<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-QSB/A

[X]    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                             OF 1934 

              FOR THE QUARTERLY PERIOD ENDED  SEPTEMBER 30, 1996
                                             --------------------
                                     
[_]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                         ACT OF 1934 
             For the transition period from ________ to ________
                         COMMISSION FILE NUMBER 0-25488

                        THE L.L. KNICKERBOCKER CO., INC.
                 (Name of Small Business Issuer in its Charter)

                  CALIFORNIA                                     33-0230641
      (State or Other Jurisdiction of                        (I.R.S. Employer
      Incorporation or Organization)                        Identification No.)
               30055 COMERCIO                                      92688
       Rancho Santa Margarita, CA                                (Zip Code)
(Address of Principal Executive Offices)

        ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 858-3661

        
     Check whether the issuer:  (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes    X     No 
     ----       ----

     The number of shares outstanding of the registrant's Common Stock, as of
November 13, 1996 was 15,107,784.

     Transitional Small Business Disclosure Format    Yes       No   X
                                                          ----     ----


<PAGE>
 
                               TABLE OF CONTENTS
                               -----------------

<TABLE> 
<CAPTION> 
ITEM                                                                    PAGE
----                                                                    ----
<S>                                                                     <C> 
                        PART I - Financial Information
                        ------------------------------
1.  FINANCIAL STATEMENTS...............................................   1

    A.  Condensed Consolidated Income Statements (unaudited) for
          the three and nine month periods ended September 30, 1996
          and September 30, 1995.......................................   1

    B.  Condensed Consolidated Balance Sheets (unaudited) at
          September 30, 1996 and December 31, 1995....................... 2

    C.  Condensed Consolidated Statements of Cash Flows (unaudited)
          for the nine month periods ended September 30, 1996 and
          September 30, 1995 ..........................................   4

    D.  Notes to Condensed Consolidated Financial Statements...........   5
 
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS................................   9
 
    A.  General Business Description...................................   9
    B.  Results of Operations..........................................   10
    C.  Liquidity and Capital Resources................................   12

                          PART II - Other Information
                          ---------------------------
   
5.  OTHER INFORMATION
    
    A. Acquisition of Harlyn International Company, Ltd................   13
    B. Issuance of Convertible Debentures and Warrant..................   14
    
6.  Exhibits and Reports on Form 8-K...................................   15

    SIGNATURES.........................................................   16


</TABLE> 

                                       i
<PAGE>
 
                                    Sheet 1

                         PART I. FINANCIAL INFORMATION
                         -----------------------------


Item 1.  Financial Statements
------   --------------------


                       THE L.L. KNICKERBOCKER CO., INC.
                   CONDENSED CONSOLIDATED INCOME STATEMENTS
                                  (unaudited)


<TABLE>
<CAPTION>
                                             Three months ended September 30,               Nine months ended September 30,
                                             -------------------------------                -------------------------------
                                              1996                     1995                  1996                     1995
                                             ------                   ------                ------                   ------
<S>                                        <C>                     <C>                     <C>                     <C>
Sales, net of returns                       $ 8,271,591             $ 4,774,324              18,852,412             $ 9,125,228

Cost of sales                                 4,676,772               1,731,242               9,971,212               3,858,723
                                            -----------             -----------             -----------             -----------
Gross profit                                  3,594,819               3,043,082               8,881,200               5,266,505

Selling, general and administrative
expenses                                      3,278,428               1,169,568               6,807,736               2,986,740
                                            -----------             -----------             -----------             -----------
Income from operations                          316,391               1,873,514               2,073,464               2,279,765

Interest and other income (expense),
net                                             146,891                  62,175                 184,427                 132,036
                                            -----------             -----------             -----------             -----------

Income before provision for income
taxes                                           463,282               1,935,689               2,257,891               2,411,801

Provision for income taxes                       73,934                 774,275                 792,971                 962,211
                                            -----------             -----------             -----------             -----------
Net income                                      389,348               1,161,414               1,464,920               1,449,590
                                            ===========             ===========             ===========             ===========

Net income per share (See
Primary                                     $      0.02             $      0.07             $      0.09             $      0.11
Fully Diluted                               $      0.02             $      0.07             $      0.09             $      0.09
                                            ===========             ===========             ===========             ===========

Weighted average common
shares outstanding:
Primary                                      17,236,195              16,097,153              16,310,702              13,770,531
                                            ===========             ===========             ===========             ===========
Fully Diluted                                17,261,260              16,191,356              16,380,230              13,852,744
                                            ===========             ===========             ===========             ===========
</TABLE>

                                    Page 1


<PAGE>
 
                       THE L.L. KNICKERBOCKER CO., INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   September 30,                       December 31,
                                                                       1996                                1995
                                                                   -------------                       ------------
                                                                    (unaudited)                         (unaudited)
<S>                                                               <C>                                 <C>
ASSETS

Cash and cash equivalents                                           $16,385,153                         $ 2,469,750
Accounts receivable                                                   5,986,095                           5,456,701
Inventories                                                           6,210,633                             413,576
Prepaid expenses & other current assets                               2,553,628                           1,655,446
Deferred income taxes                                                 1,906,259                             394,900
                                                                    -----------                         -----------

    Total current assets                                            $33,041,768                         $10,390,373

Property and equipment, net                                           3,889,807                             226,574
Investments                                                           3,412,152                             590,000
Other assets                                                          1,058,792                               6,667
Goodwill, net                                                         4,433,895
                                                                    -----------                         -----------

                                                                    $45,836,414                         $11,213,614
                                                                    ===========                         ===========
</TABLE>

                                    Page 2

<PAGE>
 
                       THE L.L. KNICKERBOCKER CO., INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                                   September 30,              December 31,
                                                                        1996                      1995
                                                                   -------------              ------------       
                                                                    (unaudited)                (unaudited)

<S>                                                                <C>                       <C> 
LIABILITIES AND                                                                          
STOCKHOLDERS' EQUITY                                                                     
                                                                                         
Liabilities:                                                                            
Accounts payable and accrued                                                             
expenses                                                           $ 5,773,721               $   984,805
Commissions and royalties payable                                      632,556                   407,503
Notes payable to Harlyn shareholders                                 2,224,262                                              
Income taxes payable                                                   784,569                 1,066,941
Other current liabilities                                              268,005                    83,917
                                                                   -----------               -----------
                                                                                                        
   Total current liabilities                                       $ 9,683,113               $ 2,543,166
                                                                                                        
Convertible debentures                                              15,500,000                          
Notes payable                                                        2,756,955                          
Deferred income                                                        104,443                    50,854
Deferred income taxes                                                   19,450                    19,450
                                                                   -----------               -----------
                                                                                                        
   Total long-term liabilities:                                    $18,380,848               $    70,304
                                                                                                        
Stockholders' equity:                                                                                  
Common Stock                                                         9,088,744                 6,574,677
Additional paid-in capital                                           5,443,322                   250,000
Retained earnings                                                    3,240,387                 1,775,467
                                                                   -----------               -----------
                                                                                                        
   Total stockholders' equity                                      $17,772,453               $ 8,600,144
                                                                   -----------               -----------
                                                                                                        
                                                                   $45,836,414               $11,213,614
                                                                   ===========               ===========
</TABLE> 

                                    Page 3
<PAGE>
 

                        THE L.L. KNICKERBOCKER CO., INC
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)

<TABLE> 
<CAPTION> 
                                                                                 1996                             1995
                                                                             -------------                    -------------
<S>                                                                          <C>                              <C> 
Cash flows provided by (used in) operating activities :                
        Net income                                                            $ 1,464,920                     $ 1,449,590
        Adjustments to reconcile net income                                                                    
         to net cash provided by (used in) operations :                                                        
             Depreciation and amortization                                        176,702                          21,069
             Amortization of deferred revenue                                     (70,001)                        (72,222)
             Reserve for discontinuance of operations                            (277,705)                     
             Loss on investment                                                    30,000                               0
             Equity on net loss of investee                                        84,890
             Deferred income taxes                                                228,929
             Common stock received in lieu of cash                                                               (140,000)
        (Increase) decrease in :                                                                               
             Accounts receivable                                                  (98,514)                     (4,177,362)
             Inventories                                                         (949,521)                        261,808
             Other current assets                                                (758,906)                       (678,656)
             Other assets                                                          76,895                     
        Increase (decrease) in :                                                                               
             Accounts payable and accrued expenses                               (808,992)                         85,704
             Commissions payable                                                  (73,694)                        136,900
             Income taxes payable                                                (282,372)                        338,661
             Other current liabilities                                            211,217                          37,608
                                                                              -----------                     -----------
Net cash provided by (used in) operating                                                                       
        activities                                                            $(1,046,152)                    $(2,736,900)
                                                                                                               
Cash flow used for investing activities :                                                                      
        Purchases of machinery and equipment                                     (306,886)                       (102,615)
        Other assets                                                                   -                          (43,400)
        Investments on common stock of investees                               (1,232,042)                        
        Cash paid for acquisitions less cash acquired                            (714,568)
                                                                              -----------                     -----------
Net cash provided by (used in) investing activities                           $(2,253,496)                    $  (146,015)
                                                                                                               
Cash flow provided by (used in) financing activities :                                                         
        Proceeds from net borrowings on credit line                           $   434,410                      
        Proceeds from exercise of common stock                                                                 
         purchase warrants                                                      2,144,364                       
        Repayments on note payable to stockholder                                                                 (94,132)
        Receipt (payment) of royalty commitment                                   (27,723)                        (15,000)
        Deferred offering costs                                                                                  (116,525)
        Principal payments on note payable                                        (66,720)
        Deferred debt issue costs                                                (769,280)   
        Proceeds from issuance of convertible debentures                       15,500,000                       
        Proceeds from initial public offering of stock                                                          5,599,776
                                                                              -----------                     -----------
                                                                                                               
Net cash provided by (used in) financing activities                           $17,215,051                     $ 5,490,644
                                                                              -----------                     -----------
                                                                                                               
Net increase (decrease) in cash                                                13,915,403                       2,607,229
Cash, beginning of period                                                       2,469,750                         106,553
                                                                              -----------                     -----------
Cash, end of period                                                           $16,385,153                     $ 2,714,282
                                                                              ===========                     ===========
</TABLE> 

Noncash investing and financing activity - The Company received 800,000 shares
of common stock in exchange for performing marketing services. The Company has
recorded an asset for the discounted value of the stock received and a deferred
revenue liability which is amortized to income over the term of the marketing
agreement.

                                       4
<PAGE>
 
                        THE L.L. KNICKERBOCKER CO., INC.
                        NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS


NOTE 1:  As contemplated by the Securities and Exchange Commission under Item
-------                                                                      
310(b) of Regulation S-B, the accompanying financial statements and footnotes
have been condensed and therefore do not contain all disclosures required by
generally accepted accounting principles.

NOTE 2: Basis of Presentation:
-------                      

The information set forth in these consolidated financial statements is
unaudited except for the December 31, 1995 balance sheet.  These statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information, the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.

The accompanying consolidated financial statements consolidate the accounts of
Krasner Group, Inc. ("Krasner") which was acquired on June 18, 1996, Harlyn
International Company, Ltd. which was acquired effective July 1, 1996, and L.L.
Knickerbocker (Thai) Company, Ltd, which includes the operations of Grant King
International,Ltd and S.L.S Trading Co., Ltd, which were acquired effective July
1, 1996.  All intercompany transactions have been eliminated.

In the opinion of management, all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation have been included.  The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996.  For further information, refer to the financial statements
and notes thereto included in the Company's annual report for the year ended
December 31, 1995.

NOTE 3:  Acquisition:
------               

On June 18, 1996, the Company acquired the business, assets and properties of
Krasner Group, Inc., a Delaware corporation ("TKG"), a manufacturer and
wholesaler of costume jewelry and women's fashion accessories. TKG was acquired
pursuant to an Agreement of Purchase and Sale dated June 18, 1996 (the
"Agreement") by and among TKG, TKG's stockholders: Martin P. Krasner and Ina
Ostrow, as Trustees U/I DTD 2/5/85 FBO Martin P. Krasner, Martin and Stephanie
Krasner, as Trustees U/I DTD June 15, 1970, Joan Glaser, as Executor of the
Estate of Murray Glaser, F. William Graham, Consumer Venture Partners I, L.P.,
Donald F. Swanson, as Trustee, Donald F. Swanson Revocable Trust U/A Dated
December 22, 1988, and the Company. Pursuant to the Agreement, the Company
acquired from the above named stockholders all of the capital stock of TKG.
Following the acquisition, the Company intends to operate TKG as a subsidiary of
the Company, and TKG shall continue to operate under its current name in its
current line of business.

                                       5
<PAGE>
 
The consideration for the acquisition of TKG consisted of the following: (a) 
$ 1,375,000 payable in value of common stock purchase warrants of the Company's
Common Stock to the holders of preferred stock of TKG in equal installments of 
$ 275,000 payable on June 18, 1996, September 30, 1996, December 31, 1996, March
31, 1997, and June 30, 1997, (b) $ 358,489 payable on June 18, 1996 in value of
common stock purchase warrants of the Company's Common Stock to the holders of
common stock of TKG, (c) a contingent amount of $330,000 payable in value of
common stock purchase warrants of the Company's Common Stock to the holders of
the preferred stock of TKG upon the future liquidation of the first $300,000 
of closing inventory of TKG, (d) a contingent amount equal to approximately 
$ 2,000,000 payable quarterly to Martin P. Krasner, as Trustee of the above
referenced trusts, in value of common stock purchase warrants of the Company's
Common Stock upon the future liquidation of the closing inventory of TKG, (e)
the guarantee by the Company of the repayment of TKG's line of credit with its
lending institution, IBJ Shroder Bank & Trust Company ("IBJ Shroder"), which
totalled approximately $1,800,000 on April 28, 1996; in connection with the
guarantee, the Company agreed to provide a $500,000 deposit to IBJ Schroder for
the purpose of collateralizing the line of credit; such account shall bear
interest at market rates and belong to the Company, (f) the Company agreed to
arrange substitute financing of the line of credit for TKG no later than
September 30, 1996, (g) the Company agreed to pay to an unrelated individual,
Jason Workman,, a finders fee in connection with the acquisition in the amount
of $275,000 payable in value of common stock purchase warrants of the Company's
Common Stock, (h) the Company agreed to grant to Richard Ogust an aggregate of
$308,000 payable in value of common stock purchase warrants of the Company's
Common Stock to be delivered in equal installments on June 18, 1996 and June 18,
1997 in connection with a liability owed to Richard Ogust by TGK, and (I) the
Company agreed to grant to key employees of TKG at June 18, 1996 warrants to
purchase 20,987 shares of the Common Stock of the Company at the exercise price
of $7.75 per share. With respect to the contingent amounts specified above,
warrants will be issued in the quarter following inventory liquidation on a
basis of $1 in warrant value of the Company's Common Stock per $1 in cash
received by the Company from the liquidation of the closing inventory of TKG.
Value in connection with each share of common stock covered by a warrant means
the difference between the average closing bid price of the Company's Common
shares for the five trading days immediately preceding the date of delivery of
the warrant and the exercise price of the warrant.

The acquisition of TKG by the Company was accounted for under the purchase
method. While management is not aware of any adjustments that would currently be
required, the allocation of the purchase price will be adjusted to the extent
that amounts differ from their estimates in accordance with Statements of
Financial Accounting Standards No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises". The results of operations for the 9
months ended September 30, 1996 include TKG's operations from June 18, 1996
through September 30, 1996.

                                       6
<PAGE>
 
NOTE 3:  Acquisition (continued):
------                           
On a proforma basis, if the Company and TKG had been combined as of the
beginning of the fiscal year, sales for the nine month period ended September
30, 1996 would have been $17,508,381 and net loss after tax would have been
$1,081,372 or $.07 share. On a pro forma basis, if the companies had been
combined as of the beginning of the fiscal year, sales for the nine month period
ended September 30, 1995 would have been $16,084,018 and net income after tax
would have been $961,617 or $.07 share. The unaudited proforma financial
information presented above is not necessarily indicative of either the results
of operations that would have occurred had the acquisition occurred at the
beginning of the periods presented or of future results of operations of the
consolidated companies. The above nine month periods ended September 30, 1996
and 1995 include Krasner Group, Inc.'s activity from January 29, to September
30, or 8 months of activity.

NOTE 4:   On November 14, 1996, the Company completed a transaction whereby it
------
acquired 100% of the outstanding common stock of Harlyn International Company,
Ltd. ("Harlyn"), a costume jewelry manufacturing company located in Bangkok,
Thailand for approximately $2,300,000 in cash. The effective date of the
transaction was July 1, 1996. On a proforma basis, if the Company and Harlyn had
been combined as of the beginning of the fiscal year, sales for the nine month
period ended September 30, 1996 would have been $13,582,458 and net income after
tax would have been $642,040 or $.04 share. On a pro forma basis, if the
companies had been combined as of the beginning of the fiscal year, sales for
the nine month period ended September 30, 1995 would have been $13,358,622 and
net income after tax would have been $2,105,506 or $.16 share. The unaudited
proforma financial information presented above is not necessarily indicative of
either the results of operations that would have occurred had the acquisition
occurred at the beginning of the periods presented or of future results of
operations of the consolidated companies. The above nine month periods, due to
Harlyn International, Ltd.'s fiscal year end of June 30, 1996 and 1995, ended
September 30, 1996 and 1995 include Harlyn International, Ltd.'s activity from
July 1, 1996 to September 30, 1996 and July 1, 1995 to September 30, 1996, or 8
months of activity.

NOTE  5:  On  March 13,  1996, the  Company  entered into an agreement to
--------                                                                 
acquire 40% of the outstanding common stock of Pure Energy Corporation, a
privately held corporation. Under the terms of the agreement, the company's
Chief Executive Officer will assume the post of Chairman and Chief Executive
Officer of Pure Energy Corporation. The Company received the 40% interest in
exchange for its commitment to fund up to $1,000,000 of further development and
marketing costs associated with Pure Energy Corporation's product and by issuing
in April 1996 400,000 stock options exercisable in the following manner, 200,000
exercisable at $8.50 per share and 200,000 at $12.00 per share. The Company
accounted for the performance of the investment on the funding commitment on the
equity method of accounting. The Company, in October of 1996, participated in a
$5,000,000 private placement of equity in Pure Energy Corporation by investing
$2,000,000 for additional equity, after which the Company owned approximately
38% of the outstanding Common Stock of Pure Energy Corporation.

NOTE 6:  The Company capitalizes certain direct-response advertising costs and
-------                                                                       
amortizes such costs over a four month period beginning on the date the
advertisement airs. The four month period approximates the period during which
future period revenues are expected to be received from each direct-response
advertising campaign. The nature of the direct-response advertising costs are
primarily advertising and design costs associated with print advertisements.

                                       7
<PAGE>
 
NOTE 7: On February 7, 1996, the Company acquired 49% of the outstanding capital
-------                                                              
stock of Grant King International Co., Ltd. located in Bangkok, Thailand. The
Company acquired the interest in Grant King International, Co. Ltd. in exchange
for the issuance to its sole stockholder of 300,000 warrants exercisable at
$5.50 per share. The Company has recorded an asset in the amount of $250,000
representing the ascribed value of the Company's investment in Grant King
International, Co. Ltd. Additionally, on June 21, 1996, the Company acquired the
remaining 51% interest in Grant King International, Ltd. for $414,000 in cash.
The effective date for this second acquisition was July 1, 1996.

On June 21, 1996, the Company entered into an agreement to acquired certain
assets of S.L.S Trading Co., Ltd for $650,000 paid with $150,000 in cash and
$500,000 in stock warrants. The effective date of the transaction was July 1,
1996.

In August of 1996, the Company merged the operations of both Grant King
International Co., Ltd. and S.L.S Trading Co., Ltd into a Thai corporation named
The L.L. Knickerbocker (Thai) Company, Ltd.  The corporation was inactive prior
to the date of the merging of the above operations.

NOTE 8:  In October 1995, the Financial Accounting Standards Board issued
-------                                                                  
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", which became effective for the Company beginning
January 1, 1996.  SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation costs to be measured based on the fair value of the equity
instrument awarded.  Companies are permitted, however, to continue to apply APB
Opinion No. 25, which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded.  The Company will continue to apply APB
Opinion No. 25 to its stock based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings per share.

NOTE 9: On September 24, 1996, the Company completed a private placement of
-------                                                                         
convertible debentures of the Company which raised gross proceeds of $15,500,000
and net proceeds to the Company of $14,880,000. The debentures bear interest at
the annual rate of seven percent (7%) and interest is paid quarterly in arrears.
The maturity date of each debenture is four years from the date of issuance. The
outstanding principal amount of and all accrued and unpaid interest under each
debenture may be converted, at the option of the holder thereof, into shares of
common stock of the Company at the conversion price in effect on the date of
conversion. The conversion price per share of common stock of the Company may
not be less than $5.25 per share nor greater than $12.00 per share and shall be
determined as follows: during the first and second years that each debenture is
outstanding the conversion price shall be equal to eighty-five percent (85%) of
the market price of the Company's common stock on the date of conversion, during
the third year that each debenture is outstanding the conversion price shall be
equal to the market price of the Company's common stock on the date of
conversion, and during the fourth year that each debenture is outstanding the
conversion price shall be equal to one hundred twenty percent (120%) of the
market price of the Company's common stock on the date of conversion. Up to 1/3
of the outstanding principal amount, and all accrued and unpaid interest thereon
at such time, of each debenture will become convertible on the date that is ten
(10) days after the date that the registration statement of the common shares
underlying the debentures has been declared effective by the Securities and
Exchange Commission (the "Registration Date"), with an additional 1/3 of the
outstanding principal amount of, and all accrued and unpaid interest thereon at
such time, of each debenture becoming convertible on the dates that are thirty
(30) and sixty (60) days from the Registration Date.

                                       8
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          ---------------------------------------------------------------
          RESULTS OF OPERATIONS
          ---------------------

The following discussion should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Form 10-QSB/A.

GENERAL BUSINESS DESCRIPTION

The Company's core business is to develop a diverse line of consumer products,
contract for the manufacture of those products to the Company's specifications,
and market those products to customers. The Company's strength and history has
been its strategy in marketing to the home shopping industry by identifying the
industry's key product segments (i.e. collectibles, environmental systems,
jewelry, and health and beauty products) and building brand name recognition
within those product segments. The Company attempts to use a celebrity or
spokesperson to enhance the appeal of its products. Using this strategy, the
Company was the first to bring celebrities to the home shopping industry. The
Company's celebrity programs have included products endorsed by Marie Osmond,
Annette Funicello, Bob Mackie, Farrah Fawcett, Angie Dickinson, Richard Simmons,
Phyllis Diller, Joan Collins, and Rue McClanahan. The Company plans to expand
celebrity programs introducing new key product segments.

The Company has expanded from marketing its products through its core, home
shopping business to include direct response marketing channels such as print
media advertising, infomercials, direct mail campaigns, and the internet. The
Company has also developed product distribution through retail stores and retail
catalog accounts.

The Company is actively involved in the development of an alternative fuel
through its 38% ownership of the Pure Energy Corporation. Pure Energy
Corporation is attempting to develop a proprietary alternative fuel source.

The Company, through its joint venture with Paxson Communications Corporation,
is currently developing infomercials for several new products and services.  The
Company believes that the joint venture will provide synergistic opportunities
for strategic growth.

The Company cancelled plans to market a patented hair removal system,
called "Classy Lady".  The Company cancelled marketing the hair removal
system due to long delays in obtaining FDA approval.

As a result of the Company's growth in its core, home shopping business,  the
Company has scaled back its marketing consulting services to outside companies
so that it can direct its resources towards fulfilling the demands related to
the expansion of its home shopping business.

The Company, on June 18, 1996, acquired 100% of the outstanding common stock of
Krasner Group, Inc., a costume jewelry manufacturer and wholesaler.  The
acquisition of Krasner Group, Inc. will allow the Company to penetrate the large
jewelry market in the home shopping industry.

Effective July 1, 1996, the Company acquired the remaining interest in Grant
King International, Ltd, a jewelry design and development company located in
Bangkok, Thailand.  The Company also acquired the operations of S.L.S. Trading
Company, a stone cutting and wholesaling company, also located in Bangkok,
Thailand.  The integration of the U.S. and Thailand jewelry operations is
expected to give the Company an advantage in the home shopping jewelry
market, although no assurance can be given in this regard.  In August of 1996,
the operations of Grant King International, Ltd. and S.L.S Trading Co., Ltd were
merged into a new 100% owned Thai corporation named The L.L. Knickerbocker
(Thai) Company, Ltd.  The results of operations for the quarter ended September
30, 1996 include three months of activity of the L.L. Knickerbocker (Thai)
Company, Ltd.

                                       9
<PAGE>
 
Effective July 1, 1996, the Company acquired 100% of the outstanding common
stock of Harlyn International Company, Ltd, a Thailand-based manufacturer and
wholesaler of fine jewelry ("Harlyn"). The purchase price for Harlyn was
approximately $2,300,000 in cash, all of which was paid on November 14, 1996.
Harlyn has an established base of international customers. The Company expects
to utilize the manufacturing abilities of Harlyn, to help establish the Company
in the significant jewelry category within the home shopping industry.

The Company, on September 18, 1996, acquired 25% of the common stock of both
Self-Heating Container Corporation and Insta-Heat, Inc., a related corporation.
The Company has received distribution rights from these companies for a product
that self-heats canned liquids and meals on demand by pressing a button.

On October 10, 1996, the Company signed a letter of intent to acquire
simultaneously 100% of the common stock of Georgetown Collection, Inc. and Magic
Attic Press, Inc., marketers of collectible dolls, books, and accessories
through catalogs. The acquisition is expected to allow the Company to expand its
distribution channels to include catalog.

The intent of the Company in signing the above agreements is to identify and
introduce new, marketable products while expanding the Company's distribution
network.

This Quarterly Report on Form 10-QSB/A contains certain forward-looking 
statements within the meaning of Section 27A of the Securities Act of 1933 and 
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), and the
Company intends that such forward-looking statements be subject to the safe 
harbors created thereby. The Company may experience significant fluctuations in 
future operating results due to a number of factors, including, among other 
things, the size and timing of customer orders, new or increased competition, 
delays in new product enhancements and new product introductions, quality 
control difficulties, changes in market demand, market acceptance of new 
products, product returns, seasonality in product purchases, pricing trends in 
the specific markets in which the Company is active, acquisitions of new 
companies and dispositions of subsidiaries or divisions of the Company. Any of 
these factors could cause operating results to vary significantly from prior 
periods. Significant variability in orders during any period may have a 
material adverse impact on the Company's cash flow or work flow, and any 
significant decrease in orders could have a material adverse impact on the 
Company's results of operations and financial condition. As a result, the 
Company believes that period-to-period comparisons of its results of operations 
are not necessarily meaningful and should not be relied upon as any indication 
of future performance. Fluctuations in the Company's operating results could 
cause the price of the Company's Common Stock to fluctuate substantially.

Assumptions relating to the foregoing involve judgments with respect to, among 
other things, future economic, competitive and market conditions, all of which 
are difficult or impossible to predict accurately, and many of which are beyond 
the control of the Company. In addition, the business and operations of the 
Company are subject to substantial risks which increase the uncertainty inherent
in the forward-looking statements. In light of the significant uncertainties 
inherent in the forward-looking information included herein, the inclusion of 
such information should not be regarded as a representation by the Company or 
any other person that the objectives or plans of the Company will be achieved.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of
revenues represented by items included in the Company's Statements of
Operations.

<TABLE>
<CAPTION>
 
                           Three Months Ended September 30,     Nine Months Ended September 30,
                          ----------------------------------   --------------------------------
                                1996              1995              1996              1995
                          ----------------   ---------------   ---------------   --------------
<S>                        <C>                <C>               <C>               <C>
 
Revenue                             100.0%            100.0%            100.0%           100.0%
Cost of revenue                      56.5              36.3              52.3             42.3
Gross profit                         43.4              63.7              47.1             57.7
Operating expenses                   39.6              24.5              36.1             32.7
Operating income                      3.8              39.2              11.0             25.0
Interest/other income                 1.7               1.3               0.9              1.4
Net Income                            4.7              24.3               7.7             15.9
</TABLE>

THE FOLLOWING COMPARISONS ARE FOR THE QUARTERS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995.

Revenues

Third quarter revenues increased 73% from $4,774,324 in 1995 to $8,271,591 in
1996. The increase in revenues was due primarily to an increase in jewelry sales
as a result of the acquisitions of the Company's subsidiaries, Krasner Group,
Inc. and L.L. Knickerbocker (Thai) Company, Ltd. Revenues from the sales of
costume jewelry increased to $3,303,925 in 1996 from $0 in 1995. Revenues from
the sales of fine jewelry increased to $2,312,254 in 1996 from $0 in 1995.
Revenues from the Marie Osmond collectible doll line decreased to $1,191,367 in
1996 from $$2,006,273 in 1995. Revenues from the Annette Funicello collectible
bear line increased to $192,973 in 1996 from $163,696 in 1995.
 
                                      10
<PAGE>
 
Gross profit

Gross profit increased 18% from $3,043,082 in 1995 to $3,594,819 in 1996 due
primarily to the increase in revenues due to the acquisitions of Krasner Group,
Inc. and L.L. Knickerbocker (Thai) Company, Ltd.  Additionally, the Company's
core business which includes the Marie Osmond collectible doll program and
Annette Funcello collectible bear programs also contributed to the Company's
gross profit.  As a percentage of revenues, gross profit decreased to 43.6% in
the third quarter of 1996 from 63.7% in the third quarter of 1995.  Gross profit
in 1996, although greater in amount than 1995, was negatively impacted by
several shipments that were pushed from the third quarter of 1996 into the
fourth quarter.  The reason for the delay in shipments was primarily flooding
and adverse weather in southeast Asia.  The decrease, as a percentage of
revenues, in gross profit was related primarily to the discontinuance of the
Media Production services in 1996.  Media Production services historically
generated larger profit margins due to the service nature of the revenues.  The
Company discontinued Media Production services in 1996 due to the human resource
demands and cash collection problems.

Selling, general and administrative expenses

Total selling, general and administrative expenses increased from $1,169,568 in
1995 to $3,278,428 in 1996. The percentage of revenues represented by these
expenses increased from 24.5% in 1995 to 38.6% in 1996. The primary reason for
the increase as a percentage of revenues is due to Company's acquisitions of
jewelry companies whose overhead is typically higher than what the Company, on a
stand alone basis, traditionally reported. The Company's overall selling,
general, and administrative expenses have increased due to the Company's focus
on expanding its infrastructure to accommodate anticipated future growth by
adding employees, office space, and equipment. Remaining expenses in this
category were in proportion to the corresponding revenues between 1995 and 1996.

Other income (expense)

Other income (expense) increased from $62,175 in 1995 to $146,891 in 1996 as a
result of an increase in interest income from the Company's increased cash
reserves.

Net Income

As a result of the foregoing factors, net income decreased 66% to $389,348 for
the three month period ended September 30, 1996 from net income of $1,161,414
for the three month period ended September 30, 1995.


THE FOLLOWING COMPARISONS ARE FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995.

Revenues

Revenues increased 107% from $9,125,228 in 1995 to $18,852,412 in 1996. The
increase in revenues is due primarily to the increase in the Marie Osmond
collectible doll program and the Annette Funicello collectible bear program.
Revenues from the Marie Osmond collectible doll line have increased from
$4,198,066 in 1995 to $8,331,333 in 1996.  Revenues from the Annette Funcello
collectible bear line have increased from $411,066 in 1995 to $1,321,299 in
1996.  Additionally, year to date 1996 revenues have increased due to the
jewelry revenues recognized through the acquisitions of the Company's
subsidiaries, Krasner Group, Inc. and L.L. Knickerbocker (Thai) Company, Ltd.
 
                                      11
<PAGE>
 
Gross profit

Gross profit increased 69% from $5,266,505 in 1995 to $8,881,200 in 1996 due
primarily to the growth in revenues from the Marie Osmond collectible doll
program, Annette Funicello collectible bear program, and the addition of jewelry
programs. Gross profit also increased from direct response revenues where
products are sold at retail prices, as opposed to wholesale prices, to the home
shopping industry. The overall gross profit percentage of the Company decreased
slightly due to the lower gross profit associated with the lower margins
associated with jewelry sales. The Company has also discontinued its Media
Production division which, although achieved high margins to the Company,
brought on collection issues. As a result of the foregoing, the overall gross
profit percentage of the Company decreased from 57.7% in 1995 to 47.1% in 1996.

Selling, general and administrative expenses

Total selling, general and administrative expenses increased from $2,986,740 in
1995 to $6,807,736 in 1996. The percentage of sales represented by these
expenses increased from 32.7% to 36.1%. The primary reason for the increase as a
percentage of sales is due to the Company's acquisitions of its subsidiaries
Krasner Group, Inc. and L.L. Knickerbocker (Thai) Company, Ltd. Additionally,
the Company has increased the number of employees and has increased its overall
overhead in anticipation of expected future growth. Remaining expenses in this
category were in proportion to the corresponding revenues between 1995 and 1996.

Other income (expense)

Other income (expense) increased from $132,036 in 1995 to $184,427 in 1996 as a
result of an increase in interest income due to the Company's cash balances.

Net Income

As a result of the foregoing factors, net income increased 1% to $1,464,920 for
the nine month period ended September 30, 1996 from net income of $1,449,590 for
the nine month period ended September 30, 1995.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1996, the Company had working capital of $21,626,035.
Working capital increased substantially by the issuance of convertible
debentures of $15,500,000 which resulted in $14,880,000 in net proceeds to the
Company. The unsecured debt requires quarterly interest payments in cash based
upon an annual interest rate of 7%.  The debt matures in four years, at which
time any convertible debt then outstanding is to be repaid by the Company in
cash. All conversions into common stock before the second anniversary of
issuance are at a 15% discount to the then-present price of the Company's common
stock at the time of conversion. The Company intends to use the proceeds from
the debenture offering to make acquisitions of companies and to finance existing
subsidiaries.

Cash flow used in operations was $1,046,152 due to the increase in inventory and
other current assets associated with the acquisitions of Krasner Group, Inc,
Harlyn International Company, Ltd., and L.L. Knickerbocker (Thai) Company, Ltd.
The Company's cash flow also decreased due to the payments made to decrease
accounts payable. The Company's liquidity increased due to the influx of capital
from the exercise of stock options and warrants and due to the increase in
profits experienced during the first nine months of 1996. The combination of the
above factors resulted in an overall increase in working capital from $7,847,207
at December 31, 1995 to $21,626,035 at September 30, 1996. The current ratio for
the Company decreased from 4.09 at December 31, 1995 to 2.28 at September 30,
1996. The decrease in the Company's current ratio is primarily attributed to the
assumption of lines of credit of Krasner Group, Inc., Haryln International
Company, Ltd., and L.L. Knickerbocker (Thai) Company, Ltd.

                                      12
<PAGE>
 
The Company currently has approximately 307,500 warrants remaining to be
exercised associated with the overallotment of shares in connection with the
initial public offering. The infusion of cash from the initial public offering
and the subsequent exercise of the common stock warrants has improved the
liquidity of the Company considerably. Additionally, in addition to other
options currently outstanding, the Company has outstanding 1,296,000 options to
acquire common stock of the Company held by various celebrities, spokespersons,
consultants, and officers and directors of the Company exercisable at $.75 per
share. The Company expects to receive additional funds from the exercise of
these shares. The above exercise of warrants and options should contribute to
the liquidity and working capital of the Company.

                                      13
<PAGE>
 
                          PART II. OTHER INFORMATION
                          --------------------------

ITEM 5.   Other Information
-------   -----------------

A.        Acquisition of Harlyn International Company, Ltd.
          -------------------------------------------------
 
         (i)   Acquisition
               -----------

          On November 14, 1996, the Company completed a transaction whereby it
acquired one hundred percent (100%) of the outstanding common stock of Harlyn
International Company, Ltd. ("Harlyn"), a costume jewelry manufacturing company
located in Bangkok, Thailand, for approximately $2,300,000 in cash. The
effective date of the transaction was July 1, 1996. The Company acquired the
stock of Harlyn from Harlyn Products, Inc., a California corporation. The
Company used its own funds to pay the purchase price for the acquisition of
Harlyn. The assets of Harlyn include a manufacturing plant and equipment used in
connection with the manufacture of jewelry, and the Company intends to continue
to use the assets of Harlyn for the manufacture of jewelry.

          (ii)  Financial Statements of Business Acquired.
                ------------------------------------------

          It is impracticable to provide the required financial statements for 
Harlyn for this Form 10-QSB/A at this time. The required financial statements 
for Harlyn will be filed as an amendment to this Form 10-QSB/A as soon as 
practicable but not later than sixty (60) days after this Form 10-QSB/A has been
filed, in accordance with the requirements contained in the instructions for 
filing reports on Form 8-K.

          (iii) Pro Forma Financial Information.
                --------------------------------

          It is impracticable to provide the required pro forma financial 
information in this Form 10-QSB/A at this time. The required pro forma financial
information will be filed as an amendment to this Form 10-QSB/A as soon as
practicable but not later than sixty (60) days after this Form 10-QSB/A has been
filed, in accordance with the requirements contained in the instructions for
filing reports on Form 8-K.


                                      13
<PAGE>
 
B.        Issuance of Convertible Debentures and Warrant.
          -----------------------------------------------

          On September 24, 1996, the Company completed a private placement of 
convertible debentures of the Company which raised gross proceeds of $15,500,000
and net proceeds to the Company of $14,880,000. The debentures bear interest at 
the annual rate of seven percent (7%) and interest is paid quarterly in arrears.
The maturity date of each debenture is four years from the date of issuance. The
outstanding principal amount of and all accrued and unpaid interest under each
debenture may be converted, at the option of the holder thereof, into shares of
common stock of the Company at the conversion price in effect on the date of
conversion. The conversion price per share of common stock of the Company may
not be less than $5.25 per share nor greater than $12.00 per share and shall be
determined as follows: during the first and second years that each debenture is
outstanding the conversion price shall be equal to eighty-five percent (85%) of
the market price of the Company's common stock on the date of conversion, during
the third year that each debenture is outstanding the conversion price shall be
equal to the market price of the Company's common stock on the date of
conversion, and during the fourth year that each debenture is outstanding the
conversion price shall be equal to one hundred twenty percent (120%) of the
market price of the Company's common stock on the date of conversion. Up to 1/3
of the outstanding principal amount, and all accrued and unpaid interest thereon
at such time, of each debenture will become convertible on the date that is ten
(10) days after the date that the registration statement of the common shares
underlying the debentures has been declared effective by the Securities and
Exchange Commission (the "Registration Date"), with an additional 1/3 of the
outstanding principal amount of, and all accrued and unpaid interest thereon at
such time, of each debenture becoming convertible on the dates that are thirty
(30) and sixty (60) days from the Registration Date.

          In connection with the purchase and sale of the debentures, (i) the 
Company and each investor entered into a Private Securities Subscription 
Agreement pursuant to which each investor and the Company made certain 
representations and warranties to each other in connection with the 
purchase of the debentures by the investors, (ii) the Company executed and 
delivered to each investor a 7% Convertible Debenture containing the terms 
discussed above, (iii) the Company and each investor entered into a Registration
Rights Agreement pursuant to which the Company granted to each investor certain 
registration rights with respect to the shares of the Common Stock of the 
Company into which the Debentures are convertible, and (iv) the Company executed
and delivered to Shoreline Pacific Institutional Finance, the Institutional
Division of Financial West Group, a Common Stock Purchase Warrant Certificate
for the purchase of 31,313 shares of the Common Stock of the Company at an
exercise price of $9.90 per share.

                                      14
<PAGE>
 
ITEM 6.   Exhibits and Reports on Form 8-K
------    --------------------------------

A. Exhibits.
   ---------

<TABLE>
<CAPTION>
Exhibit                                            
Number                          Description         
-------                         -----------
<C>      <S>
 3.1     Articles of Incorporation of International Beauty Supply, Ltd. 
         ("IBS") dated July 11, 1985.(1)

 3.2     Amendment to Articles of Incorporation of IBS dated May 24, 1993.(1)

 3.3     Certificate of Amendment to Articles of Incorporation of The L. L. 
         Knickerbocker Co., Inc. (the "Company") dated June 20, 1994.(1)

 3.4     Certificate of Amendment to Articles of Incorporation of the Company 
         dated September 27, 1994.(1)

 3.5     Bylaws of the Company.(2)

 4.1     Qualified Stock Option Plan adopted by the Company on September 27, 
         1994 along with form of Stock Option Agreement.(3)

 4.2     Form of Warrant Agreement.(3)

 4.3     Form of Representative's Warrant issued to W.B. McKee Securities, Inc. 
         upon consummation of the Company's offering on January 25, 1995.(3)

 4.4     Form of Common Stock Purchase Warrant Certificate issued to
         Shoreline Pacific, the Institutional Finance Division of Financial
         West Group.(4)

 4.5     Form of 7% Convertible Debenture.(4)

10.1     Form of Private Securities Subscription Agreement.(4)

10.2     Form of Registration Rights Agreement.(4)

10.3     Stock Purchase Agreement dated September 30, 1996 by and among Harlyn
         Products, Inc., Harlyn International and the Company.(4)

10.4     First Amendment to Stock Purchase Agreement dated October 15, 1996 by 
         and among Harlyn Products, Inc., Harlyn International Company, Ltd. and
         the Company.(4)

10.5     Second Amendment to Stock Purchase Agreement dated November 7, 1996 by 
         and among Harlyn Products, Inc., Harlyn International Company, Ltd.
         and the Company.(4)

27.1     Financial Data Schedule(4)
</TABLE>
-------------------------------------------
(1) Filed as part of Exhibit 3.1 to The L. L. Knickerbocker Co., Inc. Form SB-2
    Registration Statement No. 33-85230-LA as filed with the Securities and
    Exchange Commission on or about October 13, 1994.

(2) Filed as an Exhibit to the L. L. Knickerbocker Co., Inc. Annual Report 
    on Form 10-KSB filed on or about March 29, 1995.

(3) Filed as an Exhibit to The L. L. Knickerbocker Co., Inc. Form SB-2 
    Registration Statement No. 33-85230-LA as filed with the Securities and 
    Exchange Commission on or about October 13, 1994.

(4) Filed Herewith.

                                    15 
<PAGE>

B. Reports on Form 8-K
   -------------------

   No reports on Form 8-K were filed.

 
                                   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.

                                    THE L.L. KNICKERBOCKER CO., INC.


Date:   November 27, 1996           By:  /s/  Anthony P. Shutts
                                    -----------------------------
                                    Anthony P. Shutts
                                    Chief Financial Officer


                                      16

<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------


<TABLE> 
<CAPTION> 
Exhibit
Number                                 Description
-------       ------------------------------------------------------------------
<S>           <C> 
  3.1         Articles of Incorporation of International Beauty Supply, Ltd. 
              ("IBS") dated July 11, 1985.(1)

  3.2         Amendment to Articles of Incorporation of IBS dated May 24, 
              1993.(1)

  3.3         Certificate of Amendment to Articles of The L. L. Knickerbocker 
              Co., Inc.  (the "Company") dated June 20, 1994.(1)

  3.4         Certificate of Amendment to Articles of Incorporation of the 
              Company dated September 27, 1994.(1)

  3.5         Bylaws of the Company.(2)

  4.1         Qualified Stock Option Plan adopted by the Company on September 
              27, 1994 along with form of Stock Option Agreement.(3)

  4.2         Form of Warrant Agreement.(3)

  4.3         Form of Representative's Warrant issued to W.B. McKee Securities,
              Inc. upon consummation of the Company's offering on January 25,
              1995.(3)

  4.4         Form of Common Stock Purchase Warrant Certificate issued to
              Shoreline Pacific, the Institutional Finance Division of Financial
              West Group.(4)

  4.5         Form of 7% Convertible Debenture(4)

 10.1         Form of Private Securities Subscription Agreement(4)

 10.2         Form of Registration Rights Agreement(4)

 10.3         Stock Purchase Agreement dated September 30, 1996 by and among 
              Harlyn Products, Inc., Harlyn International and the Company(4)

 10.4         First Amendment to Stock Purchase Agreement dated October 15, 1996
              by and among Harlyn Products, Inc., Harlyn International Company, 
              Ltd. and the Company(4)

 10.5         Second Amendment to Stock Purchase Agreement dated November 7,
              1996 by and among Harlyn Products, Inc., Harlyn International
              Company, Ltd. and the Company(4)

 27.1         Financial Data Schedule(4)

</TABLE> 
-------------------------------------------------------------------------------

(1) Filed as part of Exhibit 3.1 to The L. L. Knickerbocker Co., Inc. Form 
    SB-2 Registration Statement No. 33-85230-LA as filed with the Securities & 
    Exchange Commission on or about October 13, 1994.

(2) Filed as an exhibit to the L. L. Knickerbocker Co., Inc. Annual Report
    on Form 10-KSB filed on or about March 29, 1995.

(3) Filed as an Exhibit to The L. L. Knickerbocker Co., Inc. Form SB-2
    Registration Statement No. 33-85230-LA as filed with the Securities &
    Exchange Commission on or about October 13, 1994.

(4) Filed herewith.