<PAGE>

================================================================================


                      SECURITIES AND EXCHANGE COMMISSION

                           WASHINGTON, D.C.   20549
                                 ____________


                                   FORM 10-Q


[ X ]  Quarterly report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934 for the period ended July 3, 1999

                                      OR

[   ]  Transition report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934


                        Commission file number 0-21499
                                 ____________

                            SPECIALTY CATALOG CORP.
            (Exact Name of Registrant as Specified in Its Charter)


               DELAWARE                                        04-3253301
     (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                          Identification No.)


               21 BRISTOL DRIVE
          SOUTH EASTON, MASSACHUSETTS                                 02375
    (Address of principal executive offices)                        (Zip Code)


                                (508)  238-0199
             (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 twelve 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


     Number of shares of the Registrant's Common Stock outstanding as of August
1, 1999: 4,401,886


================================================================================
<PAGE>

                            SPECIALTY CATALOG CORP.

                                     INDEX


                         PART I.   FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                         Page No.
                                                                                                         --------
<S>                                                                                                      <C>
Item 1.   Condensed Consolidated Financial Statements as of July 3, 1999, January 2, 1999 and
          July 4, 1998, for the Three Months Ended July 3, 1999 and July 4, 1998 and for the Six
          Months Ended July 3, 1999 and July 4, 1998

          Condensed Consolidated Statements of Operations                                                    3

          Condensed Consolidated Balance Sheets                                                              4

          Condensed Consolidated Statements of Cash Flows                                                    5

          Notes to Condensed Consolidated Financial Statements                                               6

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


                          PART II. OTHER INFORMATION

Item 4.   Submission of Matters to a Vote of Security Holders                                               14

Item 6.   Exhibits and Reports on Form 8-K                                                                  15

          Signatures                                                                                        16
</TABLE>

                                      -2-
<PAGE>

PART I.   FINANCIAL STATEMENTS

Item 1.   Condensed Consolidated Financial Statements

                            SPECIALTY CATALOG CORP.
                Condensed Consolidated Statements of Operations
                                  (unaudited)

<TABLE>
<CAPTION>
                                                           Three months ended                         Six months ended
                                                      July 3, 1999         July 4, 1998         July 3, 1999         July 4, 1998
                                                      ------------         ------------         ------------         ------------
<S>                                                   <C>                  <C>                  <C>                  <C>
Net sales..........................................    $12,264,398          $13,263,194          $25,531,066          $26,571,758
Cost of sales (including buying, occupancy and
     order fulfillment costs)......................      4,160,051            4,745,763            8,720,478            9,579,016
                                                       -----------          -----------          -----------          -----------
Gross margin.......................................      8,104,347            8,517,431           16,810,588           16,992,742
Selling, general and administrative expenses.......      6,451,643            6,371,392           14,117,732           15,284,684
                                                       -----------          -----------          -----------          -----------
Income from operations.............................      1,652,704            2,146,039            2,692,856            1,708,058
Interest expense, net..............................        169,297              214,882              365,110              425,235
                                                       -----------          -----------          -----------          -----------
Income before income taxes.........................      1,483,407            1,931,157            2,327,746            1,282,823
Income tax provision...............................        619,009              796,246              966,179              522,965
                                                       -----------          -----------          -----------          -----------
Net income.........................................        864,398            1,134,911            1,361,567              759,858
Other comprehensive loss...........................        (14,418)             (10,692)             (50,704)              (3,642)
                                                       -----------          -----------          -----------          -----------
Comprehensive income...............................    $   849,980          $ 1,124,219          $ 1,310,863          $   756,216
                                                       ===========          ===========          ===========          ===========

Basic earnings per share:
      Net income per share.........................    $      0.20          $      0.22          $      0.31          $      0.15
                                                       ===========          ===========          ===========          ===========
      Weighted average shares outstanding..........      4,417,718            5,057,001            4,426,344            5,049,693
                                                       ===========          ===========          ===========          ===========

Diluted earnings per share:
      Net income per share.........................    $      0.18          $      0.21          $      0.29          $      0.14
                                                       ===========          ===========          ===========          ===========
      Weighted average shares outstanding..........      4,698,616            5,529,354            4,708,514            5,524,650
                                                       ===========          ===========          ===========          ===========
</TABLE>

           See notes to condensed consolidated financial statements.

                                      -3-
<PAGE>

                            SPECIALTY CATALOG CORP.
                     Condensed Consolidated Balance Sheets
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                               July 3,          January 2,          July 4,
                                                                                1999               1999               1998
                                                                          -----------------  -----------------  ----------------
                                 Assets
Current assets:
<S>                                                                       <C>                <C>                <C>
      Cash and cash equivalents.........................................       $ 1,066,831        $   721,949       $    67,042
      Accounts receivable, net..........................................         1,326,640          1,220,741         1,585,677
      Merchandise inventories...........................................         4,574,730          5,388,395         5,770,502
      Prepaid expenses..................................................         3,165,881          3,738,846         3,805,301
                                                                               -----------        -----------       -----------
                Total current assets....................................        10,134,082         11,069,931        11,228,522
Property, plant and equipment, net......................................         3,607,732          2,946,112         2,799,773
Intangible assets, net..................................................         3,344,187          3,678,158         3,800,637
Deferred income taxes...................................................         3,831,705          4,521,988         5,060,374
Other assets............................................................           182,362            183,193           239,726
                                                                               -----------        -----------       -----------
                Total assets............................................       $21,100,068        $22,399,382       $23,129,032
                                                                               ===========        ===========       ===========

                    Liabilities and Shareholders' Equity
Current liabilities:
      Short-term borrowings.............................................       $ 4,276,098        $ 5,097,067       $ 4,010,915
      Accounts payable and accrued expenses.............................         2,279,068          3,403,414         2,575,572
      Liabilities to customers..........................................           975,783            676,447           947,750
      Deferred purchase price obligation................................                --                 --           494,130
      Current portion of long-term debt.................................         1,964,471          1,963,319         1,581,459
                                                                               -----------        -----------       -----------
                Total current liabilities...............................         9,495,420         11,140,247         9,609,826
Long-term debt..........................................................         2,880,049          3,671,167         4,652,331
Other long-term liabilities.............................................           213,869            151,619           158,376
Commitments and contingencies
Shareholders' equity:
      Common stock, $.01 par value: 10,000,000 shares authorized;
           4,411,586, 4,481,986 and 5,057,001 shares issued and
           outstanding at July 3, 1999, January 2, 1999 and July 4,
           1998, respectively...........................................            52,397             52,397            50,570
        Additional paid-in capital......................................        16,159,570         16,159,570        15,916,252
        Deferred compensation...........................................           (39,613)           (48,363)          (57,113)
        Accumulated other comprehensive income (loss)...................           (34,778)            15,926              (147)
        Accumulated deficit.............................................        (5,027,973)        (6,389,540)       (7,201,063)
                                                                               -----------        -----------       -----------
                                                                                11,109,603          9,789,990         8,708,499
        Less treasury stock, at cost, 828,188 shares at July 3, 1999,
           757,788 shares at January 2, 1999 and 0 shares at July 4,
           1998.........................................................        (2,598,873)        (2,353,641)               --
                                                                               -----------        -----------       -----------
                Total shareholders' equity                                       8,510,730          7,436,349         8,708,499
                                                                               -----------        -----------       -----------
                         Total liabilities and shareholders' equity.....       $21,100,068        $22,399,382       $23,129,032
                                                                               ===========        ===========       ===========
</TABLE>

           See notes to condensed consolidated financial statements.

                                      -4-
<PAGE>

                            SPECIALTY CATALOG CORP.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                      Six months ended
                                                                             July 3, 1999        July 4, 1998
                                                                             ------------        ------------
<S>                                                                          <C>                 <C>
Cash flows from operating activities:
Net income......................................................             $  1,361,567        $    759,858
Adjustments to reconcile net income to net cash provided
 by operating activities:
    Depreciation and amortization...............................                  404,688             356,563
    Amortization of deferred compensation.......................                    8,750               8,749
    Deferred income taxes.......................................                  700,427             499,676
    Changes in operating assets and liabilities:
     Accounts receivable........................................                 (124,055)           (462,088)
     Merchandise inventories....................................                  789,544             492,589
     Prepaid expenses...........................................                  569,347            (460,626)
     Other assets...............................................                   (9,874)             50,788
     Accounts payable and accrued expenses......................               (1,091,280)           (550,675)
     Liabilities to customers...................................                  299,336             (49,193)
     Income taxes...............................................                       --            (215,305)
     Other long-term liabilities................................                       --              25,002
                                                                             ------------        ------------
Net cash provided by operating activities.......................                2,908,450             455,338
                                                                             ------------        ------------

Cash flows from investing activities:
      Purchases of property, plant and equipment................                 (830,697)           (829,910)
                                                                             ------------        ------------
Net cash used in investing activities...........................                 (830,697)           (829,910)
                                                                             ------------        ------------

Cash flows from financing activities:
       Advances (repayments) on short-term borrowings, net......                 (730,389)            211,682
       Repayment of long-term debt..............................                 (713,164)           (351,717)
       Repurchase of treasury stock.............................                 (245,232)                 --
       Issuance of common stock.................................                       --              10,752
       Repayment of capital lease obligations...................                  (38,007)            (34,381)
                                                                             ------------        ------------
Net cash used in financing activities...........................               (1,726,792)           (163,664)
                                                                             ------------        ------------

Effect of exchange rate changes on cash and cash equivalents....                   (6,079)              1,438
                                                                             ------------        ------------

Increase (decrease) in cash and cash equivalents................                  344,882            (536,798)
Cash and cash equivalents, beginning of year....................                  721,949             603,840
                                                                             ------------        ------------
Cash and cash equivalents, end of year..........................             $  1,066,831        $     67,042
                                                                             ============        ============
</TABLE>

Summary of Non-Cash Transactions:

       During the three months ended April 3, 1999, the Company recorded capital
lease obligations of $100,257 related to the purchase of data processing
equipment.

       During the three months ended April 4, 1998, 35,000 stock options were
exercised for which the Company recorded a deduction in its income tax payable
and an increase in additional paid in capital of $67,024.

           See notes to condensed consolidated financial statements.

                                      -5-
<PAGE>

                            SPECIALTY CATALOG CORP.
             Notes to Condensed Consolidated Financial Statements
                                  (unaudited)

1. Basis of Presentation

   These unaudited condensed consolidated financial statements should be read in
conjunction with the Annual Report on Form 10-K of Specialty Catalog Corp. (the
"Company") for the fiscal year ended January 2, 1999, and the consolidated
financial statements and footnotes included therein.  Certain information and
footnote disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission rules
and regulations.  The results of operations for the three and six months ended
July 3, 1999 are not necessarily indicative of the results for the entire fiscal
year ending January 1, 2000.

   The financial statements for the three and six months ended July 3, 1999 and
July 4, 1998 are unaudited but include, in the Company's opinion, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the results for the periods presented.

2. Accounting Policies

   The accounting policies underlying the financial statements are those set
forth in Note 1 of the financial statements included in the Company's Annual
Report on Form 10-K for the year ended January 2, 1999.

   In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").  SOP 98-
1 required that costs incurred in the development of internal use software be
capitalized and amortized over a period of time.  The Company adopted SOP 98-1
in the first quarter of 1998. During the three months ended July 3, 1999 and
July 4, 1998, the Company capitalized approximately $344,000 and $87,000,
respectively, of costs associated with a new comprehensive catalog information
system, of which approximately $144,000 and $49,000, respectively, were internal
payroll and payroll related costs.  During the six months ended July 3, 1999 and
July 4, 1998, the Company capitalized approximately $604,000 and $217,000,
respectively, of costs, of which approximately $251,000 and $116,000,
respectively, were internal payroll and payroll related costs.

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is effective for all fiscal quarters of all fiscal years beginning after June
15, 2000.  The Company has not yet determined the effect, if any, of adopting
SFAS No. 133 on the consolidated financial statements.

3. Reconciliation of Basic and Diluted Earnings per Share

   The following table (in thousands) shows the amounts used in computing basic
and diluted earnings per share for net income and the effects of potentially
dilutive options on the weighted average number of shares outstanding.

                                      -6-
<PAGE>

                            SPECIALTY CATALOG CORP.
       Notes to Condensed Consolidated Financial Statements (Continued)
                                  (unaudited)

<TABLE>
<CAPTION>
                                             For the three months ended               For the six months ended
                                          July 3, 1999        July 4, 1998         July 3, 1999       July 4, 1998
                                         --------------      --------------      ---------------     --------------
                                           Net                 Net                 Net                 Net
                                         Income  Shares      Income   Shares     Income   Shares     Income  Shares
<S>                                      <C>     <C>         <C>      <C>        <C>      <C>        <C>     <C>
Basic earnings per share                   $864   4,418      $1,135   5,057      $1,362   4,426        $760   5,050
Effect of dilutive options                   --     281          --     472          --     282          --     475
                                           ----   -----      ------   -----      ------   -----        ----   -----
Diluted earnings per share                 $864   4,699      $1,135   5,529      $1,362   4,708        $760   5,525
                                           ====   =====      ======   =====      ======   =====        ====   =====
</TABLE>

   Options to purchase 677,601 shares of common stock ranging from $5.33 to
$7.15 per share were not included in computing diluted EPS for the three and six
months ended July 3, 1999 because their effects were antidilutive. Options to
purchase 545,735 shares of common stock ranging from $6.50 to $7.15 per share
were not included in computing diluted EPS for the three and six months ended
July 4, 1998 because their effects were also antidilutive.

4. Restructuring Charges

   During the third quarter of 1998, a restructuring charge of $469,558 was
recorded to reflect the reorganization of certain management positions. Included
in accrued expenses at July 3, 1999 are accrued restructuring charges of
$10,721.

5. Business Segments and Financial Information by Geographic Location

   Specialty Catalog Corp. has three reportable segments: SC Direct, SC
Publishing and Daxbourne International Limited. SC Direct primarily sells
women's wigs and hairpieces through its Paula Young(R) catalog. SC Direct also
offers African-American women a broad selection of quality wigs, hairpieces,
apparel and related products through its Especially Yours(R) catalog. In
addition, SC Direct sells apparel, hats and other fashion accessories through
its Paula's Hatbox(R) catalog. SC Publishing distributes catalogs under its
Western Schools(R) brand and specializes in providing continuing education
courses to nurses and CPAs. Daxbourne International Limited is a retailer and
wholesaler of women's wigs, hairpieces and related products in the United
Kingdom.

   The accounting policies of the reportable segments are the same as those
described in Note 1 of the financial statements included in the Company's Annual
Report on Form 10-K for the year ended January 2, 1999. The Company's reportable
segments are strategic business units that offer either different products or
operate in different geographic locations. The Company markets its products in
two major geographic areas, the United States and the United Kingdom. SC Direct
and SC Publishing market their products and maintain their assets in the United
States. Daxbourne International Limited markets its products and maintains its
assets in the United Kingdom.

                                      -7-
<PAGE>

                            SPECIALTY CATALOG CORP.
       Notes to Condensed Consolidated Financial Statements (Continued)
                                  (unaudited)

  A summary of information about the Company's operations by segment for the
three and six months ended July 3, 1999 and July 4, 1998 follows (intersegment
eliminations are inter-company receivables and investments in subsidiaries):

<TABLE>
<CAPTION>
                                                                SC                     Intersegment
                                                                --
                                                SC Direct   Publishing     Daxbourne   Eliminations      Total
                                                ---------   ----------     ---------   ------------      -----
<S>                                            <C>          <C>            <C>         <C>            <C>
For the three months ended July 3, 1999
   Net sales.................................  $ 9,761,402     $1,258,202  $1,244,794            --   $12,264,398
   Gross margin..............................    6,271,952        953,908     878,487            --     8,104,347
   Selling, general and administrative (1)...    5,021,525        693,872     736,246            --     6,451,643
   Depreciation and amortization (1).........       98,766         11,145      96,843            --       206,754
   Operating profit..........................    1,250,427        260,036     142,241            --     1,652,704
   Interest expense, net.....................      112,488             --      56,809            --       169,297
   Income tax provision......................      466,576        106,618      45,815            --       619,009

   Segment assets............................   16,819,527      4,107,961   4,709,419   $(4,536,839)   21,100,068
   Capital expenditures......................      806,908          7,067      16,722            --       830,697

For the three months ended July 4, 1998
   Net sales.................................  $11,050,821     $  964,785  $1,247,588            --   $13,263,194
   Gross margin..............................    6,960,795        677,892     878,744            --     8,517,431
   Selling, general and administrative (1)...    5,057,798        617,706     695,888            --     6,371,392
   Depreciation and amortization (1).........       79,517          5,473      97,622            --       182,612
   Operating profit..........................    1,902,997         60,186     182,856            --     2,146,039
   Interest expense, net.....................      136,581             --      78,301            --       214,882
   Income tax provision......................      724,229         24,677      47,340            --       796,246

   Segment assets............................   17,758,843      3,655,896   5,229,108   $(3,514,815)   23,129,032
   Capital expenditures......................      804,995             --      24,915            --       829,910
</TABLE>

(1)  Depreciation and amortization is included in selling, general and
     administrative expense in the condensed consolidated statements of
     operations under "selling, general and administrative expenses" for the
     three months ended July 3, 1999 and July 4, 1998.

                                      -8-
<PAGE>

                            SPECIALTY CATALOG CORP.
       Notes to Condensed Consolidated Financial Statements (Continued)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                  SC
                                                                  --                    Intersegment
                                                SC Direct      Publishing  Daxbourne    Eliminations      Total
                                               -----------    -----------  ---------    ------------      -----
For the six months ended July 3, 1999
<S>                                            <C>            <C>          <C>          <C>           <C>
   Net sales.................................  $20,061,732     $2,835,371  $2,633,963            --   $25,531,066
   Gross margin..............................   12,790,547      2,156,329   1,863,712            --    16,810,588
   Selling, general and administrative (1)...   11,299,146      1,325,063   1,493,523            --    14,117,732
   Depreciation and amortization (1).........      190,291         22,072     192,327            --       404,690
   Operating profit..........................    1,491,401        831,266     370,189            --     2,692,856
   Interest expense, net.....................      242,340             --     122,770            --       365,110
   Income tax provision......................      512,136        340,835     113,208            --       966,179

   Segment assets............................   16,819,527      4,107,961   4,709,419   $(4,536,839)   21,100,068
   Capital expenditures......................      806,908          7,067      16,722            --       830,697

For the six months ended July 4, 1998
   Net sales.................................  $21,701,349     $2,280,996  $2,589,413            --   $26,571,758
   Gross margin..............................   13,549,861      1,602,157   1,840,724            --    16,992,742
   Selling, general and administrative (1)...   12,717,959      1,203,046   1,363,679            --    15,284,684
   Depreciation and amortization (1).........      151,903         13,774     195,297            --       360,974
   Operating profit..........................      831,902        399,111     477,045            --     1,708,058
   Interest expense, net.....................      260,456             --     164,779            --       425,235
   Income tax provision......................      234,290        163,635     125,040            --       522,965

   Segment assets............................   17,758,843      3,655,896   5,229,108   $(3,514,815)   23,129,032
   Capital expenditures......................      804,995             --      24,915            --       829,910
</TABLE>

(1)  Depreciation and amortization is included in selling, general and
     administrative expense in the condensed consolidated statements of
     operations under "selling, general and administrative expenses" for the six
     months ended July 3, 1999 and July 4, 1998.

                                      -9-
<PAGE>

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

  In addition to the historical information contained herein, this Quarterly
Report on Form 10-Q for Specialty Catalog Corp. (the "Company") may contain
"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, including,
but not limited to, the Company's expected future revenues, operations and
expenditures, estimates of the potential markets for the Company's products,
assessments of competitors and potential competitors and projected timetables
for the market introduction of the Company's products. Investors are cautioned
that forward-looking statements are inherently uncertain.  Actual performance
and results of operations may differ materially from those projected or
suggested in the forward-looking statements due to certain risks and
uncertainties, including, but not limited to, the following risks and
uncertainties: (i) the Company's indebtedness and future capital requirements,
(ii) increasing postal rates, paper prices and media costs, (iii) limited
sources of fiber used to make the Company's products, (iv) the limited number of
suppliers of the Company's products, (v) the Company's dependence upon foreign
suppliers, especially in China, Indonesia and Korea, (vi) the customary risks of
doing business abroad, including fluctuations in the value of currencies, (vii)
the potential development of a cure for hair loss and cancer treatment
improvements, (viii) the effectiveness of the Company's catalogs and advertising
programs, (ix) the Company's competition, (x) the impact of acquisitions on the
Company's prospects and (xi) contingencies and risks associated with the year
2000 problem.  Additional information concerning certain risks and uncertainties
that could cause actual results to differ materially from those projected or
suggested in the forward-looking statements is contained in the Company's
filings with the Securities and Exchange Commission, including those risks and
uncertainties  discussed under the caption "Risk Factors" in the Company's Form
10-K for the year ended January 2, 1999.  The forward-looking statements
contained herein represent the Company's judgment as of the date of this
Quarterly Report on Form 10-Q, and the Company cautions readers not to place
undue reliance on such statements.

Three Months Ended July 3, 1999 Compared to the Three Months Ended July 4, 1998

  The Company's net sales decreased to $12.3 million for the three months ended
July 3, 1999 from $13.3 million for the three months ended July 4, 1998, a
decrease of $1.0 million, or 7.5%.  SC Direct's net sales were  $1.3 million
lower than the prior year's second quarter net sales, primarily due to (i) a
decrease of $1.5 million in net sales from its Paula Young(R) catalog, primarily
as a result of less sales to new customers due to a reduction in advertising
expenditures and (ii) a decrease of approximately $215,000 in net sales from the
Christine Jordan(R) catalog as a result of the Company's decision to no longer
circulate the Christine Jordan(R) catalog, but continue to sell the branded
products through its Paula Young(R) catalog. These net sales decreases were
offset by an increase of approximately $341,000 in net sales from SC Direct's
Especially Yours(R) catalog and an increase of approximately $133,000 in net
sales from SC Direct's Paula's Hatbox(R) catalog.  SC Publishing's net sales
were approximately $293,000 higher than the prior year's second quarter net
sales, primarily due to improved customer response rates.

  Gross margin as a percent of net sales increased to 66.1% for the three months
ended July 3, 1999 from 64.2% for the three months ended July 4, 1998.  This
increase in the gross margin rate reflects the Company's efforts to transition
its core Paula Young(R) catalog from an emphasis on reduced prices and
discounting to a focus on product line expansion and innovation, including the
introduction of human hair and human hair blend wigs.  Gross margin decreased to
$8.1 million for the three months ended July 3, 1999 from $8.5 million for the
three months ended July 4, 1998, a decrease of approximately $414,000, or 4.9%,
as a result of the reduction in net sales mentioned above, offset by the
increase in gross margin caused by the increase in the gross margin rate
mentioned above.

  Selling, general and administrative expenses ("SG&A") increased slightly to
$6.5 million for the three months ended July 3, 1999 from $6.4 million for the
three months ended July 4, 1998, an increase of approximately $80,000, or 1.3%.

                                      -10-
<PAGE>

  Interest expense, net decreased to approximately $169,000 for the three months
ended July 3, 1999 from approximately $215,000 for the three months ended July
4, 1998, a decrease of approximately $46,000, or 21.4%.  The decrease in
interest expense, net reflects lower average principal amounts outstanding on
the Company's bank facility due to the positive free cash flows generated by the
Company.


Six Months Ended July 3, 1999 Compared to the Six Months Ended July 4, 1998

  Net sales decreased to $25.5 million for the six months ended July 3, 1999
from $26.6 million for the six months ended July 4, 1998, a decrease of $1.1
million, or 4.1%.  SC Direct's net sales were $1.6 million lower than the prior
year's first half net sales, primarily due to (i) a decrease of $2.3 million in
net sales from its Paula Young(R) catalog, primarily as a result of less sales
to new customers due to a reduction in advertising expenditures, and (ii) a
decrease of approximately $472,000 in net sales from the Christine Jordan(R)
catalog as a result of the Company's decision to no longer circulate the
Christine Jordan(R) catalog, but continue to sell the branded products through
its Paula Young(R) catalog. These net sales decreases were offset by an increase
of $1.1 million in net sales from SC Direct's Especially Yours(R) catalog and an
increase of approximately $52,000 in net sales from SC Direct's Paula's
Hatbox(R) catalog.  SC Publishing's net sales were approximately $554,000 higher
than the prior year's first half net sales, primarily due to improved customer
response rates.

  Gross margin as a percent of net sales increased to 65.8% for the six months
ended July 3, 1999 from 64.0% for the six months ended July 4, 1998.  This
increase in the gross margin rate reflects the Company's efforts to transition
its core Paula Young(R) catalog from an emphasis on reduced prices and
discounting to a focus on product line expansion and innovation, including the
introduction of human hair and human hair blend wigs.  The gross margin
decreased to $16.8 million for the six months ended July 3, 1999 from $17.0
million for the six months ended July 4, 1998, a decrease of approximately
$183,000, or 1.1%, as a result of the reduction in net sales  mentioned above,
offset by the improvement in the gross margin rate mentioned above.

  SG&A expenses decreased to $14.1 million for the six months ended July 3, 1999
from $15.3 million for the six months ended July 4, 1998, a decrease of $1.2
million, or 7.8%.  The decrease in SG&A related to lower advertising expenses of
$1.2 million which is primarily a result of the Company's strategic decision to
eliminate certain marginal advertising programs which did not generate new
customers and sales at a sufficient level to justify its expenditures.

  Interest expense, net decreased to approximately $365,000 for the six months
ended July 3, 1999 from approximately $425,000 for the six months ended July 4,
1998, a decrease of approximately $60,000, or 14.1%. The decrease in interest
expense, net reflects lower average principal amounts outstanding on the
Company's bank facility due to the positive free cash flows generated by the
Company.


Liquidity and Capital Resources

  Cash flows provided by operating activities were $2.9 million for the six
months ended July 3, 1999, offset by approximately $831,000 used in investing
activities and $1.7 million used in financing activities.  The major factors
that caused the difference between net income and cash flows from operations
are: depreciation and amortization of approximately $405,000, increases in non-
cash working capital items of approximately $433,000 and an increase in deferred
income taxes of approximately $700,000.  The $831,000 in cash used in investing
activities was mainly due to the Company's installation of a new catalog
information system, which amounted to approximately $604,000. The $1.7 million
in cash used in financing activities was due to (i) the repayment of
approximately $730,000 on the Company's short-term borrowings, (ii) the
repayment of long-term debt of approximately $713,000 and (iii) the Company's
repurchase of approximately $245,000 of common stock.

                                      -11-
<PAGE>

     The Company is in the process of installing a new catalog information
system purchased from an outside vendor. The system is currently undergoing
modification by the Company's internal staff. The system is scheduled to be
implemented for SC Direct, the main operating subsidiary of the Company, in the
third quarter of 1999. Following the implementation by SC Direct, it is
anticipated that the system will be modified to deal with the special processing
needs of SC Publishing, another subsidiary of the Company. The entire cost of
the new system, including new hardware and internal payroll and payroll related
costs, is estimated to be $2.0 million. As of July 3, 1999, $1.7 million of
these costs have been capitalized, of which approximately $344,000 was added
during the three months ended July 3, 1999.

     The Company's cash flow from operations and available credit facilities are
considered adequate to fund planned business operations and both the short-term
and long-term capital needs of the Company.  However, certain events, such as
additional significant acquisitions, could require new external financing.


Year 2000 Readiness

     The Company's current information and computer systems will be affected by
the Year 2000 ("Y2K") issue, which refers to the inability of computerized
systems to process dates beyond December 31, 1999. The Company has formulated a
Y2K Plan to address the Company's Y2K issues. Based on its current assessments
from the Y2K Plan, the Company does not expect at present that it will
experience a disruption of its operations as a result of the change to the new
millennium.

     The Company is in the process of installing a new comprehensive catalog
information system purchased from an outside vendor, who has represented that
the software addresses the Y2K issue.  If the Company's new computer system
fails with respect to the Y2K issue, there could be a material adverse impact on
the business operations or financial performance of the Company, including its
ability to take customer orders, ship products, invoice customers and collect
payments.  It is anticipated that the installation will be completed in the
third quarter of 1999 for SC Direct.  The Company estimates that the entire cost
of the new system, including new hardware and internal payroll and payroll
related costs, will be $2.0 million.  As of July 3, 1999, $1.7 million of these
costs have been capitalized, of which approximately $344,000 was added during
the three months ended July 3, 1999. If the new catalog information system
cannot be effectively installed, then the Company has scheduled its current
computer vendor to provide a free upgrade in the third quarter of 1999 that will
make the Company's current computer operating system Y2K ready.   Also, in
January 1998, the Company successfully converted its financial and accounting
systems to a new software package that has been represented by the vendor to be
Y2K ready.

     The foregoing timetable and assessment of costs to become Y2K compliant
reflect management's current best estimates.  These estimates are based on many
assumptions, including assumptions about the cost, availability and ability of
resources to locate, remediate and modify affected systems, equipment and
facilities.  Based upon its activities to date, the Company does not currently
believe that these factors will cause results to differ significantly from those
estimated.  However, the Company cannot reasonably estimate the potential impact
on its financial condition and operations if key third parties including, among
others, suppliers, contractors, financial institutions, non-retail customers and
governments do not become Y2K compliant on a timely basis.

     The Company is assessing the state of readiness of its major suppliers and
customers through written inquiry and evaluation of responses.  The Company
intends to follow up with those suppliers or customers that indicate material
problems.  Alternate suppliers or service providers will be identified for those
whose responses indicate an unusually high risk of a Y2K problem.  The Company's
evaluation of business processes that are not related to information systems,
and the development of contingency plans where such evaluation identifies a high
risk of a Y2K problem, should be completed by the third quarter of 1999.  The
main risks associated with the Y2K problem are the uncertainties as to whether
the Company's suppliers and vendors can continue to perform their services for
the Company uninterrupted by the Y2K event, and whether the Company's non-retail
customers can continue to

                                      -12-
<PAGE>

operate their businesses uninterrupted by the Y2K event. The Company's
suppliers, if they are unable to remediate their Y2K problems, may be unable to
produce or deliver goods ordered by the Company. The Company depends
significantly upon telephone orders; should the Company's telephone service be
adversely affected, the Company will be unable to receive a high percentage of
its retail orders. The Company also depends in large measure on delivery
services such as the United States Post Office, Federal Express and UPS to
deliver goods to retail customers; accordingly, should one or more of these
delivery services prove unable to make deliveries as a result of Y2K problems,
the Company's cash flow and business would be severely and adversely affected.
Although the state of readiness of the Company's suppliers, delivery services
and non-retail customers will be monitored and evaluated, and contingency plans
will be developed, no assurances can be given as to the eventual state of
readiness of the Company's suppliers and/or customers. Nor can any assurances be
given as to eventual effectiveness of the Company's contingency plans.

     The preceding discussion contains forward-looking information within the
meaning of Section 21E of the Exchange Act. This disclosure is also subject to
protection under the Year 2000 Information and Readiness Disclosure Act of 1998,
Public Law 105-271, as a "Year 2000 Statement" and "Year 2000 Readiness
Disclosure" as defined therein. Actual results may differ materially from such
projected information due to changes in the underlying assumptions.


Recently Issued Accounting Pronouncements

     In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-
1"). SOP 98-1 required that costs incurred in the development of internal use
software be capitalized and amortized over a period of time. The Company adopted
SOP 98-1 in the first quarter of 1998. During the three months ended July 3,
1999 and July 4, 1998, the Company capitalized approximately $344,000 and
$87,000, respectively, of costs associated with a new comprehensive catalog
information system, of which approximately $144,000 and $49,000, respectively,
were internal payroll and payroll related costs. During the six months ended
July 3, 1999 and July 4, 1998, the Company capitalized approximately $604,000
and $217,000, respectively, of costs, of which approximately $251,000 and
$116,000, respectively, were internal payroll and payroll related costs.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. The Company has not yet determined the effect, if any, of adopting
SFAS No. 133 on the consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

     The Company's primary exposures to market risks include fluctuations in
interest rates on its short-term and long-term debt of $9.1 million as of July
3, 1999 and in foreign currency exchange rates. The Company does not use
derivative financial instruments. The Company is subject to interest rate risk
on its short-term borrowings under its credit facilities. Historically, the
Company has not experienced material gains or losses due to interest rate
changes. Management does not believe that the risk inherent in the variable-rate
nature of these instruments will have a material effect on the Company's
consolidated financial statements. However, no assurance can be given that such
a risk will not have a material adverse effect on the Company's financial
statements in the future.

     The Company's US term loan and US revolving line of credit bear interest
rates based on either a base rate or a LIBOR contract rate. As of July 3, 1999,
the US term loan was under a LIBOR contract rate of 6.81% for $3.5 million. As
of July 3, 1999, $2.0 million of the US revolving line of credit was under LIBOR
contract rates ranging from 6.70% to 6.86% and the remainder of the US revolving
line of credit was at the base rate of 8.00%. The Company's UK term loan and UK
revolving line of credit bear interest rates based on either a Sterling base

                                      -13-
<PAGE>

rate or a LIBOR contract rate. As of July 3, 1999, a majority of both the UK
term loan and UK revolving line of credit were under a LIBOR contract rate of
9.48%.

     As of July 3, 1999, the outstanding borrowings on the Company's credit
facilities were $9.1 million. Based on this balance, an immediate change of one
percent in the interest rate would cause a change in interest expense of
approximately $86,000 on an annual basis. The Company's objective in maintaining
these variable rate borrowings is the flexibility obtained regarding early
repayment without penalties and lower overall cost as compared with fixed-rate
borrowings and longer-term variable rate borrowings.

     The foreign currencies to which the Company has the most significant
exchange rate exposure are the British Pound, Chinese Yuan and Indonesian
Rupiah. The Company currently expects that most of its wigs and hairpieces will
continue to be manufactured in China and Indonesia in the future. Accordingly,
the Company's operations are subject to fluctuations in the value of these
countries' currencies. Although to date such exchange rate exposures have not
had a significant effect on the Company's business operations, no assurance can
be given that such exchange rate exposures will not have a material adverse
effect on the Company's business operations in the future. Also, the
implementation of the Euro currency in 1999 is not expected to materially affect
the Company's operations, or its risk profile.

     Based on a hypothetical ten percent adverse movement in interest rates and
foreign currency exchange rates, the potential losses in future earnings, fair
value of risk-sensitive financial instruments, and cash flows are not material,
although the actual effects may differ materially from the hypothetical
analysis.


PART II.  OTHER INFORMATION

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

     The Company held its annual meeting of shareholders on Tuesday, May 25,
1999. The following represents the results of the voting on proposals submitted
to a vote of shareholders at such meeting:

     a. Proposal to elect directors:

        Name of Director    Number of votes in favor   Number of votes withheld
        ----------------    ------------------------   ------------------------
Steven L. Bock                   4,236,492                       --
Alan S. Cooper                   4,236,492                       --
Martin E. Franklin               4,236,492                       --
Samuel L. Katz                   4,236,492                       --
Guy Naggar                       4,236,492                       --
Andrea Pomerantz Lustig          4,233,992                    2,500


     All persons name above were re-elected as directors of the Company for a
term of office expiring on the date of the next annual meeting of shareholders,
or special meeting in lieu thereof, and until their respective successors are
duly elected and qualified.

                                      -14-
<PAGE>

     b.   Proposal to amend the Company's 1996 Stock Incentive Plan to increase
the number of shares authorized for issuance thereunder from 750,000 to
1,000,000.

        Votes for         Votes against       Votes abstaining    Not voted
        ---------         -------------       ----------------    ----------
        3,313,193           270,383               79,026            573,890



ITEM 6.    Exhibits and Reports on Form 8-K

(a)  Exhibits

     10.1  Amendment dated as of June 24, 1999 to Employment Agreement between
           Registrant and Steven L. Bock, Filed herewith.

     27.1  Financial Data Schedule (for EDGAR filing purposes only), Filed
           herewith.

(b)  Reports on Form 8-K

     No reports on Form 8-K have been filed during the three and six months
     ended July 3, 1999.

                                      -15-
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                   SPECIALTY CATALOG CORP.


Dated: August 2, 1999              By: /s/ Steven L. Bock
                                      --------------------------------
                                      Steven L. Bock
                                      Chairman, President and
                                      Chief Executive Officer



Dated: August 2, 1999              By: /s/ Thomas K. McCain
                                      --------------------------------
                                      Thomas K. McCain
                                      Senior Vice President and
                                      Chief Financial Officer

                                      -16-