the consolidated financial position and results of operations on a
consistent basis.

2.     ISSUANCE OF COMMON STOCK

       During the quarter ended September 30, 1996, a total of 1,740,023 shares
of Lasertechnics unregistered common stock were issued.  Of this amount,
employees exercised stock options to acquire 7,781 shares, and the remaining
shares were issued pursuant to debenture conversions.

                                       9
<PAGE>
 
3.     DEBT FINANCING

       On March 13, 1996, the Company raised $5.5 million in cash from the sale
of 10% convertible debentures.  These debentures are convertible into common
stock at $2.00 per share, or at 85% of the average 5 day closing bid price for
the five trading days immediately prior to the conversion date at the option of
the debenture holder. Debentures are placed in denominations of at least $50,000
and multiples of at least $50,000 in excess thereof.  Debenture interest accrues
at a rate of 10% per annum and is payable in stock upon conversion. Debentures
can be converted into common stock in increments of up to 1/4 beginning the
60th, 90th, 120th and 150th days after the final closing.  At the end of 3 years
from the closing date, all debentures will automatically be converted into
common stock.  As of September 30, 1996, $2,600,000 of these debentures plus
$88,000 of accrued interest were converted into 1,735,757 shares of the
Company's common stock.  In connection with this financing, debenture holders
received warrants to purchase an aggregate of 550,000 shares of common stock at
an exercise price of $2.00 per share, with a 5 year term.

4.     ISSUANCE OF CONVERTIBLE PREFERRED STOCK

       In July 1996, the Company raised $8.35 million from the sale of Series D
Convertible Preferred Stock (par value $.01 per share) at a price of $10,000 per
share.  These shares are convertible into common stock in increments of up to
1/3 at the lower of $2.1406 per share, or at a variable percent of the average
closing bid price for the ten trading days immediately prior to the conversion
date at the option of the stockholder as follows:  90%, 87.5%, and 85% beginning
the 60th, 120th, and 180th days after the final closing.  Series D Preferred
stockholders do not receive dividends; however, each share of preferred stock
possesses an 8% per annum accretion rate prior to conversion which is payable in
common stock upon conversion or redemption at the conversion price then in
effect.  At the end of 3 years from the closing date, all Series D Convertible
Preferred Stock will automatically be converted into common stock.

5.     LOSS ON CONTRACT SETTLEMENT

       The Company had been party to an agreement with Singapore Precision
Industries (SPI), a unit of Singapore Technology Industrial Corporation, the
technology manufacturing arm of the Singapore government, for the manufacturing
of plastic card printers for the imaging business.  Various matters under the
agreement were in dispute for approximately one year.  In settlement of all
outstanding claims under this agreement, the Company agreed to pay $1.525
million to SPI.  As part of the settlement, the Company received plastic card
printers and parts having an  estimated  net realizable  value  of  $525,000.
As a result,  the  Company  recorded  an  expense  of  $1 million in the second
quarter as a cost of settling the dispute.  In addition, the Company was granted
the option to distribute two new plastic card printer lines in North and South
America and Western Europe.

                                       10
<PAGE>
 
6.     CONTINGENCIES

       The Company is involved in various other claims and legal actions arising
in the ordinary course of business.  In the opinion of management of the
Company, after consultation with outside legal counsel, the ultimate disposition
of these matters will not have a material effect on the accompanying condensed
consolidated financial statements.  See also Legal Proceedings, Part II, Item I.

                                       11
<PAGE>
 
ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 1996 Compared to Nine Months Ended  September
30, 1995

       Separate Business Units.  In anticipation of a possible initial public
offering or spin-off of Sandia, the following summarized financial data for the
two businesses has been prepared.  The summarized financial data of LMC and
Sandia at and for the nine month period ended September 30, 1996, as presented
herein, do not necessarily reflect the financial position or results of
operations of the separate businesses that might occur if the two entities had
no ownership or management relationships.

<TABLE>
<CAPTION>
                                                                   CONSOLIDATED
                                   MARKING (LMC)  IMAGING (SANDIA)    (LASX)
                                   -------------  ---------------- ------------
                                    (UNAUDITED)     (UNAUDITED)     (UNAUDITED)
<S>                                <C>            <C>              <C>
Current assets                     $  5,650,467     11,134,873      16,785,340
Non-current assets                    2,524,537      1,222,624       3,747,161
                                   ------------     ----------      ----------
                                   $  8,175,004     12,357,497      20,532,501
                                   ============     ==========      ==========
                                                                 
Current liabilities                $  1,856,135      5,171,378       7,027,513
Inter-co.(receivable) payable       (11,917,462)    11,917,462               -
Long-term liabilities                 3,838,059        181,950       4,020,009
Stockholders' equity                 14,398,272     (4,913,293)      9,484,979
                                   ------------     ----------      ----------
                                   $  8,175,004     12,357,497      20,532,501
                                   ============     ==========      ==========
                                                                 
Sales                              $  7,830,361      6,987,779      14,818,140
Cost of sales                         4,726,104      5,764,124      10,490,228
                                   ------------     ----------      ----------
Gross profit                          3,104,257      1,223,655       4,327,912
                                                                 
Gross margin %                               40%            18%             29%
                                   ------------     ----------      ----------
                                                                 
Expenses:                                                        
Research and development           $    632,693      1,669,217       2,301,910
General and administrative            1,379,729      2,653,165       4,032,894
Selling and marketing                 1,360,259      2,713,734       4,073,993
Loss on contract settlement                   -      1,000,000       1,000,000
                                   ------------     ----------      ----------
            Operating expenses        3,372,681      8,036,116      11,408,797
                                                                 
Loss from operations                   (268,424)    (6,812,461)     (7,080,885)
Other expense, net                     (184,487)      (812,104)       (996,591)
                                   ------------     ----------      ----------
Net loss                           $   (452,911)    (7,624,565)     (8,077,476)
                                   ============     ==========      ==========
</TABLE>

                                       12
<PAGE>
 
       Sales.  Consolidated sales for the first nine months of 1996 were
$14,818,000 compared to $9,944,000 for the same period in 1995, an increase of
$4,874,000, or 49%.  Imaging segment sales increased $4,492,000, or 180%, over
the same period last year primarily due to increased sales of plastic card
printers and related consumables and parts on two large contracts.  Included in
this change is a reduction for the discontinuation of a product line in December
1995 which provided approximately $600,000 of sales in the first nine months of
1995.  Marking segment sales increased $382,000, or 5%.  This was primarily
attributable to an increase in domestic after-market sales. The Company's net
accounts receivable increased $1,820,000, or 45%, at September 30, 1996 compared
to December 31, 1995  as a result of the increased sales.

       Cost of Sales.  Consolidated cost of sales for the first nine months of
1996 was $10,490,000 compared to $6,288,000 for the same period in 1995, an
increase of $4,202,000, or 67%.  This increase is mainly due to the increased
sales.  Gross margin was approximately 29% for the first nine months of 1996 and
37% for the same period in 1995.  The decrease in margin is primarily
attributable to low margin sales under Sandia's first major driver's license
contract which was initiated in early 1995.

       Inventory.  The Company's inventory increased $1,291,000, or 29%, from
$4,454,000 at December 31, 1995 to $5,745,000 at September 30, 1996.  Marking
segment inventory increased approximately $532,000 as a result of building
marking systems for stock, primarily in the second quarter.  Imaging segment
inventory increased $759,000, or 31%, since December 31, 1995, primarily due to
recording $525,000 of inventory acquired from SPI and $234,000 related to the
imaging contracts.  See Loss on Contract Settlement below.

       Research and Development.  Consolidated research and development expenses
decreased $398,000 to $2,302,000 for the first nine months of 1996 when compared
to $2,700,000 during the same period in 1995, a decrease of 15%.  This decrease
was primarily due to the completion of development work on the BlazerJet(TM)
laser marker.

       General and Administrative.  Consolidated general and administrative
expenses increased $882,000, or 28%, to $4,033,000 in the first nine months of
1996 from $3,151,000 for the same period in 1995. The increase was due to the
expanded worldwide operations in both the imaging and marking businesses of
$369,000 and $226,000, respectively. In addition, the imaging business recorded
a $287,000 one-time charge in the third quarter to reduce expenses in its
international operations.

       Selling and Marketing.  Consolidated selling and marketing expenses of
$4,074,000 for the first nine months of 1996 were $692,000, or 20%, higher than
the expenses of $3,382,000 for the first nine months of 1995.  The increase was
due to a $277,000, or 26%, increase in marketing efforts in the marking business
and a $415,000, or 18%, increase in marketing and customer service efforts in
the imaging business.  Imaging segment expenses related to its DataGlyph(TM)
product increased approximately $433,000, and expenses for continuing
locations increased $154,000 offset by the closure of sales offices in Oxford,
England and Keene, New Hampshire which had approximately $172,000 of expenses in
the first nine months of 1995.

                                       13
<PAGE>
 
       Loss on Contract Settlement.    The Company had been party to an
agreement with Singapore Precision Industries (SPI), a unit of Singapore
Technology Industrial Corporation, the technology manufacturing arm of the
Singapore government, for the manufacturing of plastic card printers for the
imaging business.  Various matters under the agreement were in dispute for
approximately one year.  In settlement of all outstanding claims under this
agreement, the Company agreed to pay $1.525 million to SPI.  As part of the
settlement, the Company received plastic card printers and parts having an
estimated  net realizable  value  of  $525,000.   As a result,  the  Company
recorded  an  expense  of  $1 million as a cost of settling the dispute.  In
addition, the Company was granted the option to distribute two new plastic card
printer lines in North and South America and Western Europe.

       Other Income (Expense).  Other expenses for the first nine months of 1996
of $997,000 increased $358,000, or 56%, compared to expense of $639,000 for the
first nine months of 1995.  The change was primarily due to interest and
placement fee expenses incurred by the Company on the debentures sold in October
1995 and March 1996.

       Net Results.  The consolidated net loss of $8,077,000 increased
$1,860,000, or 30%, from the $6,217,000 loss incurred in the first nine months
of 1995.  The increased loss was due primarily to the $1,000,000 loss on
contract settlement and $287,000 one-time charge in the imaging segment
discussed above, the $358,000 increase in other expenses, and lower margins on a
large imaging contract.

Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995

       Sales.  Consolidated sales for the third quarter of 1996 totaling
$7,252,000 were more than double the sales for the third quarter of 1995 of
$3,181,000.  Imaging segment sales increased $3,082,000, or 373% as a result of
increased sales of plastic card printers and related consumables and parts on a
large contract during the quarter.  Marking segment sales increased $989,000, or
42%, primarily as a result of after-market sales performed by the Company.

       Cost of Sales.  Consolidated cost of sales for the third quarter of 1996
was $5,659,000 a $3,721,000 increase over the $1,938,000 cost of sales for the
third quarter of 1995.  Gross margin for the third quarter of 1996 and 1995 was
approximately 22% and 39%, respectively.  The decrease in margin was primarily
due to the lower than standard margin sales under Sandia's first major driver's
license contract which was initiated in early 1995.

       Research and Development.  Consolidated  research and development
expenses were $966,000 for the third quarter of 1996 compared to $689,000 for
the third quarter of 1995, an increase of $277,000, or 40%. Imaging segment
expenses were $365,000 higher in the third quarter of 1996  compared to the
third quarter of 1995 due to development costs related to a major contract
delivered primarily in the third quarter.

       General and Administrative.  The third quarter of 1996 consolidated
general and administrative expenses of $1,343,000 were  $337,000 higher than
$1,006,000 in the third quarter of 1995.  The increase was the result of the
Company recording a $287,000 one-time

                                       14
<PAGE>
 
charge to reduce expenses in its international operations. Except for this
charge, the general and administrative expenses were consistent with the same
period of the prior year.

       Selling and Marketing.  Consolidated selling and marketing expenses of
$1,384,000 for the third quarter of 1996 were $220,000, or 19%, higher than the
third quarter of 1995.  Approximately $52,000 of the increase was attributable
to the foreign marketing efforts by the marking segment.  The remaining increase
of $168,000 was attributable to the imaging business, including $228,000 in
marketing costs related to the Company's new DataGlyph(TM) product and the
closure of sales offices in Oxford, England and Keene, New Hampshire, which had
approximately $60,000 of expenses in the third quarter of 1995.

       Other Income (Expense).  The decrease in other expense from $252,000 for
the third quarter of 1995 to $100,000 in the third quarter of 1996 was primarily
due to $81,000 of other income at the Company's French subsidiary and the sale
of $24,000 of discontinued inventory by the marking segment .

       Net Results.  The consolidated net loss for the third quarter of 1996 was
$2,201,000, an increase of $335,000 from the $1,866,000 loss incurred in the
third quarter of 1995.  The increased loss was due primarily to the $287,000
one-time charge in the imaging segment and lower than standard margins as
described above.

       LIQUIDITY AND CAPITAL RESOURCES

       Since inception the Company has utilized the proceeds from a number of
public and private sales of its equity and debt securities and the exercise of
options and warrants to meet its working capital requirements.

       Cash and cash equivalents increased $2,744,000 at September 30, 1996
compared to December 31, 1995. Financing activities generated net cash of
$12,438,000 principally from the issuance of convertible debentures and
convertible preferred stock. Operating activities used net cash of $9,390,000
principally to support the loss of $8,077,000, the increase of $2,082,000 in
accounts receivable, the increase in inventory of $1,329,000 as discussed above,
and the $111,000 decrease in accounts payable. These changes were offset by a
$330,000 increase in current liabilities for the contract settlement payable to
SPI and a $474,000 increase in other current liabilities. The increase in other
current liabilities is primarily due to the $287,000 reserve related to the one-
time charge by the imaging segment as discussed above and $167,000 deferred
revenue recorded by the marking segment. The accounts receivable increase was
due to increased sales in both the imaging and marking segments, including
several large plastic card printer sales in the last two weeks of September.
Capital expenditures amounted to $304,000.

       The Company's operations in the third quarter of 1996 continued to
generate losses primarily as a result of increases in operating expenses, lower
margins on a large imaging contract,  and lower than expected sales in both the
imaging and marking businesses.

                                       15
<PAGE>
 
       Between December 1995 and the end of September 1996, the Company raised
$5.5 million from the sale of debentures and $8.35 million through the placement
of convertible preferred stock to provide capital for further expansion and to
fund continuing losses.

       The Company's business plan for 1996 and 1997 is based principally upon
significant increases in the sale of existing imaging products and the
successful introduction of new product sales in both of its business segments,
significant manufacturing cost reductions and reductions in research and
development expenditures, an improvement in gross margin, and external
financing.  The Company has raised $5.5 million and $8.35 million in March and
July of this year and believes that this will be adequate funding to complete
the 1996 business plan and fund operations into 1997.  Because of the
anticipated timing of new product introductions and manufacturing cost
reductions, together with the necessity to prepay all or a portion of the
balance of, and achieve compliance with, the covenants included in its lease
obligation financing, the Company may require additional external financing in
1997.
 
       In 1983, the City of Albuquerque issued 8% tax-exempt industrial
development revenue bonds in connection with a long-term 25-year capital lease
of the marking segment's facility.  The principal amount outstanding as of
September 30, 1996 was $992,122.  Pursuant to its agreement with the City of
Albuquerque, Lasertechnics has been required to maintain a current ratio of at
least 1 to 1 and a debt to equity ratio of not more than 3 to 1.  At September
30, 1996, Lasertechnics' current ratio was 2.39 to 1 and its debt to equity
ratio was 1.16 to 1, which is in compliance with the lease terms.  The Company
had previously not been in compliance with the  lease terms causing the full
amount of the loan principal to be listed as current.   The Company has
negotiated a non-call agreement with the bondholder whereby the bondholder
agreed to waive its right to call the bond for redemption through April 8, 1998,
provided the lessee pays the base prepayment and an additional prepayment amount
of $8,000 per month on a timely basis.  All such payments have been made on a
timely basis.

CAUTIONARY STATEMENTS

       Except for the historical information contained herein, this Report
includes "forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange
Act of 1934, as amended.  Although the Company believes that the expectations
reflected in such forward looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct.  Certain important
factors that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed below and qualify the
forward looking statements included in this Report.  All subsequent written and
oral forward looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the Cautionary
Statements.

ACCUMULATED LOSSES

       From its incorporation in 1981 through September 30, 1996, Lasertechnics
has an accumulated loss of approximately $47 million and has been profitable in
only one fiscal year

                                       16
<PAGE>
 
during that time. There can be no assurance that the Company will generate
sufficient revenues to achieve profitability in the future.

AUDITORS' REPORT

       The Company's auditors have included an explanatory paragraph in their
audit opinion with respect to the Company's 1995 financial statements related to
a significant uncertainty with respect to the Company's financial position at
December 31, 1995, which states that the Company's recurring losses from
operations and resulting continued dependence on access to external financing
together with its default on its capital lease obligation raise substantial
doubts about its ability to continue as a going concern.  In October 1995 and
March 1996, the Company arranged an aggregate of $12.5 million in additional
financing.  In addition, in July 1996 the Company completed a private placement
of convertible preferred stock for $8.35 million.  Although there can be no
assurance that the Company will achieve profitability in the future and losses
are expected to continue, the Company believes that such financing will be
sufficient to satisfy its capital requirements for the remainder of 1996 and
into 1997.  The Company may require substantial additional funds in the future,
and there can be no assurance that the Company's future financial statements
will not include a similar explanatory paragraph if the Company is unable to
raise sufficient funds either through financing or from operations to cover the
cost of its operations.  The factors leading to and the existence of the
explanatory paragraph may adversely affect the Company's relationship with
customers and suppliers and have an adverse effect on its ability to obtain
financing.

LIQUIDITY AND CAPITAL REQUIREMENTS

       The Company's future capital requirements will depend upon many factors,
including the extent and timing of the Company's products in the market, the
Company's operating results and the status of competitive products.  The Company
anticipates that its existing capital resources and revenues from operations,
together with additional financing in the aggregate amount of $13.85 million
arranged in March and July 1996, will be adequate to satisfy its capital
requirements for the remainder of 1996 and into 1997.  The Company's actual
working capital needs will depend upon numerous factors, however, including the
cost of increasing the Company's sales and marketing activities and the amount
of revenues generated from its operations, none of which can be predicted with
certainty, and there can be no assurance that the Company will not require
additional funding prior to such date.  If the Company's losses continue, the
Company may have to obtain sufficient funds to meet its cash requirements
through alliances or partnerships with compatible entities with resources to
support its programs, the sale of assets or securities or other financing
arrangements, or it will be required to curtail its programs or seek a merger
partner.  Any additional funding may be on terms which are unfavorable to the
Company or disadvantageous to existing security holders.  In addition, no
assurance may be given that the Company will be successful in raising additional
funds or entering into business alliances.

                                       17
<PAGE>
 
SMALL TRADING VOLUME AND VOLATILITY OF STOCK PRICE

       The weekly trading volume of the Company's Common Stock in the over-the-
counter market has varied from several thousand shares to 3 to 4 million shares,
which may tend to increase the volatility of the price.  Since January 1993, the
bid price of Common Stock in the over-the-counter market has varied from a low
of $.91 to a high of $4.06 per share.  There can be no assurance that the price
volatility will not continue in the future.

PROPRIETARY TECHNOLOGY

       Lasertechnics relies on a combination of patents, trade secrets and other
intellectual property law rights, nondisclosure agreements and other protective
measures to preserve its rights pertaining to its products.  Much of
Lasertechnics' ability to compete in the laser marking and imaging industries
depends on trade secrets, know-how and proprietary technical knowledge that is
unprotected by patents.  Although the company continues to implement protective
measures and intends to defend its proprietary rights vigorously, there can be
no assurance that these efforts will be successful.  Such protections may not
preclude competitors from developing products similar to the Company's.  In
addition, the laws of certain foreign countries do not protect intellectual
property rights to the same extent as do the laws of the United States.

       There can also be no assurance that third parties will not assert
intellectual property infringement claims against the Company.  Any such
infringement claim could result in protracted and costly litigation and could
have a material adverse effect on the Company's results of operations regardless
of its outcome.

TECHNOLOGICAL OBSOLESCENCE

       The laser and imaging industries are undergoing, and are expected to
continue to undergo, rapid and significant technological change.  There can be
no assurance that Lasertechnics' research and development programs will enable
it to compete effectively in the future.  The development by others of new or
improved processes or products may make Lasertechnics' research and its products
obsolete.

COMPETITION

       The imaging and laser marking industries are highly competitive in all
aspects, including research and development and marketing.  Many of
Lasertechnics' competitors have considerably greater financial, technical and
marketing resources than Lasertechnics.  The Company's laser marking business
faces competition not only from other laser marking companies, but from several
other marking technologies in widespread use such as ink jet (currently the
dominant technology in the packaging industry), embossing and hot stamping.

                                       18
<PAGE>
 
DEPENDENCE ON KEY EMPLOYEES AND CONSULTANTS

       Because of the specialized nature of its businesses, Lasertechnics is
dependent upon the efforts of its current officers, consultants and scientists
and upon its ability to attract and retain technologically qualified personnel,
particularly scientists and software designers highly qualified in the areas of
laser and imaging technology.  There is intense competition for qualified
personnel in the marking and imaging industries, including competition from
companies with substantially greater resources than Lasertechnics.  Although the
Company has been successful to date in recruiting adequate numbers of qualified
personnel, there is no assurance that Lasertechnics will be successful in the
future in recruiting or retaining personnel of the requisite scientific caliber
or in the requisite numbers to enable Lasertechnics to compete effectively.

DEPENDENCE ON SUPPLIERS

       The Company acquires all of its plastic card printers from a single
source.  Although to date the Company has generally been able to obtain adequate
supplies of these products, the inability of the Company in the future to obtain
sufficient sole or limited source products, or to develop alternative sources,
could result in delays in product introductions or shipments and could have a
material adverse effect on the Company's results of operations.

DEPENDENCE ON CUSTOMERS

       A substantial portion of the revenues in 1996 for the Company's Sandia
Imaging unit will be derived from two contracts awarded during the first quarter
of 1996.  The loss of either of these two contracts could have a material
adverse effect on the Company's results of operations.

NASDAQ LISTING

       Lasertechnics' Common Stock is listed on the NASDAQ Small Capitalization
Market which requires a minimum stockholders' equity of $1 million and tangible
assets of $2 million for continued listing.  Because Lasertechnics'
stockholders' equity fell below this limit at September 30, 1995 NASDAQ
temporarily put the Company's stock on a conditional listing until a new minimum
of $2,450,000 in equity was met on December 30, 1995.  This was accomplished
through the conversion of an aggregate of $1,045,342 of convertible subordinated
debentures of the Company and the issuance of Series C Convertible Preferred
Stock.  On January 2, 1996, NASDAQ removed the conditional listing and lowered
the stockholders' equity requirement to $1 million.  While management believes
that in the event of future losses the Company will be able to obtain additional
equity financing to preserve such listing, there can be no assurance that the
Company will be able to do so.

       In the event the Common Stock were delisted from NASDAQ, trading, if any,
would be conducted in the over-the-counter market on the NASD's electronic
bulletin board, in what are commonly referred to as the pink sheets.  As a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities.  In addition,
the Common Stock would be subject to rules promulgated under the Securities

                                       19
<PAGE>
 
Exchange Act of 1934 (the "Exchange Act") applicable to penny stocks.  The
Securities and Exchange Commission (the "Commission") has adopted regulations
that generally define a "penny stock" to be an equity security that has a market
price (as defined) or exercise price of less than $5.00 per share, subject to
certain exceptions.  By virtue of being listed on NASDAQ, the Company's Common
Stock will be exempt from the definition of "penny stock."  If, however, the
Common Stock is removed from NASDAQ, the Company's securities may become subject
to the penny stock rules that impose additional sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors.  Consequently, the penny stock rules may affect the
ability of broker-dealers to sell the Company's securities and may affect the
ability of purchasers in the offering to sell their securities in the secondary
market.

SHARES ELIGIBLE FOR FUTURE SALE; CONVERTIBLE SECURITIES AND WARRANTS

        Future sales of Common Stock in the public market by existing
stockholders, warrantholders and holders of convertible securities after this
offering could adversely affect the market price of Lasertechnics' Common Stock.
At September 30, 1996, an aggregate of 25,119,694 shares of Common Stock were
freely tradable without restriction under the Securities Act of 1933 (the
"Securities Act").  In addition, up to 8,487,702 shares were eligible for resale
in accordance with the manner of sale and volume limitations of Rule 144
promulgated under the Securities Act.

       Lasertechnics has reserved approximately 10.2 million shares of Common
Stock for issuance upon the exercise of outstanding convertible securities and
warrants.  Lasertechnics has also reserved 1,150,000 shares of Common Stock for
issuance to key employees, officers, directors and consultants pursuant to the
Company's benefit plans.  The Company's 10% Subordinated Convertible Debentures
due October 2, 1998 (the "1995 Debentures"), the Company's 10% Subordinated
Convertible Debentures due March 1, 1999 (the "1996 Debentures" and, with the
1995 Debentures, the "Debentures"), in the aggregate principal amount of $12.5
million, and the Company's Series D Preferred Stock (the "Series D Preferred"),
in the amount of $8.35 million, became or will become convertible into Common
Stock at various times during 1995 and 1996.  Subject to certain exceptions, the
conversion price for the 1995 Debentures is equal to the lesser of (i) $2.34 or
(ii) a variable conversion rate equal to the average closing bid price for the
Common Stock for the five trading days prior to conversion (the "Variable
Conversion Rate").  The conversion price for the 1996 Debentures is equal to the
lesser of (i) $2.00 or (ii) the Variable Conversion Rate.  The conversion price
for the Series D Preferred is equal to the lesser of (i) $2.1406 or (ii) as
little as 85% of the average closing bid price for the Common Stock for the ten
trading days prior to the conversion date.  These variable conversion rates for
the Debentures and the Series D Preferred could result in substantial dilution
to the existing stockholders of the Company if the trading price of the
Company's Common Stock declines.  This potential dilution may also adversely
affect the Company's ability to raise additional financing on favorable terms in
the future.  In addition, because the conversion prices are variable,
Lasertechnics is unable to determine whether the number of shares it has
reserved or its remaining authorized shares of Common Stock will be sufficient
to satisfy all future requirements for the issuance of Common Shares upon
conversion

                                       20
<PAGE>
 
of the Debentures and Series D Preferred. The governing instruments for both the
Series D Preferred and the Debentures include substantial penalties in the event
that the Company has insufficient authorized or reserved shares to satisfy the
conversion requirements of the Series D Preferred and the Debentures.

OTHER

       Inflation has not had nor is expected to have a material impact on the
operations and financial condition of the Company.

                          PART II.  OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

       On February 28, 1996, an investor group filed suit against the Company in
the United States District Court for the Southern District of New York.  This
lawsuit arises out of the Company's refusal to recognize the investor group's
attempt to exercise an option to purchase 1,400,000 shares of the Company's
common stock at $.495 per share.  The option had been granted to the Company's
former President and CEO who attempted to transfer his option to the investor
group on the last day of the option term in September of 1995.  On that same
day, the investor group attempted to exercise the option.  The Company refused
to recognize the attempted transfer of the option to the investor group on the
primary grounds that the option was granted personally to the Company's former
President and CEO and was not transferable to third-parties.  The lawsuit seeks
issuance and registration of the 1,400,000 shares upon payment of the exercise
price, or in the alternative, monetary damages which the investor group alleges
to be not less than $2,800,000.  On May 1, 1996, the Company moved to dismiss
the complaint on the grounds that the court in New York lacks personal
jurisdiction over the Company.  A decision on that motion is still pending.  The
Company believes the claim is without merit and will vigorously oppose it.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            (a)  11.0  Statement regarding computation of per share earnings.
                 27.0  Financial Data Schedule.
 
            (b)  No reports on Form 8-K were filed by the Company during the
                 three months ended September 30, 1996.

                                       21
<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.

Date_____________________             LASERTECHNICS, INC.


                                      By:    /s/  RICHARD C.E. MORGAN
                                         -------------------------------------
                                                  Richard C. E. Morgan
                                                 Chairman of the Board &
                                                  Chief Executive Officer


                                      By:    /s/  E.A. MILO MATTORANO
                                         -------------------------------------
                                                  E.A. Milo Mattorano
                                                 Vice President and
                                                  Chief Financial Officer

                                       22