<PAGE>

                                  FORM 10-QSB

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

[Mark One]

[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Quarterly period ended March 29, 1998 or

[ ] Transition report under Section 13 or 15(d) of the Exchange Act for the
Transition period from ________ to _________

Commission File Number    0-18707

                         SPECIALTY RETAIL GROUP, INC.
       (Exact Name of Small Business Issuer as specified in its charter)

        Florida                                          59-2824411
--------------------------------------------------------------------------------
(State or other jurisdiction                  (IRS Employer Identification No.)
of incorporation or organization)

           477 Madison Avenue, 14th Floor, New York, New York 10022
                        (Address of principal offices)

                                (212) 872-9684
                          (Issuer's telephone number)

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

On May 8, 1998, there were 9,084,238 shares of the issuer's Common Stock
outstanding excluding 213,333 contingently issuable shares held by an escrow
agent.

                   The Index to Exhibits Appears on Page 14

                                                                 Page 1 of 16

<PAGE>

                         SPECIALTY RETAIL GROUP, INC.

                                     INDEX

                                                                         Page

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

         Condensed Consolidated Financial
         Statements as of March 29, 1998..............................     3

                  Condensed Consolidated Balance
                  Sheet at March 29, 1998 (Unaudited).................     3

                  Condensed Consolidated Statements of
                  Operations for the thirteen-week and thirty-nine-week
                  periods ended March 29, 1998
                  and March 30, 1997 (Unaudited)......................     4

                  Condensed Consolidated Statements
                  of Cash Flows for the thirteen-week
                  periods ended March 29, 1998
                  and March 30, 1997 (Unaudited)......................     5

                  Notes to Condensed Consolidated
                  Financial Statements as of
                  March 29, 1998 (Unaudited)..........................     6

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

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings............................................    12

Item 6 - Exhibits and Reports on Form 8-K.............................    12

Signature.............................................................    13

                                                                 Page 2 of 16

<PAGE>

                         Specialty Retail Group, Inc.
                     Condensed Consolidated Balance Sheet

<TABLE>
<CAPTION>

                                                                                                       Condensed
                                                                                                    from Audited
                                                                      March 29,                        Financial
                                                                        1998                          Statements
ASSETS                                                              (unaudited)                    June 29, 1997
                                                                    -----------                    -------------
<S>                                                                <C>                            <C>
Current assets:
Cash                                                                    $33,729                          $32,156
Other current assets                                                     30,345                           17,909
                                                                       --------                        ---------
Total current assets                                                     64,074                           50,065


Property and equipment, net                                               2,712                            3,253
                                                                       --------                          -------
TOTAL ASSETS                                                            $66,786                          $53,318
                                                                        =======                          =======


LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable and accrued
  expenses                                                             $333,469                         $317,164
Lease guarantee settlement payable                                       25,000                           25,000
Corporate taxes payable                                                   ---                              5,370
Due to unconsolidated subsidiary                                         10,000                           10,000
Demand loans -- stockholders                                            476,321                          157,468
                                                                       --------                       ----------
Total current liabilities                                               844,790                          515,002

Legal settlement                                                         80,000                           80,000
                                                                       --------                       ----------

Total liabilities                                                      $924,790                         $595,002
                                                                       --------                        ---------

Commitments and contingencies (Note 5)

Stockholders' deficit:
Series A-1 Preferred Stock; 10,000,000 shares
  authorized, $.001 par value; issued and
  outstanding, 2,394,130 shares                                          2,394                             2,394
Common Stock; 100,000,000 shares authorized,
  $.001 par value; 9,324,738 shares issued                               9,325                             9,325

Additional paid-in capital                                          11,573,570                        11,573,570
Accumulated deficit                                                (12,267,629)                      (11,951,309)
Treasury Stock - 240,500 shares, at cost                              (175,664)                         (175,664)
                                                                   ------------                     ------------

Total stockholders' deficit                                           (858,004)                         (541,684)
                                                                   ------------                     ------------

TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT                                                  $66,786                           $53,318
                                                                   ============                     ============
</TABLE>

          See accompanying notes to consolidated financial statements

                                                                  Page 3 of 16

<PAGE>

                         Specialty Retail Group, Inc.
                Condensed Consolidated Statements of Operations
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                      13 Weeks Ended                           39 Weeks Ended
                                                      --------------                           --------------
                                         March 29, 1998        March 30, 1997      March 29, 1998       March 30, 1997
                                         --------------        --------------      --------------       --------------
<S>                                    <C>                   <C>                 <C>
Results of Discontinued
Operations:
 Net sales                                     $     --            $  141,804                  --             $2,457,846
 Cost of sales                                       --               128,149                  --              1,602,663
                                               --------            ----------            --------              ---------
 Gross profit                                        --                13,655                  --                855,183
 Operating costs:

  Selling, General                              (66,076)               71,384             245,509              2,479,551
   and administrative                            ------             ---------             -------              ---------
   expenses

  Loss from operations                          (66,076)              (57,729)           (245,509)            (1,624,368)
Other income (expense):

 Interest income (expense), net                  (8,400)               (1,019)            (17,829)                  (100)
 Miscellaneous income                                --                24,837                  18                 46,437
 Gain on sale of equity
 investment (Note 4)                                 --                    --                  --                 44,406
 Gain on sale of subsidiary                          --                43,224                  --                 43,224
 Loss on fixed assets due to
 store closings                                      --               (67,042)                 --               (383,538)
 Writedown of goodwill                               --                    --                  --               (136,882)
 Settlement of guarantor
 obligation related to
 bankrupt subsidiary (Note 5)                   (53,000)              (30,000)            (53,000)               (30,000)
 Gain on deconsolidation
 of bankrupt subsidiary
 (Note 1)                                            --               786,269                  --                786,269
                                              ---------               -------           ---------             ----------
 Net (loss) income                            $(127,476)             $698,540            ($316,320)          ($1,254,552)
                                              =========              ========           ==========           ===========

Per share amounts:
  Net income (loss):                              ($.01)                ($.08)               ($.03)                ($.14)
                                                 ======                ======               ======                ======
Weighted average number of
 common shares outstanding                    9,324,738             9,084,238            9,324,738             8,960,880
                                              =========             =========            =========             =========

</TABLE>

          See accompanying notes to consolidated financial statements

                                                                 Page 4 of 16

<PAGE>

                         Specialty Retail Group, Inc.
                Condensed Consolidated Statements of Cash Flows
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                                                    39 Weeks Ended
                                                                                    --------------

                                                                      March 29, 1998                March 30, 1997
                                                                      --------------                --------------
<S>                                                                 <C>                           <C>
Cash flows from operating activities:
  Net loss                                                                ($316,320)                   ($1,254,552)
                                                                          ----------                   ------------
Adjustments to reconcile net loss to 
  net cash used in operating activities:
  Depreciation and amortization                                                 541                         47,449
  Gain on deconsolidation                                                        --                       (786,269)
  Gain on sale of subsidiary                                                     --                        (43,224)
  Gain on sale of equity investment                                              --                        (44,406)
  Loss on fixed assets                                                           --                        330,776
  Writedown of goodwill                                                          --                        136,882
  Decrease in inventory                                                          --                        846,779
  (Increase) decrease in other current assets                               (12,436)                        62,895
  Decrease in other assets                                                       --                         89,019
  Increase (decrease) in accounts payable
    and accrued liabilities                                                  28,788                        (42,472)
                                                                             ------                       --------
          Total adjustments                                                  16,893                        597,429
                                                                             ------                      ---------
    Net cash used in operating activities                                  (299,427)                      (657,123)
                                                                           ---------                     ---------

Cash flows from investing activities:
  Expenditures for property and equipment                                        --                        (64,541)

  Cash of subsidiary on date of bankruptcy                                       --                         (3,614)

  Proceeds from sale of subsidiary                                               --                         43,224
                                                                           --------                      ---------
Net cash used in investing activities                                            --                        (24,931)
                                                                           --------                      ----------
Cash flows from financing activities:
  Loans from stockholders                                                   301,000                        310,651
                                                                            -------                      ---------
  Net cash provided by financing activities                                 301,000                        310,651
                                                                            -------                      ---------

Net increase (decrease) in actual cash equivalents                            1,573                       (371,403)

Cash and cash equivalents, beginning of period                               32,156                        387,006
                                                                            -------                      ---------
Cash and cash equivalents, end of period                                    $33,729                      $  15,603
                                                                            =======                      =========

</TABLE>

Supplemental Schedule of Noncash Investing and Financing Activities:

         On August 26, 1996, the Company issued 650,000 shares of its Common
Stock valued at $570,000 as part of a legal settlement. This item appeared as
"Legal settlement -- equity to be issued," in the Company's June 30, 1996
Consolidated Balance Sheet. Please refer to Note 5 in the accompanying notes
for a further discussion of this matter.

         In 1996, the Company transferred its interest in an equity investment
as repayment of a $224,150 loan from a beneficial owner of the Company's
Preferred Stock.

          See accompanying notes to consolidated financial statements

                                                                  Page 5 of 16

<PAGE>

                         Specialty Retail Group, Inc.
             Notes to Condensed Consolidated Financial Statements
                                  (Unaudited)
                                March 29, 1998

1. Basis of Presentation

                  The accompanying unaudited consolidated financial statements
of Specialty Retail Group, Inc. and subsidiaries (collectively, the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-QSB.

                  With respect to the unaudited consolidated financial
statements for the thirty-nine weeks ended March 29, 1998 and March 30, 1997,
respectively, it is the Company's opinion that all necessary adjustments
(consisting of normal and recurring adjustments) have been included to present
a fair statement of results for the interim periods.

                  As discussed in Note 2, effective in the period ended March
30, 1997 the Company sold or discontinued all business operations and its
subsidiary, Building Blocks, Inc., filed a petition for relief under Chapter
11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern
District of New York. The only current operations are the general and
administrative costs related to the bankruptcy and maintaining a business
office. In accordance with generally accepted accounting principles, the
Company deconsolidated its Building Blocks, Inc. subsidiary as of the
bankruptcy filing.

                  These statements should be read in conjunction with the
Company's financial statements included in the Company's Annual Report on Form
10-KSB for the fiscal year ended June 29, 1997. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to the rules and regulations promulgated by the Securities
and Exchange Commission.

2.  Going Concern

                  The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern, and they do not
include adjustments relating to the recoverability of recorded asset amounts
and classification of recorded assets and liabilities.

                  On January 31, 1997, the Company's Building Blocks, Inc. 
("Building Blocks") subsidiary filed a petition for relief under Chapter 11 of 
the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District 
of New York (Case No. 97-B-40684 (BRL)). The petition sought protection from
creditors while Building Blocks liquidated its

                                                                  Page 6 of 16

<PAGE>


inventory and fixtures. Effective January 28, 1997 the outstanding capital
stock of the Company's Building Blocks Franchise Corp. subsidiary, which owns
the "Building Blocks" trademarks, was sold by the Company's Building Blocks
Holdings, Inc. subsidiary.

                  The Company, which has no other business operations, has
been attempting to attract an operating business with which to effectuate a
business combination. The Company had approximately $67,000 of assets and had
current liabilities of approximately $845,000 at March 29, 1998. The Company,
which paid has and will pay an aggregate of $83,000 to or on behalf of
Building Blocks, will be released from all claims of Building Blocks and its
creditors upon completion of Building Blocks' bankruptcy proceedings. The
Company has been receiving cash advances in the form of demand loans from
three beneficial owners of its Capital Stock in order to meet its operating
expenses and its obligations under the Chapter 11 Plan described in Note 2 and
has been obtaining forbearances from its principal creditors. At March 29,
1998, such advances and interest accrued thereon (which are included in the
current liabilities described above) aggregated $476,321. There are no
assurances as to the time or extent that the stockholder advances and/or
forbearance will continue. Further, there is no assurance that any business
combination can ever be effectuated. See Note 3.

                  The foregoing raise substantial doubt about the Company's
ability to continue as a going concern and the report of the Company's auditor
with respect to the Company's financial statements for its fiscal year ended
June 29, 1997 contained qualifying language to that effect.

3. Chapter 11 Petition of Debtor

                  In a Chapter 11 case, substantially all liabilities of the
Debtor, Building Blocks, as of the date of the Filing are subject to
resolution under a plan of reorganization to be voted upon by the Debtor's
creditors and stockholders and confirmed by the Bankruptcy Court. Financial
schedules filed by the Debtor as of the date of the Filing show liabilities
exceed assets by approximately $800,000. Differences between amounts shown by
the Debtor and claims filed by creditors will be investigated and resolved.
The amount and settlement terms for such disputed liabilities are subject to
allowance by the Bankruptcy Court. Ultimately the adjustment of all
liabilities of the Debtor remains subject to a Bankruptcy Court approved plan
of reorganization or liquidation and, accordingly, are not presently
determinable.

                  On August 8, 1997, Building Blocks submitted to the
Bankruptcy Court a Chapter 11 Plan. Building Blocks, with the approval of the
Official Committee of Unsecured Creditors in the Chapter 11 proceeding and the
Company, submitted a revised Plan to the Bankruptcy Court on February 18,
1998, which was subsequently approved by the Bankruptcy Court and the
creditors in March 1998. Under the approved Plan the Company has paid to
Building Blocks the sum of $58,000 to enable Building Blocks to settle
creditor claims, and will provide $25,000 of the $30,000 required under the
settlement of a store lease of which the Company was a guarantor (the "Store
Lease"). The revised Plan requires


                                                                  Page 7 of 16

<PAGE>

Building Blocks to pay the additional $5,000 out of Building Blocks' Chapter
11 assets. In addition, Building Blocks will be dissolved. As a result, the
Company will not have any right to use the portion of its historic
consolidated net operating loss carryforwards ("NOLs") attributable to
Building Blocks' operations. The Company has not performed a precise
calculation of the Company's share of the consolidated NOLs, but believes
that, at June 29, 1997, the Company's share of the consolidated NOLs was less
than one-half of the approximate total of $13,475,000.

4. Equity Investments

                  Effective December 14, 1995, the Company acquired 25% of the
Common Stock of CM Franchise Corp., a franchiser of specialty carpet retailers
operating under the registered trademark of "Carpet Master" for a total
consideration of $224,150. In addition, as part of the transaction, the
Company obtained an option to acquire an additional 12.5% of CM Franchise
Corp.'s common stock. The Company accounted for this transaction using the
equity method.

                  In July 1996, the Company received a loan of $224,150 to
cover a working capital shortfall. Under the agreement, the Company had the
right to either repay the advance without interest or to transfer to the
lender all of the Company's rights and interests in the common stock of CM
Franchise Corp. and warrants to purchase additional shares of such common
stock it acquired in December 1995. The Company transferred the rights and
interests to the lender on September 29, 1996. As a result, the Company
recorded a $44,406 gain on this transaction in the accompanying Condensed
Consolidated Statements of Operations for the 39 weeks ended March 30, 1997.

5. Commitments and Contingencies

                  Legal Settlement-Issuance of Common Stock

                  The Company was a party defendant in a lawsuit with a former
officer, director and shareholder of the Company's predecessor corporation who
alleged, among other things, breach of contract, fraud, defamation,
interference with stock transfer rights, breach of fiduciary duties by certain
former officers of the Company, conspiracy to defraud, and interference with
respect to the inspection of corporate records. The Plaintiff claimed he was
entitled to a termination payment of $1,400,000 pursuant to an employment
agreement with the Company.

                  In August 1996, the Company settled this litigation without
admitting liability, by issuing an aggregate of 650,000 shares of the
Company's common stock valued at $570,000 to the plaintiff and his designee.
The Company also agreed to guarantee up to $160,000 for any shortfall from
$650,000 realized upon the sale by the holders of all of the 650,000 shares.
The Company may satisfy the guarantee by a cash payment or the issuance

                                                                 Page 8 of 16


<PAGE>

to the holders of up to 213,333 shares of its common stock currently held by
an escrow agent.

                  Other Legal Proceedings-Leases

                  Building Blocks was a defendant in a number of legal
proceedings instituted by landlords of various former Building Blocks store
locations. These cases have been settled or the underlying debt discharged in
the bankruptcy proceeding.

                  Of the aforementioned cases, the Company was a limited
guarantor in Fashion Mall Partners, L.L.P. v. Building Blocks, Inc., City
Court - Westchester, New York, commenced September 26, 1996. This suit sought
$180,000 for rent arrearages under a lease to Building Blocks which was
guaranteed by the Company up to $180,000 of rent payments. The landlord
subsequently filed a Proof of Claim with the Bankruptcy Court in the amount of
approximately $480,000. The landlord agreed to settle the guarantee and the
underlying claim for $30,000. Under the approved Plan the Company will fund
$25,000 of this amount, which is reflected as a liability in the accompanying
balance sheet, and Building Blocks will pay the remaining $5,000.

6.  Writedown of Goodwill and Loss on Property and Equipment

                  Due to the Chapter 11 filing by Building Blocks and the sale
of all of the outstanding capital stock of BBFC on January 28, 1997, the
Company determined that the Goodwill had no future value and recorded a
writeoff of $136,882 during the 13-week period ended December 29, 1996.
Additionally, the Company recorded a Loss on Property and Equipment during the
same period of $314,595 due to the closing of certain stores.

                                                                  Page 9 of 16

<PAGE>

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

                  Set forth below is a discussion of (1) the Company's lack of
liquidity and capital resources; and (2) the items set forth under "Other
income (expenses)" in the Consolidated Statements of Operations included in
the Company's financial statements. These discussions should be read in
conjunction with the financial statements and notes thereto.

                  The reported results of discontinued operations are not
indicative of future results of operations or financial position of the
Company. The financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information
applicable to a going concern, which principles, except as otherwise
disclosed, assume that assets will be realized and liabilities will be
discharged in the normal course of business. The financial statements do not
include adjustments relating to the recoverability of recorded asset amounts

and classification of recorded assets and liabilities which may result from
the Company's lack of capital resources or ongoing operations as described
below.

Liquidity and Capital Resources

                  Certain of the matters discussed under this caption that are
forward-looking statements involve risks and uncertainties, as described
herein, and others which may arise from changes in general economic
conditions, unanticipated changes in the Company's circumstances, and other
factors.

                  The principal operating subsidiary of the Company prior to
February 1997 was Building Blocks, Inc., which the Company acquired on April
13, 1993 and which operated a chain of specialty retail toy stores. Building
Blocks Franchise Corp. ("BBFC") was organized subsequent to June 30, 1996, as
a second-tier subsidiary, and was engaged in marketing and selling franchises
for Building Blocks stores.

                  Effective January 28, 1997, the outstanding capital stock of
BBFC was sold. The net proceeds from the sale ($43,224) were paid over to
Building Blocks pursuant to an agreement requiring the parent of BBFC to
obtain a general release from Building Blocks to BBFC. On January 31, 1997,
Building Blocks filed a petition for relief under Chapter 11. The petition
sought protection from creditors while Building Blocks attempted to dispose of
its retail stores either through sales of the stores and assignment of their
leases or by the liquidation of inventory and fixtures.

                  In March 1998, a Reorganization Plan in the Chapter 11
proceeding was approved by creditors. Under the terms of the Plan, the Company
has been released from all claims of Building Blocks and its creditors and has
settled its liability as a guarantor of Building Blocks Store Lease.

                                                                 Page 10 of 16

<PAGE>

                  The Company had approximately $67,000 of assets and had
current liabilities of approximately $845,000 at March 29, 1997 after paying
approximately $58,000 of the $83,000 due to or on behalf of Building Blocks in
connection with the Plan. The Company may be required, at some future date, to
satisfy a non-current liability carried on its books in the amount of $80,000
by the issuance of 213,333 shares of its common stock to certain parties
pursuant to the settlement agreement described in Note 5 to the financial
statements included herewith. (See Note 5 of the Condensed Consolidated
Financial Statements.)

                  The Company did not receive any cash or other benefit
(including any right to utilize Building Blocks' net operating loss
carryforwards) from Building Blocks under the Plan. The Company has been
receiving cash advances in the form of demand loans from three beneficial
owners of its Capital Stock in order to meet its operating expenses and has
been obtaining forbearances from its principal creditors. At March 29, 1998,
such advances and interest accrued thereon (which are included in the current

liabilities described above) aggregated $476,321. The Company anticipates that
the three beneficial owners will advance the remaining $25,000 due under the
Plan, but there are no assurances as to the time or extent that the
stockholder advances and/or forbearance will continue.

                  The Company has been attempting to attract an operating
business with which to effectuate a business combination. There is no
assurance that any business combination can ever be effectuated.

Other Income (Expense)

                  During the quarter ended September 29, 1996, the Company
recorded a $44,406 gain on the sale of its equity investment in CM Franchise
Corp. Such gain results from the Company's transferring its rights and
interests in the investee's common stock, with a recorded value of $179,744,
in satisfaction of a $224,150 debt.

                                                                 Page 11 of 16

<PAGE>

                          PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

                  Building Blocks was a defendant in a number of legal
proceedings instituted by landlords of various former Building Blocks store
locations. These cases have been settled or the underlying debts have been
discharged in the bankruptcy proceeding.

                  Of the aforementioned cases, the Company was a limited
guarantor in Fashion Mall Partners, L.L.P. v. Building Blocks, Inc., City
Court - Westchester, New York, commenced September 26, 1996. This suit sought
$180,000 for rent arrearages under a lease to Building Blocks which was
guaranteed by the Company up to $180,000 of rent payments. The landlord
subsequently filed a Proof of Claim with the Bankruptcy Court in the amount of
approximately $480,000. This claim and the suit were settled for a payment of
$30,000, of which $25,000 was assumed by the Company and $5,000 by Building
Blocks.

Item 6 - Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  27.  Financial Data Schedule

         (b)      No reports on Form 8-K were required to be filed during the
fiscal quarter ended March 29, 1998.

                                                                 Page 12 of 16

<PAGE>

                                   SIGNATURE

                  In accordance with the requirements of the Securities
Exchange Act of 1934, the Company has caused this Report to be signed on its
behalf by the undersigned, thereto duly authorized.


                                                SPECIALTY RETAIL GROUP, INC.

Date:  May 13, 1998                             By:/s/ SEYMOUR ZISES
                                                   -----------------
                                                   Seymour Zises, Director

                                                                 Page 13 of 16

<PAGE>

                               INDEX TO EXHIBITS

Number            Exhibit                                                Page
------            -------                                                ----
27                Financial Data Schedule                                 16


                                                                 Page 14 of 16