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 September 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                                             October 31, 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

                               September 30, 1996


                                    INDEX
                                    -----

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


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

          Condensed Statements of Operations -
          Three and Nine months ended September 30, 1996 and 1995          4

          Condensed Statement of Changes in Stockholders Equity
          Nine months ended September 30, 1996                             5

          Condensed Statements of Cash Flows -
          Nine months ended September 30, 1996 and 1995                    6

          Notes to Condensed Financial Statements                          7-8


 Item 2.  Management's Discussion and Analysis
          or Plan of Operation                                             9-12

PART II.  Other Information                                                NA

SIGNATURES                                                                 13










                                       2
<PAGE>


<TABLE>
<CAPTION>

                                                          LASER STORM, INC.

                                                       CONDENSED BALANCE SHEET

                                                               ASSETS
                                                                                              
                                                                                              September 30, 1996   December 31, 1995
                                                                                              ------------------   -----------------

<S>                                                                                                  <C>                <C>        

CURRENT ASSETS:
   Cash and equivalents ......................................................................       $ 2,033,974        $    10,473
   Accounts receivable-trade, net ............................................................           895,656            613,949
   Trade Notes receivable, current ...........................................................           840,731               --
   Inventories ...............................................................................           686,338            442,545
   Deferred income taxes .....................................................................           189,833            111,000
   Prepaid expenses and other ................................................................           425,198             57,524
                                                                                                     -----------        -----------
             Total current assets ............................................................         5,071,730          1,235,491
                                                                                                     -----------        -----------
PROPERTY AND EQUIPMENT, net ..................................................................         1,070,334            337,602

OTHER ASSETS:
   Deferred offering costs ...................................................................              --              277,929
   Software development, net .................................................................            64,523             88,536
   License fees, net .........................................................................            95,191             53,667
   Notes receivable, non-current .............................................................           599,977               --
   Deposits and other ........................................................................            44,628             29,473
                                                                                                     -----------        -----------
             Total other assets ..............................................................           904,319            449,605
                                                                                                     -----------        -----------
TOTAL ASSETS .................................................................................       $ 7,046,383        $ 2,022,698
                                                                                                     ===========        ===========

                   LIABILITIES AND STOCKHOLDERS EQUITY

CURRENT LIABILITIES:
   Accounts payable ..........................................................................       $   515,725        $   722,755
   Accrued expenses ..........................................................................           172,251            104,019
   Accrued compensation ......................................................................           154,835            127,238
   Income taxes payable ......................................................................             --                60,000
   Current maturities of long-term debt ......................................................            24,666             20,294
   Customer deposits and deferred revenue ....................................................            88,102            214,805
   Contingent settlements ....................................................................              --              270,000
                                                                                                     -----------        -----------
             Total current liabilities .......................................................           955,579          1,519,111
                                                                                                     -----------        -----------
LONG TERM DEBT, less current maturities ......................................................            12,087             30,884
DEFERRED INCOME TAXES ........................................................................            59,000             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 in 1995 .............................................................              --                 140
      Series B 12% Convertible Cumulative Preferred Stock, no shares outstanding ..............              --                 --
   Common Stock, $.001 par value; 20,000,000 shares authorized; 1,601,250 and
          3,761,211 shares outstanding at December 31, 1995 and
          September 30, 1996, respectively ....................................................            3,761              1,601
   Additional paid in capital ................................................................         6,301,768            575,136
   Accumulated deficit .......................................................................          (285,812)          (164,174)
                                                                                                     -----------        -----------
              Total stockholders equity ......................................................         6,019,717            412,703
                                                                                                     -----------        -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................................       $ 7,046,383        $ 2,022,698
</TABLE>









See accompanying notes to condensed financial statements



                                 3


<PAGE>

<TABLE>
<CAPTION>

                                                         LASER STORM, INC.

                                                 CONDENSED STATEMENT OF OPERATIONS
                                                                                                                         
                                                                Three Months Ended September 30      Nine Months Ended September 30
                                                                ------------------------------       ------------------------------
                                                                    1996              1995                1996              1995
                                                                    ----              ----                ----              ----

<S>                                                             <C>                <C>               <C>                <C>        
NET REVENUES ............................................       $ 2,245,464        $ 1,895,971       $ 5,124,852        $ 4,065,407
COST OF GOODS SOLD ......................................         1,014,807            763,745         2,148,355          1,787,704
                                                                -----------        -----------       -----------        -----------
GROSS PROFIT ............................................         1,230,657          1,132,226         2,976,497          2,277,703
EXPENSES:
   Selling, general and administrative ..................         1,193,741            549,740         2,881,093          1,520,482
   Depreciation and amortization ........................            66,642             34,568           171,955             77,931
   Product development ..................................            73,583             22,674           175,016            105,835
                                                                -----------        -----------       -----------        -----------
             Total expenses .............................         1,333,966            606,982         3,228,064          1,704,248
                                                                -----------        -----------       -----------        -----------
OPERATING INCOME (LOSS0..................................          (103,309)           525,244          (251,567)           573,455
   Interest income (expense) ............................            24,914             (4,248)           57,929             (5,414)
                                                                -----------        -----------       -----------        -----------
INCOME (LOSS) BEFORE INCOME TAXES .......................           (78,395)           502,996          (193,638)           568,041
   Income tax benefit (expense) .........................            29,000           (115,000)           72,000           (115,000)
                                                                -----------        -----------       -----------        -----------
NET INCOME (LOSS) .......................................           (49,395)           405,996          (121,638)           453,041
Accrued preferred dividends .............................             --                  --             (45,890)              --
                                                                -----------        -----------       -----------        -----------
INCOME (LOSS) AP0PLICABLE TO
   COMMON SHAREHOLDERS ..................................       $   (49,395)       $   405,996       $  (167,528)       $   453,041
                                                                ===========        ===========       ===========        ===========
COMMON SHARES OUTSTANDING ...............................       $ 3,752,000        $ 2,033,000       $ 2,906,000        $ 2,033,000
                                                                ===========        ============      ============       ===========

INCOME (LOSS) PER SHARE APPLICABLE
  TO COMMON SHSAREHOLDERS ...............................       $     (0.01)       $      0.20       $     (0.06)       $      0.22
                                                                ===========        ===========       ===========        ===========

</TABLE>











See accompanying notes to condensed financial statements



                                    4
<PAGE>

<TABLE>
<CAPTION>

                                                         LASER STORM, INC.
                                       CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                                                          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, including
     accrued dividends .........................      (340,000)          (340)       629,961           630

   Exercise of e4mployee stock options .........          --               --          2,500             3

   Issuance of common stock for purchase of
      Laser Storm Game Center .................           --               --         32,500            32

   Net loss ....................................

                                                   -----------    -----------    -----------   -----------
BALANCE, September 30, 1996.....................          --      $        --      3,761,211   $     3,761
                                                   ===========    ===========    ===========   ===========
<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 ...     (1,272,033)          --      (1,272,033)
                                                
   Conversion of Series A and B 12 % Convertible
     Cumulative Preferred Stock, including
     accrued dividends .........................           (290)          --          --   

   Exercise of e4mployee stock options .........            497           --             500

   Issuance of common stock for purchase of
      Laser Storm Game Center .................         129,966           --         130,000
                                                
   Net loss ....................................                     (121,638)      (121,638)
                                                   ------------    ----------    ----------- 
BALANCE, September 30, 1996.....................   $  6,301,766   $  (285,812)   $ 6,019,717

</TABLE>



See accompanying notes to condensed financial statements





                                       5

<PAGE>
<TABLE>
<CAPTION>
                                                         LASER STORM, INC.


                                                  CONDENSED STATEMENT OF CASH FLOWS

                                                                                                      Nine Months Ended September 30
                                                                                                      ------------------------------
                                                                                                          1996               1995
                                                                                                          ----               ----
<S>                                                                                                 <C>                 <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income ( loss ) .....................................................................        $  (121,638)        $   453,041
   Adjustments to reconcile net income ( loss )
      to net cash provided by (used
      in ) operating activities
      Depreciation and amortization ........................................................            171,955              77,930
      Loss (gain) on asset disposition......................................................             (6,821)              5,841
      Provision for bad debts ..............................................................             22,000              21,540
      Deferred income tax (benefit).........................................................            (79,833)             33,000
      Notes receivable for sale of Laser Systems ...........................................         (1,558,069)                --
      Changes in operating assets and liabilities
         ( Increase ) decrease in:
             Accounts receivable ...........................................................           (293,317)           (188,199)
             Inventories ...................................................................           (220,083)            122,577
             Other .........................................................................           (352,837)            (67,040)
         Increase ( decrease ) in:
             Accounts payable ..............................................................           (224,739)             41,407
             Accrued expenses ..............................................................             95,828             148,621
             Income taxes payable ..........................................................            (60,000)               --
             Customer deposits and deferred revenue ........................................           (126,703)          (472,281)
             Contingent settlements ........................................................           (270,000)               --
                                                                                                    -----------         -----------
   Net cash provided by ( used in ) operating activities ...................................         (3,024,257)            176,437
                                                                                                    -----------         -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures for property and equipment .........................................           (700,377)            (97,340)
   Software development costs ..............................................................               --               (24,709)
   License costs ...........................................................................            (85,000)            (12,500)
   Collection of principal balance of notes receivable .....................................             17,361                 --
   Loan advanced to seller of Laser Storm Game Center ......................................            (46,380)                --
                                                                                                    -----------         -----------
          Net cash ( used in ) financing activities ........................................           (814,396)           (134,549)
                                                                                                    -----------         -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of Series B 12% Convertible Cumulative Preferred Stock ...............            890,185                --
   Proceeds from sale of Common Stock in public offering....................................          5,202,600                --
   Proceeds from exercise of employee stock options ........................................                500
   Deferred offering costs .................................................................           (216,706)            (22,631)
   Principal payments on notes payable .....................................................            (14,425)             (7,011)
                                                                                                    -----------         -----------
          Net cash provided by ( used in ) financing activities ............................          5,862,154             (29,642)
                                                                                                    -----------         -----------


NET INCREASE IN CASH .......................................................................          2,023,501             1282461


CASH AND EQUIVALENTS, at beginning of period ...............................................             10,473              16,228
                                                                                                    -----------         -----------
CASH AND EQUIVALENTS, at end of period .....................................................        $ 2,033,974         $    28,474
                                                                                                    ===========         ===========
</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  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 nine months ended  September 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 $4,707,967, after paying the aforementioned discounts and expenses
to the  underwriters and other offering costs totaling  $494,633.  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 200,000
shares of Series B 12% Convertible  Cumulative  Preferred Stock, and accrued but
unpaid dividends of  approximately  $46,000 related to the Series A and Series B
Preferred Stock on the date of conversion.
    

3.       Notes Receivable:

   
In June 1996,  the Company began  offering a financing  program to its customers
for sales of its systems and arenas.  The program  requires 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.  Through  September  30,  1996,  sales under this
program total  $2,235,845,  and the amount  financed as of September 30, 1996 is
$1,540,708.
    

4.       Earnings Per Share:

   
For the quarter and nine months ended  September 30, 1995,  the  calculation  of
weighted  average shares  outstanding  includes all common stock options and the
Series A and Series B 12% Convertible  Cumulative  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 nine months ended
September 30, 1995,  using the treasury stock method based on the $4.00 per unit
offering price.

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




                                       7
<PAGE>
   
                                LASER STORM, INC.
    

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                                    CONTINUED


   
5.       Purchase of Laser Storm Game Center:

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 of the shares 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.

6.       Concentration of Credit Risk:

At September 30, 1996,  cash and  equivalents  included an investment in a money
market fund in the amount of $2,033,000.


7.       Subsequent Events:

In November  1996,  the Company  purchased  an existing  Laser Storm Game Center
located  in  Coral  Springs,   Florida  from  unaffiliated  persons.  The  total
consideration  was  $300,000,  which was paid at closing by paying  $142,500  in
cash,  the  cancellation  of a $15,000  receivable  and by paying the balance of
$142,500 by issuing 35,625 shares of the Company's common stock. Pursuant to the
terms of the asset purchase  agreement,  the Company is  registering  the 35,625
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 $142,500,  the
Company will  immediately pay the seller the difference  between the sales price
of the shares  and  $142,500.  Any  remaining  shares  will be  returned  to the
Company.  If the sales price is more than  $142,500,  the Company has no further
obligation  to the seller and the seller is entitled to retain any excess shares
or purchase price.
    











                                       8
<PAGE>



                                LASER STORM, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                              OR PLAN OF OPERATIONS



RESULTS OF OPERATIONS:
   
The following table sets forth items from the Company's Condensed  Statements of
Operations as a percentage of net revenues:
<TABLE>
<CAPTION>
                                          Quarter Ended September 30    Nine Months Ended September 30
                                          --------------------------    ------------------------------
                                             1996           1995            1996           1995
                                             ----           ----            ----           ----
<S>                                          <C>            <C>            <C>         <C>   
Net revenues ............................... 100.0%         100.0%         100.0%        100.0%
Cost of goods sold .........................  45.2%          40.3%          41.9%         44.0%
                                             -----          -----          -----         -----
Gross Profit ...............................  54.8%          59.7%          58.1%         56.0%
Expenses
  General and administrative  ..............  32.0%          19.2%          34.7%         24.1%
  Selling and marketing ....................  21.2%           9.8%          21.5%         13.3$
  Depreciation and amortization ............   3.0%           1.8%           3.4%          1.9%
  Product development ......................   3.3%           1.2%           3.4%          2.6%
                                             -----          -----          -----          ----- 
     Total expenses ........................  59.5%          32.0%          63.0%         41.9%
                                             -----          -----          -----          -----
Operating income (loss) ....................  (4.7%)         27.7%          (4.9%)        14.1%
  Interest income (expense) ................    .1$          (0.2%)          1.1%         (0.1%)
                                             ------         ------         ------         ------
Income (loss) before income taxes ..........  (3.6%)         27.5%          (3.8%)        14.0%
  Income tax (expense) benefit .............   1.3%          (6.1%)          1.4%         (2.8%)
                                             ------         ------         ------         ------
Net income (loss)                             (2.3%)         21.4%          (2.4%)        11.2%
                                             ======         ======         ======         ======
</TABLE>
    


Net  revenues for the quarter  ended  September  30,  1996,  increased by 18% to
$2,245,464,  as compared to $1,895,971 for the quarter ended September 30, 1995.
The  increase was  primarily  the result of  increased  themed arena sales.  The
average selling price of the themed arenas has increased by 70% as the result of
increased  sizes of arenas sold as well as premiums being charged for new themed
arenas being offered. The Company's newest attraction, the Stargate arena, has a
54% higher per square foot selling  price than the original  arena  developed by
the Company,  the Galaxy.  Also contributing to the increase in net revenues was
the acquisition or opening of two Company-owned facilities in Longmont, Colorado
and  Cincinnati,  Ohio.  The Company's  warranty  sales have also increased as a
result of the  increased  number of systems being  operated  under the Company's
"Built-to  Blast"  warranty  program.  A specific  breakdown  of  revenues is as
follows:


                                                     Quarter Ended September 30,
                                                          1996            1995
                                                          ----           ----
   
         System Sales ..........................      $  977,793      $1,124,442
         Upgrade Sales .........................          17,050            --
         Arena Sales ...........................         782,809         406,365
         Warranty Sales ........................         111,306          87,565
         Accessories Sales .....................         296,930         277,599
         Company-owned facilities ..............          59,576            --
                                                      ----------      ----------
    
                           Net Revenues ........      $2,245,464      $1,895,971
                                                      ==========      ==========



                                       9
<PAGE>

                                LASER STORM, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                              OR PLAN OF OPERATIONS

                                   (Continued)

Net revenues  for the nine months  ended  September  30, 1996  increased  26% to
$5,124,852,  as compared to $4,065,407  for the nine months ended  September 30,
1995. The primary reason for this increase is the increase in arena and warranty
sales and the  acquisition  or opening  of two  Company-owned  facilities.  Also
contributing  to the  increase  was the  promotion  of  upgrade  options  to the
Company's  existing  customer base,  most of which took place during the quarter
ended June 30, 1996. A specific breakdown of revenues is as follows:

                                                 Nine Months Ended September 30,
                                                        1996            1995
                                                        ----            ----
   
         System Sales ..........................      $2,486,156      $2,499,858
         Upgrade Sales .........................         136,036            --
         Arena Sales ...........................       1,446,766         763,689
         Warranty Sales ........................         289,548         189,505
         Accessories Sales .....................         706,770         612,355
         Company-owned Facilities ..............          59,576            --
                                                      ----------      ----------
    
                           Net Revenues ........      $5,124,852      $4,065,407
                                                      ==========      ==========
   
The Company introduced a new financing program during the quarter ended June 30,
1996  which  accounted  for 56% and 44% of net  revenues  for the three and nine
months ended  September 30, 1996,  respectively.  In October  1996,  the Company
entered into an agreement with a financing institution which will purchase these
receivables,  provided  they  meet  the  credit  requirements  outlined  in  the
agreement.

Gross profit  decreased  during the quarter  ended  September  30, 1996 to 54.8%
compared  to 59.7%  for the  quarter  ended  September  30,  1995.  The  Company
experienced  this  decrease  in  margin  primarily  as a result of  selling  two
"hardwall" arenas during the quarter which are at lower than normal margins. The
hardwall  arenas  have a  lower  margin  because  they  are  manufactured  by an
independent vendor, rather than by the Company. The hardwall arena is considered
a turnkey  opportunity  for the customer in that it includes  the normal  themed
barriers and other game components as well as carpet,  sales counters and a sign
package.  Gross  profit as a percent of net revenues  increased  during the nine
months ended  September 30, 1996 to 58.1%  compared to 56.0% for the nine months
ended  September 30, 1995.  This increase is the result of lower direct material
and direct labor costs.  The Company has realized  efficiencies  from  increased
volumes, improved purchasing management and improved assembly processes.

Selling,  general and  administrative  expenses  ("SGA  expenses")  increased by
117.1% to  $1,193,741  for the quarter  ended  September  30,  1996  compared to
$549,740 for the quarter ended September 30,1995.  "SGA expenses as a percent of
net revenues  increased from 29.0% to 53.2% for the quarters ended September 30,
1995 and 1996,  respectively.  "SGA expenses"  increased  $1,360,611 or 89.5% to
$2,881,093 for the nine months ended September 30, 1996,  compared to $1,520,482
for the nine months ended September 30, 1995. "SGA expenses" as a percent of net
revenues  increased  from  37.4%  to  56.2%  for the nine  month  periods  ended
September  30, 1995 and 1996,  respectively.  The  increases  are  primarily the
result of additions to sales staff and  administrative  staff in anticipation of
opening  Company-owned  and Company  operated  facilities and as a result of the
Company being a publicly held company. The Company did acquire one Company-owned
facility   (Longmont,   Colorado)  and  opened  one  Company  operated  facility
(Cincinnati,  Ohio) during the quarter ended  September 30, 1996.  Revenues from
these two facilities  were $59,576 for the quarter ended September 30, 1996. The
Company  has  executed  agreements  and  is  moving  forward  with  opening  six
Company-owned  facilities in a cooperative  agreement with Namco  Cybertainment,
Inc. who owns and  operates  500 video  arcades  throughout  the United  States.
Further,  the Company has either  executed or is in final lease  negotiations on
six additional locations with scheduled openings in the first quarter of 1997. .
Additionally  the Company is  developing a new themed  laser game called  Marvel
Comics X- Men Danger Room Laser Tag. The Company  acquired the exclusive  rights
to the X-Men license from Marvel Comics, Inc. X-Men laser tag will be introduced
to the amusement  trade in November  1996 at the  International  Association  of
Amusement Parks and Attractions  (IAAPA).  The first X-Men laser tag facility is
expected to open in February  1997. The Company has also increased its sales and
marketing  efforts   internationally  because  the  Company  believes  there  is
potential for sales of the Company's products outside the United States.

    

                                       10


<PAGE>


                                LASER STORM, INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                              OR PLAN OF OPERATIONS

                                   (Continued)

   
During the nine months ended September 30, 1996 the Company  increased its sales
and marketing  efforts by  approximately  $560,000 in order to support the above
projects.  The Company  believes it is now  positioned  to meet its domestic and
international  sales  objectives with new product  introductions  as well as its
objectives of opening future Company-owned and Company operated facilities.  The
Company did incur approximately  $350,000 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  to  $73,583  for  the  quarter  ended
September  30, 1996,  compared to $22,674 for the quarter  ended  September  30,
1995.  These expenses  increased to $175,016 for the nine months ended September
30, 1996  compared to $105,835  for the nine months  ended  September  30, 1995.
These  increases are primarily the result of the design and  development  of the
new X-Men game and other new game  features  the Company  will  introduce at the
IAAPA show in November  1996.  The Company is planning to continue to update and
improve the design of its themed laser games.
    

The Company generated $24,914 of interest income for the quarter ended September
30,  1996  compared to  interest  expense of $4,248  during the same period last
year.  Interest  income was $57,929 for the nine months ended September 30, 1996
compared to interest  expense of $5,414 for the nine months ended  September 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.

   
The Company  recognized an operating  loss for the quarter  ended  September 30,
1996 of $103,309  compared to operating income of $525,244 for the quarter ended
September 30, 1995. The Company experienced a $251,567 operating loss during the
nine months ended  September 30, 1996  compared to operating  income of $573,455
for the nine months ended  September  30,  1995.  The  operating  losses for the
quarter and nine month  period  ended  September  30, 1996 are the result of the
additional  operating  expenses  incurred in establishing the  Company-owned and
Company  operated  facilities,  in designing and  developing  the X-Men game and
arena, and in expanding the sales efforts into the international market and as a
result of the increased costs of the Company becoming a publicly-held company.

The  Company  recognized  income tax  benefits  of $29,000  and  $72,000 for the
quarter and nine months ended September 30, 1996, respectively. The benefits are
based upon an  effective  tax rate of 37%.  The  provisions  for income taxes of
$115,000  for the quarter and nine months  ended  September  30, 1995 are net of
full utilization of net operating loss carry-overs from prior years.
    
















                                       11
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

   
The Company's  operations used cash flow of $3,024,257 for the nine months ended
September 30, 1996, but provided cash flow of $176,437 for the same period ended
September  30, 1995.  Cash flow was used during the first nine months of 1996 to
fund sales made through  both the new  extended  term  financing  program  being
offered by the Company  ($1,558,069) and an increase in the accounts  receivable
($293,317).   The  Company   increased  its  inventory   levels   ($220,083)  in
anticipation   of  increased  sales  and  the  opening  of   Company-owned   and
Company-operated  facilities.  Payments were also made on both accounts  payable
($224,739), which had become aged when cash was being conserved until the public
offering was completed; and to settle the contingent liabilities the Company had
incurred during 1995. The Company made payments for initial minimum royalties of
$60,000 to Marvel  Characters,  Inc. and for development  costs of the new X-Men
game  ($131,000).  In October 1996, the Company entered into an agreement with a
financial  institution  which will purchase notes receivable under the Company's
extended  terms  program.  The  financial  institution   determines  the  credit
worthiness of the customer and then, if appropriate, purchases the receivable at
a discount (14% as of October 31, 1996).

Capital  expenditures for the nine months ended September 30, 1996 were $700,377
compared to $97,340 for the same period last year.  The Company made payments of
$406,426  to fund  up-front  capital  requirements  associated  with  opening of
Company owned and Company-  operated  facilities,  two of which were acquired or
opened by September 30, 1996. The remaining $293,951 in capital expenditures was
for the purchase of new trade show equipment and office  equipment as well as to
make some leasehold improvements in the Company's new office and assembly space.
    
   
Financing  activities provided $5,992,154 of cash flow for the nine months ended
September  30,  1996 as compared to a use of cash of $29,642 for the nine months
ended  September 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 $890,185 . 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 $4,707,967.

Management  believes 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.
    

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. McNutt
                                        -----------------------------------
                                        John E. McNutt
                                        Vice President, Finance