SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10QSB

(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, 1997
                                       OR
[ ]  Transition Report Under Section 13 or 15 (d) of the Securities Exchange Act
     of 1934

              For the transition period from          to 
                                             --------    --------
                         Commission file number 2-28254

                                Laser Storm, Inc.
         ---------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


            Colorado                                   84-1139159
   ------------------------------                 --------------------
  (State of other jurisdiction of                 (IRS Employer 
   incorporation or organization)                  Identification No.)

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

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


Check whether the issuer (1)filed all reports required to be filed by Section 13
or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12 months (or
for such shorter  period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for 90 days.

                                   [X] Yes [ ] 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                              August 12, 1997
            -----                              ---------------
            Common Stock, $.001 par value      3,771,711

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

<PAGE>

                               LASER STORM, INC.

                                  FORM 10-QSB

                                 June 30, 1997

                                     INDEX


PART I.   Financial Information                                         Page No.

          Item 1.   Condensed Balance Sheets -

                    June 30, 1997 and December 31, 1996                  3

                    Condensed Statements of Operations -
                    Three and six months ended June 30, 1997 and 1996    4

                    Condensed Statements of Cash Flows -
                    Six months ended June 30, 1997 and 1996              5

                    Notes to Condensed Financial Statements              6



          Item 2.   Management's Discussion and Analysis
                    or Plan of Operation                                 7-11

PART II.  Other Information                                              12

SIGNATURES                                                               13

EXHIBIT INDEX                                                            14


<PAGE>

<TABLE>
<CAPTION>
                                LASER STORM, INC.
                           CONDENSED BALANCE SHEETS

                               ASSETS                                   (Unaudited)
                                                                       June 30, 1997    December 31, 1996
                                                                       -------------    -----------------
<S>                                                                  <C>                 <C>      
CURRENTS ASSETS:
      Cash ..........................................................   $    93,382       $   272,633
      Receivables - net:
           Trade notes, current portion .............................       269,199           535,256
           Trade accounts ...........................................       496,404           433,463
           Landlord reimbursement and other .........................       106,730           132,235
           Income taxes .............................................        56,000            56,000
      Inventories ...................................................       556,303           977,896
      Prepaid expenses and other ....................................       191,826            97,172
                                                                        -----------       -----------
          Total current assets ......................................     1,769,844         2,504,655

PROPERTY AND EQUIPMENT, net:
      Laser game systems and facilities .............................     1,567,538         1,339,081
      Other .........................................................       452,109           546,805
                                                                        -----------       -----------
                                                                          2,019,647         1,885,886
                                                                        -----------       -----------
OTHER ASSETS:
      Trade notes receivable, less current portion ..................       231,200           514,489
      License and design costs, net .................................       147,636           191,731
      Goodwill, net .................................................         --              172,083
      Deposits and other ............................................       104,871           132,297
                                                                        -----------       -----------
          Total other assets ........................................       483,707         1,010,600
                                                                        -----------       -----------
TOTAL ASSETS ........................................................   $ 4,273,198       $ 5,401,141
                                                                        ===========       ===========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
      Current maturities of capital lease obligations ...............   $   103,437       $    69,034
      Accounts payable ..............................................       982,615           783,998
      Accrued expenses and other ....................................       548,319           529,352
      Customer deposits and deferred revenue ........................       217,762           171,770
      Acquisition costs payable .....................................        74,557           195,000
                                                                        -----------       -----------
          Total current liabilities .................................     1,926,690         1,749,154

CAPITAL LEASE OBLIGATIONS, less current maturities ..................       178,533           143,885

DEFERRED LEASE INDUCEMENTS ..........................................       166,105           158,143

STOCKHOLDERS' EQUITY:
      Preferred stock, $.001 par value; 2,000,000 shares authorized,
         no shares issued ...........................................         --                 --
      Common stock, $.001 par value; 20,000,000 shares authorized;
          3,771,711 shares issued and outstanding ...................         3,772              3,825
      Additional paid-in capital ....................................     6,234,170          6,256,174
      Accumulated deficit ...........................................    (4,236,072)        (2,910,040)
                                                                         -----------       -----------
          Total stockholders' equity ................................     2,001,870          3,349,959
                                                                        -----------        -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..........................  $  4,273,198        $ 5,401,141
                                                                        ===========        ===========
</TABLE>

            See accompanying notes to these condensed financial statements.


                                       3
<PAGE>

<TABLE>
<CAPTION>
                                LASER STORM, INC.
                      CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                                        THREE MONTHS                            SIX MONTHS
                                                                        ENDED JUNE 30,                         ENDED JUNE 30,
                                                               ------------------------------        ------------------------------
                                                                   1997               1996               1997                1996
<S>                                                            <C>                <C>                <C>                <C>        
LASER SYSTEMS AND RELATED REVENUE:
    Net sales ..........................................       $   720,095        $ 1,831,532        $ 1,743,791        $ 2,801,414
    Cost of sales ......................................           453,306            715,128            985,667          1,133,548
                                                               -----------        -----------        -----------        -----------
             Gross profit ..............................           266,789          1,116,404            758,124          1,667,866
                                                               -----------        -----------        -----------        -----------
RETAIL OPERATIONS:
    Net sales ..........................................           385,072             83,912            762,316            155,531
    Cost of sales ......................................           383,219             35,140            668,029             77,555
                                                               -----------        -----------        -----------        -----------
             Gross profit ..............................             1,853             48,772             94,287             77,976
                                                               -----------        -----------        -----------        -----------
EXPENSES:
   General and administrative ..........................           645,101            615,202          1,260,002          1,195,206
    Selling and marketing ..............................           119,738            289,765            279,851            492,146
    Severance and termination costs ....................           100,000               --              100,000               --
    Depreciation and amortization ......................           189,369             61,395            340,404            105,315
    Product development ................................            26,707             52,193             60,287            101,433
                                                               -----------        -----------        -----------        -----------
             Total expenses ............................         1,080,915          1,018,555          2,040,544          1,894,100
                                                               -----------        -----------        -----------        -----------
OPERATING INCOME (LOSS) ................................          (812,273)           146,621         (1,188,133)          (148,258)
OTHER INCOME (EXPENSE):
    Interest income (Expense) ..........................            (6,908)            35,620             (6,357)            33,014
     Loss on disposal of Company-owned facility ........          (131,542)              --             (131,542)              --
                                                               -----------        -----------        -----------        -----------
INCOME (LOSS) BEFORE TAXES .............................          (950,723)           182,241         (1,326,032)          (115,244)
            Income tax (expense) benefit ...............              --              (67,000)              --                3,000
                                                               -----------        -----------        -----------        -----------
NET INCOME (LOSS) ......................................       $  (950,723)       $   115,241        $(1,326,032)       $   (72,244)
                                                               ===========        ===========        ===========        ===========
ACCRUED PREFERRED DIVIDENDS ............................              --              (45,891)              --              (45,891)
                                                               -----------        -----------        -----------        -----------
NET INCOME (LOSS) APPLICABLE TO
 COMMON STOCKHOLDERS ...................................       $  (950,723)       $    69,350        $(1,326,032)       $  (118,135)
                                                               ===========        ===========        ===========        ===========
NET INCOME (LOSS) PER SHARE APPLICABLE TO
 COMMON STOCKHOLDERS ...................................       $      (.25)       $       .02        $      (.35)       $      (.05)
                                                               ===========        ===========        ===========        ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .............         3,808,000          3,414,000          3,817,000          2,395,000
                                                               ===========        ===========        ===========        ===========
</TABLE>

           See accompanying notes to these consdensed financial statements.

                                       4
<PAGE>

<TABLE>
<CAPTION>
                                LASER STORM, INC.
                      CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                                          For the Six Months
                                                                            ended June 30,
                                                                      --------------------------
                                                                           1997           1996
                                                                           ----           ----
<S>                                                                    <C>           <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ........................................................   $(1,326,032)   $   (72,244)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
           Depreciation and amortization ..........................       340,404        105,315
           Loss on disposals of equipment .........................       143,147           --
           Notes receivable for sale of Laser Systems .............          --         (620,273)
           Provision for bad debts ................................        81,637         10,000
           Provision for inventory obsolescence ...................        49,500           --
           Deferred income taxes ..................................          --          (43,000)
Changes in operating assets and liabilities:
  (Increase) decrease in:
           Receivables ............................................       128,986       (226,513)
           Inventories ............................................       372,093        (13,942)
           Prepaid expenses and other .............................       (83,238)      (203,792)
  Increase (decrease) in:
           Accounts payable .......................................       198,617       (464,799)
           Accrued expenses .......................................        26,929         48,418
           Contingent settlements .................................          --         (270,000)
           Customer deposits and deferred revenue .................        45,992        (64,299)
                                                                      -----------    -----------
           Net cash used in operating activities ..................       (21,965)    (1,815,129)
                                                                      -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sale of notes receivable .........................       203,599           --
   Principal payments collected on nets receivable ................        97,688           --
   Capital expenditures for property and equipment ................      (517,624)      (251,760)
   License and design costs .......................................       (10,000)       (25,000)
                                                                      -----------    -----------
           Net cash used in investing activities ..................      (226,337)      (276,760)
                                                                      -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of 12% Convertible Cumulative Preferred Stock          --          900,000
   Proceeds from public offering of 1,495,000 units ...............          --        5,202,600
   Proceeds from capital lease ....................................       130,000           --
   Offering costs .................................................          --         (211,160)
   Principal payments on capital lease obligations ................       (60,949)        (6,146)
                                                                      -----------    -----------
           Net cash provided by financing activities ..............        69,051      5,885,294
                                                                      -----------    -----------
INCREASE (DECREASE) IN CASH .......................................      (179,251)     3,793,405
Cash, at beginning of period ......................................       272,633         10,473
                                                                      -----------    -----------
Cash at end of period .............................................   $    93,382    $ 3,803,878
                                                                      ===========    ===========
</TABLE>


           See accompanying notes to these condensed financial statements.


                                        5
<PAGE>
                                LASER STORM, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)


1.   Interim Financial  Statements:

In  the  opinion  of  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 financial statements should
be read in conjunction  with the financial  statements and related notes for the
fiscal year ended December 31, 1996 contained in the Company's  annual report on
Form 10-KSB for the year ended December 31, 1996.

The  results of  operations  for the six months  ended  June 30,  1997,  are not
necessarily indicative of the results to be expected for the full year.

2.  Earnings  Per  Share:

For the quarter  and six months  ended June 30,  1996,  and 1997,  common  stock
equivalents  are  excluded  from the  weighted  average  shares  since  they are
anti-dilutive.








                                       6

<PAGE>
                              LASER STORM, INC.'S
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                              OR PLAN OF OPERATION

Liquidity and  Capital  Resources

The Company's operations used cash flow of $21,965 for the six months ended June
30, 1997,  and used cash flow of $1,815,129  for the same period last year.  The
operating  losses the  Company  has  endured  over the past four  quarters  have
negatively impacted the Company's  liquidity.  The Company's working capital has
decreased  from  $756,000 at December 31, 1996 to a working  capital  deficit of
$156,846 at June 30,  1997.  Likewise  the  Company's  stockholders'  equity has
decreased  from  $3,349,959 at December 31, 1996 to $2,001,870 at June 30, 1997.
The Company has been pursuing financing to assist in meeting its working capital
requirements  as well as  capital  that  could  be used by the  Company  to open
additional Company-owned  facilities.  The Company is currently negotiating with
an  investment  banking  firm,  to retain its services to assist in any mergers,
acquisitions or other financing opportunities that may be available. To date the
Company has not been able to obtain closure on any new financing. If significant
additional  losses are incurred and if additional  financing cannot be obtained,
the Company may be unable to continue future operations.

In 1996 the Company  purchased  two  existing  Laser  StormR game  centers  from
unaffiliated persons in Coral Springs, Florida and Longmont,  Colorado. Pursuant
to the terms of the purchase  agreements,  the Company was  obligated to pay the
two sellers a total of $217,000 by June 7, 1997.  As a result of the Company not
making the  payments  when they were due,  the Company is in default  under both
purchase  agreements.  The Company has negotiated a proposed settlement with the
seller in Coral  Springs,  Florida,  whereby  the Company  has  transferred  its
rights,  title,  interest and control of the game center back to the seller.  In
return,  the seller has  cancelled  $142,500  in debt owed by the  Company.  The
transfer  was  effective  on June 16, 1997 at which time the Company  recorded a
$131,542  write off. The seller of the store in  Longmont,  Colorado has filed a
lawsuit  against  the  Company in the state of  Colorado.  The  Company has been
granted an extension  of time to respond to the  complaint in order to raise the
funds necessary to pay the seller the balance of $74,500.  In early August 1997,
the Company negotiated a settlement of this obligation.  The settlement requires
the Company to provide the original  seller a 36 player Laser StormR game system
and a 2,500 square foot Galactic  Marauders arena.  Additionally,  the rights to
the Fort Collins,  Colorado territory will be granted to the original seller. In
return the lawsuit will be dismissed with prejudice and the $74,500 debt will be
cancelled.

The Company's accounts payable have increased from $783,998 at December 31, 1996
to  $982,615  at June  30,  1997.  The  increase  is  primarily  the  result  of
construction  costs  incurred at the Company's  new facility in San  Bernardino,
California.  The Company has taken actions to reduce its corporate  overhead and
operating  expenses,  however  low sales in the  second  quarter  resulted  in a
reduction of cash flow and subsequently  accounts payable becoming more aged. As
of June 30,  1997,  over 61% of the accounts  payable  balance were over 90 days
past due. The Company has been  attempting to negotiate  extended  payment plans
with its vendors,  however the  unpredictable  sales  performance and subsequent
cash receipts has made it difficult to meet the commitments. The Company has had
lawsuits filed and the threat of lawsuits made against it by some of its vendors
as the payables become older and commitments are not met.

Accrued  expenses  increased  from  $529,352 at December 31, 1996 to $548,319 at
June 30, 1997.  The increase is the result of a $100,000  severance  accrual the
Company  incurred as a result of the termination  without cause of its President
and Chief Operating  Officer.  The President was under an employment  agreement,
which  required  the  Company to  continue  his salary  for seven  months  after
termination of employment.

During 1996 the Company funded approximately $1,400,000 in sales made through an
extended term financing  program.  In October 1996, the Company  entered into an
agreement with a financial  institution  which  purchased  certain credit worthy
notes receivable under this extended terms program.  During the first quarter of

                                       7
<PAGE>

1997,  the Company sold $293,916 of these notes to this  financial  institution,
realizing $203,599. The financial institution held back approximately $90,000 as
a  condition  of buying  these  notes.  The hold back will be  collected  by the
Company upon satisfactory  payment  performance on these notes. During the first
six months of 1997 the  Company  collected  $97,688 on notes the Company did not
sell to the financial institution. The Company also had to write off to bad debt
approximately $158,000 in notes receivable.  Two customers, who had utilized the
Company's  extended financing program in the first half of 1996, ceased business
operations  during the second quarter of 1997. The Company was able to repossess
its equipment from one of the customers and is aggressively  pursuing collection
efforts  against  the other.  As of June 30,  1997,  the Company had a principal
amount of $500,399 of these notes that remain unsold.  The Company does not have
the working  capital to  internally  finance  future sales  through this type of
financing,  but has been able to establish  alliances  with  external  financial
institutions in order to make financing options available to its customers.

The  Company's  trade  receivables  decreased  by  $128,986  and it's  inventory
decreased by $372,093 during the six months ended June 30, 1997. The inventories
decreased as a result of system sales to independent  operators,  the opening of
three  Company-owned  and operated  facilities  and the opening of three revenue
participation facilities.

Capital  expenditures  for the six months  ended June 30,  1997,  were  $517,624
compared to $251,760 for the same period last year. The  construction  costs and
the  costs of the  Laser  StormR  game  equipment  necessary  to open its  three
Company-owned and operated facilities and three revenue participation facilities
were the primary components of the capital expenditures for the six months ended
June 30, 1997. The Company opened a single arena facility in Denver, Colorado, a
double  arena  facility  in  Hollywood,  Florida  and a  Namco  facility  in San
Bernardino,  California.  The Company also  entered  into revenue  participation
arrangements  in  Cuernavaca,  Mexico,  Gronton,  Connecticut  and in St. Louis,
Missouri.

Financing  activities  provided  $69,051 for the six months  ended June 30, 1997
compared to $5,885,294  for the six months ended June 30, 1996. In January 1997,
the Company entered into a $130,000  capital lease  arrangement to assist in the
financing  of its  new  Denver  metropolitan  area  Company-owned  and  operated
facility.  In February 1996, the Company completed the sale of 200,000 shares of
Series B 12% Convertible  Cumulative  Preferred  Stock and received  proceeds of
$900,000.  In April 1996, the Company  completed a public  offering of 1,495,000
units at a price of $4.00 per unit and received net proceeds of $5,202,600.

Results  of Operations

Net sales from laser tag game systems and related revenues for the quarter ended
June 30, 1997  decreased by 61% to $720,095,  as compared to $1,831,532  for the
quarter ended June 30, 1996.  During the quarter ended June 30, 1997 the Company
sold 63% fewer  systems  and 40% fewer  arenas than were sold during the quarter
ended June 30, 1996.  Approximately  50% of the sales  during the quarter  ended
June 30, 1996 were financed  through the Company's  internally  funded  extended
payment plan. As a result of the Company's liquidity  problems,  the Company has
not been able to offer any financing programs since the end of the third quarter
of  1996.   Additionally,   the  Company's  management  believes  the  expansion
experienced  within the domestic  Family  Entertainment  Center  (FEC)  industry
within the past several years has slowed down dramatically. Thereby, the size of
the laser tag  market has also been  impacted.  The  Company  has  expanded  its
marketing efforts to include markets outside the FEC market and is continuing to
investigate  opportunities in the international  markets. There has also been an
increase in the number of  competitors  within the laser tag industry,  and with
that increased  pressure on pricing and financing  packages.  In response to the
competitive  pressures  of a smaller  market  and more  participants  within the
market and with the inability to offer  aggressive  internally  funded financing
options, the Company has reduced its selling prices on its laser tag systems and
themed arenas.


                                       8
<PAGE>

Net sales from laser tag game  systems and related  revenues  for the six months
ended June 30, 1997 decreased 38% to  $1,743,791,  as compared to $2,801,414 for
the six months  ended June 30,  1996.  During the six months ended June 30, 1997
the Company sold 37% fewer systems and 7% fewer arenas than were sold during the
six months ended June 30, 1996.

Net sales from retail  operations  for the quarter ended June 30, 1997 increased
to  $385,072  compared to $83,912 for the  quarter  ended June 30,  1996.  These
increases  are the  result of sales  generated  by the  seven new  Company-owned
facilities  opened  in the  past  twelve  months.  The  Company  had  previously
anticipated opening six new Company-owned facilites during the second quarter of
1997.  However,  as a result of the previously  discussed  liquidity  issues and
construction delays, the Company opened just two new facilites during the second
quarter of 1997. A Namco arena facility in San Bernardino,  California opened in
May 1997 and a double arena facility in Hollywood,  Florida opened in June 1997.
Two additional facilites,  one in Aurora, Colorado and the other in Albuquerque,
New Mexico are under  construction  and are  expected to open early in the third
quarter of 1997. Net sales for the quarter ended June 30, 1997 increased 2% over
the $377,244 reported for the quarter ended March 31, 1997. Sales increased only
2% as a result of the two new facilities  opening late in the second quarter and
the transfer of the Coral Springs,  Florida  facility back to the original owner
on June 16, 1997. Net sales from retail operations for the six months ended June
30, 1997  increased  to $762,316  compared to $155,531  for the six months ended
June 30, 1996.

Gross profit from laser tag systems and related  revenues for the quarter  ended
June  30,  1997  decreased  76% to  $266,789  as  compared  to gross  profit  of
$1,116,404 for the quarter ended June 30, 1996.  Gross profit as a percentage of
net sales  decreased by 24% for the quarter  ended June 30, 1997 to 37% compared
to 61% for the quarter ended June 30, 1996. The gross profit from laser tag game
systems and related revenue for the six months ended June 30, 1997 decreased 57%
to $758,124 as compared to  $1,667,866  for the six months  ended June 30, 1996.
Gross profit as a percentage of net sales decreased 16% for the six months ended
June 30, 1997 to 43% compared to 59% for the six months ended June 30, 1996. The
decrease in the gross  profit in 1997  compared  to the gross  profit in 1996 is
primarily  the result of lower sales.  Also  impacting  the gross profit was the
previously  discussed  sales price  reductions,  increases in material  costs, a
$50,000  adjustment  to a  rework  inventory  reserve  and the  Company's  fixed
overhead.  The  increased  material  costs are the result of  upgrading  certain
components of the Company's laser tag games.  The inventory  adjustment was made
as a result of the  Company  selling  its  electronic  manufacturing  and repair
operations to a key vendor. As part of the sale, there were game components that
required rework to be completed in order to get the components in proper working
condition. The vendor, who is located in Colorado Springs,  Colorado, has agreed
to purchase the entire  inventory  associated  with the electronics and warranty
repair  operations.  The  expenditures  incurred  for the  Company's  production
overhead  is mostly  fixed in nature,  thereby  negatively  impacting  the gross
profit on lower sales.

Gross  profit  from  retail  operations  for the  quarter  ended  June 30,  1997
decreased to $1,853 compared to $48,772 for the quarter ended June 30, 1996. The
gross  profit  from  retail  operations  for the six months  ended June 30, 1997
increased to $94,287 compared to $77,976 for the six months ended June 30, 1996.
The primary  reason for the decrease in gross  profit for the second  quarter is
the impact of seasonality on the sales  performance of the  independent  stores.
During the summer  months  families  tend to take  vacations  and, with the mild
weather,  outdoor activities are more popular.  Gross profit has been negatively
impacted with lower revenues and the fixed  expenditures for rent and labor. The
Company is  continuing  to closely  monitor  the  independent  stores  financial
performance.  To date the sales and operating  expense results have been in line
with  management's  estimates  for  the  facilities.  However,  the  Company  is
realizing that operating  expenses have tended to be higher during the first six
months of operations as a result of start up costs,  such as grand  openings and
advertising expenses.


                                       9
<PAGE>

General and administrative  expenses ("GA expenses") increased by 5% to $645,101
for the quarter  ended June 30, 1997  compared to $615,202 for the quarter ended
June 30, 1996. GA expenses as a percentage of net revenues (net sales from laser
tag game systems and related  revenues  plus net sales from retail  operations),
increased  to 58% for the quarter  ended June 30,  1997  compared to 32% for the
quarter ended June 30, 1996. GA expenses  during the quarter ended June 30, 1997
were negatively impacted by a $78,000 adjustment to the allowance for bad debts.
Without the impact of the  adjustment to bad debts,  the GA expenses  would have
decreased  by 8%. In an effort  to return to  profitability,  at the end of June
1997, the Company further reduced its corporate  staff.  The Company has decided
outsourcing its  manufacturing  responsibilities  for the electronics and themed
arenas  platforms will improve  quality and service to the customer,  as well as
further reduce the corporate overhead.

GA expenses increased by 5% to $1,260,002 for the six months ended June 30, 1997
compared to $1,195,206  for the six months ended June 30, 1996. GA expenses as a
percent of net revenues  increased to 50% for the six months ended June 30, 1997
compared to 40% for the six months ended June 30, 1996. Adjusting the GA expense
for the bad debt  adjustment  of $78,000,  GA expenses  for the six months ended
June 30, 1997 would have decreased 1%.

Selling and marketing expenses ("SM expenses") decreased 59% to $119,738 for the
quarter  ended June 30, 1997 compared to $289,765 for the quarter ended June 30,
1996. SM expenses as a percentage of net revenues  decreased from 15% to 11% for
the quarters ended June 30, 1996 and 1997,  respectively.  SM expenses decreased
from  $492,166  for the six months  ended June 30, 1996 to $279,851  for the six
months  ended  June 30,  1997.  SM  expenses  as a  percentage  of net  revenues
decreased  from 17% to 11% for the six month  periods  ending  June 30, 1996 and
1997, respectively.  The decreases are the result of cost reduction efforts made
during  the past three  quarters  and lower  commissions  as the result of lower
sales of laser tag game systems.

As a result  of the  unpredictable  sales  performance  during  the past  twelve
months, the Company has been restructuring its corporate  overhead.  During that
time period, there have been several work force reductions. The decline in sales
during the second  quarter  mandated an  additional  reduction in the  Company's
workforce.  The latest moves included the termination of the employment contract
with the Company's  President  and Chief  Operating  Officer.  The President and
Chief  Operating  Officer's  employment  contract  allowed  for  a  seven  month
severance  package.  The Company  accrued  $100,000 of severance and termination
costs during the quarter ended June 30, 1997.

Depreciation and amortization  increased from $61,395 for the quarter ended June
30,  1996 to $189,369  for the quarter  ended June 30,  1997.  Depreciation  and
amortization  increased  from $105,315 for the six months ended June 30, 1996 to
$340,404 for the six months ended June 30, 1997.  These  increases are primarily
the  result  of  the  capital  expenditures  made  related  to the  opening  and
acquisition of the seven  Company-owned and operated  facilities during the last
twelve months.

Product development costs decreased by 49% to $26,707 for the quarter ended June
30,  1997  compared  to $52,193  for the  quarter  ended June  30,1996.  Product
development  costs decreased by 41% to $60,287 for the six months ended June 30,
1997  compared to $101,433 for the six months ended June 30, 1996.  The decrease
is the result of cost reduction efforts implemented during the past nine months.
The  Company is  continuing  to defer  certain  development  projects  until the
Company's liquidity position improves.

The Company  recognized an operating loss of $812,273 for the quarter ended June
30, 1997 compared to operating income of $146,621 for the quarter ended June 30,
1996. The Company recognized an operating loss for the six months ended June 30,
1997 of $1,188,133 compared to an operating loss of $148,258 for the same period
in 1996.  The losses  recognized in 1997 are primarily the result of lower sales
of laser tag game systems.  Also  negatively  impacting the operating  losses in
1997 were the $100,000  severance accrual and the $78,000  adjustment to the bad
debt reserves.

                                       10
<PAGE>

The  Company  recognized  interest  expense  of $6,908  and $6,357 for the three
months and six months  ended June 30,  1997.  The  Company  recognized  interest
income of $35,620 and $33,014 for the three months and six months ended June 30,
1996.  The interest  expense in 1997 is the result of the Company  entering into
capital  leases to finance  the costs of opening  two of the  Company-owned  and
operated facilities. The interest income in 1996 is the result of cash generated
in the  public  offering  in April  1996  being  invested  in  interest  bearing
accounts.

The Company recognized a loss of $131,542 during the quarter ended June 30, 1997
on the disposal of a Laser Storm facility located in Coral Springs, Florida. The
Company  was unable to make the final  payment of  $142,500  under the  purchase
agreement  that was entered into in November  1996. The Company has negotiated a
proposed  settlement,  whereby  the Company  will  transfer  its rights,  title,
interest and control of the game center back to the seller. In return the seller
will cancel the $142,500 debt owed by the Company.

The Company  recognized income tax expense of $67,000 for the quarter ended June
30,  1996 and a $43,000  income tax  benefit  for the six months  ended June 30,
1996.  The  Company was unable to record any income tax benefit in 1997 due to a
valuation allowance for the Company's net operating loss carry forward.





                                       11
<PAGE>

PART II  - OTHER  INFORMATION

Item 6 - Exhibits and Reports on Form 8-K

(a)  Exhibits
     27 Financial Data Schedule

(b)  Reports on Form 8-K
     None









                                       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:     August 12, 1997              By:  /s/ Robert J. Cooney
                                           -------------------------------------
                                           President and Chief Executive Officer


DATE:     August 12, 1997              By: /s/ John E. McNutt
                                           -------------------------------------
                                           Chief Financial Officer and
                                           Principal Accounting Officer




                                       13
<PAGE>

                                 EXHIBIT INDEX

Exhibit           Description                                           Page No.
-------           -----------                                           --------
 27               Financial Data Schedule                                  15