<PAGE>
                                 FORM 10-QSB/A-1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[Mark One]

[X] Quarterly report under Section 12 or 15(d) of the Securities Exchange Act of
1934 For the Quarterly period ended March 30, 1997 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 November 20, 1997, 9,084,238 shares of the issuer's Common Stock were
outstanding excluding 213,333 contingently issuable shares held by an escrow
agent.

                                     The Index to Exhibits appears on Page 18

                                                                  Page 1 of 20


<PAGE>



                          SPECIALTY RETAIL GROUP, INC.

                                      INDEX

                                                                            Page


PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

          Condensed Consolidated Financial
          Statements as of March 30, 1997......................................3

          Condensed Consolidated Balance
          Sheet at March 30, 1997 (unaudited)..................................3

          Condensed Consolidated Statements of Operations for the
          thirteen-week and thirty-nine week periods ended March 30,
          1997 and March 31, 1996 (unaudited)..................................4

          Condensed Consolidated Statements of Cash Flows for the
          thirty-nine week periods ended March 30, 1997 and March 31, 
          1996 (unaudited).....................................................5

          Notes to the Condensed Consolidated
          Financial Statements as of March 30, 1997 (unaudited)................7

Item 2 - Management's Discussion and Analysis or Plan of Operations...........11

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings....................................................15

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

Signature.....................................................................17

                                                                 Page 2 of 20


<PAGE>



                          Specialty Retail Group, Inc.
                      Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>

                                                                                  Condensed
                                                                                 from Audited
                                                          March 30,               Financial
                                                            1997                 Statements
                                                          unaudited)             June 30, 1996
                                                         ----------             -------------

<S>                                                   <C>                       <C>   

ASSETS         
Current Assets:
Cash and cash equivalents                               $    15,603                 $387,006
Inventory                                                        --                1,281,777
Other current assets                                         41,877                  129,538
                                                           --------                ---------
Total current assets                                         57,480                1,798,321


Property and equipment, net                                   3,478                  778,326
Goodwill, net                                                    --                  143,032
Equity investments                                               --                  179,744
Other assets, primarily security deposits                        --                  103,225
                                                             ------               ----------
TOTAL ASSETS                                            $    60,958               $3,002,678
                                                        ===========               ==========


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

Accounts payable and accrued expenses                      $293,768               $2,108,456
Accrued guarantee settlement payable                         30,000                       --
Due to unconsolidated subsidiary                             10,000                       --
Demand loans -- stockholders                                 87,520                       --
                                                           --------               ----------
Total current liabilities                                   421,288                2,108,456

Legal settlement                                             80,000                  570,000
                                                           --------               ----------

Total liabilities                                           501,288                2,678,456
                                                           --------               ----------

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
  (March 30, 1997)                                            9,325                    8,675
Additional paid-in capital                               11,573,570               11,004,220

Accumulated deficit                                    (11,849,955)             (10,515,403)
Treasury Stock - 240,500 shares at cost                   (175,664)                (175,664)
                                                       ------------             ------------

Total stockholders (deficit) equity                       (440,330)                  324,222
                                                       ------------             ------------

TOTAL LIABILITIES AND

STOCKHOLDERS' EQUITY DEFICIT                                $60,958               $3,002,678
                                                       ============             ============
</TABLE>

           See accompanying notes to consolidated financial statements

                                                                  Page 3 of 20


<PAGE>



                          Specialty Retail Group, Inc.
                 Condensed Consolidated Statements of Operations

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                13 Weeks Ended             39 Weeks Ended
                                                --------------             --------------
                                           March 30,     March 31,     March 30,    March 31,
                                             1997          1996          1997         1996
                                             ----          ----          ----         ----
<S>                                    <C>            <C>            <C>           <C>   

Results of Discontinued Operations:


  Net sales                            $   141,804    $ 1,253,656    $ 2,457,846    $ 5,728,735
  Cost of sales                            128,149        706,773      1,602,663      3,142,108
                                       -----------    -----------    -----------    -----------
  Gross profit                              13,655        546,883        855,183      2,586,627
  Operating costs:
    Selling, general and
    administrative expenses                 71,384      1,320,598      2,479,551      3,019,731
                                       -----------    -----------    -----------    -----------
    Loss from operations                   (57,729)      (773,715)    (1,624,368)      (433,104)

Other income (expense):
  Interest income (expense), net            (1,019)        57,971           (100)       184,287
  Miscellaneous income                      24,837           --           46,437           --
  Gain on sale of equity investment           --             --           44,406           --
  (Note 4)
  Gain on sale of subsidiary                43,224           --           43,224           --
  Store closing costs and related
  expenses                                 (67,042)          --         (520,420)      (660,767)
  Settlement of guarantor obligation
  related to bankrupt subsidiary
  (Note 5)                                 (30,000)          --          (30,000)          --
  Gain on deconsolidation of
  bankrupt subsidiary (Note 1)             786,269           --          786,269           --
                                       -----------    -----------    -----------    -----------
  Net income (loss)                    $   698,540    ($  715,744)   ($1,254,552)   ($  909,584)
                                       ===========    ===========    ===========    ===========
Per share amounts:
  Net income (loss):                   $       .08    ($     0.08)   $     (0.14)   ($     0.10)
                                       ===========    ===========    ===========    ===========
Weighted average number of
  common shares outstanding              9,084,238      8,674,738      8,960,880      8,674,738
                                       ===========    ===========    ===========    ===========
</TABLE>


           See accompanying notes to consolidated financial statements

                                                                 Page 4 of 20


<PAGE>



                          Specialty Retail Group, Inc.
                 Condensed Consolidated Statements of Cash Flows

                                   (Unaudited)


                                                  39 Weeks Ended  39 Weeks Ended
                                                  March 30, 1997  March 31, 1996
                                                    -----------    -----------

Cash flows from operating activities:
  Net loss                                          ($1,254,552)   ($  909,584)
                                                    -----------    -----------
Adjustments to reconcile net loss to
  net cash used in operating activities
  Depreciation and amortization                          47,449        227,448
  Gain on deconsolidation                              (786,269)
  Writedown of goodwill and organization
    costs                                               136,882
  Loss on sale of property and equipment                330,776
  Gain on sale of subsidiary                            (43,224)
  Gain on sale of equity investment                     (44,406)
  (Increase) decrease in inventory                      846,779       (165,688)
  (Increase) decrease in other current assets            62,895        (13,132)
  (Increase) decrease in other assets                    89,019        (32,734)
  Decrease in accounts payable
    and accrued liabilities                             (42,472)    (1,003,427)
                                                    -----------    -----------
         Total adjustments                              597,429       (987,533)
                                                    -----------    -----------
Net cash used in operating activities                  (657,123)    (1,897,117)
                                                    -----------    -----------
Cash flows from investing activities:
  Cash of subsidiary on date of bankruptcy              (64,541)
  Expenditures for property and equipment                (3,614)      (142,051)
  Proceeds from sale of subsidiary                       43,224           --
  Equity investment                                        --         (224,150)
                                                    -----------    -----------
Net cash used in investing activities                   (24,931)      (366,201)
                                                    -----------    -----------
Cash flows from financing activities:
  Proceeds from borrowings                              310,651       (600,000)
                                                    -----------    -----------
  Net cash provided by financing activities             310,651       (600,000)
                                                    -----------    -----------
  Net decrease in cash and cash equivalents            (371,403)    (2,863,318)
Cash and cash equivalents, beginning of period          387,006      2,913,188
                                                    -----------    -----------
Cash and cash equivalents, end of period            $    15,603    $    49,870
                                                    ===========    ===========




                                                                Page 5 of 20


<PAGE>




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 4 in the accompanying notes for
a further discussion of this matter.

         The Company transferred an equity investment as repayment of a $224,150
loan from stockholder.

          See accompanying notes to consolidated financial statements.

                                                                 Page 6 of 20


<PAGE>



                          Specialty Retail Group, Inc.
              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)
                                 March 30, 1997

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 thirteen and thirty-nine weeks ended March 30, 1997 and March
31, 1996, it is the Company's opinion that all necessary adjustments (consisting
of normal and recurring adjustments and adjustments to goodwill and leasehold
improvements described in Note 6) 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.
The Company recognized a gain of $786,269 on deconsolidation.

                  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 30, 1996. Due to the bankruptcy filing by
the Company's Building Blocks, Inc. subsidiary, and the sale of the outstanding
capital stock of the Company's Building Blocks Franchise Corp. subsidiary,
operating results for the interim periods ended March 30, 1997 are not
indicative of results that may be expected for the fiscal year ending 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; they do not include
adjustments relating to the recoverability of recorded asset amounts and
classification of recorded assets and liabilities.

                                                                 Page 7 of 20



<PAGE>




                  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 inventory and fixtures. Effective
January 28, 1997 the outstanding capital stock of the Company's Building Blocks
Franchise Corp. ("BBFC") subsidiary, which owns the "Building Blocks"
trademarks, was sold by the Company's Building Blocks Holdings, Inc. ("BBHI")
subsidiary. The net proceeds from the sale were used first to repay amounts owed
by BBFC to Building Blocks. The remainder of the proceeds are payable to
Building Blocks pursuant to an agreement requiring BBHI to obtain a general
release from Building Blocks. The Company recognized a gain of $43,224 on the
sale of its BBFC subsidiary.

                  The Company, which has no other business operations, has been
attempting to attract an operating business with which to effectuate a business
combination. At March 30, 1997, the Company has approximately $60,000 of assets
and has liabilities of approximately $420,000, excluding a liability payable by
the issuance of up to 213,333 shares of its common stock pursuant to the
settlement agreement described in Note 5. It is not expected that the Company
will receive any cash from Building Blocks 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 has been obtaining forbearances from its
principal creditors. At March 30, 1997 such advances (which are included in the
liabilities described above) aggregated $86,501. 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. Any such combination may depend upon the outcome of BBI's
Chapter 11 petition and upon the Company's ability to reach settlements of its
outstanding obligations. See Note 3.

                  The foregoing raise substantial doubt about the Company's
ability to continue as a going concern.

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. The Company anticipates that it and BBI will release each
other from any claims as part of the definitive plan of reorganization,

including any claim in connection with a $220,000 payable from the Company to
BBI which the Company has determined was reported in error because it was
subsequently offset or paid. In connection with the

                                                                 Page 8 of 20


<PAGE>



negotiation of the definitive Plan, the Company will seek credit for funding the
settlement of a litigation described under "Other Legal Proceedings - Leases" in
Note 5, but may also issue shares of its common stock to creditors of BBI and/or
settle liabilities of BBI and/or make a payment to BBI in connection with the
negotiation of a definitive plan of reorganization. Ultimately the adjustment of
all claims and liabilities of the Debtor remains subject to a Bankruptcy Court
approved plan of reorganization and, accordingly, is not presently determinable.

                  Under the Bankruptcy Code, the Debtor may elect to assume or
reject real estate leases, employment contracts, personal property leases,
service contracts and other executory pre-petition contracts, subject to
Bankruptcy Court review. Building Blocks elected to reject all of its leases and
contracts other than an employment agreement with Steven E. Glass. The Debtor
cannot presently determine or reasonably estimate the ultimate liability which
may result from the filing of claims for any rejected contracts and no
provisions have yet been made for these items. All assets of the Debtor have
either been sold or written down to a realizable value. Based on such values,
the Company has determined that none of BBI's assets will remain at the
conclusion of the bankruptcy proceedings.

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 in satisfaction
of the loan 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,

                                                                 Page 9 of 20


<PAGE>



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 issuance to the holders of up to an
additional 213,333 shares of common stock currently being held by an escrow
agent. The Company has recognized an additional obligation and expense in the
amount of $80,000 arising from this guarantee.

                  Other Legal Proceedings-Leases

                  Landlords at two mall stores which were closed between June
and October 1996 subsequently obtained judgments of $86,000 (Westland Garden
State Plaza Limited Partnership v. Building Blocks, Inc., Superior Court of New
Jersey, Bergen County, commenced June 4, 1996) and $104,000 (Natick Limited
Partnerships v. Building Blocks, Inc., District Court, Middlesex, Massachusetts,
commenced August 12, 1996) against Building Blocks for rent arrearages and
damages. At the time of the filing of the Chapter 11 petition, an action seeking
$47,000 in back rent and $140,000 in damages was pending with respect to a third
mall store closed prior to October 1996 (Westland Properties, Inc. v. Building
Blocks, Inc., Superior Court - Fairfield, Connecticut, commenced June 24, 1996),
and a suit for rent arrearages of $180,000 was pending with respect to a mall
store closed in October 1996 (Fashion Mall Partners, L.P. v. Building Blocks,
Inc., City Court Westchester, New York, commenced September 26, 1996). A
settlement of this last claim for $30,000 has been reached subsequent to March
30, 1997 and is reflected in the accompanying financial statements. At March 30,
1997, no provision was made with respect to the other damage claims.

6. Writedown of Goodwill and Loss on Property and Equipment

                  Due to the Chapter 11 filing by Building Blocks and the sale
of BBFC, the Company has determined that the Goodwill has no future value and
recorded a writeoff of $136,882 during the 39-week period ended March 30, 1997.
Additionally, the Company wrote off $170,826 of leasehold improvements and
recorded additional losses on disposition of property and equipment due to the
closing of its stores.


                                                                Page 10 of 20


<PAGE>



Item 6.  Management's Discussion and Analysis or Plan of Operation

                  Set forth below is a discussion of (1) the Company's lack of
liquidity and capital resources; (2) the significant factors affecting the
operating results of discontinued operations (i.e., those of Building Blocks and
BBFC) for the 39 weeks ended March 30, 1997 ("Current Period") and the 39 weeks
ended March 31, 1996 ("Prior Period"); and (3) 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 year-end and interim financial information
applicable to a going concern, which principles 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 during the
Prior Period and the Current Period was Building Blocks, which the Company
acquired on April 13, 1993 and which thereafter operated a chain of specialty
retail toy stores. BBFC was organized subsequent to June 30, 1996, as a
second-tier subsidiary, and was engaged in marketing franchises for Building
Blocks stores.

                  Primarily as the result of continuing losses and negative cash
flow experienced by Building Blocks, the Company began experiencing a working
capital shortage in the spring of 1996. Despite a number of actions taken to
reduce operating expenses and to generate revenue from franchising, Building
Blocks and BBFC were not able to achieve profitability or to reverse the
negative cash flow by the end of calendar 1996.

                  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.

                                                                Page 11 of 20


<PAGE>



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.

                  Effective February 28, 1997, and pursuant to a Bankruptcy
Court order entered on that date, Building Blocks entered into an Agency
Agreement with a liquidator for the purpose of liquidating its retail inventory.
Building Blocks' ongoing operations include performance of its obligations under
the Agency Agreement; disposition of its furniture, fixtures and equipment, and
collection of receivables all as specified in the February 28, 1997 order; the
negotiation and prosecution of the Plan as described below; the windingdown of
its retail toy store operations; and the general and administrative matters
related to the bankruptcy. On August 8, 1997, Building Blocks submitted a
Chapter 11 Plan of Reorganization to the Bankruptcy Court which, if approved,
would result in a discharge of Building Blocks from all claims of its creditors,
including the Company; a discharge of the Company from all claims of Building
Blocks and Building Blocks' creditors in exchange for the Company satisfying
Building Blocks' obligations under a store lease (which the Company and the
landlord have agreed to settle for $30,000); and the merger of Building Blocks
with and into the Company. The Official Committee of Unsecured Creditors (the
"Committee") in the Chapter 11 proceeding filed objections to certain aspects of
Building Blocks' Reorganization Plan on September 18, 1997. The Company and
Building Blocks are communicating with the Committee in an effort to resolve
these objections and to produce a mutually agreeable Chapter 11 Plan. It is
expected that a hearing on the disclosure statement regarding the Plan will be
convened by the Bankruptcy Court before the end of 1997 and, subject to the
outcome of this hearing, the Plan may be confirmed 25 days later.

                  The Company has only nominal cash and had accounts payable of
approximately $380,000 at March 30, 1997. In addition, the Company was a limited
guarantor of a store lease which the Company and the landlord have agreed to
settle for $30,000. As part of the negotiated revisions to the Plan the Company
may agree to issue shares of its Common Stock to the creditors of Building
Blocks and/or to settle additional creditor claims and/or to make payments to
Building Blocks. The Company may also be required, at some future date, to
satisfy a liability recorded on its books in the amount of $80,000 by the
issuance of up to 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.

                  It is not expected that the Company will receive any cash from
Building Blocks 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 has been obtaining forbearances from its principal creditors. At March 30,
1997 the advances from stockholders (which are included in the accounts payable
described above) aggregated $86,501. There are no assurances as to the time or
extent that the stockholder advances and/or forbearance will continue.

                                                                Page 12 of 20


<PAGE>




                  The Company is 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, and any such combination may
depend, among other things, upon the outcome of BBI's Chapter 11 Petition, and
the Company's ability to reach settlements of its outstanding obligations.

Results of Discontinued Operations -- 39-week period ended March 30, 1997
compared with the corresponding period ended March 31, 1996

Operations

                  Net sales, substantially all of which were generated by
Building Blocks, were approximately $1,254,000 for the 39-week period ended
March 30, 1997, a decrease of approximately 78% when compared with approximately
$5,729,000 for the corresponding period ended March 31, 1996. This decrease in
net sales was due principally to the decreased number of stores operated by the
Company through January 31, 1997, after which the results of Building Blocks
operations are no longer consolidated with the Company and the Company's lack of
working capital to purchase holiday season inventory.

                  Gross Profit as a percentage of net sales decreased from
approximately 45% for the 39-week period ended March 31, 1996 to approximately
43% for the 39 week period ended March 30, 1997. This is primarily the result of
price discounting associated with the closing of stores during fiscal 1997.

                  Selling, general and administrative expenses consist primarily
of payroll, occupancy and advertising expenses associated with the Building
Blocks stores. Selling, general and administrative expenses were approximately
105% of net sales and approximately 64% of net sales during the 39-week periods
ended March 30, 1997 and March 31, 1996, respectively. This increase as a
percentage of sales is primarily due to the decline in revenue and the existence
of fixed overhead expenses.

Store Closing Costs and Related Expenses

                  The Company has recorded restructuring and other expense
charges of $520,420 and $660,767 in the current period and prior periods,
respectively, for the disposition of fixed assets and other costs related to the
closing or expected closings of certain mall stores.


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 investees' common stock with a recorded value of $179,744 in satisfaction
of a $224,150 debt. In the prior year the

                                                                Page 13 of 20


<PAGE>



Company recorded its proportionate share of the investees' loss against the
$224,150 original acquisition cost of the investment.

                  Effective January 28, 1997 the outstanding stock of BBFC was 
sold at a gain of $43,224.

                  Interest income the in Prior Period represents income from
invested cash. In the Current Period interest expense accrued on loans from
stockholders exceeded such interest income.

                  Miscellaneous income consists primarily of Building
Blocks-related items which will not recur.

                  The $30,000 settlement of guarantor obligation relates to a
store lease of Building Blocks which was partially guaranteed by the Company,
and which guarantee was settled after March 30, 1997 for $30,000. See Note 5 to
the condensed consolidated financial statements and PART II - Item 1 - Legal
Proceedings.

                  The legal settlement relates to the settlement in August 1996,
of a litigation in which the Company, without admitting liability, issued an
aggregate of 650,000 shares of the Company's common stock with a market value of
$570,000 on the date of issuance to the plaintiff and his designee and issued a
limited guarantee of the realization by them of an average of $1 per share.

                  The $786,269 gain on the deconsolidation of Building Blocks
reflects the amount of Building Blocks' net deficit at the time of the Chapter
11 filing.

                                                                Page 14 of 20


<PAGE>



                           PART II - OTHER INFORMATION

Item 1 - Legal Proceedings


                  Landlords at two mall stores which were closed between June
and October 1996 subsequently obtained judgments of $86,000 (Westland Garden
State Plaza Limited Partnership v. Building Blocks, Inc., Superior Court of New
Jersey, Bergen County, commenced June 4, 1996) and $104,000 (Natick Limited
Partnerships v. Building Blocks, Inc., District Court, Middlesex, Massachusetts,
commenced August 12, 1996) against Building Blocks for rent arrearages and
damages. At the time of the filing of the Chapter 11 petition, an action seeking
$47,000 in back rent and $140,000 in damages was pending with respect to a third
mall store closed prior to October 1996 (Westland Properties, Inc. v. Building
Blocks, Inc., Superior Court - Fairfield, Connecticut, commenced June 24, 1996),
and a suit for rent arrearages of $180,000 was pending with respect to a mall
store closed in October 1996 (Fashion Mall Partners, L.P. v. Building Blocks,
Inc., City Court Westchester, New York, commenced September 26, 1996). A
settlement of this last claim for $30,000 has been reached subsequent to March
30, 1997 and is reflected in the accompanying financial statements. At March 30,
1997, no provision was made with respect to the other damage claims.

                  On January 31, 1997 Building Blocks 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 attempted to dispose of
its retail stores.

                  Subsequent to the filing of the bankruptcy petition, landlords
at the last five stores operated by Building Blocks served "Notices to Quit"
based upon non-payment of rent. These stores were liquidated under a
Court-approved agency agreement with a professional liquidator. All of the
Building Blocks-operated stores were closed by April 10, 1997, and final
creditor claims were filed by May 22, 1997. Building Blocks continues to manage
its business affairs as Debtor-in-Possession, with current efforts directed at
reconciling creditors' claims; liquidating remaining furniture, fixtures and
equipment; and formulation of a Chapter 11 reorganization plan. Settlements were
reached with landlords, and stipulations were entered by the Bankruptcy Court,
with regard to lease terminations at four Building Blocks store locations. All
other pending landlord claims, including those described in Note 5 above, are
being negotiated in the Bankruptcy settlement.

Item 6 - Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  27.  Financial Data Schedule

                                                                Page 15 of 20


<PAGE>



         (b) During the fiscal quarter ended March 30, 1997, the Company filed a
Report on Form 8-K dated February 7, 1997, reporting, under item 5, the filing
of a Chapter 11 petition by Building Blocks, Inc. and the sale of the stock of

Building Blocks Franchise Corp.

                                                                Page 16 of 20


<PAGE>



                                    SIGNATURE

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

                                              SPECIALTY RETAIL GROUP, INC.

Date:  November 20, 1997                      By:/s/ Steven E. Glass
                                                 -------------------
                                                 Steven E. Glass, Secretary

                                                                Page 17 of 20


<PAGE>



                                INDEX TO EXHIBITS

Number            Exhibit                                                  Page

27                         Financial Data Schedule                          19

                                                                Page 18 of 20