SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                  FORM 10-QSBA

(Mark One) 
[X]  Quarterly  Report Under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934
                  For the Quarterly Period Ended June 30, 1996
                                       OR        -------------
[  ]  Transition report Under Section 13 or 15(d) of the Exchange Act

For the transition period from                  to
                                ---------------    ----------------
                         Commission file number: 0-28254

                         -------------------------------

                                LASER STORM, INC.
        (Exact name of small business issuer as specified in its charter)

         Colorado                                     84-1139159
(State or other jurisdiction of                (IRS Employer
 incorporation or organization)                 Identification Number)

                    7808 Cherry Creek South Drive, Unit # 301
                             Denver, Colorado 80231
                    (Address of principal executive offices)

                            Telephone: (303) 751-8545
                           (Issuer's telephone number)

                                       NA
               ---------------------------------------------------
              (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 ninety (90) days.
                                            Yes [X]                  No  [  ]

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

     Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court.

                                            Yes   [  ]               No  [  ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:
        
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
                                                          Outstanding at
        Class                                             November 12, 1996
        -----                                             -----------------
        Common Stock, $.001 par value                         3,821,211

Transitional Small Business Disclosure Format (check one):  Yes [  ]  No [X]


<PAGE>

                                LASER STORM, INC.

                                    FORM 10-Q

                                  JUNE 30, 1996



                                      INDEX
                                      -----

                                                                        Page No.
                                                                        -------
PART I.    Financial Information


           Item 1. Condensed Balance Sheets -
                   June 30, 1996 and December 31, 1995                      3

                   Condensed Statements of Operations -
                   Three and six months ended June 30, 1996 and 1995        4

                   Condensed Statements of Cash Flows -
                   Six months ended June 30, 1996 and 1995                  5

                   Condensed Statement of Changes in Stockholders Equity
                   Six months ended June 30, 1996                           6

                   Notes to Condensed Financial Statements                  7-8


          Item 2.  Management's Discussion and Analysis
                   or Plan of Operation                                     9-11

PART II.          Other Information                                         NA

SIGNATURES                                                                  12








                                        2


<PAGE>

<TABLE>
<CAPTION>

                                                          LASER STORM, INC.

                                                       CONDENSED BALANCE SHEET

                                                               ASSETS
                                                                                                      Unaudited         Audited
                                                                                                  June 30, 1996    December 31, 1995
                                                                                                  --------------   -----------------

<S>                                                                                                  <C>                <C>        

CURRENT ASSETS:
   Cash and equivalents ......................................................................       $ 3,803,878        $    10,473
   Accounts receivable-trade, net ............................................................           824,029            613,949
   Notes receivable, current .................................................................           271,589               --
   Inventories ...............................................................................           456,487            442,545
   Deferred income taxes .....................................................................           145,000            111,000
   Prepaid expenses and other ................................................................           248,096             57,524
                                                                                                     -----------        -----------
             Total current assets ............................................................         5,749,079          1,235,491
                                                                                                     -----------        -----------
PROPERTY AND EQUIPMENT, net ..................................................................           540,033            337,602

OTHER ASSETS:
   Deferred offering costs ...................................................................              --              277,929
   Software development, net .................................................................            72,527             88,536
   License fees, net .........................................................................            50,066             53,667
   Notes receivable, non-current .............................................................           348,684               --
   Deposits and other ........................................................................            43,128             29,473
                                                                                                     -----------        -----------
             Total other assets ..............................................................           514,405            449,605
                                                                                                     -----------        -----------
TOTAL ASSETS .................................................................................       $ 6,803,517        $ 2,022,698
                                                                                                     ===========        ===========

                   LIABILITIES AND STOCKHOLDERS EQUITY

CURRENT LIABILITIES:
   Accounts payable ..........................................................................       $   251,957        $   722,755
   Accrued expenses ..........................................................................           171,597            104,019
   Accrued compensation ......................................................................           172,606            127,238
   Income taxes payable ......................................................................            10,000             60,000
   Current maturities of long-term debt ......................................................             7,940             20,294
   Customer deposits and deferred revenue ....................................................           150,507            214,805
   Contingent settlements ....................................................................              --              270,000
                                                                                                     -----------        -----------
             Total current liabilities .......................................................           764,607          1,519,111
                                                                                                     -----------        -----------
LONG TERM DEBT, less current maturities
DEFERRED INCOME TAXES ........................................................................            33,942             30,884
COMMITMENTS AND CONTINGENCIES ................................................................            51,000             60,000


STOCKHOLDERS EQUITY:
   Preferred stock, $.001 par value; 2,000,000 shares authorized:
      Series A 12% Convertible Cumulative Preferred Stock, 140,000 shares issued
          and outstanding at December 31, 1995, liquidation preference of $718,000
      Series B 12% Convertible Cumulative Preferred Stock
   Common Stock, $.001 par value; 20,000,000 shares authorized; 1,601,250 and
          3,726,211 shares issued and outstanding at December 31, 1995 and
          June 30, 1996, respectively ........................................................             3,726              1,601
   Additional paid in capital ................................................................         6,186,662            575,136
   Accumulated deficit .......................................................................          (236,420)          (164,174)
                                                                                                     -----------        -----------
              Total stockholders equity ......................................................         5,953,968            412,703
                                                                                                     -----------        -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................................       $ 6,803,517        $ 2,022,698
</TABLE>









See accompanying notes to condensed financial statements



                                 3


<PAGE>

<TABLE>
<CAPTION>

                                                         LASER STORM, INC.

                                                 CONDENSED STATEMENT OF OPERATIONS
                                                                                                                         
                                                                     Quarter Ended June 30             Six Months Ended June 30
                                                                ------------------------------       ------------------------------
                                                                    1996              1995                1996              1995
                                                                    ----              ----                ----              ----

<S>                                                             <C>                <C>               <C>                <C>        
NET REVENUES ............................................       $ 1,880,304        $ 1,290,493       $ 2,879,389        $ 2,169,436
COST OF GOODS SOLD ......................................           715,128            558,893         1,133,549          1,023,959
                                                                -----------        -----------       -----------        -----------
GROSS PROFIT ............................................         1,165,176            731,600         1,745,840          1,145,477
EXPENSES:
   General and administrative ...........................           544,918            298,598         1,059,719            617,705
   Selling and marketing ................................           360,049            194,744           627,634            353,037
   Depreciation and amortization ........................            61,395             25,370           105,313             43,363
   Product development ..................................            52,193             37,095           101,433             83,161
                                                                -----------        -----------       -----------        -----------
             Total expenses .............................         1,018,555            555,807         1,894,099          1,097,266
                                                                -----------        -----------       -----------        -----------
OPERATING INCOME ........................................           146,621            175,793          (148,259)            48,211
   Interest income (expense) ............................            35,620                754            33,013             (1,166)
                                                                -----------        -----------       -----------        -----------
INCOME BEFORE TAXES .....................................           182,241            176,547          (115,246)            47,045
   Income tax (expense) benefit .........................           (67,000)              --              43,000               --
                                                                -----------        -----------       -----------        -----------
NET INCOME (LOSS) .......................................       $   115,241        $   176,547       $   (72,246)       $    47,045
                                                                -----------        -----------       -----------        -----------
Accrued preferred dividends .............................       $   (45,891)       $      --         $   (45,891)       $      --
                                                                -----------        -----------       -----------        -----------
Income (loss) applicable to common shareholders .........       $    69,350        $   176,547       $  (118,135)       $    47,045
                                                                ===========        ===========       ===========        ===========
Weighted average common shares outstanding ..............       $ 3,414,000        $ 2,033,000       $ 2,395,000        $ 2,033,000
                                                                -----------        -----------       -----------        ----------

Earnings per share applicable to common
  shareholders ..........................................       $       .02        $       .09       $      (.05)       $       .02
                                                                ===========        ===========       ===========        ===========

</TABLE>











See accompanying notes to condensed financial statements



                                    4
<PAGE>

<TABLE>
<CAPTION>
                                                         LASER STORM, INC.


                                                  CONDENSED STATEMENT OF CASH FLOWS

                                                                                                          Six Months Ended June 30 
                                                                                                          ------------------------
                                                                                                          1996               1995
                                                                                                          ----               ----
<S>                                                                                                 <C>                 <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income ( loss ) .....................................................................        $   (72,246)        $    47,045
   Adjustments to reconcile net income ( loss )
      to net cash provided by (used
      in ) operating activities
      Depreciation and amortization ........................................................            105,313              43,364
      Loss on asset disposition ............................................................            (11,375)               --
      Provision for bad debts ..............................................................             10,000                --
      Deferred income taxes ................................................................            (43,000)               --
      Changes in operating assets and liabilities
         ( Increase ) decrease in:
             Accounts receivable ...........................................................           (226,513)            139,074
             Notes receivable ..............................................................           (620,273)               --
             Inventories ...................................................................            (13,942)            214,628
             Other .........................................................................           (203,792)            (51,661)
         Increase ( decrease ) in:
             Accounts payable ..............................................................           (464,799)            (11,810)
             Accrued expenses ..............................................................            112,946              12,014
             Income taxes payable ..........................................................            (50,000)               --
             Customer deposits and deferred revenue ........................................            (64,299)           (169,962)
             Contingent settlements ........................................................           (270,000)               --
                                                                                                    -----------         -----------
   Net cash provided by ( used in ) operating activities ...................................         (1,811,980)            222,692
                                                                                                    -----------         -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures for property and equipment .........................................           (251,760)            (34,609)
   Software development costs ..............................................................               --               (15,251)
   License costs ...........................................................................            (25,000)               --
                                                                                                    -----------         -----------
          Net cash provided by ( used in ) investing activities ............................           (276,760)            (49,860)
                                                                                                    -----------         -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of Series B 12% Convertible Cumulative Preferred Stock ...............            889,985                --
   Proceeds from sale of Common Stock ......................................................          4,723,526                --
   Deferred offering costs .................................................................            277,929             (10,000)
   Principal payments on notes payable .....................................................             (9,295)             (3,971)
                                                                                                    -----------         -----------
          Net cash provided by ( used in ) financing activities ............................          5,882,145             (13,971)
                                                                                                    -----------         -----------


INCREASE ( DECREASE ) IN CASH ..............................................................          3,793,405             158,861


CASH, at beginning of period ...............................................................             10,473              16,228
                                                                                                    -----------         -----------
CASH, at end of period .....................................................................        $ 3,803,878         $   175,089
                                                                                                    ===========         ===========
</TABLE>














See accompanying notes to condensed financial statements


                                      6
<PAGE>

<TABLE>
<CAPTION>

                                                         LASER STORM, INC.
                                       CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                               For the Six Months Ended June 30, 1996

                                                          Preferred Stock              Common Stock
                                                  ----------------------------    ------------------------
                                                       Shares          Amount       Shares        Amount
                                                       ------          ------       ------        ------
<S>                                                    <C>                <C>      <C>         <C> 
BALANCES, December 31, 1995 ....................       140,000            140      1,601,250   $     1,601

   Private placement of Series B 12%
     Convertible Cumulative Preferred Stock ....       200,000            200

   Offering costs related to private placement .      

   Public offering of 1,495,000 units ..........                                   1,495,000         1,495

   Offering costs related to public offering ...    

   Conversion of Series A and B 12 % Convertible
     Cumulative Preferred Stock ................      (340,000)          (340)       629,961           630

   Net income ( loss ) .........................

BALANCE, June 30, 1996 .........................          --      $      --        3,726,211   $     3,726
                                                   -----------    -----------    -----------   -----------

<CAPTION>
                                                    Additional
                                                      Paid-In        Accumulated
                                                      Capital          Deficit       Total
                                                    ----------       -----------     -----
<S>                                                <C>            <C>            <C>        
BALANCES, December 31, 1995 ....................   $   575,136    $  (164,174)   $   412,703
                                                   
   Private placement of Series B 12%               
     Convertible Cumulative Preferred Stock ....       999,800                     1,000,000 
                                                
   Offering costs related to private placement .      (109,815)                     (109,815)
                                                
   Public offering of 1,495,000 units ..........      5,978,505                    5,980,000
                                                
   Offering costs related to public offering ...     (1,256,474)                  (1,256,474)
                                                
   Conversion of Series A and B 12 % Convertible
     Cumulative Preferred Stock ................           (480)                        (200)
                                                
   Net income ( loss ) .........................                      (72,246)       (72,246)
                                                   ------------    ----------    ----------- 
BALANCE, June 30, 1996 .........................   $  6,186,662   $  (236,420)   $ 5,953,968

</TABLE>



See accompanying notes to condensed financial statements





                                       6

<PAGE>



                                LASER STORM, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


1.       Interim Financial Statements:

In the opinion of the  management  of the Company,  the  accompanying  unaudited
financial statements include all adjustments  necessary,  all of which were of a
normal recurring nature, to make the financial statements not misleading.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been  condensed  or omitted  pursuant to the rules and  regulations  of the
Securities  and Exchange  Commission.  These  condensed  consolidated  financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and  related  notes for the fiscal  year  ended  December  31,  1995
contained in the Company's definitive prospectus dated April 23, 1996.

The  results of  operations  for the six months  ended  June 30,  1996,  are not
necessarily indicative of the results to be expected for the full year.

2.       Public Offering:

In April 1996, the Company  completed a public  offering of 1,495,000 units at a
price of $4.00 per unit. Each unit consists of one share of common stock and one
warrant. The warrants are exercisable for a period of five years and entitle the
holder to purchase one share of common  stock at an exercise  price of $5.00 per
share.  However,  if the  Company  does not report net after tax  earnings of at
least $.40 per share (target earnings) for the four fiscal quarters ending March
31,  1997,  then the  exercise  price per share will be reduced by $.20 for each
$.01  shortfall  from the target  earnings,  but such exercise price will not be
reduced below $1.00 per share.  The warrants are redeemable by the Company under
certain  circumstances  at $.05  per  warrant  provided  that  for at  least  30
consecutive  trading days the market price of the  Company's  common stock is at
least  $7.00 per  share.  In  connection  with the  offering,  the  underwriters
received a 10% discount and a 3%  nonaccountable  expense allowance and, subject
to certain limitations, the representative of the underwriters will receive a 4%
commission on proceeds  received from the exercise of warrants  solicited by the
representative of the underwriters.  The representative of the underwriters also
received a warrant, exercisable for 130,000 units at $5.40 per unit for a period
of four  years,  beginning  on April 23,  1997.  Net  proceeds  from the  public
offering were $4,723,526, after paying the aforementioned discounts and expenses
to the  underwriters and other offering costs totaling  $479,074.  Also in April
1996, an additional  629,961 units were issued as a result of the  conversion of
140,000  shares  of  Series A 12%  Convertible  Cumulative  Preferred  Stock and
200,000 shares of Series B 12% Convertible Cumulative Preferred Stock.

3.       Notes Receivable:

During the quarter ended June 30, 1996, the Company offered a financing  program
to its  customers for sales of its systems and arenas.  The program  required an
advanced  deposit  ranging from 30% to 40% and the balance  plus  interest to be
paid over a period  ranging from 24 to 36 months.  Sales under this program were
$941,554 and the amount financed was $620,284.

4.       Earnings Per Share:

For the quarter and six months ended June 30, 1995, the  calculation of weighted
average  shares  outstanding  includes all common stock options and the Series A
and Series B Preferred stock,  which were issued prior to the Company's  initial
public  offering  at  prices  below  the $4.00  per unit  offering  price.  Such
preferred  stock and  options  to  purchase  common  stock are  included  in the
calculation  for the entire six months  ended June 30, 1995 and from  January 1,
1996 through April 23, 1996,  using the treasury stock method based on the $4.00
per unit offering price.

For the six months ended June 30, 1996,  common stock  equivalents  are excluded
from the weighted average shares since they are anti-dilutive.

                                       7


<PAGE>

                                LASER STORM, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   CONTINUED

5.       Concentration of Credit Risk:

At June 30, 1996, cash and  equivalents  includes an investment in a single U.S.
Treasury  Bill  with an  amortized  cost of  $1,987,000.  The  Company  also had
investments  in  commercial   paper  issued  by  major  U.S.   corporations   of
approximately $995,000 and $648,000.

6.       Subsequent Event:

In July 1996 the Company  purchased an existing  Laser Storm Game Center located
in Longmont,  Colorado from unaffiliated  persons.  The total  consideration was
$160,000,  which was paid at closing by paying $30,000 in cash and by paying the
balance of $130,000 by issuing  32,500 shares of the  Company's  common stock to
one of the sellers.  Pursuant to the terms of the asset purchase agreement,  the
Company is registering the 32,500 shares for resale. The seller has 90 days from
the date of the prospectus to sell the shares. If the seller has sold the shares
for less  than  $130,000,  the  Company  will  immediately  pay the  seller  the
difference  between the sales price of the shares and  #130,000.  Any  remaining
shares  will be  returned  to the  Company.  If the  sales  price  is more  than
$130,000,  the Company has no further obligation to the seller and the seller is
entitled to retain any excess shares or purchase  price.  In connection with the
purchase,  the Company also loaned the seller  approximately  $46,380 to pay the
seller's bank loan. The loan is evidenced by a promissory note and is secured by
a first in priority  interest in the shares.  All proceeds  from the sale of the
shares shall be applied first to retiring the loan.











                                       8
<PAGE>

                                LASER STORM, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                              OR PLAN OF OPERATIONS



RESULTS OF OPERATIONS:

Net  revenues  for  the  quarter  ended  June  30,  1996,  increased  by  46% to
$1,880,304,  as compared to $1,290,493  for the quarter ended June 30, 1995. The
increase was the result of new  customers  ordering  larger  player  systems and
arenas and a 10% price  increase  implemented  during the quarter ended June 30,
1996. The average sales price per system (net of discounts) has risen to $87,000
for the quarter ended June 30, 1996, from $66,000 for the quarter ended June 30,
1995. Sales of these larger systems, arenas and accessories were stimulated by a
new  financing  program  offered by the  Company.  Approximately  50% of the net
revenues during the quarter ended June 30, 1996 were financed under this program
which requires an advance  deposit ranging from 30% to 40% and the balance to be
paid  over a period  ranging  from 24 to 36  months.  Also  contributing  to the
increase in  revenues  was the  promotion  of upgrade  options to the  Company's
existing customer base and increased sales and marketing efforts.  Discounts for
the quarter  ended June 30, 1996 were 11% of gross  revenues  compared to 3% for
the quarter ended June 30, 1995. This increase is the result of negotiating down
the 10% price  increase on orders placed during the past six months that did not
ship until the second quarter. A specific breakdown of revenues is as follows:

                                                       Quarter Ended June 30,
                                                  ----------------------------
                                                     1996               1995
                                                     ----               ----
System Sales .............................       $ 1,116,170        $   827,636
Upgrade Sales ............................           118,986               --
Arena Sales ..............................           509,530            204,534
Warranty Sales ...........................            98,449             60,327
Accessories Sales ........................           263,174            237,691
Discounts ................................          (226,005)           (39,695)
                                                 -----------        -----------
                  Net Revenues ...........       $ 1,880,304        $ 1,290,493
                                                 ===========        ===========

Net revenues for the six months ended June 30, 1996 increased 33% to $2,879,389,
as compared to $2,169,436  for the six months ended June 30, 1995.  The increase
was lower  than that  achieved  during  the  second  quarter  as a result of the
cyclical nature of the business  whereby the first quarter is  historically  the
lowest sales quarter of the year. Additionally,  the Company's senior management
was focused on completing  the public  offering which was completed on April 23,
1996 and opening  Company-owned  and  Company  operated  facilities.  A specific
breakdown of revenues is a follows:

                                                      Six Months Ended June 30,
                                                   ----------------------------
                                                      1996                1995
                                                      ----                ----
System Sales .............................       $ 1,658,934        $ 1,464,523
Upgrade Sales ............................           118,986               --
Arena Sales ..............................           734,646            379,632
Warranty Sales ...........................           178,242            101,939
Accessories Sales ........................           442,869            355,259
Discounts ................................          (254,288)          (131,917)
                                                 -----------        -----------
                  Net Revenues ...........       $ 2,879,389        $ 2,169,436
                                                 ===========        ===========


                                       9
<PAGE>


                                LASER STORM, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                              OR PLAN OF OPERATIONS

                                   (Continued)

Gross profit for the quarter ended June 30, 1996  increased 59% to $1,165,176 as
compared to gross profit of $731,600 for the quarter ended June 30, 1995.  Gross
profit as a percent of net revenues  increased during the quarter ended June 30,
1996 to 62% compared to 57% for the quarter  ended June 30,  1995.  Gross profit
for the six  months  ended  June 30,  1996  increased  by 52% to  $1,745,840  as
compared to gross profit of  $1,145,477  for the six months ended June 30, 1995.
Gross profit as a percent of net revenues  increased from 53% to 61% for the six
months ended June 30, 1995,  and 1996,  respectively.  The increase in the gross
profit  percentage  is the result of the sales  price  increases  on systems and
arenas and lower  direct  material and labor  costs.  The lower direct  material
costs is the result of efficiencies realized from increased volumes and improved
purchasing management. The Company has expanded its vendor base and improved its
vendor selection processes in order to ensure that the Company receives the most
competitive prices on its materials. The lower direct labor costs are the result
of efficiencies being realized from increased volumes as well as improvements in
the assembly processes.

Selling,  general and administrative  expenses ("SGA expenses") increased by 83%
to $904,967 for the quarter  ended June 30,  1996,  compared to $493,342 for the
quarter  ended  June 30,  1995.  "SGA  expenses"  as a percent  of net  revenues
increased  from  38% to 48% for the  quarters  ending  June 30,  1995 and  1996,
respectively. "SGA expenses" increased $716,611 or 74% to $1,687,353 for the six
months ended June 30,  1996,  compared to $970,742 for the six months ended June
30, 1995. "SGA expenses" as a percent of net revenues  increased from 45% to 59%
for the six month  periods  ending  June 30,  1995 and 1996,  respectively.  The
increases  are  primarily  the result of additions to  administrative  and sales
staffs  to  accelerate  the  opening  of  Company-owned   and  Company  operated
facilities  and as a result of the  Company  becoming a  publicly-held  company.
During the six months ended June 30, 1996,  the Company  increased its sales and
marketing  efforts  associated with opening  Company-owned  and Company operated
facilities  by  approximately  $300,000.  The  Company  believes  that it is now
positioned to meet its  objectives of opening future  Company-owned  and Company
operated  facilities.  As of June 30,  1996  there were no  associated  revenues
generated  from  these  recent  efforts.   Additionally,  the  Company  incurred
approximately  $250,000 in expenditures related to becoming a public company and
moving  into a new  facility  which  meets  its  capacity  requirements  for the
foreseeable future.

Product development expenses increased 41% to $52,193 for the quarter ended June
30,  1996,  compared  to $37,095  for the  quarter  ended June 30,  1995.  These
expenses  increased  22% to  $101,433  for the six months  ended  June 30,  1996
compared  to $83,161  for the six months  ended June 30,  1995.  The  Company is
planning on continuing to increase its investment in the design and  development
of interactive laser tag game systems.

The Company  generated $35,620 of interest income for the quarter ended June 30,
1996  compared to $754 during the same  period  last year.  Interest  income was
$33,014 for the six months ended June 30, 1996  compared to interest  expense of
$1,166 for the six months ended June 30, 1995. Pending the capital  requirements
associated  with  opening new  Company-owned  and Company  operated  facilities,
proceeds  from the public  offering  in April 1996 are being  invested  in short
term, interest bearing investment grade securities.


                                       10
<PAGE>


                                LASER STORM, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                              OR PLAN OF OPERATIONS

                                   (Continued)


Operating  income for the quarter  ended June 30, 1996 was $146,621  compared to
$175,793 for the quarter ended June 30, 1995. The Company experienced a $115,245
operating  loss during the six months ended June 30, 1996  compared to operating
income of $47,045 for the six months  ended June 30, 1995.  The lower  operating
income for the quarter  ended June 30, 1996 and the  operating  loss for the six
months ended June 30, 1996 is the result of additional  "SGA expenses"  incurred
in establishing  Company-owned  and Company operated  facilities and the cost of
the Company being a publicly-held company.

The provision for income taxes of $67,000 for the quarter ended June 30, 1996 is
based upon an  effective  tax rate of 37%.  The  Company  realized an income tax
benefit of $43,000  during the six months ended June 30,  1996.  The results for
1995  reflect  no tax  provision  as a  result  of the full  utilization  of net
operating loss carryovers from prior years.

LIQUIDITY AND CAPITAL RESOURCES

The Company's  operations  used cash flow of $1,811,980 for the six months ended
June 30,  1996,  but provided  cash flow of $222,692 for the same period  ending
June 30,  1995.  Cash flow was used  during the first six months of 1996 to fund
sales made through both the new extended term financing program being offered by
the Company ($620,273) and the increase in the accounts  receivable  ($226,513).
Additionally,  payments were made on both accounts payable ($464,799), which had
become  aged  when cash was  being  conserved  until  the  public  offering  was
completed;  and to settle the contingent  liabilities ($242,500) the Company had
incurred  during 1995.  The Company is pursuing an opportunity to sell the total
receivables  associated with the extended term financing to an independent third
party leasing company.

Capital expenditures for the six months ended June 30, 1996 were $251,760 verses
$34,609  for the six months  ended June 30,  1995.  The  Company is funding  the
up-front capital  requirements  associated with opening Company owned facilities
and  facilities  for  which  the  Company  has a  revenue  sharing  arrangement.
Additionally,  the  Company  purchased  new trade show  equipment  and made some
leasehold improvements in its new office and assembly space.

Financing  activities  provided $5,882,145 of cash flow for the six months ended
June 30, 1996 as  compared to a use of cash of $13,971 for the six months  ended
June 30,  1995.  In February  1996,  the Company  completed  the sale of 200,000
shares of Series B 12% Convertible  Cumulative  Preferred Stock and received net
proceeds of $889,985. In April 1996, the Company completed the sale of 1,495,000
units at $4.00 per unit.  Each unit sold  consisted of one share of common stock
and one warrant. Net proceeds from the sale were $4,723,526.

Management  believes  current cash flows of the Company,  when combined with the
proceeds from the public offering of units,  will support the Company's  current
operations  associated  with  direct  system  and arena  sales and  opening  and
operating  Company-owned Laser Storm(R) game facilities and will provide working
capital for anticipated growth.


                                       11
<PAGE>


                                LASER STORM, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                              OR PLAN OF OPERATIONS

                                   (Continued)


The Company  may  require  additional  capital to finance  enhancements  to, and
expansion  of,  its'  manufacturing  capacity  and future  Laser  Storm(R)  game
facilities.  Management believes that the need for working capital will continue
to  grow  at a rate  generally  consistent  with  the  growth  of the  Company's
operations.  Although no assurance can be given that financing will be available
on terms acceptable to the Company,  the Company may seek additional funds, from
time to  time,  through  public  or  private  debt  or  equity  offerings,  bank
borrowings or leasing arrangements.








                                       12
<PAGE>



                                   SIGNATURES


In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.



                                          LASER STORM, INC.


DATE: November 13, 1996                   By: /s/ William R. Bauerle
                                             ------------------------------
                                             William R. Bauerle
                                             President




DATE: November 13, 1996                   By: /s/ John E. McNutterle
                                             ------------------------------
                                             John E. McNutt
                                             Vice President, Finance