UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20659

                                   FORM 10-QSB

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

For the Quarterly period ended                  December 31, 1996


                         Commission File Number 0-25030


                       PLAY CO. TOYS & ENTERTAINMENT CORP.
             (Exact Name of Registrant as specified in its charter)

Delaware                                94-3024222
(State or other jurisdiction of         ( I.R.S. Employer ID No.)
incorporation or organization) .

550 Rancheros Drive,  San Marcos,  California                   92069
(Address of principle executive offices)                        (Zip Code)

                                 (619) 471-4505
              (Registrant's telephone number, including area code)
<PAGE>

(Former name, former address and formal fiscal year, if changed since last
report)

Check  whether  the issuer  (1) has 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  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

YES [ X ]      NO [ ]


     Common Stock, $.01 par value:  11,700,558 shares outstanding as of December
31, 1996.
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                PAGE
<S>                                                                             <C>
PART I.   FINANCIAL INFORMATION:

Item 1.   FINANCIAL STATEMENTS

Condensed balance sheet as of December 31, 1996.                                3

Condensed statements of operations for the
three and nine months ended December 31, 1996 and 1995.                         4

Condensed statements of cash flows for
the nine months ended December 31, 1996 and 1995.                               5

Notes to condensed financial statements                                         6


Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
              FINANCIAL CONDITION AND RESULTS OF
              OPERATIONS.                                                       8

PART II.  OTHER INFORMATION

Item 5.   Other Information                                                     13

Signatures                                                                      14
</TABLE>
<PAGE>

PART 1.  FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS


                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                             CONDENSED BALANCE SHEET
                                December 31, 1996
                                   (Unaudited)
<TABLE>
<CAPTION>
<S>                                                    <C>
ASSETS:
Current Assets
Cash                                                   $177,040
Merchandise inventories                                5,630,995
accounts receivable                                    196,297
                                                       ------------------
Total Current Assets                                   6,004,332

Property and equipment, net                            2,010,625

Other assets                                           628,414
                                                       -------------------
Total Assets                                           $8,643,371
                                                       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current Liabilities:

Accounts payable                                       $3,324.923
Line of credit                                         3,482,476
Accrued and other liabilities                          516,151
                                                       -------------------
Total Current Liabilities                              7,323,550

Deferred rent                                          184,969

Stockholders' equity                                   1,134,852
                                                       -------------------
Total Liabilities & Stockholders' Equity               $8,643,371
                                                       ============
</TABLE>
            See accompanying notes to condensed financial statements.
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                        CONDENSED STATEMENT OF OPERATIONS
                                December 31, 1996
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                  Three Months Ended December 31,         Nine Months Ended December 31,
                                                  1996                1995                1996                1995
                                                  -----               ----                ----                ----
<S>                                               <C>                 <C>                 <C>                 <C>  
Net sales                                         $9,374,441          $10,216,633         $16,225,561         $18,322,223
                                                  ---------           -----------         -----------         ----------


Cost of sales                                     6,633,783           7,315,199           11,273,998          12,743,778
Operating expenses                                2,927,897           2,571,776           6,727,055           7,069,114
Interest & financing expense                      227,486             144,740             593,572             326,291
                                                  --------            -------             --------            --------

Total costs & expenses                            9,789,166           10,031,715          18,594,625          20,139,183
                                                  ----------          ----------          ----------          ----------

Net income (loss)                                 $(414,725)          $184,918            $(2,369,064)        $(1,816,960)
                                                  =========           ========            ========            ========
Net income (loss)
per common share                                  $(0.04)             $0.05               $(0.46)             $(0.47)
                                                  =========           ========            ========            ========
Weighed average number of
common shares and share
equivalents                                       11,700,558          3,863,530           5,130,788           3,863,530
                                                  ========            ========            =======             =======
</TABLE>
            See accompanying notes to condensed financial statements
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
<S>                                                                   <C>                 <C>    
                                                                      December 31,        
                                                                      1996                1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                              $(2,369,064)        $(1,816,960)
Adjustments to reconcile net loss to net
Adjustment  to  reconcile  net loss to net cash used for
operating activities:

Depreciation and amortization                                         525,824             258,480                             
Preferred stock issued for financing charges                          16,000              0
Preferred stock issued for financing charges                          16,000              0

Change in assets and liabilities:
Merchandise inventories                                               628,089             2,019,510
Accounts receivable                                                   (161,024)           175,461
Other current assets                                                  9,436               92,454
Accounts payable                                                      446,740             (471,615)
Accrued and other liabilities                                         232,537             310,307
Deferred rent liability                                               (12,968)            187,663
Net cash (used for) provided by operating activities                  (684,430)           755,300
                                                                      ---------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment                                   (447,951)           (315,967)                
Amounts from stockholder                                              0                   17,788

Net cash used for investing activities                                (447,951)           (298,179)
                                                                      ---------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on bank line of credit                                 79,451              (374,490)
Repayments of long-term debt and capital lease obligations            0                   (42,045)
Proceeds from issuance of preferred stock                             1,234,000           0
Payment of accrued dividends                                          0                   (15,931)
Redemption of preferred stock                                         (87,680)            (122,368)
                                                                      --------------      --------------
Net cash provided by (used for) financing activities                  1,225,771           (554,834)
                                                                      --------------      --------------
<PAGE>

Net increase (decrease) in cash                                       93,390              (97,714)
Cash at beginning of period                                           83,650              249.925
                                                                      -------------       ---------------
Cash at end of period                                                 $177,040            $152,211
                                                                      =======             ========
</TABLE>
            See accompanying notes to condensed financial statements
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                December 31, 1996
                                   (Unaudited)

NOTE 1.

The interim  accompanying  unaudited  condensed  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. Accordingly,  they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  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,
refer to the audited  financial  statements  for the year ended March 31,  1996.
Operating  results for the three and nine months ended December 31, 1996 are not
necessarily indicative of the results of operations that may be expected for the
year ended March 31, 1997.

NOTE 2.

On June 20, 1996,  the  Company's  majority  stockholder,  American  Toys,  Inc.
("American  Toys"),  which name was changed to U.S.  Wireless  Corporation as of
October 12, 1996, which owned 2,548,930 or approximately  66.0% of the 3,863,530
issued and outstanding  shares of the Company's common stock, par value $.01 per
share the  ("Common  Stock")  outstanding  as of such  date,  executed a written
consent  authorizing the Company to amend its Certificate of incorporation  such
that (i) the  Company's  Series D  Preferred  Stock  shall be  convertible  into
1,157,028  shares of the Company's Common Stock based on the average closing bid
price for the ninety  (90) day period  from March 31,  1996 to May 30,  1996 and
(ii) the Company's Series E Preferred Stock shall be separated into two classes,
1,900,000  shares of which  shall be  designated  the Class I Series E Preferred
Stock,  which shares shall be  convertible at any time into twenty shares of the
Company's  Common  Stock,  par value  $.01 per share and the  remaining  100,000
shares of which

<PAGE>
shall be designated the Class II Series E Preferred Stock,  which shares will be
convertible  two (2) years from  issuance  into twenty  shares of the  Company's
Common Stock.

On  August  8,  1996,  with  written  consent  of  the  Corporation's   majority
shareholder,  the Company further amended its  Certificate of  Incorporation  to
increase the number of  authorized  shares of Capital  Stock from  30,000,001 to
42,000,001,  consisting of 40,000,000 shares of Common Stock, par value $.01 per
share,  2,000,000 shares of preferred stock, par value $.01 per share, 1,900,000
shares designated Series E Class I Preferred stock and 100,000 shares designated
as Series E Class II Preferred stock, and 1 share of Series D Preferred Stock.

On October 10, 1996, EACC exercised its option to purchase 500,000 shares of the
Series E Class I Preferred Stock for an aggregate $500,000.

In November 1996,  EACC  exercised its option to purchase  300,000 shares of the
Series E Class I Preferred stock for an aggregate $300,000.

In January 1997, EACC exercised its option to purchase  1,200,000  shares of the
Series E Class I Preferred stock for an aggregate $1,200,000


NOTE 3.

On January 16, 1997,  the Company  acquired  inventory,  the assignment of three
leases,  store and corporate office  fixtures,  the Corporate name and logo, and
certain prepaid items from a specialty toy chain, Toys  International,  pursuant
to an Asset Purchase Agreement

The aggregate  price of $1,024,184  comprises of $927,000  which  represents the
original  cost of the  inventory,  $32,184 for  certain  prepaid  expenses,  and
$65,000 for the balance of the assets. In addition, the Company paid $400,000 as
additional  rent to the  landlord  of one of the new  locations.  In  connection
therewith, the Company was assigned the leases of the three retail locations for
the remaining terms of the lease which expire at various dates between

<PAGE>
January 31, 1998 and  January 31, 2004 as well as certain  operating  contracts.
The Company paid cash for all amounts  except for $265,000 which was in the form
of two no interest bearing notes payable;  one for $200,000 which requires eight
quarterly  installments of $25,000 beginning April 16, 1997; and the second note
for  $65,000  which  requires  three  consecutive  monthly  payments  of $11,667
beginning  February  16, 1997 with two final  payments of $15,000 on each of May
16, 1997 and June 16, 1997.

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

RESULTS OF OPERATIONS.

For the three months ended  December 31, 1996 compared to the three months ended
December 31, 1995.

Sales for the three months ended December 31, 1996 decreased to $9,374,441  from
$10,216,633.  This  represents  a decrease of $842,193  or  approximately  8.2%.
Retail  store sales for the three months  ended  December 31, 1996  decreased by
approximately  5.8% from the sales level  achieved  for the three  months  ended
December 31, 1995. The Company  operated 18 retail  locations during each of the
three month periods ended December 31, 1996, as compared to 19 retail  locations
during each of the three month periods ended December 31, 1995.  Wholesale sales
decreased  47.7% to $313,753 for the three month period ended  December  31,1996
from $599,513 for the three month period ended December 31, 1995.

<PAGE>
Gross profit  increased  slightly to 29.24% for the three months ended  December
31, 1996, from 28.34% for the three months ended December 31, 1995.

Operating  expenses  increased  to  $2,927,897  (or  31.23% of net  sales)  from
$2,571,776 (or 25.17% of net sales). Such increase of approximately  $356,121 or
12.16% is primarily  attributable to increased  advertising  expense,  increased
legal and accounting  fees,  and the costs incurred for remodeling  three retail
locations.

Interest and financing  expense for the three months  period ended  December 31,
1996  increased  to $227,486  from  $144,740  for the three month  period  ended
December 31, 1995.  The interest for the three month period ending  December 31,
1996  was  incurred  from  borrowings  on  the  Company's  line  of  credit  and
amortization of loan costs totaling $53,686.

For the nine months ended  December  31, 1996  compared to the nine months ended
December 31, 1995.

Sales for the nine months ended December 31, 1996 decreased to $16,225,561  from
$18,322,223.  This represents a decrease of $2,096,662 or  approximately  11.4%.
Approximately  $565,000 of the decrease in sales is directly attributable to the
decreased  sales of Milk Cap  game  products  and the  reduction  of two  retail
locations.  Additionally,  retail store sales for the nine months ended December
31, 1996 decreased by  approximately  8.4% from the sales level achieved for the
nine months  ended  December  31,  1995.  The Company  operated 18 and 20 retail
locations  during the nine  month  periods  ended  December  31,  1996 and 1995.
Wholesale  sales of non-milk cap game products  decreased  13.4% to $740,207 for
the nine month period ended  December 31, 1996 from  $854,500 for the nine month
period ended December 31, 1995.

Gross profit increased slightly to 30.52% for the nine months ended December 31,
1996 from 30.44% for the nine months ended December 31, 1995.

Operating  expenses  decreased  to  $6,727,055  (or  41.45% of net  sales)  from
$7,069,114 (or 38.58% of net sales). Such decrease of approximately  $342,059 or
4.83%, is primarily attributable to decreased payroll expense due to the reduced
head count of personnel  and  decreased  supplies and expenses  required for the
milk-cap game program.
<PAGE>
Interest and  financing  expense for the nine months  period ended  December 31,
1996  increased  to  $593,572  from  $326,291  for the nine month  period  ended
December 31, 1995.  The interest for the nine month period  ending  December 31,
1996 was incurred from borrowings on the Company's bank financing  agreement and
amortization of loan costs totaling $161,058.

LIQUIDITY AND CAPITAL RESOURCES

On February 1, 1996,  the Company  entered into a "Loan and Security  Agreement"
(the "Loan Agreement") with Congress Financial Corporation  ("Congress").  Funds
drawn on February 7, on the loan agreement of $2,000,000  were used to repay the
amounts due under a previous  line of credit  arrangement  with  Imperial  Bank,
effectively terminating that borrowing arrangement.  The Loan Agreement provides
for  maximum  borrowings  of  $7,000,000  based on the "Cost  Value of  Eligible
Inventory"  as  defined  in the  Loan  Agreement.  The only  material  financial
covenant in the Loan Agreement is the requirement  that the Company  maintain at
all times an adjusted net worth of not less than  $500,000.  The Loan  Agreement
requires  the  payment  of a  quarterly  service  fee of  $8,750,  is secured by
substantially  all assets of the  Company and is further  collateralized  by the
$2,000,000  letter of credit  originally  provided  for the  benefit of Imperial
Bank.  Interest on outstanding  balances is charged at prime plus 1.5%. The Loan
Agreement  matures February 1, 1998.  Congress can extend the Loan Agreement for
an  additional  year at its  option.  The  balance  outstanding  under  the Loan
Agreement totaled $3,482,476 as of December 31, 1996.

Sources  of  funds  to repay  obligations  as  described  above,  are  typically
generated  from sales during the peak selling season from October to December of
each year.

Approximately  45 to 49% of the Company's  annual sales are generated during the
months of October through December due to the significant seasonality of the toy
industry. Vendors generally extend terms during the balance of the year. Vendors
are  generally  repaid in  December  and  January of each  year,  at a time when
inventory levels are significantly reduced.

At December 31, 1996, the Company had a working capital deficit of $1,319,218.


Trends Affecting Liquidity, Capital Resources and Operations.

The Company's sales efforts are aimed primarily at a defined geographic segment,
consisting of individuals in the southern  California area. The Company's future
financial  performance  will  depend  upon  continued  demand  for toy  items by
individuals  within  southern  California.  Such demand is  dependent to a great
degree upon general economic conditions within this geographic

<PAGE>
market area, the Company's ability to lease favorable  locations for new stores,
to purchase product at favorable prices on favorable terms,  changes in consumer
preferences and its ability to compete in the industry.

The toy and hobby retail industry faces a number of potentially adverse business
conditions  including price and gross margin  pressure and market  consolidation
and domination.  The domination of the toy industry by Toys R Us has resulted in
increased  price  competition  among various toy  retailers and declining  gross
margins for such retailers.  Moreover,  the domination of Toys R Us has resulted
in liquidation or bankruptcy of many toy retailers  throughout the United States
including the southern California market.

During August and November  1996,  the Company  remodeled  three of its existing
stores  to  include  an  educational  toy  department  at an  aggregate  cost of
$228,557.  The cost of which was  included in  operating  expenses  for the nine
months ended  December 31, 1996.  In November  1996,  the Company also added one
additional  retail  location using the new  educational toy concept at a cost of
$156,654,  the cost of which was  included in  operating  expenses for the three
months ended  December 31,  1996.  Adding this new format  allows the Company to
compete with other educational toy stores,  plus the mixture of educational toys
and promotional toys gives the customer a broader selection of merchandise.  The
Company  knows  of no  other  retailer  who  has  successfully  married  the two
concepts.  The Company expects to generate  increased  revenues and higher gross
margins, however, there is no assurance that such will be realized..

The above mentioned  remodeled  locations  include computer  terminals  allowing
customers to try out new computer educational programs,  and a theater featuring
movies  available for sale in the location is  operational  throughout  the day.
Allowing  the  customer  and  child  to  have a  "hands  on"  experience  before
purchasing the merchandise, plus the higher gross margins on educational toys is
expected to increase revenues and improve overall gross margins.  Remodeling the
locations  cost  approximately  $76,000  per store and the  Company  expects  to
convert  most of its  remaining  stores  to this  format  during  1997 and 1998.
Financing  for the  remaining  conversions  is  expected  to come in the form of
capital leases.

The Company's  inclusion of educational  sections is expected to have a material
impact on the Company's  operations and liquidity  during the next two years. As
noted above, the Company expects revenues to increase from the implementation of
this concept, however, additional funds

<PAGE>
other than  generated  from  operations  may be necessary to remodel  additional
locations. No other source of funds has been identified at this time.

On January 16, 1997,  the Company  acquired  inventory,  the assignment of three
leases,  store and corporate office  fixtures,  the Corporate name and logo, and
certain prepaid items from a specialty toy chain, Toys  International,  pursuant
to an Asset Purchase Agreement.

The aggregate  price of $1,024,184  comprises of $927,000  which  represents the
original  cost of the  inventory,  $32,184 for  certain  prepaid  expenses,  and
$65,000 for the balance of the assets. In addition, the Company paid $400,000 as
additional  rent to the  landlord  of one of the  new  locations  In  connection
therewith, the Company was assigned the leases of the three retail locations for
the remaining  terms of the lease which expire at various dates between  January
31,  1998 and  January  31,  2004 as well as certain  operating  contracts.  The
Company paid cash for all amounts  except for $265,000  which was in the form of
two no interest  bearing notes  payable;  one for $200,000  which requires eight
quarterly  installments of $25,000 beginning April 16, 1997; and the second note
for  $65,000  which  requires  three  consecutive  monthly  payments  of $11,667
beginning  February  16, 1997 with two final  payments of $15,000 on each of May
16, 1997 and June 16, 1997.

The three  locations are located in up-scale  shopping malls located in southern
California.  Each location  carries  specialty toy and  collectible  items which
typically  command a higher gross profit that the  traditional  promotional  toy
lines  carried by the Company.  The Toys  International  locations  also stock a
number of  promotional  items which are also carried at Play Co.  locations  but
have  historically  been  sold  at a  higher  mark-up.  Management  expects  the
operations  of these three  locations  will be  enhanced  by  reducing  overhead
expenses  associated with the operations and additional  purchase discounts that
are expected to be obtained on promotional  merchandise  already  carried by the
Company that is also currently sold in the Toys International locations.

The Company's  operating history has been characterized by narrow profit margins
and,  accordingly,  the  Company's  earnings  will depend  significantly  on its
ability to purchase its product on favorable terms, to obtain store locations on
favorable  terms,  to retail a large volume and variety of products  efficiently
and to provide  quality  support  services.  The Company's  prices are, in part,
based on market surveys of its competitors prices, primarily those of Toys R Us.
As a result,  aggressive pricing policies, such as those used by Toys R Us, have
resulted  in the  Company  reducing  its retail  prices on many  items,  thereby
reducing the available profit margin.  Moreover,  increases in expenses or other
charges to income may have a material adverse effect on the Company's results of
operations.  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 increase profitability.

<PAGE>

The Company has prepared cash flow forecasts for the fiscal year ended March 31,
1998 which management  believes,  together with available financial  institution
and  manufacturer   credit  lines  will  be  sufficient  to  meets  its  capital
requirements for the fiscal year ended March 31, 1998. However,  the Company may
also require  additional capital to redesign current and future retail locations
to incorporate  its plans to focus on the  educational  toy market as well as to
meet short-term cash flow needs that arise during the year. In that regard,  Mr.
Ilan Arbel has represented  his  willingness  and ability to provide  additional
working  capital to the Company  should such be  necessary.  The Company is also
continuing its search for capital equipment financing,  however, while potential
creditors have been met with, no such funding has yet been arranged and there is
no assurance that such will be arranged.

Immediately after the Christmas season, the Company begins purchasing  inventory
which has been depleted as a result of seasonal sales patterns.  Thus,  although
significant reductions in accounts payable are made in January, accounts payable
levels  are  expected  to  immediately  increase  as a result  of new  inventory
purchases.

As of March 31, 1996, the Company has net operating  loss ("NOL")  carryforwards
of approximately $5,000,000 and $3,000,000 for federal and California income tax
purposes.  The federal  NOL's are  available  to offset  future  taxable  income
through March 31, 2011 while the California NOLs are available through March 31,
2001.  Such NOLs  could  have a positive  effect on the  Company's  cash flow in
future  profitable years resulting from reduced income tax  liabilities.  Losses
from  operations  for the three months ended June 30, 1996  increase the Federal
and California NOLs available to offset future income.  However, the utilization
of such NOLs may be  subject  to  limitation  under the Tax  Reform  Act of 1986
should  ownership  changes,  such as those  resulting from the exercise of stock
purchase options to acquire common stock as well as the issuance of Series D and
Series E Preferred  Stock,  into shares of Common Stock,  result in a cumulative
greater than 50% ownership change during the three year testing period.


Inflation and Seasonality.

     During  the  past  few  years,  inflation  in the  United  States  has been
relatively stable. In management's opinion, this is expected to continue for the
foreseeable future. However, should
<PAGE>

the American economy again experience  double digit inflation rates, as has been
the case in the past, the impact on prices could adversely  affect the Company's
operations.

The Company's business is highly seasonable with a large portion of its revenues
being derived during the months of October through  December.  Accordingly,  the
Company is required to obtain substantial  short-term borrowing during the first
three  quarters of the calendar year in order to purchase  inventory for capital
and for  operational  expenditures.  The Company's past history of negative cash
flows during the fiscal year are partially  the result of its seasonal  business
nature.  The  Company's  cash flows are  negative  for most months  prior to the
Christmas  season.  Thus the Company's  negative cash flow for all months except
October through December are being serviced via the Company's line of credit and
special credit terms with vendors. Historically, the Creditors extending special
credit terms have been repaid in December and in the fourth fiscal quarter.

<PAGE>
PART II   OTHER INFORMATION

Item 1    Legal Proceedings:

              N O N E

Item 2    Changes in Securities:

              N O N E

Item 3    Defaults Upon Senior Securities:

              N O N E

Item 4    Submission of Matters to a Vote of Security Holders:

              N O N E

Item 5    Other Information:

              N O N E

Item 6.   Exhibits and Reports on Form 8K.

Exhibit  10.75 - Asset Purchase Agreement, for the purchase of
                 Toys International. To be filed by amendment.

<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 12th day of January , 1997.


                              PLAY CO. TOYS & ENTERTAINMENT CORP.


                              BY: /S/Richard L. Brady
                                  Richard L. Brady
                                  President


                              BY: /s/ Angela Burnett
                                  Angela R Burnett
                                  Chief Financial Officer
<PAGE>
                             FINANCIAL DATA SCHEDULE


This schedule  contains  summary  financial  information  extracted from Balance
Sheet,  Statement  of  Operations,  Statement  of Cash  Flows and Notes  thereto
incorporated  in Part I, Item I, of this Form  10-QSB  and is  qualified  in its
entirety by reference such financial statements.

<TABLE>
<CAPTION>
<S>                                                       <C>            
PERIOD-TYPE                                               9-MOS
FISCAL-YEAR-END                                           3/31
PERIOD-END                                                DEC-31-1996
CASH                                                      177,040
SECURITIES                                                196,297
ALLOWANCES                                                5,630,995
CURRENT-ASSets                                            6,004,332
PP&E                                                      4,764,302
DEPRECIATION                                              2,753,677
TOTAL-ASSETS                                              8,643,371
CURRENT-LIABILITIES                                       7,323,550
BONDS                                                     0
PREFERRED-MANDATORY                                       0
PREFERRED                                                 0
OTHER-SE                                                  1,134,852
TOTAL-LIABILITIES-AND-EQUITY                              8,643,371
SALES                                                     16,225,561
CgS                                                       11,273,998
TOTAL-COSTS                                               18,594,625
OTHER-EXPENSES                                            6,727,055
LOSS-PROVISION                                            0
INTEREST-EXPENSE                                          593,572
INCOME-PRETAX                                             (2,369,064)
INCOME-CONTINUING                                         0
DISCONTINUED                                              0
EXTRAORDINARY                                             0
NET-INCOME                                                (2,369,064)
EPS-PRIMARY                                               (.46)
EPS-DILUTED                                               (.00)
</TABLE>
<PAGE>
                            ASSET PURCHASE AGREEMENT

                                     BETWEEN

                       PLAY CO. TOYS & ENTERTAINMENT CORP.

                                       AND

                               TOYS INTERNATIONAL
<PAGE>
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>                                                                   <C>
Page
 1.  Definitions                                                      1
 2.  Basic Transaction                                                6
      (a)  Purchase and Sale of Assets                                6
      (b)  Assumption of Liabilities                                  6
      (c)  Purchase Price                                             7
      (d)  The Closing                                                7
           a.    Deliveries at the Closing                            7
           b.    Guarantees                                           8
           c.    Sales, Use and Other Taxes                           9
           d.    Corporate Office                                     9
 3.  Representations and Warranties of the Seller
      (a)  Organization of the Seller                                 10
      (b)  Authorization of Transaction                               10
      (c)  Noncontravention                                           10
      (d)  Brokers' Fees                                              10
           (e)  Title to Assets                                       10
     (f)  Inventory                                                   11
      (g)  Undisclosed Liabilities                                    11
      (h)  Ordinary Course of Business                                11
      (i)  Legal Compliance                                           11
      (j)  Tax Matters                                                11
      (k)  Real Property                                              11
      (l)   Intellectual Property                                     12
      (m)  Assigned Contracts and Open Purchase Orders                12
      (n)  Litigation                                                 13
      (o)  Condition of Acquired Assets; Limited Warranties           13
      (p)  Disclosure                                                 13
4.  Representations and Warranties of the Buyer
      (a)  Organization of the Buyer                                  13
      (b)  Authorization of Transaction                               13
      (c)  Noncontravention                                           13
<PAGE>
      (d)  Brokers' Fees                                              14
      (e)  Investigation                                              14
      (f)  Net Worth and Financial Positions                          14
  5.  Remedies for Breach of this Agreement
           e.    Survival of Representations and Warranties           14
           f.    Indemnification by Seller                            14
           g.    Indemnification by Buyer                             15
           h.    Conditions of Indemnification for Third-Party Claims 15
           i.    Subrogation                                          16
     (f)  Exclusive Remedies                                          16

     (g)  Limitations on Amount and Manner of Payment of Seller's     16
                Indemnification Obligations
     6.   Miscellaneous
      (a)  Press Releases and Public Announcements                    17
      (b  No Third-Party Beneficiaries                                17
      (c)  Entire Agreement                                           17
      (d)  Succession and Assignment                                  18
      (e)  Counterparts                                               18
      (f)  Headings                                                   18
      (g)  Notices                                                    18
      (h)  Governing Law                                              19
      (i)  Amendments and Waivers                                     19
      (j)  Severability                                               19
      (k)  Expenses                                                   19
      (l)  Construction                                               19
      (m)  Incorporation of Exhibits and Schedules                    20
      (n)  Submission to Jurisdiction                                 20
      (o)  Attorney's Fees                                            20
      (p)  Access to Books and Records                                20
      (q)  Cooperation After Closing                                  20
           (r) Daily Sales Records                                    21
      (s) Post Closing Adjustment                                     21

EXHIBITS
Exhibit A=        List of Excluded Assets
Exhibit B =       Agreement with Beneficiaries and the Trust
Exhibit C =       Bill of Sale, Assignment and Assumption Agreement
Exhibit D =       Listing of Prepaid Items and Deposits
Exhibit E =       Copies of Buyer's Notes and Guarantee
<PAGE>
Exhibit F = Assignment and  Assumption  Agreements of Leases Exhibit 
G = Opinion of  Seller's   Counsel   
Exhibit  H  =  Assignment  of  Seller's   Service  Mark Registrations  
Exhibit I = Opinion of  Buyer's  Counsel  
Exhibit J =  Consulting Agreement between Buyer and Gayle Hoepner 
Exhibit K = Security Agreement between Buyer and Seller 
Exhibit L = Subordination Agreement between Seller and Europe American Capital 
            Corp.
Exhibit M = Subordination Agreement between Seller and Congress Financial 
            Corporation (Western)

SCHEDULES
1.  3(e)(i)
2.  3(g)
3.  3(k)(ii)
4.  3(l)(i)
5.  3(l)(ii)
</TABLE>

<PAGE>
                            ASSET PURCHASE AGREEMENT

     Agreement  entered  into on January 16, 1997 by and between Play Co. Toys &
Entertainment Corp., a Delaware corporation,  with its principal offices located
at 550 Rancheros  Drive, San Marcos,  California  92069 (the "Buyer"),  and Toys
International,  a California corporation,  with its principal offices located at
2900 Bristol Street, Suite A- 208, Costa Mesa,  California 92626 (the "Seller").
The Buyer and the Seller are referred to collectively herein as the "Parties."

     Whereas,  Seller is a Corporation  wholly owned by the Gayle Hoepner Family
Trust (the "Trust"), a revocable trust, organized under the laws of the State of
California,   of  which   Gayle   Hoepner  and   Constance   R.   Hoepner   (the
"Beneficiaries")  and their issue are the  beneficiaries and Gayle and Constance
R. Hoepner are the sole trustees; and

     Whereas,  Buyer desires to acquire  substantially all the assets of Seller,
which Seller has agreed to sell pursuant to the terms and  conditions  set forth
herein; and

     Whereas,  Buyer shall not assume any  liabilities or obligations of Seller,
except for the liabilities and obligations stated herein; and

     Whereas,  the Seller and the Buyer have agreed to waive compliance with the
provisions of the California  Uniform  Commercial  Code Bulk Sales laws, and the
Trust  and the  Beneficiaries  have  agreed  to  personally  guarantee  that the
Inventory  delivered  to the Stores on or before  January 5, 1997 is or shall be
fully paid for, there being no outstanding  Liabilities with respect thereto for
which Buyer shall be liable, as provided for in the Agreement with Beneficiaries
and Trust as defined below.

     Now,  therefore,  in  consideration of the premises and the mutual promises
herein  made,  and in  consideration  of the  representations,  warranties,  and
covenants herein contained, the Parties agree as follows:

         1. Definitions.

     "Acquired  Assets" means all Seller's right,  title, and interest in and to
the following assets:  (a) the Leases inclusive of all improvements,  furniture,
fixtures,  and fittings  thereon,  (b) all Inventory,  (c) the prepaid items and
deposits listed in Exhibit D, (d) the Assigned Contracts,  (e) tangible personal
property located at the Stores and Corporate Office (such as machinery, computer
and other office  equipment and supplies),  (f) Seller's  Intellectual  Property
(including  Seller's  corporate  name)  and all  rights  with  respect  thereto,
remedies against infringements thereof, and rights to protection of interests

<PAGE>
therein  under  the  laws  of all  jurisdictions,  (g)  transferable  approvals,
permits, licenses, orders, registrations,  certificates,  variances, and similar
rights obtained from  governments and governmental  agencies,  (h) to the extent
relevant to the other Acquired Assets,  books,  records,  ledgers  (inclusive of
copies of the ledgers referencing all outstanding purchase orders,  invoices and
all registers  with respect to all  outstanding  and issued gift  certificates),
files, documents,  correspondence,  lists, plats, architectural plans, drawings,
and specifications,  creative materials,  advertising and promotional materials,
studies,  reports, and other printed or written materials,  (i) computer reports
showing the daily  sales  records for the Stores for the past three years and up
to the  Closing  Date;  (j) the  prior 12 months of  billing  received  from the
landlords of the Stores for estimated  taxes and other  payments  required under
the Leases;  provided,  however,  that the Acquired Assets shall not include the
following  "Excluded Assets":  (i) the items listed in Exhibit A annexed hereto,
(ii) cash and cash equivalents;  (iii) accounts  receivable and notes receivable
of the Seller,  and  prepaid  items and  deposits  not listed in Exhibit D; (iv)
rights to or claims for  credits  and refund  obligations  arising  prior to the
Closing Date;  (v) claims  against third parties  arising with respect to events
prior to the  Closing;  (vi)  insurance  policies and rights  thereunder;  (vii)
purchase orders,  sale orders,  and other agreements and contracts not a part of
the Assigned Contracts;  (viii) any books,  records,  cash register receipts and
documents  needed for the preparation of Seller's tax returns or in the event of
any audit thereof (subject to the Buyer's right to make copies of such documents
at its expense, under the supervision of the Beneficiaries);  (ix) the personnel
files of the  Seller's  employees,  except  with  respect to the Forms I-9's and
W-2's,  a copy of which Seller has provided to the Buyer at least 48 hours prior
to the Closing; (x) the corporate charter, qualifications to conduct business as
a foreign  corporation,  arrangements with registered agents relating to foreign
qualifications,  taxpayer and other identification numbers, seals, minute books,
stock transfer books, blank stock certificates,  and other documents relating to
the organization, maintenance, and existence of the Seller as a corporation; and
(xi) any of the rights of the Seller under this Agreement.

     "Affiliate"  has the  meaning  set forth in Rule  12b-2 of the  regulations
promulgated under the Securities Exchange Act.

     "Affiliated  Group" means any  affiliated  group within the meaning of Code
Sec.  1504(a) or any similar group  defined under a similar  provision of state,
local, or foreign law.
<PAGE>
     "Agreement With  Beneficiaries  and the Trust" means the Agreement with the
Beneficiaries  and the Trust  entered  into  concurrently  herewith and attached
hereto as Exhibit B.

     "Assigned  Contracts"  means,  collectively,  the personal property leases,
purchase  orders,  sale orders,  and other  agreements  and contracts  listed or
described in Schedule 3(e)(i).

     "Assumed  Liabilities"  means  Liabilities  of the  Seller  on or after the
Closing Date,  including,  without  limitation (a) the Liabilities of the Seller
under the Leases and the Assigned Contracts arising or relating to the period on
and after the Closing Date; (b) the obligation to accept all returns,  for sales
made or shipped  prior to the Closing Date in the  Ordinary  Course of Business,
for  exchange,  repair  or  replacement  including  providing  refunds  or store
credits,  providing  however,  that Seller had no Knowledge any such product was
defective when sold; (c) honoring all credits and discount  privileges issued to
customers  in the  Ordinary  Course  of  Business  by Seller in the form of gift
certificates (for not more than $7,500.00),  Seller's birthday gift certificates
(not more than $100.00) and frequent buyer's clubs; provided,  however, that the
Assumed  Liabilities  shall not  include  (i) any  Liability  of the  Seller for
income,  transfer,  sales,  use, and other Taxes arising in connection  with the
consummation  of the  transactions  contemplated  hereby,  except  as  otherwise
provided in Section 2(g),  (ii) any Liability of the Seller for the unpaid Taxes
of any Person under Treas. Reg.  ss.1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise,
(iii) any obligation of the Seller to indemnify any Person (including any of the
Beneficiaries)  by reason of the fact that such Person was a director,  officer,
employee,  or agent of the Seller (iv) any Liability of the Seller for costs and
expenses  incurred  in  connection  with  this  Agreement  and the  transactions
contemplated  hereby or (v) any Liability or obligation of the Seller under this
Agreement.

     "Basis" means any past or present fact,  situation,  circumstance,  status,
condition,  activity,  practice,  plan,  occurrence,  event,  incident,  action,
failure  to act,  or  transaction  that  forms or could  form the  basis for any
specified consequence.

     "Beneficiaries" means Gayle Hoepner and Constance R. Hoepner.

     "Buyer" has the meaning set forth in the preface above.

     "Buyer's Notes" have the meaning set forth in ss.2(c) below.

<PAGE>
     "Cash" means cash and cash equivalents (including marketable securities and
short term investments) calculated in accordance with GAAP.

     "Closing" has the meaning set forth in ss.2(d) below.

     "Closing Date" has the meaning set forth in ss.2(d) below.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Corporate  Office"  means the  Seller's  office  located  at 2900  Bristol
Street, Suite A208, Costa Mesa, CA 92626.

     "Disclosure Schedule" has the meaning set forth in ss.3 below.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended.

     "GAAP" means United States generally accepted  accounting  principles as in
effect from time to time.

     "Indemnified  Party" means,  with respect to any Losses,  the Party seeking
indemnity hereunder.

     "Indemnifying Party" means, with respect to any Losses, the Party from whom
indemnity is sought hereunder.

     "Intellectual  Property"  means (a) all inventions  (whether  patentable or
unpatentable and whether or not reduced to practice),  all improvements thereto,
and all patents, patent applications, and patent disclosures,  together with all
re-issuances, continuations,  continuations-in-part,  revisions, extensions, and
reexaminations  thereof, (b) all trademarks,  service marks, trade dress, logos,
trade names, and corporate names,  together with all translations,  adaptations,
derivations,  and  combinations  thereof and including  all goodwill  associated
therewith, and all applications, registrations, and

<PAGE>
renewals in connection  therewith,  (c) all copyrightable works, all copyrights,
and all applications,  registrations,  and renewals in connection therewith, (d)
all mask works and all applications,  registrations,  and renewals in connection
therewith,   (e)  all  trade  secrets  and  confidential   business  information
(including ideas, research and development,  know-how,  formulas,  compositions,
manufacturing and production processes and techniques,  technical data, designs,
drawings,  specifications,   customer  and  supplier  lists,  pricing  and  cost
information,  and business and marketing plans and proposals),  (f) all computer
software (including data and related documentation) owned by Seller, except with
respect to the computer  software  designed for the Seller's  business and other
software not owned by Seller,  Seller's  rights thereto shall be included in the
Assigned  Contracts,  (g) all other proprietary  rights,  and (h) all copies and
tangible embodiments thereof (in whatever form or medium).

     "Inventory" means the Seller's inventory inclusive of packaging materials.

     "Inventory  Value" means the value of the Inventory as specified in ss.2(c)
below.

     "Knowledge"  means actual  knowledge of the Party,  by any of its officers,
directors or stockholders without obligation or duty to investigate, except that
with  respect to  references  to the  Leases,  "Knowledge"  requires  reasonable
investigation  as to Seller's  compliance  with  respect to the  material  terms
thereof.

     "Leases"  means the three  leases to the  Stores,  referred  to in schedule
3(k)(ii) annexed hereto.

     "Liability" means any liability (whether known or unknown, whether asserted
or unasserted,  whether  absolute or contingent,  whether  accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.

     "Losses" means any and all costs and expenses,  damages and losses actually
incurred by the  Indemnified  Party,  in  connection  with all  actions,  suits,
proceedings,  hearings,  investigations,  charges, complaints,  claims, demands,
injunctions,  judgments,  orders,  decrees,  rulings,  damages, dues, penalties,
fines, costs, amounts paid in settlement,  obligations,  Taxes, liens, including
court costs and reasonable attorneys' fees and expenses (subject in each case to
the  limitations  set  forth in  Section  5 of this  Agreement),  net of (i) tax
benefits  (taken  by  Indemnified  Party at its  sole  discretion),  savings  or
reductions,  and  (ii) any  insurance  proceeds,  in  either  case to which  the
Indemnified  Party is entitled by virtue of such  costs,  expenses,  damages and
losses.
<PAGE>
     "Ordinary  Course of  Business"  means  the  ordinary  course  of  business
consistent with past custom and practice (including with respect to quantity and
frequency).

     "Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental  entity (or any department,  agency, or political  subdivision
thereof).

     "Purchase Price" has the meaning set forth in ss.2(c) below.

     "Securities Act" means the Securities Act of 1933, as amended.

     "Securities  Exchange  Act" means the  Securities  Exchange Act of 1934, as
amended.

     "Security Interest" means any mortgage, pledge, lien, encumbrance,  charge,
or other  security  interest,  other  than (a)  liens  for Taxes not yet due and
payable or for Taxes  that the  taxpayer  is  contesting  in good faith  through
appropriate  proceedings,  (b) purchase  money liens and liens  securing  rental
payments  under capital lease  arrangements,  and (c) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing of
money.

     "Seller" has the meaning set forth in the preface above.

     "South  Coast  Plaza  Lease"  means the Lease  listed as item 1 in Schedule
3(k)(ii).

     "Stores" means the premises subject to the Leases.

     "Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary  thereof)  owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.

     "Tax" means any federal,  state, local, or foreign income,  gross receipts,
license, payroll,  employment,  excise, severance,  stamp, occupation,  premium,
windfall profits,  environmental  (including taxes under Code Sec. 59A), customs
duties, capital stock,
<PAGE>
     franchise,   profits,   withholding,    social   security   (or   similar),
unemployment,   disability,   real  property,  personal  property,  sales,  use,
transfer,  registration,  value added, alternative or add-on minimum, estimated,
or  other  tax of any kind  whatsoever,  including  any  interest,  penalty,  or
addition thereto, whether disputed or not.

     "Tax Return" means any return,  declaration,  report,  claim for refund, or
information  return or statement  relating to Taxes,  including  any schedule or
attachment thereto, and including any amendment thereof.

     "Trust" means the Gayle Hoepner Family Trust, a revocable  trust  organized
under the laws of the State of  California,  which wholly owns the Seller and of
which the Beneficiaries are the sole trustees.

         2. Basic Transaction.

     (a) Purchase and Sale of Assets. On and subject to the terms and conditions
of this Agreement,  the Buyer hereby  purchases from the Seller,  and the Seller
hereby sells, assigns, transfers, conveys, and delivers to the Buyer, all of the
Acquired Assets for the  consideration and payment terms as specified in ss.2(c)
below.

     (b) Assumption of  Liabilities.  On and subject to the terms and conditions
of this Agreement,  the Buyer hereby assumes and becomes  responsible for all of
the Assumed  Liabilities.  The Buyer will not assume or have any responsibility,
however,  with  respect to any other  obligation  or Liability of the Seller not
included within the definition of Assumed Liabilities.

     (c) Purchase Price. The Buyer hereby pays to the Seller an aggregate of (i)
$65,000,  (ii) the "Inventory  Value",  which the Parties have  determined to be
$_____,  and (iii) the prepaid  items and deposits  listed in Exhibit D equal to
$____, which shall be paid as follows:

     (i) $65,000  shall be paid by the  delivery at the Closing of a  promissory
note in the principal amount of $65,000, bearing no interest (except pursuant to
certain default  provisions),  payable in three monthly  installments of $11,667
commencing  February 16, 1997, and two monthly installment of $15,000 on each of
May 16, 1997 and June 16,  1997,  in the form  annexed  hereto as Exhibit E. The
initial  installment  payment due February 16, 1997 shall be adjusted to reflect
the post closing adjustment referred to in ss.6(s) below.

<PAGE> 
     (ii) The Inventory Value, less $200,000 which shall be paid by the delivery
of a promissory  note in the principal  amount of $200,000,  bearing no interest
(except  pursuant  to certain  default  provisions),  payable in  quarter-annual
installments of $25,000  commencing the quarter beginning April 16, 1997, in the
form annexed hereto as Exhibit E.

     (iii) The prepaid items and deposits.

     (iv) The  promissory  notes  referred to in  ss.2(c)(i)  and (ii) above are
collectively referred to as the "Buyer's Notes".

     (v) Buyer's  Notes.  Each holder  desiring to transfer a Buyer's Note first
must furnish the Buyer with (1) a written opinion of counsel  asserting that the
transfer  is in  compliance  with the  Securities  Act,  in form  and  substance
reasonably acceptable to the Buyer, from counsel reasonably  satisfactory to the
Buyer to the  effect  that the  holder  may  transfer  the Buyer Note as desired
without  registration  under the  Securities  Act and (2) a written  undertaking
executed by the desired transferee to the Buyer in form and substance reasonably
acceptable to the Buyer  agreeing to be bound by the  recoupment  provisions and
the restrictions on transfer  contained herein.  Notwithstanding,  no opinion or
undertaking  shall be  required in order to  transfer  the Buyer's  Notes to the
Trust or  Beneficiaries  upon the  dissolution of the Seller.  Each Buyer's Note
will be imprinted with the following legend:

     "This Note has not been  registered  under the  Securities Act of 1933 (the
"Securities  Act"), or under the provisions of any applicable  state  securities
laws,  but has been  issued  pursuant  to the term  and  conditions  of an Asset
Purchase  Agreement (the "Agreement")  dated January 16, 1997 between the issuer
of this Note and Toys International,  in reliance on statutory  exemptions under
the Securities Act, and under any applicable  state  securities  laws. This Note
may not be  sold,  pledged,  transferred  or  assigned  except  pursuant  to the
provisions of Subparagraph 1 of this Note. The payment of principal and interest
on this  Note is  subject  to  certain  recoupment  provisions  set forth in the
Agreement as referred to in Paragraph 5 herein."

     (d) The  Closing.  The  closing of the  transactions  contemplated  by this
Agreement (the "Closing") is taking place at the offices of Seller's  Counsel on
the date  hereof  (the  "Closing  Date").  The  Closing  shall be deemed to have
occurred at 11:59 p.m. on the Closing Date.
<PAGE>
     j. Deliveries at the Closing. The following are delivered at the Closing:

     (i) The Seller hereby delivers to the Buyer:

     1. the Acquired Assets;  

     2. the Agreement with  Beneficiaries and Trust as annexed hereto as Exhibit
B, executed by the Beneficiaries and the Trust;

     3. executed  Assignment and Assumption  Agreements for the Leases,  annexed
hereto as Exhibit F;

     4. an executed  assignment of Seller's Service Mark  Registrations  annexed
hereto as Exhibit H;

     5. original executed copies of a UCC termination statement, terminating the
UCC-1 financing  statement of Bank of America NT&SA's (B of A) Security Interest
in the Acquired Assets.

     6. a Bill of Sale,  Assignment and Assumption  Agreement  annexed hereto as
Exhibit C;

     7. an Opinion of Seller'scounsel annexed hereto as Exhibit G;

     8.  delivery of all  consents as may be required  under any of the Assigned
Contracts;

     9. all information required under the Schedules referenced herein, dated as
of the Closing Date;

     10. copies of the prior 12 months of billing received from the landlords of
the Stores for estimated taxes and other payments required under the Leases.

     11.  Executed  Consulting  Agreement of Gayle Hoepner as annexed  hereto as
Exhibit J.

     12.  The  Subordination  Agreements  annexed  hereto  as  Exhibits  L and M
executed concurrently herewith;

     13. An officer's certificate  certifying as to the Seller's by-laws,  board
resolutions and shareholder resolutions;

     14. certified  articles of incorporation and good standing  certificates of
the Seller in California;

     15. Security Agreement annexed hereto as Exhibit K;

     16. Incumbency Certificate of Seller; and

     17.  Duly  executed   Certificate  of  Amendment  to  the   Certificate  of
Incorporation  of the Seller  changing its name,  together with the  appropriate
state filing fee.
<PAGE>

     i)      The Buyer hereby delivers to the Seller;

     18. the consideration specified in ss.2(c) above;

     19. the Agreement with Beneficiaries and Trust;

     20. executed Assignment and Assumption Agreements for the Leases;

     21.  evidence  confirming  that the  payment of the Total Cost  pursuant to
Section 10 of the South Coast Plaza Lease has been made;

     22. the California reseller certificate;

     23. opinion of Buyer's counsel;

     24.  Certificate  of the  Secretary of the  Guarantor  certifying as to the
Guarantor's  certificate of incorporation,  by-laws and Resolutions of the Board
of Directors of the Guarantor,  authorizing  the guarantee on the Buyer's Notes,
together with an Incumbency certificate;

     25. an executed Consulting Agreement as annexed hereto as Exhibit J.

     26. an executed Bill of Sale, Assignment and Assumption;

     27. Security Agreement annexed hereto as Exhibit K;

     28. UCC-1 Financing Statement;

     29. Guaranty annexed hereto as a part of Exhibit E;

     30. Secretary's Certificate;

     31. California and Delaware good standing certificates.

     (f) Guarantees, Security Agreement and Subordination Agreements. Payment of
the Buyer's Notes is guaranteed by Mister Jay Fashions  International,  Inc., in
accordance  with the guarantee  annexed to the Buyer's Notes,  annexed hereto as
Exhibit E. In  addition,  the Buyer's  Notes are secured by all of the assets of
the Buyer, evidenced by a Security Agreement as annexed hereto as Exhibit K. The
security  interest  shall be  subordinate  to all  obligations  owed to Congress
Financial  Corporation  (Western) and senior to the obligations owed by Buyer to
Europe American Capital Corp., as provided for in the  Subordination  Agreements
annexed hereto as Exhibits L and M,  respectively.  The Trust and  Beneficiaries
shall  guarantee  that all the  Inventory  delivered  to the Stores on or before
January  5,  1997 is or shall be fully  paid  for,  there  being no  outstanding
Liabilities  with respect  thereto for which Buyer shall be liable,  as provided
for in the Agreement with Beneficiaries and Trust.

<PAGE>
     (g) Sales, Use and other Taxes. The Buyer and the Seller shall cooperate in
preparing  and filing use and sales tax returns  relating to the purchase of the
assets located in the Stores and Corporate Office,  excluding any Inventory, all
of which is valued at $65,000. Each of the Buyer and the Seller shall file, in a
timely manner, Forms 8594 with respect to the purchase.  Each of the Parties, as
well  as the  Beneficiaries  and  Trust,  covenants  and  agrees  not to take an
inconsistent position in connection with a Tax Return or audit or examination by
a taxing authority or otherwise,  with the statements made and agreed to herein.
The Buyer shall  furnish the Seller  with a form of  reseller  certificate  that
complies with the  requirements of the California  Taxation and Revenue Code and
other  applicable  state taxation laws. The Buyer shall pay any and all sales or
use taxes with regard to the sale of the Acquired Assets.

     (h)  Corporate  Office.  Certain of the Acquired  Assets are located in the
Corporate Office,  the lease for which is not an Assigned Contract or an Assumed
Liability. For a period of no more than 90 days after the Closing Date the Buyer
shall not, except at the Seller's  request,  move from the Corporate  Office any
Acquired  Assets which are located at the Corporate  Office on the Closing Date,
not including any Acquired Assets originally  located in any of the Stores as to
which the Buyer may remove such Acquired Assets  immediately  after the Closing.
Seller  shall not damage any of the  Acquired  Assets  located in the  Corporate
Office during the period such assets remain in the Corporate Office. During such
time period,  the Buyer shall have daily access to such  Acquired  Assets during
normal business hours. The computer and system which is connected to the Stores'
operations  may be used by the Seller and any of its officers,  Karen Zak, Scott
Bower,  Diane  Crandall,  and any employee or consultant  of Seller  approved by
Buyer in advance, which individual shall have signed a non-disclosure agreement,
but only for the purpose of preparing  final  post-closing  sales and income tax
returns and other filings required by law; financial  statements and reports and
other  similar  matter or  information  pertinent  to Seller's  dissolution  and
winding-up.  The Seller  shall be allowed to use the  supplies in the  Corporate
Office (eg. paper, pens, staples, paper clips and other similar items), however,
Buyer shall be under no obligation to replenish such supplies.  The Seller shall
order and have  installed  its own phone line at its own cost as of the  Closing
Date. The Buyer shall observe all reasonable  rules and regulations  relating to
the Corporate  Office as the Seller may  promulgate  from time to time and shall
not damage the  Corporate  Office in any way.  Within 7 days after  delivery  of
written  notice by the Seller,  the Buyer shall remove all Acquired  Assets from
the Corporate  Office.  Seller shall provide Buyer with reasonable access to the
Corporate Office to remove the Acquired Assets. If the Buyer fails to remove all
of the  Acquired  Assets from the  Corporate  Office  within  such time  period,
assuming Seller provides  reasonable  access, the Seller may remove the Acquired
Assets to a warehouse at the Buyer's expense or in the event that the lease term
for the Corporate

<PAGE>
Office has expired or been terminated,  then on the day prior to the last day of
occupancy of the Corporate  Office,  assuming notice as provided herein has been
given to the Buyer,  the Seller may dispose of the remaining  Acquired Assets at
the Buyer's  expense.  During the term when the Acquired  Assets shall remain in
the Corporate Office,  the Buyer shall pay for its own office and administrative
expenses and supplies, however, Buyer shall not be responsible to pay any rent.

         3.  Representations,  Warranties and Certain Post-Closing  Covenants of
the Seller.  The Seller represents and warrants to the Buyer that the statements
contained  in  this  ss.3  are  correct  and  complete  as of the  date  of this
Agreement,  except as set forth in the  disclosure  schedule  accompanying  this
Agreement (the "Disclosure  Schedule").  The Disclosure  Schedule is arranged in
paragraphs  corresponding to the lettered and numbered  paragraphs  contained in
this ss.3. In addition, the Seller hereby agrees to perform certain post-Closing
acts.

         (a)  Organization  of the  Seller.  The  Seller is a  corporation  duly
organized, validly existing, and in good standing under the laws of the State of
California.  The  Seller  does not have  any  Subsidiaries  and does not own the
securities of any other company.  The outstanding capital stock of the Seller is
wholly-owned by the Trust.

         (b) Authorization of Transaction.  The Seller,  Trust and Beneficiaries
have full corporate  power and authority (as  applicable) to execute and deliver
this  Agreement  and all other  agreements  (the  "Other  Seller's  Agreements")
required  to be  delivered  by or on behalf of  Seller,  the  Trust  and/or  the
Beneficiaries and to perform its and their obligations hereunder and thereunder.
Without limiting the generality of the foregoing,  the board of directors of the
Seller  and the  trustees  on  behalf  of the Trust  have  duly  authorized  the
execution,  delivery,  and  performance of this Agreement and the Other Seller's
Agreements  by the Seller.  This  Agreement  and the Other  Seller's  Agreements
constitute the valid and legally  binding  obligations of the Seller,  the Trust
and the Beneficiaries, as applicable, enforceable in accordance with their terms
and   conditions,   except  as  may  be  limited  by   bankruptcy,   insolvency,
reorganization,  moratorium,  and other  similar laws and  equitable  principles
relating to or limiting creditors' rights generally.

     (c)  Noncontravention.  Neither  the  execution  and the  delivery  of this
Agreement
<PAGE>
and the Other Seller's  Agreements,  nor the  consummation  of the  transactions
contemplated  hereby and thereby  (including  the  assignments  and  assumptions
referred  to in  ss.2  above),  will  (i)  violate  any  constitution,  statute,
regulation, rule, injunction,  judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the Seller
is  subject  or any  provision  of the  charter  or bylaws of the Seller or (ii)
conflict with, result in a breach of, constitute a default under,  result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement,  contract, lease, license,
instrument,  or other  arrangement to which the Seller is a party or by which it
is bound or to which any of its assets is subject  (or result in the  imposition
of any Security  Interest  upon any of its  assets),  except that (1) each Lease
requires delivery of a notice and executed assignment and assumption document to
the lessor  thereunder,  (2) there are certain third party consents  required in
connection  with  the  assignment  to the  Buyer  of  certain  of  the  Assigned
Contracts.  Except as  provided  for herein the Seller does not need to give any
notice  to,  make any filing  with,  or obtain any  authorization,  consent,  or
approval of any  government or  governmental  agency in order for the Parties to
consummate  the  transactions  contemplated  by this  Agreement  and  the  Other
Seller's  Agreements  (including the assignments and assumptions  referred to in
ss.2 above).

         (d) Brokers' Fees. The Seller has no Liability or obligation to pay any
fees or  commissions  to any  broker,  finder,  or  agent  with  respect  to the
transactions  contemplated by this  Agreement,  for which the Buyer could become
liable or obligated.

         (e) Title to Assets. The Seller has good and marketable title, free and
clear of all  Security  Interests,  to,  or a valid  leasehold  interest  in the
Acquired  Assets,  inclusive of but not  exclusively,  the  Assigned  Contracts.
Except for the Assigned Contracts described in items 1 and 3 of Schedule 3(e)(i)
correct and complete  copies of each Assigned  Contract (as amended to date) are
annexed  hereto as  Schedule  3(e)(i).  The Seller has not  assigned,  sublet or
granted  any  rights  to  any of  the  Acquired  Assets,  inclusive  of but  not
exclusively, its Leases, Intellectual Property and Assigned Contracts.

         (f)  Inventory.  The  Seller  has  good  and  marketable  title  to the
Inventory, free and clear of any Security Interests,  substantially all of which
has been paid for in full.  Seller  acknowledges  it is solely  responsible  for
paying for all Inventory  delivered to the Stores on or before  January 5, 1997.
The only such  Inventory  for which Seller has not yet paid in full is Inventory
for which:  (1) Seller has not received an invoice from the vendor;  (2) payment
is not yet due under the vendor's terms and conditions of sale; or (3) Seller is
entitled to vendor  credits or rebates in amounts not yet notified by the vendor
to Seller.  Seller has  authority  to transfer the  Inventory  to the Buyer,  as
provided  herein,  there being are no third party consents or notices  required.
Within 14 days of the Closing Date the

<PAGE>
Seller shall send  correspondence  to all of its vendors,  notifying them of the
change in  ownership of the Stores and  requesting  that all credits and rebates
due to Seller be  immediately  applied and final  invoices be forwarded.  Seller
agrees to pay the amounts due on all invoices  received for Inventory  delivered
before  January 5, 1997 on or prior to June 30,  1997,  except  with  respect to
matters for which an action has been commenced.  Notwithstanding  the above, the
Seller shall pay for all  undisputed  amounts in the invoices for the  Inventory
delivered  before  January  5, 1997 on or  before  the later of 30 days from the
Closing Date or 30 days from receipt of an invoice.

         (g)  Undisclosed  Liabilities.  Except for the Assumed  Liabilities and
claim  listed in Schedule  3(g),  the Seller does not have any  Knowledge of any
Basis  for  any  action,  suit,  proceeding,  hearing,  investigation,   charge,
complaint,  claim,  or demand  against  Seller giving rise to any Liability with
respect to the Acquired Assets.

         (h)  Ordinary  Course of Business.  From  November 23, 1996 through the
date of this  Agreement,  the Seller has not  engaged in any  transaction  which
would materially adversely affect the Acquired Assets taken as a whole.

         (i) Legal Compliance.  The Seller does not have any Knowledge, that (i)
it or any of its respective predecessors and Affiliates have not complied in all
material respects with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal,  state,  local, and foreign  governments (and all agencies thereof),
and  (ii)  any  action,  suit,  proceeding,  hearing,   investigation,   charge,
complaint,  claim,  demand, or notice has been filed or commenced against any of
them alleging any failure so to comply, which failure would materially adversely
affect the Acquired Assets or the Buyer's rights thereto taken as a whole.

         (j) Tax Matters.

     (i) There are no Security  Interests or Basis for a Security  Interest,  on
any of the  Acquired  Assets  which  arose in  connection  with any  failure (or
alleged failure) of the Seller to pay any Tax.

               (ii) The Seller has withheld and paid all Taxes required to have 

<PAGE>



been  withheld  and paid in  connection  with  amounts paid or owing to any
employee, independent contractor,  creditor,  stockholder, or other third party,
which if not paid would  adversely  affect the  Acquired  Assets or the  Buyer's
ability to purchase same.

         (k) Real Property.

                  (i)  The Seller does not own any real property.

                  (ii) Schedule  3(k)(ii) lists all real property  leased to the
         Seller.  The Seller has  delivered  to the Buyer  correct and  complete
         copies  of the  Leases  there  being no  amendments  thereto  except as
         annexed  hereto.  With  respect to each Lease the  representations  and
         warranties  made by Seller in the Assignment  and Assumption  Agreement
         are incorporated herein by this reference and expressly made subject to
         the terms of this  Agreement  including all the  provisions of ss.5. In
         addition:

                           (A)   the   Leases   are   legal,   valid,   binding,
                  enforceable, and in full force and effect to the Seller and to
                  the Knowledge of Seller, the other Party thereto;

                           (B) there are no disputes, oral agreements, or 
                  forbearances in effect as to any Lease;

                           (C)  the  Seller  has  not   assigned,   transferred,
                  conveyed,  mortgaged,  deeded  in  trust,  or  encumbered  any
                  interest  in the  leasehold  of any Lease,  nor has the Seller
                  granted any rights to enter or use the leased  premises to any
                  third  parties,  other than,  in either  case  pursuant to the
                  Lease agreements;

         (l) Intellectual Property.

                  (i) The  Seller  owns  or has the  right  to use  pursuant  to
         license, sublicense, agreement, or permission all Intellectual Property
         necessary  for the operation of the business of the Seller as presently
         conducted as listed in Schedule 3(l)(i) hereto. An unaffiliated company
         used the name Toys International,  which to the Knowledge of Seller has
         ceased as reflected in Schedule 3(l)(ii).

                  (ii) To the Seller's Knowledge,  except as annexed as Schedule
         3(l)(ii),  neither  the  Seller  not any third  party has  claimed,  or
         threatened, that either the
<PAGE>
         Seller or a third party has interfered with, violated,  infringed upon,
         misappropriated,  or otherwise come into conflict with any Intellectual
         Property rights of the other party.

         (m)  Assigned  Contracts  and Open  Purchase  Orders.  Except as may be
listed  on  Schedule  3(e)(i),  as of the  Closing  Date  Seller  does  not have
outstanding  purchase orders to purchase Inventory for the Stores,  except which
meet all of the  following  criteria;  (1) the orders were made in the  Ordinary
Course of Business,  (2) the orders do not aggregate  more than $100,000 and (3)
all  goods  ordered  are  readily  merchantable.  The  Seller  has used its best
efforts,  except such efforts shall not require the Seller to pay a fee for such
cancellation,  to cancel all open purchase orders  requested by Buyer. As of the
Closing Date each Assigned Contract  constitutes the legal,  valid,  binding and
enforceable  obligation of the Seller and, to the Knowledge of Seller, the other
party thereto. Seller has no Knowledge of and has not received written notice of
any existing material default by the Seller under such Assigned Contract, or any
event which,  with notice,  lapse of time or both,  would  constitute a material
default  by  Seller  under  such  Assigned   Contract  or  permit   termination,
modification or acceleration of any provisions of such Assigned Contract. To the
Seller's  Knowledge,  there is no existing  material default by a third party to
any Assigned  Contract,  nor has there  occurred  any event which,  with notice,
lapse of time or both,  would  constitute a material default by such third party
under such Assigned  Contract.  No party to any Assigned Contract has repudiated
any provision of such Assigned Contract.

     a. Litigation. To Seller's Knowledge,  there is no litigation or proceeding
pending or threatened  in writing with respect to any of the Acquired  Assets or
which questions the validity of any action taken by the Seller pursuant to or in
connection with the transactions contemplated by this Agreement.

              (o) Condition of Acquired Assets;  Limited  Warranties.  Except as
     otherwise  expressly  provided  in this  Agreement,  the  Seller  makes  no
     representation or warranties  whatsoever to the Buyer,  express or implied,
     concerning the Acquired Assets or the business of the Seller, including but
     not limited to any  representation  or  warranty as to the value,  quality,
     quantity, condition, merchantability, design, suitability, usability,
<PAGE>
     salability,  obsolescence,  working order, compliance with law, validity or
     enforceability.  All Acquired  Assets are sold "AS IS, WHERE IS". The Buyer
     acknowledges that it has had an opportunity to inspect the Acquired Assets.

         (p) Disclosure.  The representations  and warranties  contained in this
ss.3 do not contain any untrue  statement of a material  fact.  All  information
required to be disclosed herein by this Agreement concerning the Seller has been
disclosed.

         4.  Representations  and Warranties of the Buyer.  The Buyer represents
and  warrants  to the  Seller  that the  statements  contained  in this ss.4 are
correct and  complete as of the date of this  Agreement,  except as set forth in
the Disclosure Schedule.

         (a)  Organization  of  the  Buyer.  The  Buyer  is a  corporation  duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and is qualified to do business as a foreign corporation in California.

         (b)  Authorization  of  Transaction.  The  Buyer  has  full  power  and
authority  (including full corporate power and authority) to execute and deliver
this Agreement and all other agreements required to be delivered by or on behalf
of the Buyer (the "Other Buyer's  Agreements"),  and to perform its  obligations
hereunder  and  thereunder.  This  Agreement  and the Other  Buyer's  Agreements
constitute the valid and legally binding  obligations of the Buyer,  enforceable
in accordance with their terms and conditions.

         (c)  Noncontravention.  Neither the  execution and the delivery of this
Agreement  and  the  Other  Buyer's  Agreements,  nor  the  consummation  of the
transactions  contemplated  hereby and thereby  (including the  assignments  and
assumptions  referred to in ss.2  above),  will (i)  violate  any  constitution,
statute, regulation, rule, injunction,  judgment, order, decree, ruling, charge,
or other restriction of any government,  governmental  agency, or court to which
the Buyer is subject or any  provision of its charter or bylaws or (ii) conflict
with,  result  in a  breach  of,  constitute  a  default  under,  result  in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement,  contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which it is
bound or to which any of its assets is subject.  The Buyer does not need to give
any notice to, make any filing with, or obtain any  authorization,  consent,  or
approval of any  government or  governmental  agency in order for the Parties to
consummate the transactions contemplated by this Agreement and the Other Buyer's
Agreements  (including  the  assignments  and  assumptions  referred  to in ss.2
above).

     (d) Brokers' Fees. The Buyer has no Liability or obligation to pay any fees
or
<PAGE>
commissions  to any broker,  finder,  or agent with respect to the  transactions
contemplated  by this  Agreement and the Other Buyer's  Agreements for which the
Seller could become liable or obligated.

         (e)  Investigation.  The Buyer has  conducted a review and inventory of
the  Acquired  Assets and  agrees to acquire  same "As Is".  In  executing  this
Agreement,   except  as  stated  herein,   the  Buyer  is  relying  on  its  own
investigation  and on the  provisions  of this  Agreement,  and not on any other
statements,  representations,  warranties  or assurances of any kind at any time
made by or purportedly on behalf of Seller.

         (f) Net Worth and Financial Positions.  Immediately prior to and giving
effect  to the  Closing,  the  Buyer  has a net  worth of at least  one  million
dollars.  As of the  Closing  Date,  the Buyer,  together  with the  revenues it
reasonably  anticipates  generating through its operations,  reasonably believes
that it will have the funds necessary to (i) provide for the payment,  when due,
of the debts and  liabilities of its business in the Ordinary Course of Business
for a period of one year following the Closing Date, and (ii) satisfy all of its
obligations under this Agreement.

         5. Remedies for Breaches of this Agreement.

         (a)   Survival  of   Representations   and   Warranties.   All  of  the
representations  and warranties of the Parties contained in this Agreement shall
survive the Closing  hereunder  (even if the damaged Party knew or had reason to
know of any  misrepresentation or breach of warranty at the time of Closing) and
continue  in full force and effect for a period of one year,  provided  however,
that the  survival  period shall be two years from the Closing Date with respect
to any Liability  regarding the Leases and  Inventory.  Upon the expiration of a
representation  and warranty  survival period  pursuant to this Section,  unless
written notice of a claim based on such  representation and warranty  specifying
the  facts on  which  the  claim  is based  shall  have  been  delivered  to the
Indemnifying  Party prior to such expiration,  such  representation and warranty
shall be deemed to be of no further  force or effect,  as if never made,  and no
claim or action may be  brought  based  thereon,  whether  for  indemnification,
breach of contract, tort or under any other legal theory.

     (b) Indemnification By Seller. Subject to the limitations set forth in this
ss.5 as to the
<PAGE>
     amount and manner of payment of indemnification  obligations hereunder, the
     Seller does hereby  indemnify and hold Buyer  harmless from and against any
     Losses  sustained  by Buyer as a result of (i) any  untrue  representation,
     breach of warranty or  non-fulfillment  of any  covenant  or  agreement  by
     Seller  contained  herein,(ii)  Liabilities  under the Leases  prior to the
     Closing Date or (iii) Seller's Liability on the Inventory  delivered to the
     Stores on or before  January 5, 1997 and  purchased  by the  Buyer,  in all
     cases  provided that Buyer shall have given written notice to the Seller of
     any claim for  indemnification  prior to the  expiration of the  applicable
     survival period set forth in ss.5(a) hereof.

         (c)  Indemnification By Buyer. The Buyer does hereby indemnify and hold
the Seller harmless from and against any Losses sustained by Seller, as a result
of (i) any untrue  representation,  breach of warranty or non-fulfillment of any
covenant or agreement by Buyer contained  herein,  (ii) the failure of the Buyer
to pay, perform and discharge when due any of the Assumed Liabilities, (iii) the
actions  or  omissions  of the Buyer and its  representatives  at the  Corporate
Office  or  (iv)  the  conduct  of  the  Buyer's  business   (including  without
limitation, the business conducted at the Stores) after the Closing.

         (d)  Conditions  of   Indemnification   for  Third-Party   Claims.  The
respective  obligations  and  liabilities  of  the  Indemnifying  Party  to  the
Indemnified  Party under this  Section 5 with respect to third party claims only
shall be subject to the following terms and conditions:

                  (i)  Notice.  Within  15  days  after  receipt  of  notice  of
commencement  of any action or the  assertion of any claim by a third party (but
in any event at least 10 days before the deadline for any responsive  pleading),
the Indemnified  Party shall give the Indemnifying  Party written notice thereof
together with a copy of such claim,  process or other legal pleading.  Any delay
on the part of the Indemnified  Party in notifying any Indemnifying  Party shall
relieve the Indemnifying  Party from any obligation  hereunder to the extent the
Indemnifying Party has been prejudiced thereby.

                  (ii) Assumption of Defense.  The Indemnifying Party shall have
the right to defend the  Indemnified  Party  against the third party claim using
counsel  and  other  representatives  of its own  choosing  who  are  reasonably
satisfactory to the Indemnified  Party.  The  Indemnifying  Party shall exercise
such right by delivering to the Indemnified Party a written notice (a "Notice of
Assumption  of Defense") of such  exercise by the 15th day after  receipt of the
Indemnified  Party's  notice  (or,  if  earlier,  by the 5th day  preceding  the
deadline for any responsive  pleading).  If the Indemnifying  Party delivers the
Notice of  Assumption  of Defense in a timely manner and conducts the defense of
such third party claim, the Indemnifying  Party shall have sole control over the
defense and settlement of

<PAGE>
such claim; provided,  however, that (1) the Indemnified Party may retain at its
sole cost and expense  separate  counsel to  participate  in the defense of such
claim and (2) the  Indemnifying  Party  shall not,  without  the  consent of the
Indemnified  Party,  which shall not be  unreasonably  withheld,  consent to the
entry of any  judgment or enter into any  settlement  with  respect to the third
party claim which does not include a complete  release of the Indemnified  Party
with respect to all  Liability for such third party claim.  Notwithstanding  the
provisions of this ss.5(d),  in the event the Seller is the Indemnifying  Party,
such party  shall not have any right to consent to the entry of any  judgment or
enter into any settlement with respect to the third party claim except for which
such settlement or judgment provides solely for the payment of a sum certain and
that sum certain is not in excess of the limitations referred to in ss.5(g). The
Indemnifying  Party shall not be liable for any amounts paid in  settlement of a
third party claim by the Indemnified Party for which the Indemnifying  Party has
delivered  a timely  Notice of  Assumption  of  Defense  and  against  which the
Indemnifying  Party has conducted the defense,  unless such  Indemnifying  Party
consents to such settlement.

                  (iii)   Failure  to  Assume  and  Conduct   Defense.   If  the
Indemnifying Party does not deliver a timely Notice of Assumption of Defense and
thereafter  conduct the defense  against the third party claim,  the Indemnified
Party shall have the right,  upon  further  written  notice to the  Indemnifying
Party, to defend against,  consent to the entry of any judgment with respect to,
or enter into any  settlement  with  respect to such  third  party  claim as the
Indemnified  Party  reasonably  deems   appropriate,   at  the  expense  of  the
Indemnifying  Party;  provided,  however,  that the Indemnified  Party shall not
consent to any judgment or enter into any settlement  with respect to such third
party claim until at least 5 business days after  delivering to the Indemnifying
Party a copy of the proposed judgment or settlement;  and provided further, that
the Indemnifying  Party shall have the right to assume the defense of such claim
with counsel of its own choosing at anytime prior to the settlement,  compromise
or final determination of such claim.

                  (iv)  Cooperation.  In connection  with any third party claim,
the  Indemnified  Party  will  cooperate  with all  reasonable  requests  of the
Indemnifying Party.

     (e)  Subrogation.  If the  Indemnifying  Party makes any payment under this
Section 5 in respect of any Losses,  the Indemnifying Party shall be subrogated,
to the extent of
<PAGE>
such  payment,  to the rights of the  Indemnified  Party  against any insurer or
third party with respect to such Losses.

         (f) Exclusive Remedies. The remedies provided in this ss.5 shall be the
exclusive remedy for monetary damages (whether at law or in equity),  and are in
lieu of any statutory,  common law, equitable or other remedy any Party may have
for breaches of this  Agreement  or for  indemnification.  Without  limiting the
generality  of the  foregoing,  the Buyer hereby  expressly  waives any right of
setoff it may have against amounts otherwise owed to the Seller pursuant to this
Agreement or the Buyer Notes except as otherwise expressly provided below.

     (g) Limitations on Amount and Manner of Payment of Seller's Indemnification
Obligations.

                  (i)  Buyer  shall  have no right of  recovery  against  Seller
pursuant to the  indemnification  provisions under this ss.5 until the aggregate
amount of all Losses equals $7,500,  except that there is no minimum requirement
with respect to any  Liabilities on the Inventory  delivered to the Stores on or
before  January 5, 1997 and then to the extent of all such Losses,  subject only
to the limitations set forth in this ss.5, including clause (v) below.

                  (ii) In the event  that (1) a claim is  settled  or a judgment
entered in accordance with ss.5(d) above and (2) Seller  expressly  acknowledges
Buyer's  right to  indemnification  or (3) whereby  pursuant  to an  arbitration
proceeding   referred  to  in  5(g)(iv)  Buyer  has  been  determined  by  final
arbitration  award to have the right to  indemnification  by Seller,  then,  the
aggregate  amount of the Losses of Buyer  (subject to clause (v) below) shall be
recoverable  by either payment by Seller to Buyer in full within 30 days of such
settlement or order, thereof of the amount due, unless said payment is due prior
thereto,  or by  decreasing  the  principal  amount and accrued  interest on the
Buyer's Notes, the full amount of the Losses (subject to clause (v) below).

                  (iii) In the event that either (a) Seller does not agree that 
Buyer has the right to indemnification,  pending arbitration as described in ss.
5(g)(iv),  (b)Seller does not elect to defend against the third party claim as 
provided for in ss.5(d) or (c) the claim is not resolved within 30 days of the 
notice  provision
of ss.5(d)(i),  then Buyer may make timely  payments of the Buyer's Notes,  with
respect to the full  amount of the Losses  claimed by the third  party,  into an
interest bearing escrow account with Buyer's  attorney,  and provide Seller with
detailed  and  ongoing  notification  of  such  escrow  and  payment(s)  pending
settlement or  adjudication  of any such claim.  The escrow shall be held during
the arbitration process referred to below and (1)
<PAGE>
terminated and the funds turned over to the Seller if the  arbitrator  does
not find that the Buyer has the right to indemnification or (2) held pending the
settlement  or  adjudication  of any  claim  for  which  Buyer  has the right to
indemnification.  If the  arbitrator  determines  that Buyer is not  entitled to
indemnification, Seller shall receive the interest earned on the money in escrow
while  the money was in  escrow.  If the  arbitrator  determines  that  Buyer is
entitled to  indemnification,  Buyer shall  receive the  interest  earned on the
lesser of (A) the amount in escrow or (B) the Losses actually incurred by Buyer,
Seller having the right to receive any remaining interest. Upon determination by
the arbitrator of the issue of  indemnification  the successful party shall have
the right to interest earned on the escrow account.

                  (iv)  In  the   event   that  the   issue  of  the   right  to
indemnification  is not agreed on between  the  Parties,  such  matter  shall be
settled at the request of either party by binding  arbitration in Orange County,
California   before  and  in  accordance  with  the  then  existing   Commercial
Arbitration Rules (the "Rules") of the American Arbitration Association ("AAA").
There shall be one arbitrator agreed to by the parties or, if the parties cannot
agree on an arbitrator  within 30 days of demand for  arbitration,  appointed by
the AAA pursuant to the Rules.  The parties shall pay their own attorney's  fees
and share the other costs of arbitration  equally,  subject to final appointment
by the arbitrator. The arbitrator shall apply the law set forth herein to govern
this Agreement and shall have the power to award any remedy  available at law or
in  equity  except  punitive  damages.  Any  award  rendered  pursuant  to  such
arbitration  shall be final and binding on the parties  hereto,  and judgment on
such award may be entered in any court having jurisdiction thereof.

                  (v) The aggregate  amount of the liability of Seller hereunder
for indemnification shall be as follows: (1) there is no maximum Liability as to
amounts owed with respect to the Inventory  delivered to the Stores on or before
January 5, 1997, all of which Seller shall be liable for, (2) Seller's liability
with  respect to the Leases  shall be limited to $265,000  for the first year of
the survival period and decrease on a quarterly basis  thereafter at the rate of
$66,250 per quarter for the balance of the  survival  period (3) with respect to
everything except the Leases and Inventory  Seller's  liability shall be limited
initially to $265,000  and  decrease at a rate  related to the  repayment of the
Buyer's Notes for the one-year survival period referred to in ss.5(a).  Seller's
liability for any and all claims under clauses (2) and (3) of this ss.5(v) shall
in no event exceed an aggregate of $265,000.

<PAGE>
         6. Miscellaneous.

     (a) Press Releases and Public Announcements. No Party shall issue any press
release or make any public  announcement  relating to the subject matter of this
Agreement  without  the prior  written  approval of the other  Party;  provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded  securities  (in which  case the  disclosing  Party will use its
reasonable  best  efforts  to  advise  the  other  Party  prior  to  making  the
disclosure).

     (b) No  Third-Party  Beneficiaries.  This  Agreement  shall not  confer any
rights,  remedies,  obligations  or  Liabilities  upon any Person other than the
Parties and their respective successors and permitted assigns.

     (c) Entire Agreement.  This Agreement  (including the documents referred to
herein)  constitute the entire agreement  between the Parties and supersedes any
prior understandings,  agreements, or representations by or between the Parties,
written or oral,  to the extent they  related in any way to the  subject  matter
hereof.

     (d) Succession  and  Assignment.  This Agreement  shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted  assigns.  No Party may assign either this Agreement or any of its
rights,  interests,  or obligations hereunder without the prior written approval
of the other  Party;  however,  the  Seller  may  assign  all of its  rights and
delegate all of its duties to the Trust and/or the Beneficiaries, provided that,
the Seller is not relieved from  liability  pursuant to the terms and conditions
of this Agreement and the Other Seller's Agreements, except upon the dissolution
of Seller.  The Buyer may assign or transfer its rights and interests  hereunder
to one or more of its Affiliates  having a  post-transfer  combined net tangible
book worth of at least $1,000,000 and designate one or more of its Affiliates to
perform  its  obligations  hereunder  (in any or all of which  cases  the  Buyer
nonetheless  shall  remain  responsible  for  the  performance  of  all  of  its
obligations hereunder).

     (e)   Counterparts.   This  Agreement  may  be  executed  in  one  or  more
counterparts,  each of  which  shall  be  deemed  an  original  but all of which
together will constitute one and the same instrument.

     (f) Headings. The section headings contained in this Agreement are inserted
for  convenience   only  and  shall  not  affect  in  any  way  the  meaning  or
interpretation of this Agreement.

<PAGE>
     (g)  Notices.   All  notices,   requests,   demands,   claims,   and  other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other  communication  hereunder  shall be deemed duly given if five  business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended recipient as set forth below. Any
Party  may send any  notice,  request,  demand,  claim,  or other  communication
hereunder  to the  intended  recipient  at the address set forth above using any
other means (including personal delivery,  expedited courier, messenger service,
telecopy,  telex,  ordinary  mail,  or  electronic  mail),  but no such  notice,
request, demand, claim, or other communication shall be deemed to have been duly
given  unless and until it actually is received by the intended  recipient.  Any
Party may change the address to which notices,  requests,  demands,  claims, and
other  communications  hereunder  are to be  delivered by giving the other Party
notice in the manner herein set forth.

         To the Seller:
         c/o Gayle and Constance R. Hoepner
         3631 Seaview Avenue
         Corona del Mar, CA 92625

         With a copy to:
         Jeffrey M. Weiner, Esq.
         Kimball & Weiner LLP
         555 S. Flower Street, Suite 4540
         Los Angeles, CA 90071

         To the Buyer:
         Play Co. Toys & Entertainment Corp.
         550 Rancheros Drive
         San Marcos, CA 92069

         With a copy to:
         David S. Klarman, Esq.
         Klarman & Associates
         2694 Bishop Drive, Suite 213
         San Ramon, CA 94583
<PAGE>
     (h)  Governing  Law. This  Agreement  shall be governed by and construed in
accordance  with the domestic  laws of the State of  California  without  giving
effect to any choice or conflict of law  provision or rule (whether of the State
of Delaware or any other  jurisdiction)  that would cause the application of the
laws of any jurisdiction other than the State of California.

     (i) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid  unless the same shall be in writing  and signed by the Buyer and
the Seller. No waiver by any Party of any default, misrepresentation,  or breach
of warranty or covenant  hereunder,  whether intentional or not, shall be deemed
to extend to any prior or subsequent  default,  misrepresentation,  or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.

     (j)  Severability.  Any term or provision of this Agreement that is invalid
or  unenforceable  in any  situation  in any  jurisdiction  shall not affect the
validity or  enforceability  of the remaining terms and provisions hereof or the
validity or  enforceability  of the  offending  term or  provision  in any other
situation or in any other jurisdiction.

     (k)  Expenses.  Except with respect to the  inventory  valuation  performed
prior to the  Closing,  which  expense  shall be borne  jointly  by the  parties
hereto, each of the Buyer, the Seller, the Beneficiaries and the Trust will bear
his or its own costs and expenses  (including legal fees and expenses)  incurred
in connection with this Agreement and the transactions contemplated hereby.

     (l) Construction.  The Parties have participated jointly in the negotiation
and drafting of this Agreement.  In the event an ambiguity or question of intent
or  interpretation  arises,  this  Agreement  shall be  construed  as if drafted
jointly  by the  Parties  and no  presumption  or  burden of proof  shall  arise
favoring  or  disfavoring  any Party by virtue of the  authorship  of any of the
provisions of this  Agreement.  Any reference to any federal,  state,  local, or
foreign  statute  or law  shall  be  deemed  also  to  refer  to all  rules  and
regulations promulgated thereunder,  unless the context requires otherwise.  The
word "including"  shall mean including  without  limitation.  The Parties intend
that each  representation,  warranty,  and covenant  contained herein shall have
independent  significance.   If  any  Party  has  breached  any  representation,
warranty,  or  covenant  contained  herein in any  respect,  the fact that there
exists  another  representation,  warranty,  or  covenant  relating  to the same
subject matter  (regardless  of the relative  levels of  specificity)  which the
Party has not breached shall not detract from or mitigate the fact
<PAGE>
that the Party is in breach of the first representation, warranty, or covenant.

     (m)  Incorporation  of Exhibits and  Schedules.  The Exhibits and Schedules
identified  in this  Agreement are  incorporated  herein by reference and made a
part hereof.

     (n)  Submission  to  Jurisdiction.  Each  of  the  Parties  submits  to the
exclusive  jurisdiction  of any state or federal court sitting in Orange County,
California  in any  action or  proceeding  arising  out of or  relating  to this
Agreement  (except as set forth in  ss.5(g)(iv))  and agrees  that all claims in
respect of the action or proceeding  (except as set forth in ss.5(g)(iv))  shall
be heard and determined  only in any such court.  Each of the Parties waives any
defense of inconvenient forum, lack of jurisdiction or other objections based on
jurisdiction  or venue to the maintenance of any action or proceeding so brought
and waives any bond,  surety,  or other  security  that might be required of any
other Party with respect thereto.

     (o) Attorney's Fees. If any litigation or arbitration is commenced  between
the Parties or their Affiliates or  representatives  concerning any provision of
this Agreement, the prevailing Party shall be entitled to recover its reasonable
attorneys' fees and expenses of counsel and court or arbitration  costs incurred
by reason of such litigation, subject to the limits set forth in ss.5.

     (p) Access to Books and Records.  The Buyer and Seller  shall  maintain for
five years after the Closing Date all original books, records, files, documents,
paper and agreements  pertaining to the Acquired Assets, the Assumed Liabilities
or otherwise to the business  conducted at the Stores before Closing.  After the
Closing, the Parties shall provide each other and their  representatives  during
ordinary  business hours and upon reasonable  notice,  with reasonable access to
such  original  documents and the  requesting  party shall pay any out of pocket
expenses thereof.  If, at anytime during such five year period, a Party proposes
to dispose of any such  original  documents,  such Party  shall  first  offer in
writing to deliver the same to the other Party at the expense of such Party.  If
the Party  fails to  respond to such offer  within 90 days of its  receipt,  the
other Party may dispose of such documents.

     (q) Cooperation After Closing. After the Closing, the Parties shall provide
such
<PAGE>
cooperation as the requesting  Party or its counsel may reasonably  request
in connection with (i) any  proceedings  now or hereafter  pending or threatened
and to which such Party is involved and (ii) any  Liabilities.  Such cooperation
shall include without  limitation (1) making available at the reasonable request
of the  requesting  Party or its  counsel,  and  permitting  such  Party and its
counsel to make and retain copies, of any and all documents in the possession or
otherwise  available  to the other  Party;  and (2)  making  available  upon the
reasonable  request of the requesting Party or its counsel,  employees and other
persons  within the control of or  available  to the other Party to consult with
and assist the  requesting  Party and its counsel and to prepare for and testify
truthfully in connection with any proceedings, including depositions, trials and
arbitration  proceedings.  The requesting  Party shall reimburse the other Party
for the other Party's reasonable  out-of-pocket  costs incurred pursuant to this
Section.  Seller shall provide to Buyer,  upon  reasonable  notice access to all
daily cash register receipts and related  documents.  After the Closing,  in the
event that Buyer uses any vendor credits transferred from Seller to Buyer, Buyer
shall pay to the Seller the actual value  discount,  which  liability shall only
come due when the credit is recognized.  Buyer shall promptly  deliver to Seller
all mail and  packages  for Seller  delivered  to the Stores  after the  Closing
(including  invoices for Inventory  delivered to the Stores on or before January
5, 1997).

     (r) Daily Sales Records.  Within 10 days of the Closing Date,  Seller shall
deliver to Buyer a computer  printout  showing the daily  sales  records for the
Stores for the three years immediately preceding the Closing Date.

     (s) Post Closing Adjustment. The initial installment of the $65,000 Buyer's
Note  shall be  decreased  by the cost of  inventory  sold by the  Stores on the
Closing Date, using the same formula used in valuing the Inventory  purchased by
Buyer.

         IN WITNESS WHEREOF,  the Parties hereto have executed this Agreement as
of the date first above written.

                                             Play Co. Toys & Entertainment Corp.


                                                  By:___________________________
                                                        Richard Brady, President