<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D. C. 20549

                                   FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 or 15(d)

                     OF THE SECURITIES EXCHANGE ACT OF 1934


     For the quarter ended:                  Commission File Number:
       September 30, 1996                            0-13141        



                    MARTIN LAWRENCE LIMITED EDITIONS, INC. 
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)



               Delaware                            95-4103583     
   ---------------------------------         ---------------------
     (State or other jurisdiction            (IRS Employer Identi-
   of incorporation or organization)            fication Number)


                               16250 Stagg Street
                           Van Nuys, California 91406             
             -----------------------------------------------------
             (Address and zip code of principal executive offices)

                                 (818) 988-0630                   
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

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

                          YES   X       NO
                              -----        -----


Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:


<TABLE>
<CAPTION>
                                     Number of Shares Outstanding
              Class                      at November 13, 1996      
              -----                  ------------------------------
   <S>                                        <C>
   Common Stock, $.01 par value               5,893,748
</TABLE>





                       This document consists of 19 pages
<PAGE>   2
                     MARTIN LAWRENCE LIMITED EDITIONS, INC.

                               TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                Page
                                                                ----
<S>                                                              <C>
PART I.  FINANCIAL INFORMATION

    Item 1.  Financial Statements

             Consolidated Balance Sheet for September 30, 1996
               and December 31, 1995 (Unaudited)..............    3

             Consolidated Statement of Operations
               for the Nine Months Ended September 30, 1996
               and September 30, 1995 and for the Three Months
               Ended September 30, 1996 and September 30, 1995
               (Unaudited)....................................    4

             Consolidated Statement of Cash Flows
               for the Nine Months Ended September 30, 1996
               and September 30, 1995 (Unaudited).............    5

             Notes to Unaudited Consolidated
               Financial Statements...........................    6

    Item 2.  Management's Discussion and Analysis of
               Financial Condition and Results of
               Operations.....................................   10

PART II.  OTHER INFORMATION

    Item 1.  Legal Proceedings................................   18

    Item 2.  Changes in Securities............................   18

    Item 3.  Defaults Upon Senior Securities..................   18

    Item 4.  Submission of Matters to a Vote of
               Security Holders...............................   18

    Item 5.  Other Information................................   18

    Item 6.  Exhibits and Reports on Form 8-K.................   19

</TABLE>



                                  Page 2 of 19

<PAGE>   3



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

                         ITEM 1.  FINANCIAL STATEMENTS

                           CONSOLIDATED BALANCE SHEET
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                         Sept. 30, 1996     Dec. 31, 1995
                                                         --------------     -------------
<S>                                                        <C>               <C>
Assets
Current assets:
  Cash and cash equivalents                                $   365,000       $   769,000
  Accounts receivable, net (Note 2)                          1,030,000         1,033,000
  Inventories (Note 2)                                      10,692,000        12,318,000
  Prepaid expenses and other current assets                    402,000           363,000
  Notes receivable, short-term                                  31,000            31,000
                                                           -----------       -----------
Total current assets                                        12,520,000        14,514,000
Equipment and leasehold improvements,
  net of accumulated depreciation and
  amortization (Note 2)                                      2,061,000         2,907,000
Other assets                                                   578,000           693,000
Deferred income taxes (Note 3)                                 652,000           652,000
                                                           -----------       -----------

Total assets                                               $15,811,000       $18,766,000
                                                           ===========       ===========

Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable and accrued expenses (Note 2)           $ 3,186,000       $ 3,112,000
  Accrued compensation and employee benefits                   437,000           512,000
  Deferred rents--current                                       22,000           170,000
  Customer deposits                                            156,000           155,000
  Escrowed funds (Note 4)                                         -              150,000
  Dividends payable                                            132,000            58,000
  Notes payable (Note 5)                                     1,296,000            16,000
  Deferred income taxes (Note 3)                             1,341,000         1,341,000
                                                           -----------       -----------
Total current liabilities                                    6,570,000         5,514,000
Notes payable, long-term                                       278,000           214,000
Deferred rents                                                 357,000           407,000
                                                           -----------       -----------
Total liabilities                                            7,205,000         6,135,000
                                                           -----------       -----------

Commitments and contingencies                                     -                -
Mandatorily redeemable preferred stock--
  $.01 par value, 1,000,000 shares
  authorized, 260,000 shares issued
  and outstanding at 9/30/96 (Note 4)                        2,366,000         2,021,000
                                                           -----------       -----------

Stockholders' equity:
  Preferred stock--$.01 par value, 4,000,000
    shares authorized, none issued or outstanding                 -                -
  Common stock--$.01 par value, 20,000,000
    shares authorized, 8,350,000 shares issued
    and 5,893,748 shares outstanding
    at September 30, 1996 and December 31, 1995                 83,000            83,000
  Paid-in capital                                           27,709,000        27,709,000
  Deficit                                                  (13,767,000)       (9,397,000)
  Less cost of shares held in treasury--
    2,456,000 shares at September 30, 1996
    and December 31, 1995                                   (7,785,000)       (7,785,000)
                                                           -----------       ----------- 
Total stockholders' equity                                   6,240,000        10,610,000
                                                           -----------       -----------

Total liabilities and stockholders' equity                 $15,811,000       $18,766,000
                                                           ===========       ===========
</TABLE>

          See accompanying notes to consolidated financial statements





                                  Page 3 of 19
<PAGE>   4



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

                         ITEM 1.  FINANCIAL STATEMENTS

                      CONSOLIDATED STATEMENT OF OPERATIONS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                Three Months Ended Sept. 30,     Nine Months Ended Sept. 30,
                                    1996           1995             1996          1995       
                                ------------   ------------     ------------   ------------
<S>                             <C>            <C>              <C>            <C>
Revenues:
  Net sales                     $  5,144,000   $  6,205,000     $ 14,753,000   $ 14,656,000
  Other income                        79,000        112,000          293,000        368,000
                                ------------   ------------     ------------   ------------
                                   5,223,000      6,317,000       15,046,000     15,024,000
                                ------------   ------------     ------------   ------------
Costs and expenses:
  Cost of sales                    2,031,000      2,252,000        5,891,000      5,452,000
  Selling expenses                 2,692,000      2,819,000        8,355,000      7,807,000
  General and administrative
     expenses                      1,368,000      1,524,000        4,269,000      4,216,000
  Interest                            34,000          4,000          101,000         10,000
  Net loss on gallery/Frame
     Shops/distribution
     facility closures               507,000        301,000          580,000        210,000
                                ------------   ------------     ------------   ------------
                                   6,632,000      6,900,000       19,196,000     17,695,000  
                                ------------   ------------     ------------   --------------

Loss before taxes                 (1,409,000)      (583,000)      (4,150,000)    (2,671,000)

Provision for taxes (benefit)          5,000        (45,000)          13,000       (133,000)
                                ------------   ------------     ------------   ------------ 

Net loss                          (1,414,000)      (538,000)      (4,163,000)    (2,538,000)

Dividends and accretion on
  mandatorily redeemable
  preferred stock                     73,000         58,000          215,000        146,000
                                ------------   ------------     ------------   ------------

Net loss applicable to
  common stock                  $ (1,487,000)  $   (596,000)    $ (4,378,000)  $ (2,684,000)
                                ============   ============     ============   ============ 

Net loss per common share       $       (.25)  $       (.10)    $       (.74)  $       (.46)
                                ============   ============     ============   ============ 

Weighted average common
  shares outstanding               5,894,000      5,894,000        5,894,000      5,894,000
                                ============   ============     ============   ============
</TABLE>




          See accompanying notes to consolidated financial statements





                                  Page 4 of 19
<PAGE>   5



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

                         ITEM 1.  FINANCIAL STATEMENTS

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                           Nine Months Ended September 30,
                                                              1996                1995    
                                                          ------------        ------------
<S>                                                       <C>                 <C>
Cash flows from operating activities:
  Net loss                                                $ (4,163,000)       $ (2,538,000)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                            654,000             654,000
      Write-off of Frame Shops/galleries and
        distribution facility leaseholds
        upon closure                                           488,000             201,000
  Changes in assets and liabilities:
      Accounts receivable, net                                   3,000            (708,000)
      Inventories                                            1,626,000             892,000
      Prepaid expenses and other current assets                (39,000)             53,000
      Other assets                                             115,000             (24,000)
      Accounts payable and accrued expenses                     74,000              85,000
      Accrued compensation and employee benefits               (75,000)             42,000
      Escrowed Funds                                          (150,000)
      Deferred rents                                          (198,000)           (225,000)
      Customer deposits                                          1,000             (35,000)
      Deferred income taxes                                       -               (152,000)
                                                          ------------        ------------ 

  Net cash provided by (used in) operating activities       (1,664,000)         (1,755,000)
                                                          ------------        ------------ 

Cash flows from investing activities:
  Additions to equipment and leasehold improvements           (289,000)           (256,000)
                                                          ------------        ------------ 

  Net cash used in investing activities                       (289,000)           (256,000)
                                                          ------------        ------------ 

Cash flows from financing activities:
  Net proceeds from issuance of mandatorily
    redeemable preferred stock (Note 4)                        326,000           2,019,000
  Dividends paid on preferred stock                           (121,000)            (30,000)
  Notes payable                                              1,344,000             121,000 
                                                          ------------        -------------
  Net cash provided by financing activities                  1,549,000           2,110,000
                                                          ------------        ------------

  Net increase (decrease) in cash and cash equivalents        (404,000)             99,000

  Cash and cash equivalents at beginning of period             769,000             575,000
                                                          ------------        ------------

  Cash and cash equivalents at end of period              $    365,000        $    674,000
                                                          ============        ============
</TABLE>



          See accompanying notes to consolidated financial statements





                                  Page 5 of 19
<PAGE>   6



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

        ITEM 1.  FINANCIAL STATEMENTS:  NOTES TO UNAUDITED CONSOLIDATED
                 FINANCIAL STATEMENTS

                 Note 1.  Basis of Presentation

         The unaudited consolidated financial statements presented herein
include the accounts of Martin Lawrence Limited Editions, Inc., a Delaware
corporation, and its wholly owned subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated from the
consolidated financial statements.

         These financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not contain certain information required by
generally accepted accounting principles. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1995. The accompanying
financial statements reflect all adjustments of a normal recurring nature which
are, in the opinion of management, necessary for a fair presentation.

         Reclassification:  Beginning in 1996, certain expenses, such as store
rents and other occupancy costs, which were previously classified as general
and administrative expenses have been reclassified as selling expenses.  Such
expenses for the first nine months amounted to $2,567,000 in 1996 and
$2,374,000 in 1995 and for the third quarter, $858,000 in 1996 and $751,000 in
1995.

         All prior year financial information has been restated to conform with
this year's presentation.

                 Note 2.  Details of Certain Financial Statement Components

     Accounts Receivable

<TABLE>
<CAPTION>
                                 Sept. 30, 1996    December 31, 1995
                                 --------------    -----------------
     <S>                         <C>               <C>
     Amounts due from
       trade customers             $ 1,054,000          $ 1,054,000

     Accounts receivable -
       other                             1,000                4,000

     Less:  Allowance for
       doubtful accounts               (25,000)             (25,000)
                                   -----------          ----------- 

                                   $ 1,030,000          $ 1,033,000
                                   ===========          ===========

     Inventories

                                 Sept. 30, 1996    December 31, 1995
                                 --------------    -----------------

     Raw materials -
       framing                     $   314,000          $   277,000

     Finished goods:
       Limited editions,
         frames and other            9,186,000           10,304,000
                        
       Original works of art         1,192,000            1,737,000
                                   -----------          -----------

                                   $10,692,000          $12,318,000
                                   ===========          ===========
</TABLE>





                                  Page 6 of 19
<PAGE>   7



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

        ITEM 1.  FINANCIAL STATEMENTS:  NOTES TO UNAUDITED CONSOLIDATED
                 FINANCIAL STATEMENTS

        Note 2.  Details of Certain Financial Statement Components
                 (Contd.)

     Equipment and Leasehold Improvements

<TABLE>
<CAPTION>
                                 Sept. 30, 1996     December 31, 1995
                                 --------------     -----------------
     <S>                           <C>                  <C>
     Equipment                     $ 4,141,000          $ 4,113,000
     Leasehold improvements          5,741,000            6,858,000
                                   -----------          -----------

                                     9,882,000           10,971,000
     Less:  Accumulated
       depreciation and
       amortization                  7,821,000           (8,064,000)
                                   -----------          ----------- 

                                   $ 2,061,000          $ 2,907,000
                                   ===========          ===========
</TABLE>

         Accounts Payable and Accrued Expenses

         At September 30, 1996 and December 31, 1995, the Company had rent
payable of $401,000 and $436,000, respectively, included in accounts payable
and accrued expenses.

         Note 3.  Income Taxes

         The income tax benefit for the three months and nine months ended
September 30, 1995 reflects adjustments to the deferred income tax liability.
The provision of $5,000 and $13,000 in the three months and nine months ended
September 30, 1996 relates to state income or franchise taxes.

         Note 4.  Mandatorily Redeemable Preferred Stock

         On February 6, 1995, the Company issued 200,000 shares of its 10%
Cumulative Convertible Preferred Stock, $.01 par value per share (the "Preferred
Stock"), pursuant to a private placement commenced in October 1994. The shares
of Preferred Stock were sold at $10.00 per share.  The Company received net
proceeds of $1,786,000 from the initial closing of the offering. In three
additional closings of the private placement on September 18, 1995, January 3,
1996 and February 8, 1996, the Company received additional net proceeds of
$232,500, $139,500 and $186,000, respectively, and issued an aggregate of 60,000
shares of Preferred Stock.  The $150,000 of gross proceeds from the January 3,
1996 closing was included as a liability (Escrowed Funds) at December 31, 1995
since the amounts were held in escrow subject to the escrow holder's clearing of
the funds prior to distribution to the Company.  The private placement
terminated on February 5, 1996.

         Dividends on the Preferred Stock are payable semi-annually at the rate
of 10% per annum on April 1 and October 1 of each year.  Each share of
Preferred Stock will automatically convert into 10 shares of the Company's
common stock, subject to adjustment in certain events, when the trading price
of the common stock equals or





                                  Page 7 of 19
<PAGE>   8



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

         ITEM 1.  FINANCIAL STATEMENTS:  NOTES TO UNAUDITED CONSOLIDATED
                  FINANCIAL STATEMENTS

         Note 4.  Mandatorily Redeemable Preferred Stock (Contd.)

exceeds $2.25 per share for 20 consecutive trading days.  In addition, holders
of the Preferred Stock may, under certain circumstances, elect to convert the
Preferred Stock into common stock.

         The Preferred Stock is redeemable by the Company on or after January
1, 1997 at $10.80 per share, with redemption rates decreasing by $0.20 per year
until the rate is $10.00 per share on or after January 1, 2001.  The Company
must redeem all of the shares of Preferred Stock no later than January 1, 2005.

         Holders of Preferred Stock will be entitled to elect 20% (not less
than two) of the Board of Directors when dividends on the Preferred Stock have
been in arrears in an amount equal to at least two semi-annual dividends.  The
holders of Preferred Stock will be entitled to elect an additional 10% (not
less than one) of the directors upon each additional dividend arrearage until
either they can elect a majority of the Board of Directors or the dividends in
arrears have been paid in full.

         Thomas Green, the principal of one of the placement co-agents for the
private placement, acquired 77,500 shares of the Preferred Stock in the initial
closing of the offering.  Thomas Green subsequently acquired 5,000 additional
shares from one of the Preferred Stockholders.

         The proceeds from the offering were used principally for acquiring new
inventory, marketing and sales expansion, opening new galleries, the payment of
certain lease deferrals and for working capital and general corporate purposes.

         In connection with its private placement of Preferred Stock, the
Company issued warrants to purchase an aggregate of 162,500 shares of common
stock to the placement co-agents for the offering (the "Warrants").  The
Warrants are exercisable at $1.20 per share of common stock for an 18-month
period commencing at such time that the common stock equals or exceeds $2.25
per share for 20 consecutive trading days.  The exercise price of the Warrants
(other than $.10 per share) may be paid with a promissory note secured by the
shares of common stock issuable upon exercise of the Warrants and maturing 18
months from the date of issuance.  The Warrants expire as follows:  125,000 on
February 6, 2000, 15,625 on September 18, 2000, 9,500 on January 3, 2001 and
12,500 on February 8, 2001.

         Note 5.  Notes Payable

         In April 1996, the Company entered into a Loan and Security Agreement
with four individuals (the "Lenders") and borrowed an aggregate of $500,000
(the "Short-Term Loan").  The Short-Term Loan was due October 1, 1996 but was
not paid.  Since that date, the Short-Term Loan has accrued default interest at
the rate of 36% per annum.  The Company has partially defaulted in payment of
the





                                  Page 8 of 19
<PAGE>   9



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

         ITEM 1.  FINANCIAL STATEMENTS:  NOTES TO UNAUDITED CONSOLIDATED
                  FINANCIAL STATEMENTS

         Note 5.  Notes Payable (Contd.)

interest payments due to the Short-Term Noteholders on November 1,  1996.  The
Company is arranging to meet with each of the Short-Term Noteholders to
negotiate repayment terms reflecting the financial constraints under which the
Company is presently operating.  The Short-Term Loan is secured by the
Company's inventory with a cost of approximately $5,500,000.  In connection
with the Short-Term Loan, the Company issued to the Lenders five-year warrants
to purchase an aggregate of 50,000 shares at $1.00 per share.  Thomas Green
Securities, Inc. ("TGI") arranged the Short-Term Loan on behalf of the Company
and, for those services, the Company paid TGI a fee of $20,000.

         On June 7, 1996, the Company entered into an agreement (the "Supplier
Agreement") with a major supplier of artwork to the Company.  The Supplier
Agreement provides for (i) the Company's deferral of approximately $500,000
owed to the supplier pursuant to a non-interest bearing note (the "Supplier
Note") and (ii) certain extended payment terms relating to the Company's
continuing purchases of artwork from the supplier (the "Continuing
Obligations").  Both the Continuing Obligations and the Company's obligations
under the Supplier Note are secured by approximately $4,500,000 of the
Company's inventory valued at cost.  In lieu of interest on the Supplier Note,
the Company conveyed to the supplier certain of the Company's artwork with a
cost of $30,400.  The Company reduced the principal amount of the Supplier Note
through (i) the conveyance to the supplier of artwork with a cost to the
Company of $95,600 for a credit of $69,500 and (ii) the payment to the supplier
of $37,000 from the sale at auction of certain of the Company's inventory.  The
balance of the Supplier Note was $393,500 as of June 25, 1996.  This amount is
payable over an 18-month period commencing July 1, 1996 and continuing through
December 1, 1997.  The Company has made each payment of $21,864 when due.
During the three months and nine months ended September 30, 1996, the Company's
sales of inventory provided by such supplier accounted for approximately 26%
and 25% of revenues, respectively.

         On July 31, 1996, the Company entered into a Note Agreement with an
investor (the "Investor") pursuant to which the Investor loaned $500,000 to the
Company for the acquisition of graphics of certain selected artists (the
"Artwork").  The Company's obligations under the Note Agreement are secured by
the Artwork and the proceeds thereof.  Upon the sale of a piece of Artwork, the
Investor is entitled to receive 25% of the net profits.  To date, all amounts
have been paid to the Investor on a timely basis.  Pursuant to the investment
program, the principal amount of the loan is being reinvested in Artwork on a
revolving basis during the initial six month period.  Thereafter, at the
election of the Investor, the investment program may continue on an ongoing
basis for additional six month terms, provided that the Investor may request at
the end of any such six-month period that the loan be repaid within six months.
For services rendered in connection with arranging this financing, the Company
paid TGI a fee of $35,000.





                                  Page 9 of 19
<PAGE>   10



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

          ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATIONS

         1.  Liquidity and Capital Resources

         The Company believes that its current cash flow and existing sources
of liquidity will not allow it to meet its operating expenses and debt
obligations beyond year-end.  In light of such circumstances, the Company is
reviewing various plans of reorganization within the federal debtor protection
laws.  The plans under consideration by the Company include combinations of the
following:  negotiating extensions and more advantageous terms for repayment of
the Company's secured creditors, identifying and securing new sources of
financing, closing certain retail locations, and restructuring the Company's
existing obligations.    While the Company continues to explore various
alternatives, it anticipates that it will avail itself of the protections
offered pursuant to Chapter 11 of the United States Bankruptcy Code prior to
year-end.

         Several key components have affected the Company's ability to meet its
financial needs, including the low level of funds generated from operations,
levels of accounts receivable and inventories, the need for capital
expenditures, the lack of short-term borrowing capacity and the inability to
obtain long-term capital.  For the nine months ended September 30, 1996, the
Company experienced negative cash flow from operating activities of $1,664,000,
compared with a negative cash flow from operating activities of $1,755,000
during the same period last year.

         Overall, cash decreased $404,000 in the first nine months of 1996,
compared with an increase of $99,000 for the comparable period last year.  The
principal reason for this difference is the inclusion of net proceeds of
$2,019,000 from the Company's private placement during the nine months ended
September 30, 1995 compared to $326,000 in net proceeds from the private
placement and $1,344,000 in Notes Payable for the nine months ended September
30, 1996.

         Due to the Company's net losses, the Company's cash flow has been
severely restricted.  In order to alleviate some of the constraints on the
Company's cash, commencing in March 1996 and continuing through the third
quarter, the Company has taken a series of measures to reduce its overhead
costs.  From June 30, 1996 through November 1, 1996, the Company has reduced
the number of its staff at corporate headquarters by approximately 14% through
layoffs and attrition for a total reduction of 26% since March 1996.  In
addition to the May 1, 1996 sales commission reduction, the Company continues
to evaluate additional reductions of selling costs within its control.

         On September 1, 1996, the Company closed its distribution facility and
moved to a location which is 12,000 square feet smaller for a reduction in
corporate rent of approximately $11,000 per month.

         During the third quarter, the Company closed several gallery locations
which did not meet sales expectations.  First, the Company elected not to renew
its lease for its Palm Springs location pursuant to a lease option and closed
the gallery on September 4, 1996 due to





                                 Page 10 of 19
<PAGE>   11



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

         1.  Liquidity and Capital Resources (Contd.)

its poor performance.  Second, in light of continued unprofitability, the
Company closed its Westlake Village location on August 27, 1996 and the
landlord, Trust Company of the West, has brought an action against the Company
for rent through the balance of the term of the lease (which expires May 31,
1998) of approximately $110,000.  In light of the landlord's obligation to
mitigate its damages, the Company believes the action claims damages far in
excess of any damages suffered by Trust Company of the West.  Third, the
Company closed its Brentwood location in October 1996.  This location was
initially opened as a Frame Shop and converted to a gallery subsequent to the
Company's closures of its Frame Shops operations.  The location failed to
perform to expectations as a gallery and was closed.  The Company continues to
negotiate a settlement with the landlord in order to extricate itself from the
balance of the lease term.  The Company continues to review the results of its
other galleries and evaluate those leases.

         The Company's lease for its Santa Clara gallery expires on December
31, 1996 and as a result of the landlord's desire to put the current gallery
space to a different use, the landlord has offered the Company an alternative
space in the same mall.  The Company is negotiating with the landlord regarding
the new space and evaluating the feasibility of building out the new space.
The Company makes no assurances that its negotiations with the landlord will
result in the continued operation of a gallery in Santa Clara.

         In December 1995, the Company received an aggregate refund of $618,000
(after deducting $22,000 for taxes owed) from the Internal Revenue Service.
The refund was pursuant to the filing of a Form 1139, and was based on Internal
Revenue Code provisions allowing the Company a 10-year carryback period for
losses meeting certain statutory requirements.  The filing is subject to audit
by the I.R.S. for three years from the date of the filing of the Company's 1994
federal income tax return.  In the event the I.R.S. determines that any portion
of the refund was improperly made, the Company would be required to return such
portion of the refund to the I.R.S. plus interest and penalties, if any.  A
recent tax court case may unfavorably impact the ultimate outcome of an audit.

         In April 1996, the Company entered into a Loan and Security Agreement
with four individuals (the "Lenders") and borrowed an aggregate of $500,000
(the "Short-Term Loan").  The Short-Term Loan was due October 1, 1996 but was
not paid.  Since that date, the Short-Term Loan has accrued default interest at
the rate of 36% per annum.  The Company has partially defaulted in payment of
the interest payments due to the Short-Term Noteholders on November 1, 1996.
The Company is arranging to meet with each of the Short-Term Noteholders to
negotiate repayment terms reflecting the present financial constraints under
which the Company is presently operating.  The Short-Term Loan is secured by
the Company's inventory with a cost of approximately $5,500,000.  In connection
with the Short-Term Loan, the Company issued to the Lenders five- year warrants
to purchase an aggregate of 50,000 shares at $1.00 per share.  TGI arranged the
Short-Term Loan on behalf of the Company and, for those services, the Company
paid TGI a fee of $20,000.





                                 Page 11 of 19
<PAGE>   12



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

         1.  Liquidity and Capital Resources (Contd.)

         On April 17, 1996, Woodfield Associates filed a lawsuit against the
Company in the Circuit Court for the Sixth Judicial Circuit for the State of
Michigan alleging, among other things, the Company's failure to satisfy its
lease obligations, including the payment of rent.  On August 15, 1995, after
receiving a notice of forcible detainer action from the landlord for failure to
pay several months' rent, the Company vacated its premises in the Woodfield
Mall prior to the expiration of the lease.   The term of the lease as set forth
in the lease agreement extended until January 31, 2001.  The lawsuit demands
payment of $1,943,602.90 in damages for rent and other charges through the end
of the lease term.  The Company believes that the damages sought by Woodfield
Associates are far in excess of any damages the landlord may have suffered and
is asserting an affirmative defense to such amounts alleging the Landlord's
failure to make a good faith effort to mitigate its damages.

         On June 7, 1996, the Company entered into an agreement (the "Supplier
Agreement") with a major supplier of artwork to the Company.  The Supplier
Agreement provides for (i) the Company's deferral of approximately $500,000 owed
to the supplier pursuant to a non-interest bearing note (the "Supplier Note")
and (ii) certain extended payment terms relating to the Company's continuing
purchases of artwork from the supplier (the "Continuing Obligations").  Both the
Continuing Obligations and the Company's obligations under the Supplier Note are
secured by approximately $4,500,000 of the Company's inventory valued at cost.
In lieu of interest on the Supplier Note, the Company conveyed to the supplier
certain of the Company's artwork with a cost of $30,400.  The Company reduced
the principal amount of the Supplier Note through (i) the conveyance to the
supplier of artwork with a cost to the Company of $95,600 for a credit of
$69,500 and (ii) the payment to the supplier of $37,000 from the sale at auction
of certain of the Company's inventory.  The balance of the Supplier Note which
was unpaid as of June 25, 1996, is payable over an 18-month period commencing
July 1, 1996 and continuing through December 1, 1997.  The Company has made each
payment of $21,864 when due.  During the three months and nine months ended
September 30, 1996, the Company's sales of inventory provided by such supplier
accounted for approximately 26% and 25% of revenues, respectively.

         On July 31, 1996, the Company entered into a Note Agreement with an
investor (the "Investor") pursuant to which the Investor loaned $500,000 to the
Company for the acquisition of graphics of certain selected artists (the
"Artwork").  The Company's obligations under the Note Agreement are secured by
the Artwork and the proceeds thereof.  Upon the sale of a piece of Artwork, the
Investor is entitled to receive 25% of the net profits.  To date, all amounts
have been paid to the Investor on a timely basis.  Pursuant to the investment
program, the principal amount of the loan is being reinvested in Artwork on a
revolving basis during the initial six month period.  Thereafter, at the
election of the Investor, the investment program may continue on an ongoing
basis for additional six month terms, provided that the Investor may request at
the end of any such six-month period that the loan be repaid within six months.
For services rendered in connection with arranging this financing, the Company
paid TGI a fee of $35,000.





                                 Page 12 of 19
<PAGE>   13



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

         2.  Results of Operations

              a.  Nine Months Ended September 30, 1996

         Net sales for the nine months ended September 30, 1996 were
$14,753,000, an increase of 0.7%, compared with the same period in 1995.

         Retail sales were $11,044,000, an increase of 1.9%, compared with the
same period last year.  Retail operations provided 74.9% of total net sales
through the full-period operation of 17 galleries and the partial-period
operation of eight galleries, four Frame Shops and four Masterpieces of the
World locations.  During the same period last year, retail operations provided
73.9% of the total net sales through the full-period operation of 18 galleries
and the partial-period operation of four galleries and five Masterpieces of the
World locations.

         Retail sales on a same-store basis (15 stores) decreased 4.2%,
compared with the same period last year.  The Company believes that this
decrease is due, in part, to a general industry-wide weakness in sales during
the second and third quarters of this year.

         Between October 1995 and January 1996, the Company opened four Martin
Lawrence Frame Shops which offered retail custom framing services.  These
stores did not perform to the Company's expectations and due to disappointing
results were closed in June 1996.  However, the Company continues to offer
custom framing through several of its galleries.

         The Company opened five Masterpieces of the World retail stores
between May and July 1995 in regional shopping malls in California.  All of
these locations were taken on a temporary basis in order to test a new concept
in art retailing.  Masterpieces of the World sold framed oil paintings at
affordable prices, primarily under $500.  The results of operations of
Masterpieces of the World did not meet the Company's expectations and,
accordingly, the Company began closing the stores in January 1996 and completed
the closings in March.  Although the Company has ceased operating Masterpieces
of the World retail stores, management believes that the concept may be viable
in other venues.  The Company currently offers Masterpieces of the World
inventory in its gallery outlet store.

         Wholesale sales provided 13.2% of net sales, compared with 12.0% of
net sales for the nine months ended September 30, 1995.  Wholesale sales for
the first nine months of 1996 were $1,954,000, an increase of 11.0%, compared
with the same period last year. The Company believes that this increase is
primarily due in part to additional sales generated by the Company's newest
artist, as well as the sale of original works of art.





                                 Page 13 of 19
<PAGE>   14



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

              2.  Results of Operations (Contd.)

                   a.  Nine Months Ended September 30, 1996 (Contd.)

         Auction sales provided 11.9% of net sales, compared with 14.1% of net
sales for the nine months ended September 30, 1995.  Auction sales for the
first nine months of 1996 were $1,755,000, a decrease of 14.9% compared with
the same period last year.  The Company believes that this decrease is
primarily due to fewer auctions held in the third quarter of 1996 compared with
the same period in 1995.

         Auctions which are conducted in geographical areas where the Company
has retail galleries tend to reduce the retail sales per square foot in those
galleries. However, the Company believes that the combination of its retail
galleries and auctions have increased its overall sales in those areas.

         Historically, a majority of the Company's net sales have been
generated by the works of only a few of the Company's published artists.  The
Company expects the mix of these artists to change over time, due to factors
such as changing customer preference and the expiration or termination of
publishing agreements with artists. As a result of these factors, the Company
maintains an extensive inventory of the works of popular artists and constantly
seeks to attract new promising artists and to promote  their  works.  The works
of  two  of  the  Company's published artists accounted for approximately 15.0%
and 5.2% of the Company's net sales during the first nine months of 1996.  Two
of the Company's non-published artists accounted for approximately 12.5% and
10.8%, respectively, of the Company's net sales during the first nine months of
1996.

         Cost of sales, as a percentage of net sales, was 39.9% and 37.2% for
the nine months ended September 30, 1996 and 1995, respectively.  The increase
in the cost of sales percentage from 1995 to 1996 was primarily the result of
lower margins on selected works of art not published by the Company.

         Selling expenses as a percentage of net sales were 56.6% and 53.3% for
the nine months ended September 30, 1996 and 1995, respectively.  Selling
expenses include such items as retail sales location occupancy costs,
advertising, sales commissions, brochures and other promotional material costs,
freight and certain salary expenses.

         Selling expenses increased $548,000 in the first nine months of 1996,
compared with the first nine months of 1995.  The increase is primarily due to
an increase in fixed and variable compensation in the amount of $493,000
associated with new gallery and Frame Shops locations.  Sales location
occupancy costs increased $260,000 over the same period last year.  This
increase is due to the opening of new gallery and Frame Shops locations and
increased percentage rent under certain leases.  All other selling expenses
decreased $205,000 compared with the comparable period last year.





                                 Page 14 of 19
<PAGE>   15



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

          ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATIONS
 
               2.  Results of Operations (Contd.)

                   a.  Nine Months Ended September 30, 1996 (Contd.)

         General and administrative expenses as a percentage of net sales were
28.9% and 28.8% for the nine months ended September 30, 1996 and 1995,
respectively. General and administrative expenses include all corporate
overhead costs.  General and administrative expenses increased $53,000,
compared with the same period in 1995, due in part to financing fees related to
the Short-Term Loan and the Investor Note Agreement (see Note 5 to financial
statements).

         The Company had a net loss applicable to common stock of $4,378,000
for the nine months ended September 30, 1996, compared with a net loss
applicable to common stock of $2,684,000 in the same period last year.  The
increase in the net loss is due to higher cost of sales and higher selling
costs associated with increased retail locations.  In addition, there was a
loss of $580,000 from the closure of the Company's distribution facility,
gallery locations and Frame Shops stores.  Loss on gallery closings for the
nine months ended September 30, 1995 was $210,000.  Additionally, interest
expense for the nine months ended September 30, 1996 was $101,000, compared to
$10,000 for the same period in 1995.  There was a tax provision of $13,000 for
the nine months ended September 30, 1996 compared to a tax benefit of $133,000
for the same period in 1995.





                                 Page 15 of 19
<PAGE>   16



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

          ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATIONS

               2.  Results of Operations (Contd.)

                   b.  Three Months Ended September 30, 1996

         Net sales for the three months ended September 30, 1996 were
$5,144,000, a decrease of 17.1%, compared with the same period in 1995.  The
Company believes that this decrease was primarily due to a general
industry-wide weakness in sales.

         Retail sales were $4,079,000, a decrease of 15.3% compared with the
same period last year.  Retail operations provided 79.3% of total net sales
during the three months ended September 30, 1996 through the full period
operation of 20 galleries and the partial-period operation of 4 galleries.
During the same period last year, retail operations provided 77.7% of total net
sales through the full-period operation of 18 galleries and two Masterpieces of
the World locations and the partial-period operation of three galleries and
three Masterpieces of the World locations.

         Retail sales on a same-store basis (15 stores) decreased 18.1%
compared with the same period last year.  The Company believes that this
decrease is due to a general industry-wide weakness in sales.

         Wholesale sales provided 13.6% of net sales, compared with 9.7% of net
sales for the three months ended September 30, 1995.  Wholesale sales for the
quarter were $699,000, an increase of 15.9% compared with the same period last
year.  This increase is due in part to additional sales generated by the
Company's newest artist.

         Auction sales provided 7.1% of net sales, compared with 12.6% of net
sales for the three months ended September 30, 1995.  Auction sales for the
three months ended September 30, 1996 were $367,000, a decrease of 53.2%
compared with the same period last year.  This decrease is due to 8 auctions
held in the third quarter of 1996 compared to 16 auctions held in the third
quarter of 1995.

         Auctions which are conducted in geographical areas where the Company
has retail galleries tend to reduce the retail sales per square foot in those
galleries.  However, the Company believes that the combination of its retail
galleries and auctions have increased its overall sales in those areas.

         Historically, a majority of the Company's net sales have been
generated by the works of only a few of the Company's published artists.
However, the Company expects the mix of these artists to change over time due
to factors such as changing customer preference and the expiration or
termination of publishing agreements with artists.  As a result of these
factors, the Company maintains an extensive inventory of the works of popular
artists and constantly seeks to attract new promising popular artists and to
promote their works.  The works of two of the Company's published artists
accounted for approximately 15.7% and 4.5% of the Company's net sales during
the third quarter of 1996.  The works of two of the  Company's  non- published
artists accounted for approximately 13.6% and 10.9%, respectively, of the
Company's net sales during the third quarter of 1996.





                                 Page 16 of 19
<PAGE>   17



                     Martin Lawrence Limited Editions, Inc.

                         PART I.  FINANCIAL INFORMATION

          ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATIONS

               2.  Results of Operations (Contd.)

                   b.  Three Months Ended September 30, 1996 (Contd.)

         Cost of sales, as a percentage of net sales, was 39.5% and 36.3% for
the nine months ended September 30, 1996 and 1995, respectively.  The increase
in the cost of sales from 1995 to 1996 was primarily due to lower margins on
selected works of art not published by the Company.

         Selling expenses, as a percentage of net sales, were 52.3% and 45.4%
for the three months ended September 30, 1996 and 1995, respectively.  Selling
expenses include such items as advertising, sales commissions, brochures and
other promotional material costs, freight, certain salary expenses and retail
location occupancy costs.  Selling expenses decreased $127,000 in the third
quarter of 1996, compared with the same period in 1995.  Fixed and variable
compensation increased $79,000.  Sales location occupancy costs increased
$101,000.  All other selling expenses decreased $307,000 in the third quarter
of 1996 compared with the same period in 1995.

         General and administrative expenses, as a percentage of net sales,
were 26.6% and 24.6% for the three months ended September 30, 1996 and 1995,
respectively.  General and administrative expenses include all corporate
overhead.  General and administrative expenses decreased by $156,000 compared
with the same period in 1995 due to a lower number of employees and their
related costs, and additional cost containment measures.

         The Company had a net loss applicable to common stock of $1,487,000
for the three months ended September 30, 1996, compared with a net loss
applicable to common stock of $596,000 in the same period last year.  The
increase in the net loss is primarily due to decreased sales and increased cost
of sales percentage.  In addition, there was a loss of $507,000 from the
closure of the Company's distribution facility and gallery locations during the
third quarter of 1996 compared to a loss of $301,000 from gallery closures in
the third quarter of 1995.

         The Company's strategy in this cost-conscious environment is to
continue to conduct art auctions and sales and other promotions at its retail
galleries.  In addition, with respect to new artists published by the Company,
the Company intends to provide the collector with tremendous value at moderate
prices.  The Company seeks to increase its publishing activities in order to
improve its gross margins and improve its wholesale and retail sales.  To that
end, the Company has recently signed Brent Benger to a publishing agreement and
may release limited edition graphics of the artist's works in early 1997.
Significant improvement in the Company's operating results is, to a large
extent, dependent upon the successful implementation of a plan of
reorganization, increased consumer spending of discretionary income, and the
Company's ability to publish artists that are appealing to consumers.  See
discussion regarding Liquidity and Capital Resources.





                                 Page 17 of 19
<PAGE>   18



                     Martin Lawrence Limited Editions, Inc.

                          PART II.  OTHER INFORMATION

ITEM 1.          LEGAL PROCEEDINGS.

                 On April 17, 1996, Woodfield Associates filed a lawsuit
                 against the Company in the Circuit Court for the Sixth
                 Judicial Circuit for the State of Michigan alleging, among
                 other things, the Company's failure to satisfy its lease
                 obligations, including the payment of rent.  On August 15,
                 1995, after receiving a notice of forcible detainer action
                 from the landlord for failure to pay several months' rent, the
                 Company vacated its premises in the Woodfield Mall prior to
                 the expiration of the lease.   The term of the lease as set
                 forth in the lease agreement extended until January 31, 2001.
                 The lawsuit demands payment of $1,943,602.90 in damages for
                 rent and other charges through the end of the lease term.  The
                 Company believes that the damages sought by Woodfield
                 Associates are far in excess of any damages the landlord may
                 have suffered and is asserting an affirmative defense to such
                 amounts alleging the Landlord's failure to make a good faith
                 effort to mitigate its damages.

ITEM 2.          CHANGES IN SECURITIES.

                 Not applicable.

ITEM 3.          DEFAULTS UPON SENIOR SECURITIES.

                 Not applicable.

ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

                 A proposal to approve an amendment to the Company's 1992 Stock
                 Incentive Plan to increase the number of shares available for
                 grant from 750,000 to 1,500,000 was passed at the Annual
                 Meeting of Stockholders on July 2, 1996.

ITEM 5.          OTHER INFORMATION.

                 On July 26, 1996, the Company announced that the New York
                 Stock Exchange had advised the Company that trading in the
                 common stock of the Company would be suspended before the
                 opening of trading on Monday, August 12.  The NYSE's action
                 was based on the fact that the Company had fallen below the
                 NYSE's continued listing criteria related to:  aggregate
                 market value of publicly held shares; net tangible assets
                 available to common stock together with three-year average net
                 income; and aggregate market value of all outstanding common
                 shares together with three-year average net income.  On August
                 9, 1996, the Company announced that the Company had been
                 cleared to trade its common stock on the OTC Bulletin Board
                 Service of the National Association of Securities Dealers
                 under the symbol "MLLE".  The Company ceased trading on the
                 NYSE at the close of the market on Friday, August 9, 1996 and
                 commenced trading on the OTC Bulletin Board on Monday, August
                 12, 1996.





                                 Page 18 of 19
<PAGE>   19



                     Martin Lawrence Limited Editions, Inc.

                          PART II.  OTHER INFORMATION

ITEM 6.          EXHIBITS AND REPORTS ON FORM 8-K.

Exhibit

 10.30           Amendment to Consignment Agreement dated June 7, 1996 between
                 Chalk & Vermilion Fine Arts, L.L.C. and Martin Lawrence
                 Limited Editions, Inc.





                                  SIGNATURE(S)


         Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                            MARTIN LAWRENCE LIMITED EDITIONS, INC.
                            (Registrant)


DATED:  November 15, 1996      BY: /s/ Allen A. Baron                
                               -------------------------------------
                               ALLEN A. BARON
                               Chief Financial Officer and Treasurer
                               (Duly Authorized Officer)





                                 Page 19 of 19