SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB
                                   (Mark One)

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

                  For the quarterly quarter ended June 30, 1998

                                       OR

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

            For the transition quarter from __________ to __________

                         Commission File Number O-25030

                       PLAY CO. TOYS & ENTERTAINMENT CORP.
             (Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>

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

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

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

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     State the number of shares of each of the issuer's classes of common equity
outstanding as of the latest  practicable  date:  Common Stock,  $.01 par value:
4,103,525 outstanding as of June 30, 1998.

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



<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

PART I.              FINANCIAL INFORMATION                                                                            Page Number

Item 1.              FINANCIAL STATEMENTS

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

                     Condensed  statements  of  operations  for the three months
ended June 30, 1997 and 1996.
                                                                                                                                4
                     Condensed  statements  of cash  flows for the three  months
ended June 30, 1997 and 1996.
                                                                                                                                5
                     Notes to condensed financial statements                                                                    6

Item 2.              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS
                                                                                                                             8-12
PART II.             OTHER INFORMATION                                                                                         13


Item 1.              LEGAL PROCEEDINGS                                                                                         13

Item 2.              CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                 13

Item 3.              DEFAULTS UPON SENIOR SECURITIES                                                                           13

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

Item 5.              OTHER INFORMATION                                                                                         13

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

                     Signatures                                                                                                14


</TABLE>

                                        2


<PAGE>
Item 1. Financial Statements

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

                                     ASSETS
                                                                                                    (unaudited)
                                                                                                   June 30, 1998   March 31, 1998
                                                                                                   -------------  --------------

Current

<S>                                                                                               <C>             <C>         
Cash .............................................................................................$    289,455    $    648,986
Accounts receivable ..............................................................................      51,976          78,594
Merchandise inventories ..........................................................................   9,376,037       7,872,804
Other current assets .............................................................................     561,156         433,928
                                                                                                  ------------    ------------

                                   Total current assets ..........................................  10,278,624       9,034,312

Property and Equipment, Net of accumulated
            depreciation and amortization of $3,596,257
            and $3,414,235, respectively .........................................................   3,062,109       2,782,386

Deposits and other assets ........................................................................   2,409,866       2,323,189
                                                                                                  ------------    ------------

                                                                                                  $ 15,750,599    $ 14,139,887
                                                                                                  ============    ============

                       LIABILITIES & STOCKHOLDERS' EQUITY

                                                                                                   June 30, 1998   March 31, 1998
                                                                                                  ------------    ------------

Current
Accounts payable .................................................................................   4,754,599       3,505,230
Accrued expenses and other liabilities ...........................................................     165,566         726,601
Current portion of notes payable and capital leases ..............................................     262,293         350,000
                                                                                                  ------------    ------------

                   Total current liabilities .....................................................   5,182,458       4,581,831
Borrowings under financing agreement .............................................................   6,521,695       5,445,198
Notes payable, and capital leases, net of ........................................................      71,541       1,500,000
             current portion (Note 2)


Deferred rent liability ..........................................................................     114,903         110,351
     Stockholders' equity:
           Series E preferred stock, $.01 par, 10,000,000 shares authorized;
             5,746,403 and 4,200,570 shares outstanding (Note 2) .................................   7,435,291       5,891,020
           Common stock, $.01 par value, 40,000,000 shares
             authorized; 4,103,525 and 4,103,519 shares outstanding ..............................      41,035          41,035

           Additional paid-in-capital ............................................................   6,675,398       6,675,398
           Accumulated deficit ................................................................... (10,291,722)    (10,104,946)
                                                                                                   ------------    ------------



                                               Total stockholders' equity ........................   3,860,002       2,502,507
                                                                                                  ------------    ------------
                                                                                                  $ 15,750,599    $ 14,139,887
                                                                                                  ============    ============


</TABLE>
            See accompanying notes to condensed financial statements


                                                       3


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

                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                 Three Months Ended
                                                                      June 30,

                                                               1998            1997
                                                               ----
<S>                                                         <C>            <C>        
Net sales ...............................................   $ 6,357,395    $ 3,142,813
Cost of Sales ...........................................     3,706,331      1,973,365
                                                            -----------    -----------
                                 Gross profit ...........     2,651,064      1,169,448
Operating expenses:
                 Operating expenses .....................     2,483,771      2,044,652
                 Depreciation and amortization ..........       188,417        139,027
                                                            -----------    -----------
                                 Total operating expenses     2,672,188      2,183,679
                                                            -----------    -----------
Operating loss ..........................................       (21,124)    (1,014,231)
Interest expense:
                 Interest and finance charges ...........       138,452        118,619
                 Amortization of debt issuance costs ....        27,200         76,654
                                                            -----------    -----------
                                 Total interest expense .       165,652        195,273
                                                            -----------    -----------



Net loss ................................................   $  (186,776)   $(1,209,504)
                                                            ===========
Basic and diluted loss per common share and
    share equivalents ...................................   $     (0.05)   $     (0.30)
                                                            ===========    ===========
Weighted average number of common shares
    share equivalents outstanding .......................     4,103,525      4,083,739
                                                            ===========    ===========




</TABLE>
            See accompanying notes to condensed financial statements


                                        4


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

                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                            Three Months Ended
                                                                                  June 30,
                                                                          1998               1997
                                                                          -----

CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                      <C>            <C>         
         Net loss ....................................................   $  (186,776)   $(1,209,504)
         Adjustments used to reconcile net loss to net
           cash used for operating activities:
                  Depreciation and amortization ......................       188,417        139,027
                  Amortization of common stock options ...............          --           53,685
                  Deferred rent ......................................         4,552          8,746
                  Stock compensation .................................        10,938           --

         Increase (decrease) from changes in:
                             Accounts receivable .....................        26,618        (14,776)
                           Merchandise inventories ...................    (1,503,233)      (457,854)
                           Other current assets ......................      (127,228)       101,504
                           Deposits and other assets .................       (93,072)        12,420
                           Accounts payable ..........................     1,249,369        602,459
                             Accrued expenses and other liabilities ..      (527,702)      (165,469)
                                                                         -----------    -----------

                             Net cash used for operating activities ..      (958,117)      (929,762)
                                                                         -----------

CASH FLOWS FROM INVESTING ACTIVITIES:

         Purchases of property and equipment .........................      (461,745)       (64,518)
                                                                          -----------    -----------
                             Net cash used for investing activities ..      (461,745)       (64,518)
                                                                         -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:

         Proceeds from issuance of preferred and common stock ........          --          700,501
         Change in bank overdraft ....................................          --          (41,443)
         Net borrowings on financing agreement                             1,076,497        387,188

         Net repayments of notes payable and capital leases                  (16,166)          --
                                                                         -----------    -----------

                             Net cash provided by financing activities     1,093,664        979,580
                                                                         -----------    -----------
Net decrease in cash .................................................      (359,531)       (14,700)
Cash at beginning of quarter .........................................       648,986        177,722
Cash at end of quarter ...............................................   $   289,455    $   163,022

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

                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  June 30, 1998
                                   (Unaudited)


Note 1.           General

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

Note 2.           Debt Conversion

         In June  1998,  the  Company  and ABC  Fund,  Inc.  ("ABC"),  a  Belize
corporation,  the holder of a 5% Convertible Secured Subordinated  Debenture Due
August 15,  2000 (the  "Debenture")  dated  January 21, 1998 agreed to amend the
terms of the  Debenture to enable the  conversion  of the  principal  amount and
accrued interest thereon, into shares of Playco's Series E Preferred Stock, at a
conversion price of $1.00 per share. Simultaneously,  ABC elected to convert the
Debenture  as of June 30,  1998,  whereby,  $1.5  million  principal  amount and
$33,333 in accrued  interest were converted  into  1,533,333  shares of Series E
Preferred  Stock.  ABC did not receive any  registration  rights  regarding  the
shares.

         Simultaneous  with the conversion of the Debenture,  ABC terminated the
Subordinated  Security  Agreement  between the parties and the Intercreditor and
Subordination  Agreement by and between ABC and Finova Capital Corporation dated
January 21, 1998.

         ABC, or its assigns,  retained a right  included in the  Debenture,  to
purchase up to an aggregate of 25% of the outstanding  shares of common stock of
a subsidiary  of the Company.  The purchase  price per share shall equal the net
book value per share of the subsidiary's common stock as of the date of exercise
using generally accepted accounting principals. The calculation of the number of
shares subject to this right and the purchase price per share shall be as of the
date that the Company receives  notification  that the right is being exercised.
This right shall extend until August 15, 2000, which shall automatically  extend
until  August 15, 2003  unless  earlier  terminated  by ABC Fund,  Inc.,  or its
assignee.





<PAGE>
Note 3.           Subsequent Events

         On July 15, 1998, the Company  borrowed  $300,000 from Breaking  Waves,
Inc., an affiliate, and issued an unsecured 9% promissory note (the ANote@). The
Note calls for five monthly installments of principal and interest commencing in
August 1998 and ending December 30, 1998.

         On July 22, 1998, the Company entered into a Lead  Generation/Corporate
Relations  Agreement with Corporate Relations Group, Inc., a Florida corporation
(ACRG@),  pursuant  to which CRG shall  provide  investor  and public  relations
services  to the  Company  for a period  of five  years.  Under the terms of the
Agreement,  the Company paid $100,000 to CRG upon execution of the agreement and
agreed to issue 50,000  shares of the  Company's  Series E Preferred  Stock as a
reimbursement for expenses.  In addition,  the Company granted to CRG options to
purchase  350,000  shares of Common  Stock at an exercise  price of $0.78125 per
share and  400,000  shares of Series E Preferred  Stock at an exercise  price of
$2.25 per share.  In a related  agreement,  the Company  issued  options to four
principals of CRG entitling each to purchase 25,000 shares of Common Stock at an
exercise  price of $0.78125 and 75,000 shares of Series E Preferred  Stock at an
exercise price of $2.25 per share.

         On July 27, 1998, the Company sold 100,000 shares of Series E Preferred
Stock to United Toys & Textiles Corp., the Company's principal stockholder,  for
$100,000.

         Effective July 30, 1998,  the Company and FINOVA  Capital  Corporation,
the Company=s working capital lender,  amended the Company=s credit agreement to
increase the maximum level of borrowings  under the agreement  from $7.1 million
to $7.6 million.

                                                       5


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

Results of Operations

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

     The Company is a subsidiary of United Textiles & Toys Corp. (AUTTC@), which
currently owns  approximately  59.3% of the issued and outstanding shares of the
Company=s Common Stock.

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

     The Company  generated net sales of  $6,357,395  for the three months ended
June 30, 1998.  This  represented an increase of $3,214,582,  or 102%,  from net
sales of  $3,142,813  in the three  months  ended June 30,  1997.  Approximately
$1,900,000  of this sales growth came from  increases  in same store sales.  The
remaining increase in sales of approximately $1,300,000 is attributable to sales
from the  Company=s  new stores.  The  Company=s  same store sales  increased by
approximately 69% for the three months ended June 30, 1998 over the three months
ended June 30, 1997.  Specialty toys represented the primary  contributor to the
sales growth from a sales mix standpoint.

     The Company  posted a gross profit of $2,651,064 for the three months ended
June 30, 1998,  representing an increase of $1,481,616,  or 127%, from the gross
profit of $1,169,448 for the three months ended June 30, 1997. This  represented
an increase in the  Company=s  gross margin from 37.2% for the June 1997 quarter
to 41.7% for the June 1998  quarter.  This 4.5%  gross  margin  improvement  was
largely due to the ongoing implementation of the Company=s business plan to sell
educational,  new electronic interactive, and specialty and collectible toys and
items in high traffic malls from its prior plan of selling  traditional  toys in
stores located in strip shopping  centers.  The mix of specialty and educational
toys, generally produce better margins than traditional toys.

     Operating   expenses  for  the  three  months  ended  June  30,  1998  were
$2,483,771.  This  represented a $439,119,  or 21.5%,  increase in the Company=s
operating  expenses from a level of  $2,044,652  for the three months ended June
30, 1997. The operating  expense increase was primarily due to a $280,034 growth
in payroll and  payroll-related  expense  largely  related to the opening of new
locations.

     During the three months ended June 30, 1998, the Company recorded  non-cash
depreciation  and  amortization  expenses of  $188,417,  representing  a $49,390
increase  from  $139,027  recorded for the quarter  ended June 30,  1996.  Total
operating   expenses   (operating   expenses   combined  with  depreciation  and
amortization)  for  the  June  1998  quarter  were  $2,672,188,  representing  a
$488,509,  or 22.4%,  increase  from  total  operating  expenses  of  $2,183,679
recorded for the June 1997 quarter.

     As a result of the $1,481,616  increase in gross profit partially offset by
the $488,509 increase in total operating expenses,  the Company=s operating loss
decreased by $993,107  from an  operating  loss of  $1,014,231  during the three
months  ended June 30,  1997 to an  operating  loss of $21,124  during the three
months ended June 30, 1998.

     Interest expense totaled $165,652 for the three months ended June 30, 1997.
This represented a $29,621, or 15.2%, decrease from interest expense of $195,273
for the three months ended June 30,  1997.  The primary  reason for the decrease
was the  completion of the  amortization  of debt issuance  costs related to the
Company=s previous financing arrangement in the fiscal year ended March 31, 1998
in connection with the Company's prior credit financing  company.  Those charges
were  recorded as interest  expense.  The  Company had  amortization  expense of
$27,200 in the June 1998 quarter related to the FINOVA financing agreement.
<PAGE>
     As a result of the above mentioned factors, the Company recorded a net loss
of  $(186,776)  for the three  months ended June 30, 1997.  This  represented  a
$1,022,728  improvement over the net loss of $(1,209,504)  recorded in the three
months ended June 30, 1997.

     The basic and diluted  loss per share for the three  months ended June 1998
was $(0.05) compared to a basic and diluted net loss per share in the comparable
June 1997  quarter of $(0.30).  The  weighted  average  number of common  shares
outstanding  increased  from  4,083,739 in the June 1997 quarter to 4,103,525 in
the June 1998 quarter.

Liquidity and Capital Resources

     At June 30, 1998, the Company had working capital of $5,096,166 compared to
a working  capital  position of  $4,452,481  at March 31, 1998.  The Company has
generated  operating  losses  for the past  several  years and has  historically
financed  those losses and its working  capital  requirements  through loans and
sales of the  Company's  equity  securities,  primarily  through the sale of the
Company's Series E preferred  stock.  There can be no assurance that the Company
will be able to generate  sufficient  revenues or have sufficient  controls over
expenses and other charges to achieve profitability.

         During the three month  quarter  ended June 30, 1998,  the Company used
$958,117 of cash in its  operations  compared to $929,762 used in operations for
the  three  month  quarter  ended  June 30,  1997.  The  Company=s  net loss was
approximately $187,000 and $1,209,000, respectively, in those quarters.

     The Company used  $461,745 of cash in its investing  activities  during the
three month  quarter ended June 30, 1998 compared to $64,518 for the three month
quarter ended June 30, 1996. All of the Company=s  investing  activities related
to  purchases of property and  equipment,  primarily  related to openings of new
stores.

         The Company generated  $1,060,331 from its financing  activities in the
three month quarter  ended June 30, 1998 compared to the  generation of $979,580
from  financing  activities for the three month quarter ended June 30, 1996. The
primary cash contribution to the Company=s financing activities in the June 1998
quarter was net borrowing of $1,076,497  under its financing  agreement.  In the
June  1997  quarter,   the  primary  contribution  to  the  Company=s  financing
activities  was from $700,000 in proceeds from the issuance of preferred  stock.
In both quarters,  the proceeds of financing activities were used to finance the
Company=s  working capital and capital  expenditure  requirements  and operating
losses.

         As a result of the above  factors,  the Company  had a net  decrease in
cash of $359,531 for the three month  quarter  ended June 30, 1998 compared to a
net decrease in cash of $14,700 for the three month quarter ended June 30, 1997.

         During the three months ended June 30, 1998, the Company  relocated its
Toys  International  store within the Century City  Shopping  Center in west Los
Angeles.  During the same quarter,  the Company also began construction on a new
store in a mall near Las Vegas,  located in Primm, Nevada, which store opened in
July 1998.  Both of these locations are high traffic  shopping malls.  Those two
stores represented an aggregate capital investment of approximately $550,000.

         The Company has signed  leases to open five  additional  stores in high
traffic  malls in 1998,  including  locations in Texas,  Illinois,  Michigan and
southern California.  The cost involved in opening these five new locations will
require a estimated  capital  expenditure of approximately  $1.3 million to $1.6
million.  The  Company  plans to  finance  the  capital  expenditure  through  a
combination  of working  capital,  landlord  tenant  improvement  contributions,
capital leases,  drawing down on its credit line and through  additional  equity
investments, though the Company does not presently have any agreements to obtain
said equity  investments  and can not give any assurances  that it will have the
funds when needed to meet the capital  requirements to open these locations.  In
May 1998, the Company  commenced an offering of Units,  each Unit comprising one
share of the Company=s Series F Preferred Stock and one Series F Preferred Stock
Purchase  Warrant at a purchase  price of $3.00 per Unit,  through  Morgan Grant
Capital  Group,  Inc., as placement  agent.  This offering has been  terminated,
whereby,  no funds were raised.  In June 1998, the Company  entered into a five-
year capital lease for  approximately  $84,000 to partially  finance the cost of
its relocated  Century City store. The Company is in the  documentation  process
for an  additional  capital  lease to  partially  finance the cost of its Nevada
store.
<PAGE>
         In July 1998, the Company and FINOVA Capital  Corporation,  its working
capital lender,  amended the Company=s  credit agreement to increase the maximum
level of borrowings  under the agreement from $7.1 million to $7.6 million.  The
Company  expects  to  utilize  this  additional  amount  on its  credit  line to
partially finance either its working capital,  particularly inventory purchases,
or the capital expenditure requirements noted above.

     In July 1998,  the  Company  borrowed  $300,000  from  Breaking  Waves,  an
affiliate,  under an unsecured 9% promissory  note (the ANote@).  The Note calls
for monthly  principal and interest payments through December 30, 1998, when the
Note is scheduled for repayment in full.

Year 2000

         An additional  area that  represents a near term  commitment of capital
resources  is the  Company=s  management  information  system.  The  Company has
investigated its existing management  information system and has determined that
it does not provide  sufficient  scope to support the planned  level of expanded
operations  and,  furthermore,  is not year  2000  compliant.  The  Company  has
explored the cost of upgrading its current  system or purchasing a new system to
meet the projected demands of the business and to become year 2000 compliant.

         In order to minimize the disruption to its operations,  the Company has
decided to upgrade its  existing  system to increase the scope of the system and
to become year 2000 compliant.  The Company estimates that the cost of upgrading
its  current  system  will be  approximately  $100,000.  Beyond the above  noted
internal  year 2000 system  issue,  the Company has no current  knowledge of any
outside  third party year 2000 issues that would  result in a material  negative
impact on its operations. Should the Company become aware of any such situation,
contingency plans will be developed.

Trends Affecting Liquidity, Capital Resources and Operations

         As a  result  of  its  planned  merchandise  mix  change  to  emphasize
specialty and educational toys, the Company enjoyed  significant sales and gross
profits in the three months ended June 30, 1998. Which specialty and educational
mix  includes;  collectible  die cast  cars,  specialty  yo-yo=s,  Rokenbok  and
Learning Curve toys, and Beanie  Babies7 and other plush and  educational  toys.
While the Company  believes these  particular  toys will remain popular with its
customer base for the remainder of calendar year 1998, there can be no assurance
that these particular specialty toys will continue to contribute strongly to the
Company=s  sales and gross  profits.  The history of the toy industry,  however,
indicates that there is generally at least one highly popular toy every year.

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

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

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

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

                                        6


<PAGE>
                                     PART II

Item 1.                    Legal Proceedings

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

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

<S>                                                                                  <C>
Item 2.                    Changes in Securities and Use of Proceeds:                None

Item 3.                    Defaults Upon Senior Securities:                          None

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

Item 5.                    Other Information:                                        None

Item 6.                    Exhibits and Reports on Form 8-K
</TABLE>

<TABLE>
<CAPTION>

                  <S>                                <C>                           
                  Exhibit 10.94             -        Lease Agreement for Store-Concord Mills (Play Co. Toys)
                  Exhibit 10.95             -        Lease Agreement for Store-Katy Mills (Play Co. Toys)
                  Exhibit 10.96             -        Lease Agreement for Store-Concord Mills (Toy Co.)
                  Exhibit 10.97             -        Lease Agreement for Store-Katy Mills (Toy Co.)
                  Exhibit 10.98             -        Lease Agreement for Store-Ontario Mills (Toy Co.)
                  Exhibit 10.99             -        Amendment No. 1 to Finova Loan Agreement
                  Exhibit 10.100            -        Amendment to Lease Agreement for Store-Rancho Cucamonga (Play Co. Toys)  
                                                     (filed concurrently with Form 10-QSB via Form SE)
                  Exhibit 10.101            -        Company & Corporate Relations Group, Inc. Lead Generation/Corporate Relations 
                                                     Agreement, dated July 22, 1998
                  Exhibit 27                -        Financial Data Schedule
</TABLE>

                                        7


<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 August 1998.


                                             PLAY CO. TOYS & ENTERTAINMENT CORP.



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


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


                                        8