<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 September 28, 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 December 5, 1997, 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 15

                                                                   Page 1 of 17

<PAGE>

                          SPECIALTY RETAIL GROUP, INC.

                                      INDEX

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

Item 1 - Financial Statements

         Condensed Consolidated Financial
         Statements as of September 28, 1997......................................................................3

                  Condensed Consolidated Balance
                  Sheet at September 28, 1997 (unaudited).........................................................3

                  Condensed Consolidated Statements of
                  Operations for the thirteen-week
                  periods ended September 28, 1997
                  and September 29, 1996 (unaudited)..............................................................4

                  Condensed Consolidated Statements of Cash Flows for the
                  thirteen-week week periods ended September 28, 1997
                  and September 29, 1996 (unaudited)..............................................................5

                  Notes to the Condensed Consolidated
                  Financial Statements as of
                  September 28, 1997 (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.......................................................................................13

Item 6 - Exhibits and Reports on Form 8-K........................................................................13

Signature........................................................................................................14
</TABLE>

                                                                   Page 2 of 17

<PAGE>

                          Specialty Retail Group, Inc.
                      Condensed Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                                          Condensed
                                                                        from Audited
                                                     Sept. 28,            Financial
ASSETS                                                  1997             Statements
Current Assets:                                     (unaudited)         June 29, 1997
                                                    -----------         -------------
<S>                                                 <C>                 <C>         
Cash and cash equivalents                           $     38,892        $     32,156
Other current assets                                       7,359              17,909
                                                    ------------        ------------
Total current assets                                      46,251              50,065


Property and equipment, net                                3,072               3,253
                                                    ------------        ------------
TOTAL ASSETS                                        $     49,323        $     53,318
                                                    ============        ============


LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable and accrued
  expenses                                          $    335,149        $    342,164
Corporate taxes payable                                    4,620               5,370
Due to unconsolidated subsidiary                          10,000              10,000
Demand loans -- stockholders                             249,321             157,468
                                                    ------------        ------------
Total current liabilities                                599,090             515,002

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

Total liabilities                                   $    679,090        $    595,002
                                                    ------------        ------------

Commitments and contingencies (Note 5)

Stockholders' deficit:
Series A-1 Preferred Stock; 10,000,000 shares
  authorized; $.001 par value; 2,394,130
  shares issued (September 28, 1997)                       2,394               2,394
Common Stock; 100,000,000 shares authorized;
  $.001 par value; 9,324,738 shares issued
  (September 28, 1997)                                     9,325               9,325
Additional paid-in capital                            11,573,570          11,573,570

Accumulated deficit                                  (12,039,392)        (11,951,309)
Treasury Stock - 240,500 shares, at cost                (175,664)           (175,664)
                                                    ------------        ------------

Total stockholders' deficit                             (629,767)           (541,684)
                                                    ------------        ------------

TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT                               $     49,323        $     53,318
                                                    ============        ============
</TABLE>

           See accompanying notes to consolidated financial statements

                                                                   Page 3 of 17

<PAGE>

                          Specialty Retail Group, Inc.
                 Condensed Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                  13 Weeks Ended
                                         --------------------------------
                                         September 28,      September 29,
                                              1997               1996
                                         -------------      -------------
<S>                                       <C>                <C>        
Results of Discontinued Operations:
  Net sales                               $      --          $ 1,247,293
  Cost of sales                                  --              819,507
                                          -----------        -----------
  Gross profit                                   --              427,786
  Operating costs:
    Selling, general and                         --              779,286
   administrative                              84,256            454,896
                                          -----------        -----------
    Loss from operations                      (84,256)          (806,396)
Other income (expense):
  Interest Income (expense), net               (3,845)               786
  Miscellaneous income                             18              3,556
  Gain on sale of equity investment
  (Note 4)                                       --               44,406
                                          -----------        -----------
  Net loss                                $   (88,083)       ($  757,648)
                                          -----------        -----------
Per share amounts:
  Net income (loss):                      ($      .01)       ($      .09)
Weighted average number of
  common shares outstanding                 9,084,238          8,716,847
                                          -----------        -----------
</TABLE>

           See accompanying notes to consolidated financial statements

                                                                   Page 4 of 17

<PAGE>

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

<TABLE>
<CAPTION>
                                                             13 Weeks Ended
                                                    -----------------------------------
                                                    Sept. 28, 1997       Sept. 29, 1996
                                                    --------------       --------------
<S>                                                  <C>                  <C>           
Cash flows from operating activities:
  Net loss                                           ($     88,083)       ($    757,648)
                                                     -------------        -------------

Adjustments to reconcile net loss to
  net cash used in operating activities:
  Depreciation and amortization                                181               37,041
  Gain on sale of equity investment                           --                (44,406)
  Decrease in inventory                                       --                215,185
  Decrease in other current assets                          10,550                5,461
  Increase in other assets                                    --                 (1,931)
  Increase (decrease) in accounts payable
    and accrued liabilities                                 (3,912)             104,850
                                                     -------------        -------------
         Total adjustments                                   6,819              316,200
                                                     -------------        -------------

  Net cash used in operating activities                    (81,264)            (441,448)
                                                     -------------        -------------

Cash flows from investing activities:
  Expenditures for property and equipment                     --                 (3,219)
                                                                          -------------

Net cash used in investing activities                         --                 (3,219)
                                                     -------------        -------------

Cash flows from financing activities:
  Loans from stockholders                                   88,000              224,150

  Net cash provided by financing activities                 88,000              224,150
                                                     -------------        -------------

Net increase (decrease) in actual cash
equivalents                                                  6,736             (220,517)

Cash and cash equivalents, beginning of period              32,156              387,006
                                                     -------------        -------------

Cash and cash equivalents, end of period             $      38,892        $     166,489
                                                     =============        =============
</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 17

<PAGE>

                          Specialty Retail Group, Inc.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
                               September 28, 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 weeks ended September 28, 1997 and September 29,
1996, 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 17

<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 has approximately $49,000 of assets and has current
liabilities of approximately $599,000. 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 September 28, 1997 such advances and interest accrued
thereon (which are included in the liabilities described above) aggregated
$249,321. 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. Any such combination may
depend upon the outcome of Building Blocks' 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. Ultimately the adjustment of all liabilities of the Debtor
remains subject to a Bankruptcy Court approved plan of reorganization and,
accordingly, are 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 and Building Blocks have determined that none of Building Blocks'
assets will be distributable to the Company.

                                                                   Page 7 of 17

<PAGE>

                  A release of all claims between the Company and Building
Blocks is being sought in the Chapter 11 Proceeding and, in addition to the
payment to settle a legal proceeding referred to under "Other Legal Proceedings
- Leases" in Note 5, it is possible that the Company will settle additional
creditor claims and/or make a payment to Building Blocks and/or issue shares of
its common stock to creditors of Building Blocks in connection with the
definitive plan of reorganization. Ultimately, the adjustment of all claims and
liabilities of a debtor is subject to a Bankruptcy Court approved plan and,
accordingly, is not presently determinable.

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 13 weeks ended September 29, 1996.

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 17

<PAGE>

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

                  Other Legal Proceedings-Leases

                  Building Blocks is a defendant in a number of legal
proceedings instituted by landlords of various former Building Blocks store
locations. These cases have been stayed by the bankruptcy proceeding and it is
expected that the underlying claims will be extinguished upon the completion of
the bankruptcy proceeding.

                  Of the aforementioned cases, the Company is 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 seeks $180,000
for rent arrearages under a lease to Building Blocks which was guaranteed by the
Company, which guaranteed up to $180,000 of rent payments under this lease. The
landlord subsequently filed a Proof of Claim with the Bankruptcy Court in the
amount of approximately $480,000. The landlord has agreed to settle the
guarantee and the underlying claim for $30,000. This amount is included in the
accounts payable and accrued expenses reflected in the accompanying balance
sheet at September 28, 1997.

                                                                   Page 9 of 17

<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 on an unconsolidated basis; 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 year-end and 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.

                  On August 8, 1997, Building Blocks submitted a Chapter 11 Plan
of Reorganization to the Bankruptcy Court which, if approved, would have
resulted 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

                                                                  Page 10 of 17

<PAGE>

in exchange for the Company satisfying Building Blocks' obligations under a
store lease (which the landlord has 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 $39,000 cash and had current liabilities
of approximately $599,000 at September 28, 1997. As part of the negotiated
revisions to the Plan the Company may agree to settle additional creditor claims
against Building Blocks and/or to make payments to Building Blocks and/or to
issue shares of its common stock to the creditors of Building Blocks. The
Company may, also be required, at some future date, to satisfy a liability
carried on its books at $80,000 by the issuance if 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.)

                  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 September
28, 1997 the advances from stockholders and accrued interest thereon (which are
included in the accounts payable described above) aggregated $249,321. There are
no assurances as to the time or extent that the stockholder advances and/or
forbearance will continue.

                  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 Building Blocks' Chapter 11
proceeding and the Company's ability to reach settlements of its outstanding
obligations.

Other Income (Expense)

                  During the quarter ended September 29, 1996, the Company
recorded a $44,406 gain on the extinguishment of debt as a result of
transferring its rights and interests in the common stock of CM Franchise Corp.
with a recorded value of $179,744 in satisfaction of a $224,150 debt.

                                                                  Page 11 of 17

<PAGE>

Presentation of Prior Period Results

                  The presentation of results of operations for the period ended
September 29, 1996 has been changed to conform to the presentation of results of
operations in the current period which segregate the operations of Building
Blocks and BBFC as discontinued.

                                                                  Page 12 of 17

<PAGE>

                           PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

                  Building Blocks is a defendant in a number of legal
proceedings instituted by landlords of various former Building Blocks store
locations. These cases have been stayed by the bankruptcy proceeding and it is
expected that the underlying claims will be extinguished upon the completion of
the bankruptcy proceeding.

                  Of the aforementioned cases, the Company is 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 seeks $180,000
for rent arrearages under a lease to Building Blocks which was guaranteed by the
Company, which guaranteed up to $180,000 of rent payments under this lease. The
landlord subsequently filed a Proof of Claim with the Bankruptcy Court in the
amount of approximately $480,000. The Company has negotiated an agreement for
settlement of this claim and the suit for a payment of $30,000.


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 September 28, 1997.

                                                                  Page 13 of 17

<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:  December 8, 1997                        By: /s/ STEVEN E. GLASS
                                                   ----------------------------
                                                   Steven E. Glass, Secretary

                                                                  Page 14 of 17

<PAGE>

                                INDEX TO EXHIBITS


Number            Exhibit                                               Page
------            -------                                               ----

27                Financial Data Schedule                                16



                                                                  Page 15 of 17