U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB
                                   (Mark One)

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

                For the quarterly period ended September 30, 1998

                                       OR

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

             For the transition period from __________ to __________

                         Commission File Number O-25030

                       PLAY CO. TOYS & ENTERTAINMENT CORP.
        (Exact Name of Small Business Issuer as Specified in its Charter)

<TABLE>
<CAPTION>
<S>                                                                                     <C>                                    
         Delaware                                                                       95-3024222                             
         (State or Other Jurisdiction of                                                (IRS Employer Identification No.)
         Incorporation or Organization)
</TABLE>

                550 Rancheros Drive, San Marcos, California 92069
                    (Address of Principal Executive Offices)

                                 (760) 471-4505
                (Issuer's Telephone Number, Including Area Code)

                                       N/A
              (Former Name, Former Address, and Former Fiscal Year,
                          if Changed Since Last Report)

     Check  whether  the Issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such  shorter  period that  registrant  was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes [X] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     State the number of shares of each of the issuer's classes of common equity
outstanding as of the latest  practicable  date:  Common Stock,  $.01 par value:
4,109,198 shares outstanding as of November 12, 1998.

     Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]



<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
     PART I.                                          FINANCIAL INFORMATION                                           Page Number

Item 1.              FINANCIAL STATEMENTS

<S>                                                            <C> <C>                                                          <C>
                     Condensed balance sheets as of  September 30, 1998                                                         3
                     and March 31, 1998.

                     Condensed statements of operations and comprehensive net loss for the
                     Three months and six-months ended September 30, 1998 and 1997.                                             4

                     Condensed statements of cash flows for the six-months ended September 30, 1998 and 1997.                   5

                     Notes to condensed financial statements                                                                    6

Item 2.              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS                   7-12
     PART II.        OTHER INFORMATION
                                                                                                                               
Item 1.              LEGAL PROCEEDINGS                                                                                         13

Item 2.              CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                 13

Item 3.              DEFAULTS UPON SENIOR SECURITIES                                                                           13

Item 4.              SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                       13

Item 5.              OTHER INFORMATION                                                                                         13

Item 6.              EXHIBITS AND REPORTS ON FORM 8-K                                                                          13

                     Signatures                                                                                                14

</TABLE>
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A SUBSIDIARY OF UNITED TOYS & TEXTILES CORP.)
                            CONDENSED BALANCE SHEETS

                                     ASSETS
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                             September 30, 1998       March 31, 1998
                                                                             ------------------       --------------

Current

<S>                                                                               <C>             <C>         
            Cash .................................................................$    423,634    $    648,986
            Accounts receivable ..................................................      57,517          78,594
            Merchandise inventories ..............................................  12,185,130       7,872,804
            Other current assets .................................................     934,171         433,928
                                                                                  ------------    ------------
                                              Total current assets ...............  13,600,452       9,034,312

Property and Equipment, Net of accumulated
 Depreciation and amortization of $3,788,081
 and $3,414,235, respectively 3,558,297 2,782,386
Deposits and other assets ........................................................   2,490,037       2,323,189
                                                                                  ------------    ------------
                                                                                  $ 19,648,786    $ 14,139,887
                                                                                  ============    ============

                       LIABILITIES & STOCKHOLDERS' EQUITY
                                                                            September 30, 1998  March 31, 1998
                                                                                  ------------    ------------
Current
           Accounts payable ......................................................   5,649,940       3,505,230
           Accrued expenses and other liabilities ................................     197,721         726,601
           Current portion of notes payable and capital leases ...................   1,340,250         350,000
                                                                                  ------------    ------------
                   Total current liabilities .....................................   7,187,911       4,581,831


Borrowings under financing agreement .............................................   8,481,996       5,445,198
Notes payable and capital leases, net of current portion .........................     157,200       1,500,000
Deferred rent liability ..........................................................     119,453         110,351

     Stockholders' equity:
Convertible series E preferred stock, $1 par, 10,000,000 shares
 Authorized: 5,858,903 and 4,200,570 shares outstanding ..........................   7,546,229       5,891,020

Common stock, $.01 par value, 40,000,000 shares
 Authorized; 4,109,198 and 4,083,519 shares outstanding ..........................      41,035          41,035

Additional paid-in-capital ......................................................    6,710,399       6,675,398
Accumulated deficit .............................................................  (10,595,437)    (10,104,946)
                                                                                   ------------    ------------

Total stockholders' equity .......................................................   3,702,226       2,502,507
                                                                                  ------------    ------------
                                                                                  $ 19,648,786    $ 14,139,887

                                                                                  ============    ============
</TABLE>
            See accompanying notes to condensed financial statements




<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)

                       CONDENSED STATEMENTS OF OPERATIONS
                           AND COMPREHENSIVE NET LOSS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                     Three Months Ended September 30     Six-months Ended September 30,

                                                                1998           1997            1998           1997
<S>                                                         <C>            <C>            <C>             <C>        
Net sales ...............................................   $ 6,098,315    $ 4,228,780    $ 12,455,710    $ 7,371,593
Cost of Sales ...........................................     3,414,054      2,384,717       7,120,385      4,358,082
                                                            -----------    -----------    ------------    -----------
                                 Gross profit ...........     2,684,261      1,844,063       5,335,325      3,013,511
                                                            -----------    -----------    ------------    -----------
Operating expenses:
                 Operating expenses .....................     2,610,120      2,028,571       5,093,891      4,056,974
                 Depreciation and amortization ..........       193,794        139,026         382,211        278,053
                                                            -----------    -----------    ------------    -----------

                                 Total operating expenses     2,803,914      2,167,597       5,476,102      4,334,027
                                                            -----------    -----------    ------------    -----------

Operating loss ..........................................      (119,653)      (323,534)       (140,777)    (1,321,516)
                                                            ------------   -----------    ------------    -----------
Interest expense:
                 Interest and finance charges ...........       156,860        127,767         295,312        249,512
                 Amortization of debt issuance costs ....        27,202         89,778          54,402        179,555
                                                            -----------    -----------    ------------    -----------

                                Total interest expense ..       184,062        217,545         349,714        429,067
                                                            -----------    -----------    ------------    -----------


Net loss ................................................      (303,715)      (541,079)       (490,491)    (1,750,583)
Other comprehensive income (loss) .......................             0              0               0              0
                                                            ------------   -----------    ------------    -----------

Comprehensive net loss ..................................   $  (303,715)   $  (541,079)   $   (490,491)   $(1,750,583)
                                                                                                          ===========
Basic and diluted loss per common share and
                 share equivalents ......................   $     (0.07)   $     (0.13)   $      (0.12)   $     (0.43)
                                                            ============   ===========    ============    ===========
Weighted average number of common shares and
          share equivalents outstanding .................     4,103,525      4,103,519       4,103,525      4,093,683
                                                            ============   ===========    ============    ===========
</TABLE>

            See accompanying notes to condensed financial statements




<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)

                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                        Six-months Ended September 30,
                                                                            1998            1997

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                      <C>            <C>         
         Net loss ....................................................   $  (490,491)   $(1,750,583)
         Adjustments used to reconcile net loss to net
           cash used for operating activities:

                  Depreciation and amortization ......................       382,211        278,053
                  Amortization of common stock options ...............          --          107,372
                  Deferred rent ......................................         9,102          8,746
                  Stock compensation .................................        21,876           --
         Increase (decrease) from changes in:
                             Accounts receivable .....................        21,077       (338,764)
                           Merchandise inventories ...................    (4,312,326)    (1,263,705)
                           Other current assets ......................      (500,243)        13,418
                           Deposits and other assets .................      (163,756)      (214,050)
                           Accounts payable ..........................     2,144,710      1,441,513
                             Accrued expenses and other liabilities ..      (528,880)      (262,085)
                                                                         -----------    -----------

                           Net cash used for operating activities ....    (3,416,720)    (1,907,085)
                                                                         -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchases of property and equipment .........................    (1,149,757)      (366,258)
                                                                         -----------    -----------

                             Net cash used for investing activities ..    (1,149,757)      (366,258)
                                                                         -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from issuance of preferred and common stock ........       156,877      1,250,501
         Net borrowings on line of credit ............................     3,036,798      1,195,359
         Borrowings under notes payable and capital leases, net ......     1,147,450        (91,666)
                                                                         -----------    -----------
                             Net cash provided by financing activities     4,341,125      2,354,194
                                                                         -----------    -----------
Net (decrease) increase in cash ......................................      (225,352)         7,851
Cash at beginning of period ..........................................       648,986        177,722
Cash at end of period ................................................   $   423,634    $   185,573

</TABLE>

            See accompanying notes to condensed financial statements



<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                               September 30, 1998
                                   (Unaudited)

Note 1.           General

     The interim accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted  accounting  principles  ("GAAP")
for interim  financial  information  and with the  instructions  to Form 10-QSB.
Accordingly,  they do not include all of the information and footnotes  required
by GAAP for complete  financial  statements.  In the opinion of management,  all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair  presentation  have been  included.  For  further  information,  management
suggests that the reader refer to the audited financial  statements for the year
ended March 31, 1998  included in its Annual  Report on Form  10-KSB.  Operating
results for the six-month  period ended  September 30, 1998 are not  necessarily
indicative of the results of operations that may be expected for the year ending
March 31, 1999.

Note 2.           Amendment of Loan and Security Agreement

     Effective  September 24, 1998, the Company and FINOVA Capital  Corporation,
the Company's  working capital  lender,  amended the Company's Loan and Security
Agreement to increase the maximum level of borrowings  under the Agreement  from
$7.6 million to $8.6 million through December 31, 1998.  Beginning on January 1,
1999,  the maximum  level of borrowings  under the Agreement  will return to the
$7.6 million level.

Note 3.           Leases

     During the three-month period ended September 30, 1998, the Company entered
into several  capital leases to help finance its new computer system and several
new stores.  The leases are for an  aggregate  principal  amount of $280,719 and
bear interest at rates varying between 10.8% and 18%.

Note 4.           Secured Subordinated Promissory Note

     On September 18, 1998, the Company  borrowed  $1,000,000 from Amir Overseas
Capital Corp.  ("Amir") under a Secured  Subordinated  Promissory Note. The Note
bears interest at 12% and calls for three  installment  payments ending December
23, 1998.

Note 5.           Subsequent Events

     On  November  9, 1998,  the  Company  borrowed  $250,000  from Amir under a
Promissory  Note.  The Note bears  interest  at 12% and calls for  repayment  on
January 29, 1998.



ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS


Results of Operations

     Statements  contained in this report which are not historical  facts may be
considered forward looking  information with respect to plans,  projections,  or
future  performance  of the  Company as  defined  under the  Private  Securities
Litigation Reform Act of 1995. These  forward-looking  statements are subject to
risks and  uncertainties  which could cause actual results to differ  materially
from those projected.


<PAGE>
     The Company's operations are substantially  controlled by United Textiles &
Toys Corp. ("UTTC"), the Company's parent. UTTC currently owns approximately 61%
of the issued and outstanding shares of the Company's Common Stock.

     For the three months ended  September 30, 1998 compared to the three months
ended September 30, 1997

     The Company  generated  net sales of  $6,098,315  in the three months ended
September 30, 1998. This represented an increase of $1,869,535,  or 44.2%,  from
net  sales  of  $4,228,780  in  the  three  months  ended  September  30,  1997.
Approximately  $780,000 of this sales growth came from a 22.5%  increase in same
store  sales  during  the three  months  and the  remaining  sales  increase  of
approximately $1.1 million came from sales at the Company's new stores.

     The Company  posted a gross profit of  $2,684,261 in the three months ended
September 30, 1998; an increase of $840,198,  or 45.6%, from the gross profit of
$1,844,063 in the three months ended  September  30, 1997,  due basically to the
increase  in sales.  The gross  margin of 44% in the  September  1998 period was
comparable to the Company's gross margin of 43.6% in the September 1997 period.

     Operating expenses  (excluding  depreciation and amortization  expenses) in
the three months ended September 30, 1998 were  $2,610,120.  This  represented a
$581,549, or 28.7%, increase over the Company's operating expenses of $2,028,571
in the three  months  ended  September  30,  1997.  The primary  reasons for the
operating  expense  increase were an increase in payroll and related expenses of
$253,014  and an  increase in rent  expense of  $189,418.  The  payroll  expense
increase was due to the addition of several middle  managers and of employees at
new  stores.  The growth of rent  expense  was the  result of adding  additional
stores.

     During the three months ended  September  30,  1998,  the Company  recorded
non-cash  depreciation and amortization expenses of $193,794, a $54,768 increase
from $139,026 in the period ended September 30, 1997.  Total operating  expenses
(operating   expenses  combined  with  depreciation  and  amortization)  in  the
September 1998 period were $2,803,914, a $636,317, or 29.4%, increase from total
operating expenses of $2,167,597 in the September 1997 period.

     As a result of the  $840,198  increase in gross  profit  less the  $636,317
increase in total operating expenses,  the Company's operating loss decreased by
$203,881  from  $323,534  during the three  months ended  September  30, 1997 to
$119,653  during the three months ended  September 30, 1998,  representing a 63%
reduction in the Company's operating loss.

     Interest  expense totaled $184,062 for the three months ended September 30,
1998. This  represented a $33,483  decrease from interest expense of $217,545 in
the three months ended  September 30, 1997. The primary reason for the decreased
level of interest  expense was a higher level of  amortization  of debt issuance
costs in the three months ended  September 30, 1997 than in the  September  1998
period.

     As a result of the above-mentioned factors, the Company recorded a net loss
of $303,715 for the three months ended  September 30, 1998.  This  represented a
$237,364  reduction  from the net loss of $541,079  recorded in the three months
ended  September  30, 1997.  The basic and diluted net loss per common share for
the September 1998 period was $0.07 compared to a basic and diluted net loss per
common share in the September 1997 period of $0.13,  an improvement of $0.06 per
share.

     For the six months ended  September  30, 1998  compared to six months ended
September 30, 1997

     The Company  generated net sales of  $12,455,710  in the  six-month  period
ended September 30, 1998. This represented an increase of $5,084,117,  or 69.0%,
from net sales of $7,371,593 in the six-month  period ended  September 30, 1997.
Approximately $2,680,000 of this sales growth came from a 42.8% increase in same
store  sales  during  the  six-month  period,  with the  remaining  increase  of
approximately $2.4 million from the Company's new stores.


<PAGE>
     The Company  posted a gross profit of $5,335,325  in the  six-month  period
ended  September 30, 1998; an increase of $2,321,814,  or 77.0%,  from the gross
profit of $3,013,511 in the six-month period ended September 30, 1997, due to an
increase  in the  Company's  gross  margin from 40.9% for the  six-months  ended
September 30, 1997 to 42.8% for the same period ended  September 1998. This 1.9%
gross margin  improvement was largely due to the ongoing  implementation  of the
Company's plan to sell educational,  new electronic  interactive,  and specialty
and collectible  toys and items in high traffic malls.  Prior to the fiscal year
beginning April 1, 1996, the Company sold  traditional toys in stores located in
strip  shopping  centers.  The mix of specialty  and a mix of  educational  toys
generally produce better margins than traditional toys.

     Operating expenses  (excluding  depreciation and amortization  expenses) in
the six-month period ended September 30, 1998 were $5,093,891.  This represented
a  $1,036,917,  or 25.6%,  increase  over the  Company's  operating  expenses of
$4,056,974 in the six-month period ended September 30, 1997. The primary reasons
for the  operating  expense  increase  were an  increase  in payroll and related
expenses of $533,048 and an increase in rent expense of $128,141.  The increased
expenses  were  due to the  lease  payments  on the new  stores  opened  and the
addition of several middle managers and of employees at the new stores.

     During the six-month  period ended September 30, 1998, the Company recorded
non-cash depreciation and amortization expenses of $382,211, a $104,158 increase
from $278,053 in the period ended  September 30, 1997. This increase was largely
due to depreciation  on the fixed assets  purchased for the newly opened stores.
Total operating  expenses  (operating  expenses  combined with  depreciation and
amortization)  in the September 1998 period were  $5,476,102,  a $1,142,075,  or
26.4%,  increase  from total  operating  expenses of $4,334,027 in the September
1997 period.

     As a result of the  $2,321,814  increase in gross profit and the $1,142,075
increase in total operating expenses,  the Company's operating loss decreased by
$1,180,739 from $1,321,516  during the six-month period ended September 30, 1997
to  $140,777  during  the  six-month  period  ended  September  30,  1998.  This
represented an 89.3% reduction in the Company's operating loss.

     Interest  expense totaled $349,714 for the six-month period ended September
30, 1998.  This  represented  a $79,353,  or 18.5%,  decrease  from the interest
expense of $429,067 in the  six-month  period  ended  September  30,  1997.  The
primary reason for the decreased level of interest expense was a higher level of
amortization of debt issuance costs in the six-month  period ended September 30,
1997 than in the September 1998 period.

     As a result of the above-mentioned factors, the Company recorded a net loss
of $490,491 for the six-month  period ended September 30, 1998. This represented
a $1,260,092 reduction from the net loss of $1,750,583 recorded in the six-month
period ended September 30, 1997. The basic and diluted net loss per common share
for the September 1998 period was $0.12 compared to a basic and diluted net loss
per common share in the September 1997 period of $0.43,  an improvement of $0.31
per share.

Liquidity and Capital Resources

     At  September  30,  1998,  the  Company had a working  capital  position of
$6,412,541  compared to a working  capital  position of  $4,452,481 at March 31,
1998. The primary  factors in the $1,960,060  increase in working capital were a
$2,167,616  growth in the Company's net investment in  inventories  (increase in
inventories  less  increase in accounts  payable)  which was financed  through a
$3,036,798  increase  under  the  Company's  financing  agreement,  a long  term
liability.

     The Company has generated  operating  losses for the past several years and
has  historically  financed  those losses and its working  capital  requirements
through loans and sales of the Company's equity  securities,  primarily  through
the sale of the Company's  Series E preferred  stock.  There can be no assurance
that the Company will be able to generate sufficient revenues or have sufficient
controls over expenses and other charges to achieve profitability.
<PAGE>
     During the  six-month  period ended  September  30, 1998,  the Company used
$3,416,720 of cash in its operations  compared to $1,907,085  used in operations
in the six-month  period ended  September  30, 1997.  The Company's net loss was
approximately  $490,000 and  $1,750,000,  respectively,  in those  periods.  The
primary  reason the cash used for operating  activities  was so much larger than
the net loss in the six-month period ended September 30, 1998 was net investment
(increase in  inventories  less increase in accounts  payable) in inventories of
$2,167,616.

     The Company used $1,149,757 of cash in its investing  activities during the
six-month  period ended September 30, 1998 compared to $366,258 in the six-month
period ended September 30, 1997. The primary investing activity was the purchase
of equipment and fixtures for new stores.

     The Company  generated  $4,341,125  from its  financing  activities  in the
six-month  period  ended  September  30,  1998  compared  to the  generation  of
$2,354,194 from financing activities in the six-month period ended September 30,
1997.  The primary  contributors  to the  Company's  financing  activities  were
borrowings  on the  Company's  line of credit  and under  notes  payable.  Those
proceeds  were used to  finance  the  Company's  working  capital  requirements,
capital  expenditures  and operating  losses  during the six-month  period ended
September 30, 1998.

     As a result of the above factors, the Company had a net decrease in cash of
$225,352 in the  six-month  period ended  September  30, 1998  compared to a net
increase in cash of $7,851 in the six-month period ended September 30, 1997.

     During the three-month  period ended September 30, 1998, the Company opened
two new stores.  These stores, and all stores the Company intends to open in the
future,  are considered by management to be high-end retail toy and educational,
electronic interactive stores, in presentation,  which offer items comparable in
quality  and choice to those  offered by FAO  Schwarz  and Warner  Brothers  and
Disney Stores and which  attract  clientele  similar to those  attracted by such
stores.  The first store opened in the  three-month  period ended  September 30,
1998 is located  in Primm,  Nevada  near Las Vegas and opened in July 1998.  The
second store opened in September in  Grapevine,  Texas near Dallas.  Both stores
are located in high traffic shopping malls. The capital  investment for building
each of those stores was approximately $300,000.

     In early  November  1998,  the Company  opened new stores in Thousand Oaks,
California  near Los Angeles and in Auburn Hills,  Michigan near Detroit.  These
stores  are also  located  in high  traffic  shopping  malls.  These two  stores
represented an aggregate capital  investment of approximately  $613,000,  net of
landlord tenant improvement ("Landlord TI") contributions.

     The Company expects to open two additional  stores in mid-to-late  November
1998. Those stores represent the final two of the six stores the Company planned
to build  during  calendar  year 1998.  Those  final two  stores are  located in
Orange,  California near Los Angeles and in Gurnee, Illinois near Chicago. These
two  stores   represented  an  aggregate  capital  investment  of  approximately
$500,000,  net of Landlord TI  contributions.  Upon the opening of the final two
stores in November, the Company will have 25 stores located in six states.

     The  Company had planned to finance  the costs,  now  estimated  to be $1.7
million, net of Landlord TI contributions,  of building the new stores described
above through a combination  of capital  lease  financing,  use of the Company's
working  capital,  and the sale of additional  equity.  The Company has obtained
approximately  $260,000 in lease  financing on the equipment and fixtures of the
Nevada and Century City stores.  The Company is also in the documentation  phase
of a five-year term loan in the principal amount of approximately  $500,000 with
a new lender.  That term loan will be secured by the  equipment and fixed assets
of the new Texas store and three existing stores.


<PAGE>
     The Company  continues  to seek  additional  lease  financing  based on the
equipment  and fixtures of its new (or soon to be opened)  stores in  California
(two),  Michigan,  and in Illinois.  There can be no assurance  that the Company
will be able to obtain  sufficient  financing  to offset  the new store  opening
costs that have been incurred.

     On September 18, 1998, the Company  borrowed  $1,000,000 from Amir Overseas
Capital Corp.  ("Amir") under a Secured  Subordinated  Promissory Note. The Note
bears interest at 12% and calls for three  installment  payments ending December
23, 1998. On November 9, 1998, the Company borrowed an additional  $250,000 from
Amir  under a  Promissory  Note.  The Note bears  interest  at 12% and calls for
repayment on January 29, 1998.

     In  September  1998,  the  Company  and  FINOVA  Capital  Corporation,  the
Company's  working  capital  lender,  amended the  Company's  Loan and  Security
Agreement to increase the maximum level of borrowings  under the Agreement  from
$7.6 million to $8.6 million through December 31, 1998.  Beginning on January 1,
1999,  the maximum  level of borrowings  under the Agreement  will return to the
$7.6 million level. The Company expects to utilize this additional amount on its
credit  line to  partially  finance  either its  working  capital,  particularly
inventory purchases, or the capital expenditures noted above.

Year 2000

     Earlier  in 1998 the  Company  developed  a plan to  upgrade  its  existing
management  information  system ("MIS") and computer hardware and to become year
2000  compliant.  The Company  has now  purchased  the  necessary  hardware  and
software and is in the process of installing the software.  The Company  expects
to complete  the MIS upgrade by late  November  1998 and to finish the year 2000
compliance work in early 1999.

     To finance the cost of the new  hardware in the computer  upgrade  project,
the Company  entered  into a lease in the amount of $82,472  bearing an interest
rate of 10.8%.  The total cost of the hardware and  software  purchased  for the
project was approximately $100,000.

     Beyond the above noted internal year 2000 system issue,  the Company has no
current  knowledge of any outside third party year 2000 issues that would result
in a material negative impact on its operations. Should the Company become aware
of any such situation, contingency plans will be developed.




<PAGE>
Trends Affecting Liquidity, Capital Resources and Operations

     As a result of its current  merchandise mix which emphasizes  specialty and
educational toys, the Company enjoyed significant sales and gross profits in the
six months ended September 30, 1998. This mix of specialty and educational  toys
includes  collectible die cast cars,  specialty  yo-yo's,  Rokenbok and Learning
Curve toys,  and Beanie  Babies(R)  and other plush and many  educational  toys.
While the Company  believes these  particular  toys will remain popular with its
customer base for the remainder of calendar year 1998, there can be no assurance
that these particular specialty toys will continue to contribute strongly to the
Company's  sales and gross  profits.  The history of the toy industry,  however,
indicates that there is generally at least one highly popular toy every year.

     The Company's current sales efforts focus primarily on a defined geographic
segment  consisting of the southern  California  area and the  southwestern  and
midwestern United States. The Company's future financial performance will depend
upon (i) continued demand for high-end specialty,  educational,  and traditional
toys  and  management's  ability  to  adapt to  continuously  changing  consumer
preferences  and the market for such items,  (ii)  general  economic  conditions
within the Company's geographic market area, as same may be expanded,  (iii) the
Company's ability to choose locations for new stores, (iv) the Company's ability
to purchase  products at favorable  prices and on favorable  terms,  and (v) the
effects of increased competition.

     The toy and hobby retail  industry  faces a number of  potentially  adverse
business  conditions  including  price and gross  margin  pressures  and  market
consolidation.  The  Company  competes  with a  variety  of mass  merchandisers,
superstores,  and other toy retailers,  including Toys R Us, Kay Bee Toy Stores,
Walmart and Kmart.  Competitors  that emphasize  specialty and educational  toys
include Disney Stores,  Warner Bros.  Stores,  Learning Smith,  Lake Shore, Zany
Brainy,  and  Noodle  Kidoodle.  There can be no  assurance  that the  Company's
business  strategy will enable it to compete  effectively in the toy industry or
that the Company will be able to generate sufficient revenues or have sufficient
control over expenses and other charges to increase profitability.

Inflation and Seasonality

     The impact of inflation on the Company's results of operations has not been
significant.  The Company  attempts  to pass on  increased  costs by  increasing
product prices over time.

     The Company's  operations are highly seasonal with approximately  30-40% of
its net sales  historically  falling within the Company's  third quarter,  which
coincides with the Christmas selling season.  The Company intends to open stores
throughout the year, but generally  before the Christmas  selling season,  which
will make the Company's  third  quarter sales an even greater  percentage of the
total year's sales.


<PAGE>
PART II

Item 1. Legal Proceedings

         In October  1997,  in the  Superior  Court of the State of  California,
County of San  Bernardino,  Foothill  Marketplace  commenced  suit  against  the
Company and its former  guarantor for breach of contract  pertaining to premises
leased by the Company in Rialto,  California.  The lease for the  premises has a
term from February 1987 through  November 2003. The Company vacated the premises
in August 1997.  Under  California  State law and the  provisions  of the lease,
plaintiff  has a duty to mitigate its damages.  Plaintiff  seeks  damages,  of a
continuing  nature, for unpaid rent,  proximate  damages,  costs, and attorneys'
fees. This action is in the discovery phase.

         No Director, Officer, or affiliate of the Company, nor any associate of
same, is a party to, or has a material  interest in, any  proceeding  adverse to
the Company.

Item 2. Changes in Securities and Use of Proceeds: None

Item 3. Defaults Upon Senior Securities: None

Item 4. Submission of Matters to a Vote of Security Holders: None

Item 5. Other Information: None

Item 6. Exhibits and Reports on Form 8-K

     (a) The following  exhibits are filed with this Form 10-QSB for the quarter
ended September 30, 1998 except those  designated by an asterisk (*) which shall
be filed by amendment hereto:
<TABLE>
<CAPTION>

<S>                  <C> 
10.103               Promissory Note with Amir Overseas Capital Corp. (dated September 18, 1998)
10.104               Promissory Note with Amir Overseas Capital Corp. (dated November 9, 1998)
10.105*              Lease Agreement for Store - Dallas
10.106*              Lease Agreement for Store - Thousand Oaks
10.107*              Lease Agreement for Store - Detroit
10.108*              Lease Agreement for Store - Chicago
10.109*              Lease Agreement for Store - Orange County
10.110*              Lease Agreement for Store - Las Vegas
27                   Financial Data Schedule
</TABLE>

(b) During the quarter  ended  September  30, 1998,  no reports on Form 8-K were
filed with the Securities and Exchange Commission.




<PAGE>
                                   SIGNATURES




         In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 17th day of November 1998.

PLAY CO. TOYS & ENTERTAINMENT CORP.


By: /s/ Richard L. Brady
Richard L. Brady
President and Chief Executive Officer


By: /s/ James B. Frakes
James B. Frakes
Chief Financial Officer