<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1996

                         Commission File Number 0-17941

                         SPECIALTY RETAIL SERVICES, INC.
             (Exact name of Registrant as specified in its charter)

           DELAWARE                                      22-2686442
(state or other jurisdiction of             (IRS Employer Identification Number)
 incorporation or organization)

                 150 EAST 58TH STREET, NEW YORK, NEW YORK                  10155
               (Address of principal executive offices                (Zip Code)
       Registrant's telephone number, including area code: (212) 935-5030

Securities registered pursuant to Section 12(b) of the Act:

                                                           Name of each exchange
  Title of each class                                        on which registered
  -------------------                                        -------------------
          None                                                      None

Securities registered pursuant to Section 12(g) of the Act:

                              Name of each exchange
     Title of each class                                     on which registered
     -------------------                                     -------------------
 Common Stock $.01 Par Value                                       None

         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 such
filing requirements for the past 90 day YES [ X ] NO [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements contained incorporated by reference in Part III of this Form 10-K or
any amendment to the Form 10-K. [ ]

         As of March 31, 1997, (a) 6,485,294 shares of the Company's Common
Stock were outstanding; (b) 3,846,544 shares of Common Stock were held by
non-affiliates; and (c) the aggregate market value of shares of Common Stock
held by non-affiliates was $115,396, based upon the closing bid price of $.03
per share on March 31, 1997.



<PAGE>   2



                                     PART I

Item 1. BUSINESS

     In late October 1991, the Board of Directors of Specialty Retail Services,
Inc. (the "Company"), after determining that there were no further sources of
capital available to meet severe working capital shortages faced by its
principal subsidiary, Gobi Primak, Inc. ("Gobi"), decided to liquidate the
Company's affairs as quickly as possible. On November 6, 1991, Gobi's principal
lender, Fleet Credit Corporation ("Fleet"), sent Gobi a notice of an Event of
Default under the Loan Agreement and demanding immediate repayment of all sums
outstanding under the Loan Agreement. Immediately thereafter, Fleet began the
liquidation of Gobi's assets. As of December 31, 1992, all of Gobi's assets had
been liquidated. The liquidation of Gobi's assets did not generate sufficient
funds to repay the outstanding borrowings from Fleet. The outstanding borrowings
from Fleet at December 31, 1996 were approximately $19,000.

     Through October 1991, Specialty Retail Services, Inc., through its
wholly-owned subsidiaries (hereinafter, collectively, the "Company"),
manufactured, distributed and marketed a broad range of professional beauty
products, including hair care, nail care, cosmetics, skin care and other beauty
accessories to independent and chain drug stores, supermarkets, mass
merchandisers, warehouse clubs, retail distributors, salons and beauty supply
outlets, and to consumers. The Company had serviced approximately 90% of its
product sales directly from its 52,000 square foot of space and distribution
facility located in East Brunswick, New Jersey. During 1996, 1995 and 1994 the
Company had no operations or activities.

Item 2. PROPERTIES

     The Company's executive offices are located in New York City in
approximately 1,837 square feet of space leased by an affiliate of Bentley J.
Blum. The Company does not pay rent for the use of these premises. The Company's
principal office and distribution center was located at 9 Elkins Road, East
Brunswick, New Jersey 08810, consisting of a 46,000 square foot warehouse and a
6,000 square foot office facility (the "Premises"). The Company vacated such
premises at the end of February 1992.

     The Company leased (the "Lease") the Premises from 618 Scotland Road Realty
("618 Realty"), a New Jersey partnership formed by the former stockholders of
Gobi-Primak, Inc., a New York corporation ("Old Gobi"), the assets of which were
purchased by the Company. The 20-year lease, which expires on August 31, 2005,
provides for annual rent for the first ten years in an amount equal to 110% of
the annual real estate taxes on the premises and interest and principal due
under the note issued in connection with the purchase of such property by 618
Realty (the "Note"). Lease payments had been $14,305 per month. Rental payments
after the tenth year are adjusted to equal the then fair market rental of the
Premises. The Lease has been assigned by the Company to Fleet as collateral
security under the teens of its credit facility. Concurrently with this
assignment, Gobi delivered a guaranty of 618 Realty's obligations under an
industrial development bond mortgage, and was granted a second mortgage on the
Premises. Gobi's interest in the lease and the second mortgage were collaterally
assigned to Fleet as security for Gobi's obligations to Fleet. At the inception
of the lease, management of the Company believed that the terms of the Lease
were no less favorable than those which could be obtained from an independent
third party in an arm's length transaction.

                                        2


<PAGE>   3


Item 3. LEGAL PROCEEDINGS

     By summons and complaint dated December 3, 1991, Stephen R. Wolman
Associates, Inc. sued the Company and Gobi, alleging failure to pay a placement
fee for two employees of Gobi. The suit was brought in Supreme Court, New York
County, State of New York, and seeks a total of $33,000 with interest. An answer
has been interposed and discovery has been requested but not commenced.

     Gobi is a party to a number of lawsuits filed in 1991, when it is alleged
to have breached contracts and other matters. Claims relating to these lawsuits
total approximately $350,000. Independent counsel has advised that they cannot
offer an opinion as to the probable outcome or the ultimate liability that may
result from these claims. No further action has taken place in these cases since
1992.

     The Company has no funds with which to defend or pay claims.

     In August 1991, Gobi brought suit in Superior Court of New Jersey,
Middlesex County, Index No. C-237-91 (the "Pataffi Feldman Action") against two
ex-employees, Joseph Pataffi ("Pataffi") and Lee Feldman ("Feldman")
(collectively "Pataffi/Feldman") and one supplier and another distributor for,
among other things, conspiracy to injure Gobi and interfering with business and
economic opportunities. Pataffi and Feldman have brought counterclaims claiming
damages for non-payment of commissions, bonuses, medical expenses and
interferences with prospective economic advantage. Gobi's claims have been
assigned by its senior lender, Fleet, to Bergen, Inc.

     In January 1992, the Company, Gobi and Bentley J. Blum brought suit in
Superior Court of New Jersey, Middlesex County, Index No. C-43-92 against Louis
Primak and Philip Primak for claims related to the Pataffi/Feldman Action. Louis
Primak and Philip Primak have counterclaimed for, among other things, a
purported "default" on one of four separate promissory notes, each dated January
30, 1986 and each made by Gobi to Old Gobi and The Beauty Group (New Jersey) in
the original principal sum of $312,500 and now held by Philip Primak and Louis
Primak. The Company and Gobi's claims have been assigned by its senior lender,
Fleet, to Bergen, Inc.

     In the third quarter of 1994, the Company settled a disagreement with
subordinated note holders. The subordinated note holders will begin to be paid
amounts due, commencing October 1, 1994, through June 1, 1999. The principal and
accrued interest is approximately $800,000 and the balance of approximately
$150,000 will be recognized as interest in future periods as per the
subordinated note terms. These obligations have been personally guaranteed by a
director of the Company. As of December 31, 1996, approximately $693,600 of the
$950,000 has been paid. The director is currently satisfying the notes and as
payments are made, the Company will have an obligation to repay the director.
The director as the option to pledge certain securities to the payees of these
notes, in which event the Company will be released of all obligations to those
payees.

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

     There were no matters that were brought before a stockholder vote during
the fourth quarter of the fiscal year of the Company which ended on December 31,
1996.


                                        3


<PAGE>   4



                                     PART II

Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS

MARKET PRICE INFORMATION

The Company's Common Stock is traded in the over-the-counter market. Stock price
quotations for the Company's common stock were reported on the NASDAQ System
under the symbol SRSI from August 25, 1989 until June 11, 1991. Since June 11,
1991, stock price quotations for the Company's common stock have been reported
in the "pink sheets" by the National Quotation Bureau and through the NASD OTC
Bulletin Board. The quotations as reported by NASDAQ and the National Quotation
Bureau reflect inter-dealer quotations without retail markup, markdown or
commission and may not necessarily represent actual transactions. The following
table sets forth the high and low bid quotations for the Company's Common Stock
for each full quarterly period within the two most recent fiscal years.

<TABLE>
<CAPTION>

====================================================================================================================================
              FISCAL YEAR ENDED DECEMBER 31, 1996                              FISCAL YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------------------------------------------------------------------
            First        Second       Third        Fourth                   First        Second       Third        Fourth
            Quarter      Quarter      Quarter      Quarter                  Quarter      Quarter      Quarter      Quarter
------------------------------------------------------------------------------------------------------------------------------------
<S>         <C>          <C>          <C>          <C>                      <C>          <C>          <C>          <C>
High:       $.08         $.17         $.17         $.10          High:      $.03         $.04         $.20         $.14
------------------------------------------------------------------------------------------------------------------------------------
Low:        $.05         $.02         $.09         $.03          Low:       $.01         $.001        $.001        $.03
====================================================================================================================================

</TABLE>


     As of March 22, 1997, the Company had 6,485,294 outstanding shares of
Common Stock held by approximately 102 registered holders.

DIVIDENDS

     No dividends have been declared on the Common Stock since the inception of
the Company in 1986 and the Company does not anticipate paying cash dividends in
the foreseeable future.

REGISTRAR AND TRANSFER AGENT

Fleet Bank, P.O. Box 366, Providence, Rhode Island 02907 acts as the Company's
Registrar and Transfer Agent.


                                        4


<PAGE>   5



Item 6.  SELECTED  FINANCIAL  DATA  Amounts  in  Thousands  Except for Per Share
Amounts


<TABLE>
<CAPTION>

                             Fiscal Year        Fiscal Year        Fiscal Year       Fiscal Year        Fiscal Year
                                Ended              Ended              Ended             Ended              Ended
                              December           December           December           December           December
                             31, 1996(4)        31, 1995(4)        31, 1994(4)       31, 1993(4)        31, 1992(3)

<S>                            <C>               <C>               <C>               <C>                <C>
Sales, net                        --                --                --                --                 --
Net (loss)                        --                --                --                --                 --
Per Share
Information:

Net (loss) (1)                    --                --                --                --                 --
Weighted average
shares outstanding (1)           6,485             6,485             6,485             6,485              6,485

Balance Sheet
Information

Working Capital                $(8,232)          $(7,871)          $(7,502)          $(6,914)           $(6,640)
Long Term Debt
and 14% Series A
Preferred Stock                $   455           $   455           $   455           $   455            $   455
Total Assets                   $     1           $     1           $     1           $     1                $--
Total Liabilities              $ 8,233           $ 7,872           $ 7,503           $ 6,915            $ 6,640
Stockholder's
equity (deficiency
in assets)(2)                  $(8,232)          $(7,871)          $(7,502)          $(6,914)           $(6,640)

</TABLE>

----------

1.   All per share information reflects the November 1, 1991 exercise of rights
     to exchange the 14% series A convertible preferred stock of Gobi into
     972,994 shares of Common Stock. The exercise of stock options and warrants
     was not considered as their effect would be either nonmaterial or
     antidilutive.

2.   The  Company  has  not  paid a cash  dividend  on its  Common  Stock  since
     inception of the Company in 1986.

3.   The Company had no operations during 1992 other than the liquidation of its
     assets by Fleet Credit Corporation.

4.   The Company had no operations during 1993, 1994, 1995 and 1996.


                                        5


<PAGE>   6



Item 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION.

RESULTS OF OPERATIONS

Year Ended December 31, 1996 versus 1995

     The Company had no operations during 1996 and 1995.

Year Ended December 31, 1995 versus 1994

     The Company had no operations during 1995 and 1994.

INFLATION AND SEASONALITY

     Inflation had little effect on the Company's operations at any time.

LIQUIDITY AND CAPITAL RESOURCES

     On November 5, 1991, Fleet Credit Corporation ("Fleet"), the Company's
principal lender, sent Gobi Primak, Inc. ("Gobi") a notice of an Event of
Default under the Loan Agreement and demanding immediate repayment of all sums
outstanding under the Loan Agreement. Because Fleet had liens upon all assets of
Gobi, the Board of Directors decided to immediately turn over all of Gobi's
assets to Fleet on a peaceful possession basis for liquidation. Fleet
immediately appointed a liquidator to supervise the liquidation.

     On January 16, 1992, the Company sold substantially all of the assets of
its subsidiary, Salon Technology, Inc., for approximately $175,000 cash. In
connection therewith, the buyer assumed trade payables and other liabilities of
Salon Technology, Inc. Simultaneous with the sale of assets, in consideration
for $115,000, the senior lender assigned all of its rights to certain Salon
Technology, Inc. royalties and Gobi claims against third parties to Bergen,
Inc., a corporation owned by an individual not affiliated with the Company, but
who maintains a business relationship with Bentley J. Blum, a principal
shareholder of the Company. Bergen, Inc. borrowed from Mr. Blum the $115,000
used to purchase such royalties and claims. All funds received from the sale
were delivered to Fleet pursuant to the terms of an agreement whereby Gobi
agreed to give to such lender peaceful possession of all of its assets.

     In the third quarter of 1994, the Company settled a disagreement with
subordinated note holders. The subordinated note holders will begin to be paid
amounts due, commencing October 1, 1994, through June 1, 1999. The principal and
accrued interest is approximately $800,000 and the balance of approximately
$150,000 will be recognized as interest in future periods as per the
subordinated note terms. These obligations have been personally guaranteed by a
director of the Company. As of December 31, 1996, approximately $693,600 of the
$950,000 has been paid. The director is currently satisfying the notes and as
payments are made, the Company will have an obligation to repay the director.
The director has the option to pledge certain securities to the payees of these
notes, in which event the Company will be released of all obligations to those
payees.

     As of December 31, 1996, the Company had liquidated all of its net assets.
At December 31, 1996, the Company had $1,000 in assets and total liabilities of
$8,233,000.


                                        6


<PAGE>   7



Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.

     The consolidated financial statements of the Company and its subsidiaries
can be found on pages F-1 through F-11 included in this Item 8.

Item  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE.

          None.


                                        7


<PAGE>   8



                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS

     The following table sets forth certain information concerning the
directors, executive officers and other management personnel of the Company.

<TABLE>
<CAPTION>


Name                  Age     Position and Offices Held With the Company
----                  ---     ------------------------------------------

<S>                   <C>     <C>
Murray Steinfink      56      Chairman of the Board, President and Chief Executive Officer
Bentley J. Blum       55      Director

</TABLE>


     All directors are serving a current term of office that continues until the
Company's next annual meeting of stockholders and directors.

     Murray Steinfink co-founded the Company with Messrs. Paul E. Hannesson
("Hannesson") and Bentley J. Blum ("Blum") in January 1986, and currently serves
as a Director, Chairman of the Board, President and Chief Executive Officer.
From September 1984 to January 1986, Mr. Steinfink served as President of M.S.
Associates, a private consulting and investment group which assisted private
investors in acquiring various companies. From September 1983 to September 1984,
Mr. Steinfink served as Vice President of Conair Corporation, a manufacturer and
marketer of professional and retail personal care and beauty products. From
March 1982 to August 1983, he was employed as Senior Vice PresidentProfessional
Products Group for Revlon, Inc., a manufacturer of professional health and
beauty aids. In such capacity he was responsible for initiating and implementing
sales incentive, profit enhancement and cost savings programs. For six years
prior to joining Revlon, Mr. Steinfink was the President-Specialty Products
Group of M. Lowenstein Corporation, a textile manufacturer, where he was
responsible for the introduction of a diverse group of textile related profit
centers, the redeployment of assets and the divestiture of unprofitable
corporate operations.

     Bentley J. Blum a co-founder of the Company, was elected as director of the
Company on January 30, 1986. Mr. Blum is a private investor who has been
involved in various businesses, including real estate, mining and oil and gas
exploration, development and drilling, for more than five years. Since 1984, Mr.
Blum has diversified his investment activities and, with his brother-in-law,
Paul E. Hannesson, owns interests in a number of industrial manufacturing,
distribution and service businesses. He is a director and a principal
stockholder of Federal Resources Corporation and Commodore Environmental
Services, Inc., both publicly traded corporations.


                                        8


<PAGE>   9



Item 11. EXECUTIVE COMPENSATION

     The following table sets forth the cash compensation paid by the Company
during the fiscal years ended December 31, 1996, 1995 and 1994 to the Chairman
and all executive officers of the Company.

                           SUMMARY COMPENSATION TABLE

                               Annual Compensation
<TABLE>
<CAPTION>

                  (a)                 (b)            (c)                (d)

Name and Principal Position          Year        Salary ($)          Bonus ($)
---------------------------          ----        ----------          ---------
<S>                                  <C>             <C>                <C>
 Murray Steinfink                    1996             0                  0
 Chairman of the Board               1995             0                  0
                                     1994             0                  0

</TABLE>

                     OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

     There were no options or stock appreciation rights granted to any
employees, officers or directors in 1996, and there were no options exercised by
any employees, officers or directors in 1996.

Employment Agreements with Officers

     Mr.  Steinfink  serves as  Chairman  and  Chief  Executive  Officer  of the
Company.  Mr.  Steinfink  had an  employment  agreement  with the  Company for a
five-year  term which ended  December 31, 1993.  Effective  January 1, 1992, the
employment agreement with Mr. Steinfink was canceled. Mr. Steinfink no longer
receives compensation or benefits in connection therewith.

     The foregoing employment agreement included customary executive employee
benefits such as use of a company car or an expense allowance for the
maintenance and operation of a car, term life insurance and major medical
coverage. Concurrently with the execution of the employment agreement, the
aforementioned individual entered into a non-competition agreement with the
Company.

Stock Option Plan

     On September 30, 1987, the Company's Board of Directors and stockholders
adopted a Stock Option Plan (the "Plan") and reserved 250,000 shares of the
Company's Common Stock for issuance thereunder. The Plan was amended by the
Board of Directors of the Company on June 2, 1989 increasing from 250,000 to
350,000 the number of options which may be granted under the Plan. At the Annual
Meeting of Shareholders held on July 10, 1990, the shareholders approved an
increase in shares authorized for issuance under the Plan to 600,000. Options
granted under the Plan may include those qualified as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended, as well as
non-qualified options. Employees as well as other individuals, such as outside
directors, who provide necessary services to the Company are eligible to
participate in the Plan. Non-employees and part-time employees may receive only
nonqualified stock options.

     The exercise price for shares  purchased upon the exercise of non-qualified
options  granted under the Plan was  determined  by the Board of Directors.  The
exercise price of an incentive stock option was


                                        9


<PAGE>   10



required to be at least equal to the fair market value of tile Company Stock on
the date such option was granted (110% of the fair market value for 10% or
greater stockholders). No employee could be granted incentive stock options in
any year for shares having a fair market value, determined as of the date of
grant, in excess of $100,000.

     No option may have a term of more than ten years (five years for 10% or
greater stockholders). No Option may be granted under the Plan subsequent to
September 30, 1992. Options generally may be from the date of grant to the date
of exercise. However, options may be exercised upon termination of employment or
upon the death or disability of an employee within certain specified periods.

     The total number of options outstanding at December 31, 1996 were 10,000 at
an exercise price of $.25 per share. No options were exercised in 1996.

Board of Directors Interlock and Inside Participation

     In May 1991, Bentley J. Blum repurchased 3,000,000 shares of common stock
of Commodore Environmental Services, Inc., from Gobi for $.0155 per share.

     On January 16, 1992, the Company sold substantially all of the assets of
its subsidiary, Salon Technology, Inc., for approximately $175,000. In
connection therewith, the buyer assumed trade consideration for $115,000, and
the senior lender assigned all of its rights to certain Salon Technology, Inc.
royalties and Gobi claims against third parties to Bergen, Inc., a corporation
owned by an individual not affiliated with the Company, but who maintains a
business relationship with Bentley J. Blum, a principal shareholder of the
Company. Bergen, Inc. borrowed from Mr. Blum the $115,000 used to purchase such
royalties and claims. All funds received from the sale were delivered to the
Company's principal lender pursuant to the terms of an agreement whereby the
Company agreed to give to such lender peaceful possession of all of its assets.
As part of the sale, the purchaser agreed to pay a consultant fee of up to
$50,000 to Murray Steinfink.

     In a separate agreement dated as of November 1, 1991 between Fleet, the
Company, its subsidiaries, Bentley J. Blum and Murray Steinfink, Fleet agreed to
release the Company from liability as a guarantor of the obligations to Fleet
under the Loan Agreement and agreed to limit the maximum liability of Bentley J.
Blum and Murray Steinfink under their respective guarantees to an aggregate of
$250,000. In 1992, Messrs. Blum & Steinfink paid approximately $96,000 under the
terms of the Guarantee Agreement. These amounts are included in due to related
parties at December 31, 1995.

     The Company's executive offices are located in New York City in
approximately 1,837 square feet of space leased by an affiliate of Bentley J.
Blum. The Company does not pay rent for the use of these premises.

     At December 31, 1996 and 1995, the Company owed approximately $33,000 to
Murray Steinfink, in connection with an employment agreement.

     Companies controlled by Bentley J. Blum advanced approximately $315,100
(net) and $331,000 in 1996 and 1995, respectively, to cover administrative and
liquidation expenses.

     In the third quarter of 1994, the Company settled a disagreement with
subordinated note holders. The subordinated note holders will begin to be paid
amounts due, commencing October 1, 1994, through June 1, 1999. The principal and
accrued interest is approximately $800,000 and the balance of


                                       10


<PAGE>   11


approximately $150,000 will be recognized as interest in future periods as per
the subordinated note terms. These obligations have been personally guaranteed
by a director of the Company. As of December 31, 1996 approximately $693,600 of
$950,000 has been paid. The director is currently satisfying the notes and as
payments are made, the Company will have an obligation to repay the director.
The director has the option to pledge certain securities to the payees of these
notes, in which event the Company will be released of all obligations to those
payees.

     To the knowledge of the Company, no officers, directors, beneficial owners
of more than 10 percent of any class of equity securities of the Company
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any other person subject to Section 16 of the
Exchange Act with respect to the Company, failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year.


                                       11


<PAGE>   12



Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth as of March 22, 1997 certain information
with respect to the beneficial ownership of shares of the Company's Common Stock
by each person known to the Company to own more the 5% of such shares, by each
director, and by all officers and directors as a group.

<TABLE>
<CAPTION>

================================================================================
NAME AND ADDRESS                          NUMBER OF SHARES
                                             OWNED               PERCENTAGE
<S>                                         <C>                     <C>
--------------------------------------------------------------------------------
Bentley J. Blum                             1,763,750(1)            27.2%
150 East 58th Street
New York, New York 10155
--------------------------------------------------------------------------------
Murray Steinfink(2)                           875,000               13.5%
329 Strawtown Road
New City, New York 10956
--------------------------------------------------------------------------------
Paul E. Hannesson                             656,250               10.1%
2361 Gold Brook Drive
West Palm Beach, Florida 33414
--------------------------------------------------------------------------------
AMEV Venture Management, Inc.(3)              607,996                9.4%
One Chase Manhattan Plaza
New York, New York  10005
--------------------------------------------------------------------------------
AMEV Capital Corporation(3)                   364,798                5.6%
One Chase Manhattan Plaza
New York, New York  10005
--------------------------------------------------------------------------------
All officers and directors as a group
(2 persons)                                  2,638,750              40.7%
================================================================================

</TABLE>

----------

(1)  Does not include 4,550 shares of 5% Cumulative Preferred Stock owned by Mr.
     Blum.

(2)  Does not include 10,000 shares of the Company's Common Stock which may be
     purchased upon exercise of incentive stock options, held by Mr. Steinfink.

(3)  Amev Venture Management, Inc. and Amev Capital Corporation received their
     shares on November 1, 1991 as a result of the conversion of 1,250 shares of
     Gobi preferred stock.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See Item 11; Executive Compensation - Board of Directors Interlock and
Inside Participation.


                                       12


<PAGE>   13



                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)       (1)    Financial Statements

     The Company's consolidated financial statements for tile fiscal years ended
December 31, 1996, 1995 and 1994 are included in Item 8 above and consist of:

     Independent Auditor's Report

     Consolidated Statements of Deficiency in Net Assets Available in
     Liquidation
     Consolidated Statements of Changes in Deficiency in Net Assets
     Available in Liquidation
     Notes to Consolidated Financial Statements

     (2)    (i)      List of Exhibits - The following exhibits are filed
                      as part of this report.

Exhibit Number   Description of Exhibit

     3.1        Restated Certificate of Incorporation of tile Company. (1)

     3.2        Amendment to Restated Certificate of Incorporation of tile
                Company. (1)

     3.3        By-laws of the Company. (1)

     4.1        Specimen Certificate of Common Stock. (2)

     4.2        Form of Underwriters Warrant Agreement. (2)

     4.3        1987 Stock Option Plan, as amended. (1)

     4.4        Form of Stock Option Agreement. (1)

     10.1       Purchase Agreement, dated December 13, 1985, among Gobi-Primak,
                Inc., The Beauty Group, Inc., Perrone Trucking, Inc., Specialty
                Retail Services, Inc., Louis Primak, Stuart Dolleck, Phillip
                Primak, Allen Klein and Bentley J. Blum and the exhibits
                thereto.(1)

     10.2       Supplementary Agreement, dated December 13, 1985, between
                Specialty Retail Services, Inc., and Allen Klein. (1)

     10.3       Letter agreement, dated October 19, 1987, among G-P
                Liquidating, Inc., BG Liquidating, Inc., PT Liquidating, Inc.,
                Louis Primak, Stuart Dolleck, Phillip Primak, Allen Klein and
                Bentley J. Blum. (1)

     10.4       Amended and Restated Revolving Credit Loan Agreement dated as
                of April 25, 1989, among Specialty Retail Services, Inc.,
                Gobi-Primak, Inc., Tl1e Beauty Group, Inc., ASM Labs, Inc. and
                Fleet Credit Corporation, and exhibits thereto.(1)

                                       13


<PAGE>   14


     10.5       Indenture of Lease, dated April 1,1985, between 618 Scotland
                Road Realty and Gobi-Primak, Inc.(1)

     10.6        Assignment and Assumption of Tenant's Interest in Lease, dated
                 January 30, 1986, between Gobi-Primak, Inc., a New York
                 corporation, and Gobi-Primak, Inc. a Delaware corporation. (1)

     10.7        Guaranty of Gobi-Primak, Inc. to tl1e New Jersey Economic
                 Development Authority and G.V.J. Associates dated January 30,
                 1986. (1)

     10.8        Non-Competition Agreements, dated as of January 30, 1986,
                 between Specialty Retail Services, Inc. and each of Phillip
                 Primak, Stuart Dolleck, Louis Primak and Allen Klein. (1)

     10.9        Employment Agreement, dated as of February 13, 1989, between
                 Specialty Retail Services, inc. and Murray Steinfink. (1)

     10.10       Agreement dated April 1, 1986, between Deal Wholesale Company,
                 Inc., GobiPrimak, Inc. and August Zolfo. (1)

     10.11       Letter Agreement dated March 2, 1989, between Gobi-Primak, Inc.
                 and August Zolfo (1)

     10.12       Restrictive Covenant and Agreement in Connection with Purchase
                 of Assets and Employment dated April 1, 1986, between
                 Gobi-Primak, Inc. and August Zolfo.(1)

     10.13       Form of Agreement, dated June 1, 1989, between the National
                 Organization of Industrial Trade Unions, its Local Union No. 35
                 United States, and Gobi-Primak, Inc. (1)

     10.14       Reaffirmation Agreement, dated April 25, 1989, between
                 Specialty Retail Services, Inc., ASM Labs, Inc., Gobi-Primak,
                 Inc., The Beauty Group, Inc., Bentley J. Blum and Murray
                 Steinfink for the benefit of Fleet Credit Corporation.(1)

     10.15       Stock Purchase and Settlement Agreement, dated as of May 15,
                 1989, between Specialty Retail Services, Inc. and Salvatore T.
                 DiMascio. (1)

     10.16       Guaranty and Indemnity Agreement, dated as of May 15, 1989, by
                 and among Bentley J. Blum, Paul E. Hannesson, Murray Steinfink
                 and Specialty Retail Services, Inc. (1)

     10.17       Form of distribution or license agreements between Gobi-Primak,
                 Inc. and each of Alberto-Culver Company, Amitee Cosmetics,
                 Inc., DeMert & Dougherty, Inc., Modern Research Laboratories,
                 Inc. and The Wella Corp.(1

                                       14


<PAGE>   15

     10.18       Purchase AgreeMent, dated June 15, 1989 among Specialty Retail
                 Services, Inc., Gobi-Primak, Inc. and Amev Capital Corporation
                 and Amev Venture Associates 11, L.P. and exhibits thereto.(1)

     10.19       Agreement. dated June 7, 1989, by and among Bentley J. Blum,
                 Paul E. Hannesson, Murray Steinfink and Specialty Retail
                 Services, Inc. (2)

     10.20       Letter Agreement dated August 4, 1989 between Gobi-Primak and
                 Stuart Dolleck respecting repurchase of Seller Note. (2)

     10.21       Letter from Fleet Credit Corporation to Specialty Retail
                 Services, Inc. dated August 10, 1989. (2)

     10.22       Leaer from Amev Capital Corporation to Specialty Retail
                 Services, Inc. dated August 1989. (2)

     10.23       Amendment dated August 22, 1989 to the Amended and Restated
                 Revolving Credit Loan Agreement dated as of April 25, 1989,
                 among Specialty Retail Services, Inc., Gobi-Primak, Inc., The
                 Beauty Group, Inc., ASM Labs, Inc. and Fleet Credit
                 Corporation. (3)

     10.24       Form of Second Amendment dated April 4, 1990, and effective as
                 of January 1, 1989, to Amended and Restated Revolving Credit
                 Loan Agreement dated as of April 25,1989, as amended August 22,
                 1989 by and among Specialty Retail Services, Inc., Gobi-Primak,
                 Inc., Salon Technology, Inc., Special Markets Services, Inc.,
                 and Fleet Credit Corporation. (4)

     10.25       Third Amendment, effective September 30, 1990, to Amended and
                 Restated Revolving Credit Loan Agreement dated as of April 25,
                 1989, as amended August 22, 1989 and April 4, 1990, by and
                 among Specialty Retail Services, Inc., GobiPrimak, Inc., Salon
                 Technology, Inc., Special Markets Services, Inc., and Fleet
                 Credit Corporation. (5)

--------

(1)  Filed as an Exhibit to the Company's Registration Statement on Form S-18
     (Reg. No., 33-29702- NY) and incorporated herein by reference.

(2)  Filed as an Exhibit to Amendment No. 1 to the Company's Registration
     Statement of Form S-18 and incorporated herein by reference.

(3)  Filed as an Exhibit to Amendment No. 2 to the Company's Registration
     Statement on Form S-18 and incorporated herein by reference.

(4)  Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
     year ended December 31, 1989.

(5)  Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
     year ended December 31, 1990.


                                       15


<PAGE>   16


     10.26       Fourth Amendment, effective March 31, 1991, to Amended and
                 Restated Revolving Credit Loan Agreement dated as of April 25,
                 1989, as amended August 22, 1989, April 4, 1990 and September
                 30, 1990, by and among Specialty Retail Services, Inc.,
                 Gobi-Primak, Inc., Salon Technology, Inc., Special Markets
                 Services, Inc. and Fleet Credit Corporation. (5)

     10.27       Cash Pledge Agreement, dated March 18, 1991 by and between
                 Specialty Retail Services, Inc. and Fleet Credit Corporation.
                 (5)

     10.28       Fifth Amendment, effective July 30, 1991, to Amended and
                 Restated Revolving Credit Loan Agreement dated as of April 25,
                 1989, as amended August 22, 1989, April 4, 1990, September
                 30,1990 and March 31,1991 by and among Specialty Retail
                 Services Inc., Gobi-Primak, Inc., Salon Technology, Inc.,
                 Special Market Services, Inc. and Fleet Credit Corporation. (6)

     10.29       Assumption of Cash Pledge Agreement, dated September 16, 1991,
                 by and between Salon Technology, Inc. and Fleet Credit
                 Corporation. (6)

     10.30       Notice of Event of Default dated November 5, 1991 from Fleet
                 Credit Corporation to Gobi-Primak, Inc., Salon Technology,
                 Inc., Special Market Services, Inc. and Specialty Retail
                 Services, Inc. (7)

     10.31       Agreement. dated November 1, 1991, by and between the Company,
                 the Company's subsidiaries, Fleet, Murray Steinfink and Bentley
                 J. Blum (7)

     10.32       Agreement, dated January 16, 1992, between tile Company, its
                 subsidiary Salon Technology, Inc. and American International
                 Industries on the sale of substantially all of the assets of
                 Salon Technology, Inc to American International Industries. (8)

     10.33       Notice of Default dated March 23, 1992 by the Company on the
                 10% Subordinated Notes dated January 30, 1986. (8)

(3)  Reports on Form 8-K      None.

--------

(6)  Filed as an Exhibit to the Company's Form 10-Q for the second quarter ended
     June 30, 1991.

(7)  Filed as an Exhibit to the Company's Form 8-K filed on November 7, 1991.

(8)  Filed as an Exhibit to the Company's Form 10-K for the year ended December
     31, 1991.

                                       16


<PAGE>   17


                                   SIGNATURES

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

                                     SPECIALTY RETAIL SERVICES,INC.

                                     By: /s/ Murray Steinfink
                                        ----------------------------------------
                                             Murray Steinfink, President;
                                             Chairman of the Board and
                                             Chief Executive Officer

                                             Dated:  March 31, 1997

     Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SPECIALTY RETAIL SERVICES, INC.
<TABLE>
<CAPTION>

Signature                                            Title                        Dated

<S>                                         <C>                                 <C>
By:  /s/ Murray Steinfink                   Chairman of the Board,              March 31, 1997
   -----------------------------------      Chief Executive Officer,
         Murray Steinfink                   Director


By:  /s/ Bentley J. Blum                    Director                            March 31, 1997
   -----------------------------------
         Bentley J. Blum

</TABLE>

                                       17


<PAGE>   18
               SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
                             Financial Statements
                         December 31, 1996, and 1995
<PAGE>   19



                                                    INDEPENDENT AUDITORS' REPORT




TO THE BOARD OF DIRECTORS OF
SPECIALTY RETAIL SERVICES, INC.


We have audited the consolidated statement of deficiency in net assets available
in liquidation of SPECIALTY RETAIL SERVICES, INC., and subsidiaries (the
Company) as of December 31, 1996 and 1995, and the related consolidated
statement of changes in deficiency in net assets available in liquidation for
the three years ended December 31, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As described in Note 1 to the consolidated financial statements, on November 5,
1991, the Company turned over all of its assets for liquidation to the financial
institution holding certain liens on a peaceful possession basis. The financial
institution commenced a liquidation shortly thereafter. As a result, the Company
has changed its basis of accounting for periods subsequent to November 5, 1991
from the going concern basis to a liquidation basis.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated deficiency in net assets in liquidation
of SPECIALTY RETAIL SERVICES, INC., and subsidiaries as of December 31, 1996 and
1995 and consolidated changes in deficiency in net assets in liquidation for the
three years ended December 31, 1996, in conformity with generally accepted
accounting principles applied on the basis described in the preceding paragraph.

As discussed in Note 8 to the financial statements, the Company is a party to
various legal actions against it. The ultimate outcome of this uncertainty
cannot presently be determined. Accordingly, the accompanying financial
statements and schedules do not include any adjustments that might result from
the outcome of this uncertainty.


Tanner + Co.
Salt Lake City, Utah
February 7, 1997

<PAGE>   20


                                SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENT OF DEFICIENCY IN
                                             NET ASSETS AVAILABLE IN LIQUIDATION
<TABLE>
<CAPTION>

                                                                         DECEMBER 31,
--------------------------------------------------------------------------------------



                                                             1996              1995
                                                         -----------------------------
<S>                                                      <C>             <C>
ASSETS:
  Cash                                                   $      1,000    $      1,000
                                                         ============================

=====================================================================================
LIABILITIES:
   Note payable bank                                     $     19,000    $     19,000
   Accounts payable and accrued liabilities                 2,346,000       2,416,000
   Accrued lease obligation                                 2,160,000       2,020,000
   Subordinated notes payable                               1,214,000       1,404,000
   Due to related parties                                   1,427,000       1,111,000
   Accrued interest payable and dividends                   1,067,000         902,000
                                                         -----------------------------

      Total liabilities                                     8,233,000       7,872,000
                                                         -----------------------------

      Net deficiency in assets available                 $ (8,232,000)   $ (7,871,000)
                                                         =============================

STOCKHOLDERS' DEFICIENCY IN ASSETS:
  Preferred stock, 6% cumulative callable, $100 par      $    455,000    $    455,000
   value, 4,550 shares issued and outstanding
  Common stock, $.01 par value; 15,000,000 shares              65,000          65,000
   authorized; 6,485,294 shares issued and outstanding
  Additional paid-in capital                                2,975,000       2,975,000
  Accumulated deficit                                     (11,727,000)    (11,366,000)
                                                         -----------------------------
       Net stockholders' deficiency in assets            $ (8,232,000)   $ (7,871,000)
                                                         =============================

</TABLE>




--------------------------------------------------------------------------------

See notes to consolidated financial statements.
                                                                               2

<PAGE>   21


                                SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENT OF CHANGES IN DEFICIENCY IN
                                             NET ASSETS AVAILABLE IN LIQUIDATION
<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
                                                         1996          1995           1994
                                                     ------------------------------------------
<S>                                                     <C>        <C>            <C>
Changes in deficiency in net assets available
 in liquidation attributed to:
  Decrease in accounts payable                      $    70,000    $     --       $     --
  Decrease in subordinated notes payable                190,000        202,000        210,000
  Increase in accrued lease obligation                 (140,000)      (126,000)      (290,000)
  Increase in accrued interest
   and dividends payable                               (165,000)      (114,000)       (71,000)
  Increase in advance from related parties             (316,000)      (331,000)      (437,000)
                                                    ------------------------------------------
                                                       (361,000)      (369,000)      (588,000)

Deficiency in net assets available in                (7,871,000)    (7,502,000)    (6,914,000)
  liquidation at beginning of period
                                                    -----------------------------------------
Deficiency in net assets available in liquidation
 at end of period                                   $(8,232,000)   $(7,871,000)   $(7,502,000)
                                                   ===========================================

</TABLE>





--------------------------------------------------------------------------------

See notes to consolidated financial statements.
                                                                               3

<PAGE>   22


                                SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 1996, 1995, AND 1994
--------------------------------------------------------------------------------


1. THE           Specialty Retail Services, Inc., (the Company), formerly known
   COMPAN        as Quaker Penn Corp. through its principal subsidiaries
                 (Gobi-Primak, Inc., and Salon Technology, Inc. (Gobi-Primak),
                 was a distributor of professional beauty products and
                 accessories to retail markets.

                 On December 19, 1990, the Company acquired the assets of The
                 Bonat Group, Inc. and Bonat of Canada, Ltd., a manufacturer of
                 professional hair care products, including the working capital,
                 formulas and trademarks.

                 On October 24, 1991, the Company announced that the board of
                 directors of Gobi-Primak, its principal operating subsidiary,
                 had determined there were no further sources of capital
                 available to meet the severe working capital shortages faced by
                 Gobi-Primak and that the Company intended to explore various
                 alternatives, including the sale of Gobi-Primak.

                 On November 5, 1991, Fleet Credit Corporation, the Company's
                 principal lender, sent Gobi-Primak a letter of an event of
                 default under the loan agreement demanding immediate repayment
                 of all sums outstanding under the loan agreement. Since Fleet
                 Credit Corporation had liens against all assets of Gobi-Primak
                 and its subsidiaries, the board of directors decided to
                 immediately turn over all of the assets of Gobi-Primak to Fleet
                 Credit Corporation on a peaceful possession basis for
                 liquidation. Fleet Credit Corporation immediately appointed a
                 liquidator to supervise the liquidation.

--------------------------------------------------------------------------------


                                                                               4
<PAGE>   23

                                SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                       Continued
--------------------------------------------------------------------------------

1. THE          On January 16, 1992, and as part of the liquidation process,
   COMPANY      the Company sold substantially all of the assets of one of its
   CONTINUED    subsidiaries, Salon Technology, Inc., for approximately
                $175,000 cash. In connection therewith, the buyer assumed trade
                payables and other liabilities of Salon Technology, Inc.
                Simultaneous with the sale of assets, in consideration for
                $115,000, the senior lender assigned all of its rights to
                certain Salon Technology, Inc., royalties and Gobi-Primak
                claims against third parties to Bergen, Inc., a corporation
                owned by an individual not affiliated with the Company but who
                maintains a business relationship with Bentley J. Blum, a
                principal shareholder of the Company. Bergen, Inc., borrowed
                the $115,000 used to purchase such royalties and claims from
                Bentley J. Blum. All funds received from the sale were
                delivered to Gobi-Primak's principal lender pursuant to the
                terms of an agreement whereby Gobi-Primak agreed to give to
                such lender peaceful possession of all of its assets.

                 In the third quarter of 1994, the Company settled a
                 disagreement with subordinated note holders. Under terms of the
                 settlement agreement the Company commenced payments to the
                 subordinated note holders on October 1, 1994, through June 1,
                 1999. The principal and accrued interest of approximately
                 $800,000 is included in the Consolidated Statement of
                 Deficiency in Net Assets in Liquidation, and the balance of
                 approximately $150,000 will be recognized as interest in future
                 periods according to the terms of the subordinated note. These
                 obligations have been personally guaranteed by a director of
                 the Company. As of December 31, 1996, approximately $693,600 of
                 the $950,000 has been paid. The director is currently
                 satisfying the notes and as payments are made, the Company will
                 have an obligation to repay the director. The director has the
                 option to pledge certain securities to the payees of these
                 notes, in which event the Company shall be released of all
                 obligations to those individuals.


                 As of December 31, 1996, the Company has liquidated
                 substantially all of its net assets.


2. SIGNIFICANT   PRINCIPLES OF CONSOLIDATION
   ACCOUNTING    The consolidated financial statements include the accounts of
   POLICIES      the Company and its wholly-owned subsidiaries. All material
   PRIOR         intercompany transactions have been eliminated.
   TO
   LIQUIDATION


--------------------------------------------------------------------------------

                                                                               5
<PAGE>   24


                                SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                       Continued
--------------------------------------------------------------------------------



2.  SIGNIFICANT  CASH AND CASH EQUIVALENTS
    ACCOUNTIN    Cash and cash equivalents represent cash on deposit at banks
    POLICIES     and commercial paper which have maturities of three months or
    PRIOR        less.
    TO
    LIQUIDATION  ACCOUNTING ESTIMATE
    CONTINUED    The preparation of financial statements in conformity with
                 generally accepted accounting principles requires management to
                 make estimates and assumptions that affect the reported amounts
                 of assets and liabilities and disclosure of contingent assets
                 and liabilities at the date of the financial statements and the
                 reported amounts of revenues and expenses during the reporting
                 period. Actual results could differ from those estimates.

                 RECENT ACCOUNTING PRONOUNCEMENTS
                 The Financial Accounting Standards Board has issued Statement
                 of Financial Accounting Standard No. 123 "Accounting for
                 Stock-based Compensation" effective for years beginning after
                 December 15, 1995. Statement No. 123 will not have a material
                 impact on the Company's financial statements.


3.  NOTES        FLEET CREDIT CORPORATION
    PAYABLE      During 1991, the Company had in place an $8,000,000 revolving
                 credit loan agreement which matured on March 31, 1992
                 (Overadvance). This note was secured by receivables, inventory,
                 cash and personal guarantees of certain officers and directors
                 of the Company. Interest was at 2% above prime (9.5% at
                 December 31, 1991) under the terms of the loan agreement and
                 the Company was required to pay a monthly unused commitment
                 fee, a daily collection fee and other fees in accordance with
                 the terms of the loan agreement. At December 31, 1996 and 1995,
                 the balance outstanding on the loan was approximately $19,000.

--------------------------------------------------------------------------------


                                                                               6
<PAGE>   25

                                SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                       Continued
--------------------------------------------------------------------------------


3. NOTES         The above-mentioned loan agreement contains provisions relating
   PAYABLE       to the maintenance of minimum levels of working capital, net
   CONTINUED     income, capital base and interest coverage (all as defined). On
                 November 5, 1991, Fleet sent Gobi- Primak, the Company's
                 principal subsidiary, a letter of an event of default under the
                 loan agreement demanding immediate repayment of all sums
                 outstanding, approximately $3,423,000 at that time. The notice
                 stated that the Company's financial statements for the three
                 quarters ending September 30, 1991, revealed significant
                 defaults of several financial covenants which the Company was
                 required to maintain.

                 In a separate agreement dated as of November 1, 1991, between
                 Fleet, the Company, its subsidiaries, Bentley J. Blum and
                 Murray Steinfink, Fleet agreed to release the Company from
                 liability as a guarantor of the obligations to Fleet under the
                 loan agreement and agreed to limit the maximum liability of
                 Bentley J. Blum and Murray Steinfink, under their respective
                 guarantees to an aggregate of $250,000. In 1992, Messers Blum
                 and Steinfink paid approximately $96,000 under the terms of the
                 guarantee agreement and this amount has been included in the
                 statement of net assets available in liquidation under the
                 caption "due to related parties."

                 SUBORDINATED NOTES PAYABLE

                 Subordinated notes payable consist of the following at December
                 31:

<TABLE>
<CAPTION>

                                                           1996          1995
                                                          ----------------------
<S>                                                       <C>        <C>

                 Note payable with interest at 14% with
                 installment payments due through
                 March 31, 1995.  The Company is in
                 default under the terms of the
                 agreement                                $988,000   $988,000

                 Notes payable to two individuals with
                 interest at 10%, requiring quarterly
                 installments totaling $57,010 including
                 interest, due in 1999, personally
                 guaranteed by a director of the
                 Company                                   226,000    385,000

</TABLE>

--------------------------------------------------------------------------------


                                                                               7
<PAGE>   26

                                SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                       Continued
--------------------------------------------------------------------------------

3.  NOTES                                                   1996         1995
    PAYABLE                                              -----------------------
    CONTINUED
                 Note payable to an individual with
                 interest at 12%, requiring quarterly
                 payments of $30,749 including interest
                 due January 1996, and personally
                 guaranteed by a director of the
                 Company                                       --         31,000
                                                         -----------------------
                                                          $1,214,00   $1,404,000
                                                         =======================

                 During the years ended December 31, 1996 and 1995 increases in
                 accrued interest payable were charged against the net
                 deficiency in assets available in liquidation in the amount of
                 $171,000 and $195,000, respectively.




4. INCOME        There are no significant temporary differences in the
   TAXES         recognition of income and expenses between financial and tax
                 reporting. The Company has net operating loss carryforwards
                 available in the amount of approximately $7,574,000 which
                 expire beginning in the year 2003. If substantial changes in
                 the Company's ownership should occur, there would be an annual
                 limitation of the amount of carryforwards which could be
                 utilized.

                 No tax asset has been established as it is not possible to
                 estimate the utilization of carrying forward the available net
                 operating losses to future periods to offset income. An
                 allowance has, therefore, been established to offset any tax
                 asset.


--------------------------------------------------------------------------------


                                                                               8
<PAGE>   27


                                SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                       Continued
--------------------------------------------------------------------------------


5. COMMITMENTS   LEASES
                 The Company, through its wholly-owned subsidiary, Gobi-Primak
                 leases a building from 618 Scotland Road Realty, (618 Realty)
                 which is wholly-owned by certain former officers of
                 Gobi-Primak, who are also former stockholders of the acquired
                 company. The lease has been assigned by the Company to Fleet
                 Credit Corporation as collateral security under the terms of
                 its credit facility. Concurrently with this assignment,
                 Gobi-Primak delivered a guaranty of 618 Realty's obligations
                 under an industrial development bond mortgage in the principal
                 amount of $1,350,000 and was granted a second mortgage on the
                 premises. The lease is classified as an operating lease and
                 will expire no later than August 31, 2005.

                 As a result of the liquidation, Gobi-Primak has vacated the
                 premises under lease. Accordingly, the present value of the
                 remaining lease payments under the terms of the lease have been
                 accrued at approximately $2,160,000 and $2,020,000 in 1996 and
                 1995, respectively. These amounts are included in the statement
                 of deficiency in net assets available in liquidation under the
                 caption of accrued lease obligation. As a result of the
                 liquidation of all of the Company's assets by Fleet which began
                 on November 5, 1991, the Company is in default on all of its
                 leases.

                 DEFERRED PREFERRED DIVIDEND AND INTEREST PAYMENTS
                 Under the revolving credit loan agreement, the Company may not
                 pay dividends on the 6% cumulative callable preferred stock or
                 interest on the loan prior to conversion of preferred stock. At
                 December 31, 1996 and December 31, 1995, there were outstanding
                 dividend and interest accruals of $240,685 and $213,385,
                 respectively.

--------------------------------------------------------------------------------


                                                                               9
<PAGE>   28


                                SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                       Continued
--------------------------------------------------------------------------------


6. STOCK OPTION  The Company has a stock option plan in which the Company may
   PLAN          grant 600,000 shares of its common stock to key employees.
                 Under the plan, full-time employees may be granted incentive
                 stock options and nonemployees may receive only nonqualified
                 stock options. The exercise price of an incentive stock option
                 must be at least equal to the fair market value of the common
                 stock on the date such option is granted. The exercise price on
                 nonqualified options granted under the plan is determined by
                 the board of directors. Options expire ten years after date of
                 grant unless optionee is the beneficial owner of 10% or more of
                 the Company's common stock, in which event the options granted
                 hereunder shall expire five years after date of grant. At
                 December 31, 1996, options of 10,000 were outstanding.


                 Transactions are summarized as follows:

<TABLE>
<CAPTION>

                                               SHARES UNDER OPTION
                           -----------------------------------------------------
                                    INCENTIVE    NON-QUALIFIED     PRICE RANGE
                           -----------------------------------------------------
<S>                                    <C>             <C>             <C>

                 Outstanding,
                 December 31, 1993     10,000           -              $0.25
                                    ----------------------------------
                 Outstanding,
                 December 31, 1994     10,000           -              $0.25
                                    ---------------------------------
                 Outstanding,
                 December 31, 1995     10,000           -              $0.25
                                    ----------------------------------
                 Outstanding,
                 December 31, 1996     10,000           -              $0.25
                                    ==================================

</TABLE>


                 Twenty-five percent of the above options become exercisable on
                 each of the first through fourth anniversaries of the option
                 date. At December 31, 1996, 590,000 shares were available for
                 future grant. No option may be granted under the Plan
                 subsequent to September 30, 1992. No options were exercised

--------------------------------------------------------------------------------


                                                                              10
<PAGE>   29


                                SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                       Continued
--------------------------------------------------------------------------------


7. RELATED PARTY  During the year ended December 31, 1996, the following related
   TRANSACTIONS   party transactions occurred:

                  o    A company controlled by an officer/shareholder of the
                       Company and another related individual made net
                       advances of approximately $315,100 to pay for
                       administrative and liquidation expenses. The total
                       amount advanced from the related Company and other
                       officers and shareholder of the Company at December 31,
                       1996 is $1,427,000.

                 During the year ended December 31, 1995, the following related
                 party transactions occurred:

                 o    A company controlled by an officer/shareholder of the
                      Company advanced approximately $331,000 to pay for
                      administrative and liquidation expenses. The total
                      amount advanced from the related Company and other
                      officers and shareholders of the Company at December
                      31, 1995 is $1,111,000.


                 At December 31, 1996 and 1995, the Company had recorded a
                 balance of approximately $33,000 due to an officer/shareholder
                 of the Company in connection with an employment agreement. The
                 balance is included in the $1,427,000 and $1,111,000,
                 respectively, due to related parties.


8. CONTINGENCIES The Company is a party to various legal actions. These actions
                 claim substantial amounts as a result of alleged breach of
                 contract and other matters. Independent counsel has advised
                 that they cannot offer an opinion as to the probable outcome or
                 the ultimate liability that may result from these actions.



--------------------------------------------------------------------------------
                                                                              11
<PAGE>   30
                                EXHIBIT INDEX
                                -------------



Exhibit No.                        Description of Exhibit
-----------                        ----------------------



     27          Financial Data Schedule