SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB
(Mark One) 
[X]  Quarterly  Report Under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934
                  For the Quarterly Period Ended September 30, 1997
                                       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 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 11, 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

                               September 30, 1997



                                      INDEX


                                                                        Page No.
PART I. Financial Information


Item 1.  Condensed Balance Sheets -
         September 30, 1997 and December 31, 1996                              3

         Condensed Statements of Operations -
         Three and nine months ended September 30, 1997 and 1996               4

         Condensed Statements of Cash Flows -
         Nine months ended September 30, 1997 and 1996                         5

         Notes to Condensed Financial Statements                               6


Item 2.  Management's Discussion and Analysis
         or Plan of Operation                                               7-10

PART II. Other Information                                                    11

SIGNATURES                                                                    12

EXHIBIT INDEX                                                                 13


                                        2

<PAGE>

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

                                     ASSETS                                       (UNAUDITED)
                                                                                 SEPTEMBER 30,   DECEMBER 31,
                                                                                      1997           1996
                                                                                 ------------    -----------
<S>                                                                              <C>            <C>        
CURRENT ASSETS:
         Cash ................................................................   $    12,276    $   272,633
         Receivables - net :
                  Trade notes, current portion ...............................       261,574        535,256
                  Trade accounts .............................................       402,177        433,463
                  Landlord reimbursement and other ...........................       234,287        132,235
                  Income taxes ...............................................        56,000         56,000
         Inventories .........................................................        42,659        977,896
         Prepaid expenses and other ..........................................       208,927         97,172
                                                                                  ----------     ----------
                           Total current assets ..............................     1,217,900      2,504,655
                                                                                  ----------     ----------
Property and Equipment, net:
         Laser game systems and facilities ...................................     1,655,439      1,339,081
         Other ...............................................................       396,643        546,805
                                                                                  ----------     ----------
                                                                                   2,052,082      1,885,886
                                                                                  ----------     ----------
Other Assets:
         Trade notes receivable, less current portion ........................       171,254        514,489
         License and design costs, net .......................................       112,367        191,731
         Goodwill, net .......................................................          --          172,083
         Deposits and other ..................................................       101,359        132,297
                                                                                  ----------     ----------
                           Total other assets ................................       384,980      1,010,600
                                                                                  ----------     ----------
Total Assets .................................................................   $ 3,654,962    $ 5,401,141
                                                                                  ==========     ==========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
         Current maturities of capital lease obligations .....................   $    95,832    $    69,034
         Accounts payable ....................................................     1,091,654        783,998
         Accrued expenses and other ..........................................       487,724        529,352
         Customer deposits and deferred revenue ..............................        70,769        171,770
         Acquisition costs payable ...........................................        74,557        195,000
                                                                                  ----------     ----------
                           Total current liabilities .........................     1,820,536      1,749,154

CAPITAL LEASE OBLIGATIONS, less current maturities ...........................       158,709        143,885

DEFERRED LEASE INDUCEMENTS ...................................................       324,972        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 .................................................    (4,887,197)    (2,910,040)
                                                                                   ----------     ----------
                           Total stockholders' equity ........................     1,350,745      3,349,959
                                                                                  ----------     ----------
Total Liabilities and Stockholders' Equity ...................................   $ 3,654,962    $ 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                    NINE MONTHS
                                                                     ENDED SEPTEMBER  30,           ENDED SEPTEMBER 30,
                                                                    ---------------------          ---------------------
                                                                     1997           1996            1997            1996
                                                                     ----           ----            ----            ----

<S>                                                             <C>             <C>             <C>             <C>        
Laser Systems and Related Revenue:
         Net sales .........................................    $   695,703     $ 2,160,777     $ 2,439,494     $ 4,962,191
         Cost of sales .....................................        379,655         936,659       1,365,322       2,070,207
                                                                 ----------      ----------      ----------      ----------
                  Gross profit .............................        316,048       1,224,118       1,074,172       2,891,984
                                                                 ----------      ----------      ----------      ----------
Retail Operations:
         Net sales .........................................        355,590         124,792       1,115,470         280,323
         Cost of sales .....................................        377,839         118,253       1,043,431         195,810
                                                                 ----------      ----------      ----------      ----------
                  Gross profit (loss) ......................        (22,249)          6,539          72,039          84,513
                                                                 ----------      ----------      ----------      ----------
Expenses:
         General and administrative ........................        519,522         845,708       1,779,524       2,040,914
         Selling and marketing .............................         65,300         348,033         345,151         840,179
         Severance and termination costs ...................           --              --           100,000            --
         Depreciation and amortization .....................        187,509          66,642         527,913         171,955
         Product development ...............................         36,300          73,583          96,587         175,016
                                                                 ----------      ----------      ----------      ----------
                  Total expenses ...........................        808,631       1,333,966       2,849,175       3,228,064
                                                                 ----------      ----------      ----------      ----------

Operating  Loss ............................................       (514,832)       (103,309)     (1,702,964)       (251,567)

OTHER EXPENSE:
         Interest expense ..................................         (6,411)         24,914         (12,767)         57,929
         Loss on disposal of Company-owned facility ........       (129,884)           --          (261,427)           --
                                                                 ----------      ----------      ----------      ----------

LOSS BEFORE INCOME TAXES ...................................       (651,127)        (78,395)     (1,977,158)       (193,638)
                  Income tax expense benefit ...............           --            29,000            --            72,000
                                                                 ----------      ----------      ----------      ----------
Net Loss ...................................................       (651,127)        (49,395)     (1,997,158)       (121,638)
                                                                 ----------      ----------      ----------      ----------

ACCRUED PREFERRED DIVIDENDS ................................           --              --              --           (45,891)
                                                                 ----------      ----------      ----------      ----------

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS .................    $  (651,127)    $   (49,395)    $(1,977,158)    $  (167,529)
                                                                 ==========      ==========      ==========      ==========

NET LOSS) PER SHARE APPLICABLE TO
  COMMON STOCKHOLDERS ......................................    $      (.17)    $      (.01)    $      (.52)    $      (.06)
                                                                 ==========      ==========      ==========      ==========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .................      3,757,000       3,762,000       3,801,000       2,906,000
                                                                 ==========      ==========      ==========      ==========
</TABLE>

         See accompanying notes to these condensed financial statements.

                                        4

<PAGE>

<TABLE>
<CAPTION>

                                LASER STORM, INC.

                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                                                                               For the Nine Months
                                                                                               Ended September 30,
                                                                                        ------------------------------
                                                                                           1997                1996
                                                                                           ----                ----
<S>                                                                                   <C>               <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
           Net loss ................................................................. $ (1,977,158)     $     (121,638)
           Adjustments to reconcile net loss to net cash from operating activities:
               Depreciation and amortization ........................................      527,913             171,955
               Loss on disposals of equipment .......................................      378,123                --
               Notes receivable for sale of Laser Systems ...........................         --            (1,558,069)
               Provision for bad debts ..............................................      156,841              22,000
               Provision for inventory obsolescence .................................       91,605                --
               Deferred income taxes ................................................         --               (79,833)
           Changes in operating assets and liabilities:
               (Increase) decrease in:
                    Receivables .....................................................       44,457            (339,697)
                    Inventories .....................................................      843,632            (220,083)
                    Prepaid expenses and other ......................................     (104,831)           (359,658)
               Increase (decrease) in:
                    Accounts payable ................................................      307,656            (224,739)
                    Accrued expenses ................................................      125,201              35,828
                    Contingent settlements ..........................................         --              (270,000)
                    Customer deposits and deferred revenue ..........................     (101,001)           (126,703)
                                                                                        ----------          ----------
                    Net cash provided operating activities ..........................      292,438          (3,070,637)
                                                                                        ----------          ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
           Proceeds from sale of notes receivable ...................................      203,599                --
           Principal payments collected on notes receivable .........................      141,254              17,361
           Capital expenditures for property and equipment ..........................     (929,270)           (700,377)
           License and design costs .................................................      (10,000)            (85,000)
                                                                                        ----------          ----------
                    Net cash used in investing activities ...........................     (594,417)           (768,016)
                                                                                        ----------          ----------
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 ...........................................................         --              (226,021)
           Principal payments on capital lease obligations ..........................      (88,378)            (14,425)
                                                                                        ----------          ----------
                   Net cash provided by financing activities ........................       41,622           5,862,154
                                                                                        ----------          ----------

INCREASE (DECREASE) IN CASH .........................................................     (260,357)          2,023,501

CASH, at beginning of period ........................................................      272,633              10,473
                                                                                        ----------          ----------
Cash, at end of period .............................................................. $     12,276        $  2,033,974
                                                                                        ==========          ==========
</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 nine months ended  September 30, 1997, are not
necessarily indicative of the results to be expected for the full year.

2.   Earnings Per Share:

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

3.   Nasdaq Listing:

As a result of  continued  losses  the  Company's  shareholder  equity  has been
reduced below the minimum  requirements of the Nasdaq Stock Exchange ("Nasdaq").
In addition,  the  Company's  stock does not  presently  meet the one dollar bid
price  or  the  alternative  bid  requirement  of a  one  million  dollar  float
valuation.  As a result of these events the Company has been  notified by Nasdaq
that its stock will be delisted from the Nasdaq SmallCap Market. The Company has
submitted an extension  request to Nasdaq and is in the process of  requesting a
hearing to stay the decision of the Nasdaq Listing Qualifications committee.



                                       6
<PAGE>

                                LASER STORM, INC.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                              OR PLAN OF OPERATIONS


Liquidity and Capital Resources

The  Company's  operations  provided  cash flow of $292,438  for the nine months
ended  September 30, 1997,  and used cash flow of $3,070,637 for the same period
last year. The operating  losses the Company has experienced  over the past five
quarters have negatively impacted the Company's liquidity. The Company's working
capital has decreased  from  $755,501 at December 31, 1996 to a working  capital
deficit of $602,636 at September 30, 1997. Likewise the Company's  stockholders'
equity has  decreased  from  $3,349,959  at December 31, 1996 to  $1,350,745  at
September 30, 1997. The Company is currently negotiating with investment banking
firms to assist in any mergers,  acquisitions or other  financing  opportunities
that may be  available.  During  1997 the  Company  has not been  able to obtain
closure on any new financing, although it is carrying on discussion with several
companies  regarding  some form of business  combination.  The Company is taking
steps to eliminate  as many  expense  items as possible  while  maintaining  its
operational  status and is pursuing business  combinations which would best take
advantage of its existing  assets.  If additional  financing cannot be obtained,
the Company may be unable to continue future operations.

In 1996 the Company  purchased  two existing  Laser  Storm(R)  game centers from
unaffilitaed 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 was 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
loss of $131,542 due to the write off of the  property,  equipment and goodwill.
The former owner of the store in Longmont,  Colorado has filed a lawsuit against
the  Company  in the  state of  Colorado.  In early  August  1997,  the  Company
negotiated a settlement for this obligation. The settlement requires the Company
to provide the  original  former owner a 36 player Laser Storm 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 former owner. In return the
lawsuit will be dismissed with prejudice and the $74,500 debt will be cancelled.

During  the  third   quarter  of  1997  Laser  Storm  also  sold  two   existing
company-owned  stores to Namco  Cybertainment,  Inc.  These  stores,  located in
Cincinnati, Ohio and San Bernardino,  California, were opened under an agreement
between Laser Storm and Namco in which up to 13 Laser Storm company-owned stores
were to be developed.  Initial sales volumes of these two stores were well below
the Company's  expectations.  The Company and Namco both agreed that since store
development  between the two companies had not progressed as initially  planned,
it was more  beneficial  for Namco to  operate  these  stores.  Operating  these
low-volume  facilities in remote locations was  economically  burdensome for the
Company.  The terms of the sale of these two stores  resulted in a reduction  of
approximately  $100,000 of accounts payable in association with the build-out of
the San Bernardino, California store. The company realized a loss of $129,884 in
the third quarter as a result of the sale of these stores.

The Company's accounts payable have increased from $783,998 at December 31, 1996
to $1,091,654 at September 30, 1997. The Company has taken actions to reduce its
corporate overhead and operating  expenses,  however continuing low sales in the
third  quarter  resulted in a reduction of cash flow and  subsequently  accounts
payable becoming more aged. A large percentage of the Company's accounts payable
balance  continues  to be  over  90  days  outstanding.  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  continues to negotiate with its
vendors  to reach  satisfactory  resolutions  including  disposition  of certain
corporate assets and offer stock in lieu of cash.

                                       7

<PAGE>


Accrued  expenses  decreased  from  $529,352 at December 31, 1996 to $487,724 at
September  30,  1997.  During the  second  quarter  of 1997 the  Company  made a
$100,000  severance accrual 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.  The Company is scheduled to pay the severance
in its entirety by December 31, 1997.

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 notes receivable
under this extended terms program. During the first quarter of 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 nine months of
1997 the  Company  collected  $141,254  on notes the Company did not sell to the
financial  institution.   The  Company  also  had  to  write  off  to  bad  debt
approximately $157,000 in notes receivable.  Two customers, who had utilized the
Company's  extended  financing program in the first half of 1996 ceased business
operation  during the second  quarter of 1997. The Company was able to repossess
its equipment from one of the customers and is agressively  pursuing  collection
efforts against the other. As of September 30, 1997, the Company had a principal
amount of $432,828 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 $31,286 and its inventory decreased
by $935,237  during the nine months ended  September 30, 1997.  The  inventories
decreased  primarily as a result of the Company selling its warranty division to
a key vendor.  The  inventories  also  decreased  as a result of system sales to
independent operators,  the opening of Company-owned and operated facilities and
the opening of revenue participation facilities.

Capital expenditures for the nine months ended September 30, 1997, were $929,270
compared to $700,377 for the same period last year. The  construction  costs and
the  costs of the  Laser  Storm(R)  game  equipment  necessary  to open its five
Company-owned and operated facilities and two revenue  participation  facilities
were the  primary  components  of the capital  expenditures  for the nine months
ended  September 30, 1997.  During the third quarter of 1997 the Company  opened
two corporate  stores,  one in  Albuquerque,  New Mexico and a second in Aurora,
Colorado.  The Company  also sold two stores to Namco  Cybertainment  which were
economically  burdensome to the Company.  The Company currently has seven stores
in operation  under  corporate  management  in addition to four  revenue  shares
operated by other companies.

Financing  activities  provided  $41,622 for the nine months ended September 30,
1997  compared to  $5,862,154  for the nine months ended  September 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
September 30, 1997  decreased by 68% to $695,703,  as compared to $2,160,777 for
the quarter  ended  September 30, 1996.  During the quarter ended  September 30,
1997 the  Company  sold 56% fewer  systems  and 53% fewer  arenas than were sold
during the quarter ended September 30, 1996.  Increased  competition,  increased


                                       8
<PAGE>


pressures on pricing and financing packages coupled with the Company's inability
to spend  adequate  amounts of capital on sales and  marketing  efforts have all
negatively impacted recent sales trends.

Net sales from laser tag game  systems and related  revenues for the nine months
ended September 30, 1997 decreased 51% to $2,439,494,  as compared to $4,962,191
for the nine months  ended  September  30,  1996.  During the nine months  ended
September  30, 1997 the Company sold 44% fewer systems and 30% fewer arenas than
were sold  during the nine  months  ended  September  30,  1996.  As a result of
increased competitive pressures on sales prices, the average unit selling prices
of laser tag game systems and themed arenas for the nine months ended  September
30, 1997 decreased 20 % and 56%,  respectively,  when compared to selling prices
for the same period in 1996.

Net sales from  retail  operations  for the  quarter  ended  September  30, 1997
increased to $355,590  compared to $124,792 for the quarter ended  September 30,
1996.  These  increases are the result of sales  generated by the  Company-owned
facilities  opened in the past  twelve  months.  As a result  of the  previously
discussed liquidity issues and construction  delays, the Company opened just two
new  facilities  during  the  third  quarter  of 1997 and  sold  two  facilities
previously  operated by the Company.  Net sales from retail  operations  for the
nine  months  ended  September  30, 1997  increased  to  $1,115,470  compared to
$280,323 for the nine months ended September 30, 1996.

Gross profit from laser tag systems and related  revenues for the quarter  ended
September  30, 1997  decreased  74% to  $316,048 as compared to gross  profit of
$1,224,118  for  the  quarter  ended  September  30,  1996.  Gross  profit  as a
percentage of net sales  decreased 12% for the quarter ended  September 30, 1997
to 45% compared to 57 % for the quarter  ended  September  30,  1996.  The gross
profit from laser tag game systems and related revenue for the nine months ended
September 30, 1997 decreased 63% to $1.074,172 as compared to $2,891,984 for the
nine months ended September 30, 1996.  Gross profit as a percentage of net sales
decreased  14% for the nine months ended  September  30, 1997 to 44% compared to
58% for the nine months  ended  September  30,  1996.  The decrease in the gross
profit in 1997  compared to the gross profit in 1996 is primarily  the result of
lower sales.

Gross profit from retail  operations  for the quarter  ended  September 30, 1997
decreased  to a loss of $22,249  compared  to a profit of $6,539 for the quarter
ended  September 30, 1996. The gross profit from retail  operations for the nine
months ended September 30, 1997 decreased to $72,039 compared to $84,513 for the
nine months ended September 30, 1996. Gross profit has been negatively  impacted
with lower revenues and the fixed  expenditures  for rent and labor. The largest
expenditures  incurred while operating the laser tag facilities are the facility
rental  expenses  and labor.  The Company is  currently  evaluating  the type of
locations which can be effectively supported by a laser tag game location,  with
fixed and expensive rent  structures  making it very difficult for a facility to
operate  profitably.  The  Company's  labor costs at the  independent  facilites
continue to be in line with  management's  expectations 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.  Historically,  store revenues are the lowest during the third quarter
of the year.

General and administrative expenses ("GA expenses") decreased by 39% to $519,522
for the quarter  ended  September  30, 1997 compared to $845,708 for the quarter
ended September 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 49% for the quarter ended September 30, 1997 compared
to 37% for the  quarter  ended  September  30,  1996.  In an effort to return to
profitability,  at the end of September  1997, the Company  further  reduced its

                                       9
<PAGE>

corporate  staff and has outsourced  its  manufacturing  responsibities  for the
electronics  and themed arenas  platforms which will improve quality and service
to the customer, as well as reduce the corporate overhead.

GA expenses  decreased by 13% to $1,779,524 for the nine months ended  September
30, 1997 compared to $2,040,914 for the nine months ended September 30, 1996. GA
expenses as a percent of net revenues increased to 50% for the nine months ended
September 30, 1997 compared to 39% for the nine months ended September 30, 1996.

Selling and marketing expenses ("SM expenses")  decreased 81% to $65,300 for the
quarter  ended  September  30, 1997  compared to $348,033 for the quarter  ended
September 30, 1996. SM expenses as a percentage of net revenues  decreased  from
15% to 6% for the quarters ended September 30, 1996 and 1997,  respectively.  SM
expenses decreased from $840,179 for the nine months ended September 30, 1996 to
$345,151  for the nine  months  ended  September  30,  1997.  SM  expenses  as a
percentage of net revenues  decreased from 16% to 10% for the nine month periods
ending September 30, 1996 and 1997,  respectively.  The decreases are the result
of cost reduction efforts made during the past year 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 1997 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  $66,642 for the quarter  ended
September  30,  1996 to $187,509  for the  quarter  ended  September  30,  1997.
Depreciation and amortization  increased from $171,955 for the nine months ended
September  30, 1996 to $527,913  for the nine months ended  September  30, 1997.
These  increases  are  primarily  the result of the  capital  expenditures  made
related to the opening and acquisition of Company-owned  and operated  facilites
during the last twelve months.

Product  development  costs  decreased  by 51% to $36,300 for the quarter  ended
September 30, 1997 compared to $73,583 for the quarter ended September 30, 1996.
Product  development costs decreased by 45% to $96,587 for the nine months ended
September 30, 1997 compared to $175,016 for the nine months ended  September 30,
1996. The decrease is the result of cost reduction  efforts  implemented  during
the past year. The Company is continuing to defer certain  development  projects
until the Company's liquidity position improves.

The Company  recognized  an  operating  loss of $514,832  for the quarter  ended
September  30, 1997  compared to an  operating  loss of $103,309 for the quarter
ended September 30, 1996. The Company  recognized an operating loss for the nine
months ended  September 30, 1997 of $1,702,964  compared to an operating loss of
$251,567  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 was a $100,000  severance  accrual,  a
$156,841  adjustment  to the bad  debt  reserves  and a  $91,605  adjustment  to
inventory reserves.

The  Company  recognized  interest  expense of $6,411 and  $12,767 for the three
months and nine months ended September 30, 1997. The Company recognized interest
income of  $24,914  and  $57,929  for the three  months  and nine  months  ended
September  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 facilites.  The interest income in 1996 is the result
of cash  generated  in the  public  offering  in April 1996  being  invested  in
interest bearing accounts.


                                       10
<PAGE>



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  entered into in November  1996. The Company has negotiated a proposed
settlement, whereby the Company has transferred it's rights, title, interest and
control  of the game  center  back to the  seller.  In  return  the  Seller  has
cancelled the $142,500 debt owed by the Company.  The Company also  recognized a
loss of $129,884  during the quarter ended September 30, 1997 on the disposal of
two Namco related Company-owned  facilities located in Cincinnati,  Ohio and San
Bernardino,  California. The Company negotiated the sale of these two facilities
in  order  to  eliminate  approximately  $100,000  of debt  associated  with the
construction  of the San  Bernardino  store and to reduce the number of outlying
stores which had created an economic burden on the Company.

The Company  recognized  an income tax benefit of $29,000 for the quarter  ended
September 30, 1996 and $72,000 for the nine months ended September 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.

                           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




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<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 19, 1997
                                          By: \s\ Robert J. Cooney
                                              ----------------------------------
                                          Robert J. Cooney
                                          President, Chief Executive Officer and
                                          Chief Financial Officer





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<PAGE>


                                  EXHIBIT INDEX


Exhibit             Description                                         Page No.
-------             -----------                                         -------

  27                Financial Data Schedule                               14








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