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

                                 FORM 10-QSB/A-2
                                   (Mark One)

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

                  For the quarterly period ended June 30, 1999

                                       OR

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

             For the transition period from __________ to __________

                         Commission File Number O-25030

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

                    Delaware                           95-3024222
         (State or Other Jurisdiction of       (IRS Employer Identification No.)
         Incorporation or Organization)

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

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

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     State the number of shares of each of the issuer's classes of common equity
outstanding as of the latest  practicable date:  Common Stock,  $0.01 par value:
5,548,857 shares outstanding as of August 12, 1999.

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

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>


PART I.                                             FINANCIAL INFORMATION                                       Page Number

Item 1.             FINANCIAL STATEMENTS

<S>                                                      <C> <C>                                                          <C>
                    Condensed Balance Sheets as of  June 30, 1999 (unaudited)                                             3
                    and March 31, 1999.

                    Condensed Statements of Operations and Comprehensive Net Loss for the Three Months
                    Ended June 30, 1999 and 1998 (unaudited).                                                             4

                    Condensed Statements of Cash Flows for the Three Months Ended June 30, 1999 and 1998
                    (unaudited).                                                                                          5

                    Notes to Condensed Financial Statements                                                            6-12

Item 2.             MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS
                                                                                                                      13-21
PART II.                                              OTHER INFORMATION

                                                                                                                         22
Item 1.             LEGAL PROCEEDINGS

Item 2.             CHANGES IN SECURITIES AND USE OF PROCEEDS                                                            22

Item 3.             DEFAULTS UPON SENIOR SECURITIES                                                                      22

Item 4.             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                  22

Item 5.             OTHER INFORMATION                                                                                    22

Item 6.             EXHIBITS AND REPORTS ON FORM 8-K                                                                     22

                    Signatures                                                                                           23


</TABLE>


            See accompanying notes to condensed financial statements

                                        5
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                  ASSETS                       June 30,1999                 March 31, 1999
                                                                            Restated (Note 5)          Restated (Note 5)
                                                                               (Unaudited)
                                                                          -----------------------    ----------------------
Current
<S>                                                                                   <C>                       <C>
      Cash                                                                            $  392,745                $  125,967
      Accounts receivable                                                                131,836                    98,276
      Merchandise inventories                                                         12,247,019                11,506,284
      Other current assets                                                             1,320,550                 1,591,629
                                                                                       ---------                 ---------
               Total current assets                                                   14,092,150                13,322,156
Property and Equipment, net of accumulated
      depreciation and amortization of $4,283,071
      and $4,058,603, respectively                                                     5,583,035                 5,348,175
Deposits and other assets                                                              2,922,838                 2,411,427
                                                                                       ---------                 ---------
                                                                                    $ 22,598,023              $ 21,081,758
                                                                                    ============              ============

                                             LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                               June 30, 1999            March 31, 1999
                                                                              Restated (Note 5)        Restated (Note 5)
                                                                                 Unaudited
                                                                            ---------------------    ----------------------
Current
      Accounts payable                                                               $ 7,931,269               $ 5,611,442
      Accrued expenses and other liabilities                                             327,025                   595,008
      Current portion of notes payable and capital leases                              1,212,088                 1,352,197
                                                                                       ---------                 ---------
               Total current liabilities                                               9,470,382                 7,558,647
Borrowings under financing agreement                                                   8,263,713                 7,814,666
Notes payable, and capital leases, net of current portion                                572,838                   585,681
Deferred rent liability                                                                  129,534                   126,769
                                                                                       ---------                 ---------
               Total liabilities                                                      18,436,467                16,085,763
                                                                                       ---------                 ---------
Stockholders' equity
      Series E convertible preferred stock, $1 par value
        10,000,000 shares authorized;
        5,883,903 shares outstanding                                                   6,239,074                 5,761,101
      Series F convertible preferred stock, $.01 par value,
        5,500,000 shares authorized; 750,000 and 0
        shares outstanding, respectively (Note 3)                                        107,143                         -
      Common stock, $.01 par value, 40,000,000 shares
        authorized; 5,548,857 and 5,503,519 shares
        Outstanding, respectively                                                         55,488                    55,035
      Additional paid-in-capital                                                      16,619,319                15,906,172
      Accumulated deficit                                                            (18,859,468)              (16,726,313)
                                                                                       ---------                 ---------
               Total stockholders' equity                                              4,161,556                 4,995,995
                                                                                       ---------                 ---------
                                                                                    $ 22,598,023              $ 21,081,758
                                                                                    ============              ============
</TABLE>


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

                       CONDENSED STATEMENTS OF OPERATIONS
                           AND COMPREHENSIVE NET LOSS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                Three Months Ended June 30,
                                                                                                 1999                       1998
                                                                                      Restated (Note 5)
                                                                                                                     -------------

<S>                                                                                         <C>                        <C>
Net sales                                                                                   $6,508,565                 $6,357,395
Cost of sales                                                                                3,763,214                  3,706,331
                                                                                             ---------                  ---------
            Gross profit                                                                     2,745,351                  2,651,064
                                                                                             ---------                  ---------

Operating expenses:
           Operating expenses                                                                3,753,528                  2,483,771
           Depreciation and amortization                                                       224,468                    188,417
                                                                                             ---------                  ---------
            Total operating expenses                                                         3,977,996                  2,672,188
                                                                                             ---------                  ---------

Operating loss                                                                              (1,232,645)                   (21,124)
                                                                                             ---------                  ---------

Interest expense:
           Interest and finance charges                                                         284,664                   138,452
           Amortization of debt issuance costs                                                   30,730                    27,200
            Effective non-cash interest expense from
            beneficial                                                                          650,000                         -
                                                                                             ---------                  ---------
                conversion feature
            Total interest expense                                                              965,394                   165,652
                                                                                             ---------                  ---------

Net loss before extraordinary gain                                                           (2,198,039)                 (186,776)

Extraordinary gain on modification of debt terms (Note 4)                                       650,000                         -
                                                                                             ---------                  ---------

Net loss                                                                                     (1,548,039)                 (186,776)

     Other comprehensive loss                                                                         -                         -
                                                                                             ---------                  ---------
Comprehensive net loss                                                                      $(1,548,039)                $(186,776)
                                                                                           ============                 =========

Calculation of Basic and Diluted Loss Per Share:
           Net loss                                                                          (1,548,039)                 (186,776)
           Effect of non-cash dividends on
           preferred stock                                                                     (585,116)                 (273,806)
                                                                                             ---------                  ---------

Net loss applicable to common shares                                                       $ (2,133,155)                $(460,582)
                                                                                           ============                 =========
Basic and diluted loss per common
   Share and share equivalents                                                                $   (0.39)                 $  (0.11)
                                                                                           ============                 =========

Weighted average number of  common
Shares and share equivalents
   outstanding                                                                                5,525,936                 4,103,525
                                                                                           ============                 =========

</TABLE>
<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,
                                                                                                1999                  1998
                                                                                        Restated (Note 5)
                                                                                      -----------------------    ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                             <C>                 <C>
            Net loss                                                                            $(1,548,039)        $ (186,776)
            Adjustments used to reconcile net loss to net cash used for operating
            activities:
                   Depreciation and amortization                                                    224,468            188,417
                   Deferred rent                                                                      2,764              4,552
                   Stock compensation                                                                56,100             10,938
                   Extraordinary gain (Note 4)                                                     (650,000)                 -
                   Effective interest for beneficial conversion (Note 4)                            650,000                  -

            Increase (decrease) from changes in:
                   Accounts receivable                                                              (33,560)            26,618
                   Merchandise inventories                                                         (740,735)        (1,503,233)
                   Other current assets                                                             271,079           (127,228)
                   Deposits and other assets                                                       (511,410)           (93,072)
                   Accounts payable                                                               2,319,827          1,249,369
                   Accrued expenses and other liabilities                                          (267,983)          (527,702)
                                                                                                   --------           --------

                   Net cash used for operating activities                                          (227,489)          (958,117)
                                                                                                   --------           --------

CASH FLOWS FROM INVESTING ACTIVITIES:
            Purchases of property and equipment                                                    (196,653)          (377,028)
                                                                                                   --------           --------

                   Net cash used for investing activities                                          (196,653)          (377,028)
                                                                                                   --------           --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuance of preferred stock                                                      657,500                  -
     Borrowings under financing agreements                                                        8,561,047          8,099,497
     Repayments under financing agreements                                                       (8,112,000)        (7,023,000)
     Borrowings under notes payable                                                                 200,000                  -
     Repayments of notes payable and capital leases                                                (615,627)          (100,883)
                                                                                                   --------           --------

                   Net cash provided by financing activities                                        690,920            975,614
                                                                                                   --------           --------

Net increase (decrease) in cash                                                                     266,778           (359,531)

Cash at beginning of period                                                                         125,967            648,986
                                                                                                   --------           --------

Cash at end of period                                                                             $ 392,745          $ 289,455
                                                                                                  =========          =========

</TABLE>
<PAGE>
Note 1.  General

The interim  accompanying  unaudited  condensed  financial  statements have been
prepared in accordance with generally accepted  accounting  principles  ("GAAP")
for interim  financial  information  and with the  instructions  to Form 10-QSB.
Accordingly,  they do not include all of the information and footnotes  required
by GAAP for complete  financial  statements.  In the opinion of management,  all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair  presentation  have been  included.  For  further  information,  management
suggests that the reader refer to the audited financial statements,  as restated
(Note 6), for the year ended  March 31, 1999  included  in its Annual  Report on
Form 10-KSB.  Operating  results for the three-month  period ended June 30, 1999
are not necessarily indicative of the results of operations that may be expected
for the year ending March 31, 2000.

Note 2.  Capital Leases

During the  three-month  period  ended June 30, 1999,  the Company  entered into
several  capital  leases and loans to help  finance  the cost of opening its new
stores.  The leases are for an  aggregate  principal  amount of  $262,675.  They
generally carry terms of five years and bear interest at rates between 13.3% and
18.0%.

Note 3.  Series F Private Placement

On May 27, 1999, pursuant to a Securities Purchase Agreement entered into by and
between the Company and several unaffiliated investors, the Company sold 750,000
unregistered  shares of Series F Preferred Stock ("Series F Stock") in a private
transaction. As part of the Securities Purchase Agreement, the Company undertook
to register the Common Stock underlying the Series F Stock through the filing of
a registration statement with the Securities and Exchange Commission. Each share
of Series F Stock is convertible  into two shares of Common Stock, at the option
of the holder,  at any time  following  the effective  date of the  registration
statement,  expected  to occur in  January,  2000.  Each share of Series F Stock
shall convert  automatically  on the  occurrence of the earlier of either of the
following  events,  without  action on the part of the holder  thereof:  (i) two
years from  issuance or (ii) in the event the closing  price per share of Common
Stock has been at least  $5.00 for a  consecutive  30 day  period.  The  Company
received net proceeds of $657,500 after deduction of all investment  banking and
legal and administrative fees.


<PAGE>
Note 3.  Series F Private Placement (continued)

As part of the Private Placement, the Company granted an option to the Placement
Agent and its assignees to purchase an aggregate 350,000 shares of Common Stock,
with an  exercise  price of $3.00 per share for a period of four  years from the
date of closing of the Private Placement.  Utilizing the Black-Scholes valuation
model,  the options  were  valued at  $507,000,  or $1.45 per option.  The model
utilized several variables to determine the value including the current price of
the stock and its expected  volatility,  and the risk-free interest rate for the
expected  term.  The current  stock price was $1.69 on the May 27, 1999  closing
date.  Based on an analysis of the stock price over the previous  twenty months,
the  volatility  factor  utilized  was  155%.  Additionally,  the  model  used a
risk-free interest rate of 6.0%.

Additionally,  as commission, the Placement Agent received a 10% fee, or $75,000
and a 1% fee, or $7,500 to cover administrative  expenses. The Private Placement
closed on May 27, 1999,  providing  net cash proceeds of $667,500 to the Company
before legal and other administrative expenses.

Due to the  beneficial  conversion  feature of the Series F Stock,  the proceeds
have been  recorded  initially as  additional  paid - in capital,  which will be
amortized  over a 7-month  period in the form of a non-cash  dividend.  The time
period  corresponds  with the  expected  length of time in order to register the
securities.

Note 4.  Extraordinary Gain

In May 1999, the Company and these two creditors,  EACF and Frampton,  agreed to
modify certain terms of their convertible debentures.  The debentures originally
contained a 50%  discount  factor to the market  price of the Series E Preferred
Stock. The amended  debenture was changed to eliminate the discount based on the
market price on the date of the original agreement.  This changed the conversion
price from $.10 per share to $.20 per share; i.e., for every $100,000 converted,
the holder would receive only 500,000 shares instead of 1,000,000 as a result of
the  modification  in terms.  The Company had  previously  recognized a $650,000
non-cash  effective  interest  expense  for the year ended March 31,  1999.  The
Company has subsequently  applied the provisions of EITF 96-19 to recognize this
modification of debt terms as an  extinguishment of debt since the modifications
significantly  changed the terms of the debt instrument.  The extinguishment was
recorded as an extraordinary gain of $650,000 was subsequently recognized in the
quarter  ended June 30, 1999.  However,  since the  agreement was revised in May
1999,  the revised  agreement  is treated as a new  arrangement  for  accounting
purposes.  At the date of the amended  agreement,  the $.20 conversion price was
substantially  lower than the  approximate  $2.00 per share closing market price
for the Series E Preferred  Stock.  As such, the modified  agreement  contains a
beneficial conversion feature, the amount of which is limited to the proceeds of
$650,000 under Topic D-60 of the EITF. Therefore,  the Company also subsequently
recognized  $650,000 in non-cash  effective  interest expense for the beneficial
conversion  feature  in the  quarter  ended  June 30,  1999  since  the  revised
agreement was treated as a new debt instrument.

<PAGE>
Note 5.  Restatement of Amounts Previously Reported

The  March 31,  1999 and June 30,  1999  financial  statements  contain  certain
restatements of amounts previously reported. The restatements were the result of
inquiries  made by the SEC regarding the accounting  treatment for  transactions
revolving around the Company's debt and equity  securities,  including grants of
options/stock,  convertible  debentures,  and convertible  preferred stock. As a
result, the Company has restated several amounts, which are described below. The
table  below  identifies  significant  changes  to  balances  in  the  financial
statements.

The  revision  for the grant of options  relates to the  Company  recognizing  a
prepaid  expense  for the fair value of options at the time it entered  into two
agreements  to  issue  options,  the  related  services  for  which  were  never
performed.   Therefore,   the  Company   reversed  the   accounting   for  these
transactions.  See Items 1 and 4 below for the impact on the  balance  sheet and
Item 2 below for the impact on the statement of operations and comprehensive net
income (loss). This reduction of other current assets is less than the amount of
the adjustment to additional  paid-in  capital in Item 4 because of the reversal
of the  amortization of the prepaid expense recorded during the year ended March
31, 1999.

The  revision  for the Series E  Preferred  Stock was to record the  issuance of
shares  to  officers  for  which  the  Company  did  not  previously   recognize
compensation expense during the year ending March 31, 1999. See Item 2 below for
the  impact  on the  balance  sheet,  and  Item 1 below  for the  impact  on the
consolidated statement of operations and comprehensive net income (loss).

The revision in Item 3 below is to reflect accounting necessary for a beneficial
conversion feature included in $650,000 of debentures convertible into shares of
Series E Preferred  Stock at a discount  from the trading  price of the Series E
Preferred Stock.



<PAGE>
Note 5.  Restatement of Amounts Previously Reported (continued)

         The  following  is a summary of the impact of the  restatements  on the
March 31, 1999 consolidated balance sheet.
<TABLE>
<CAPTION>
<S>                              <C>                                                           <C>
1.       Reduction  of other  current  assets for options not  ultimately
         issued (CRG for $35,000 and Typhoon for  $44,000,  net of
         amortization expense of $10,366)                                                      $       (68,634)

2.       Increase in Series E Preferred Stock for issuance of shares to officers                        79,000

3.       Increase in additional paid-in capital for beneficial conversion feature
         of convertible debentures                                                                     650,000

4.       Reduction in additional paid-in capital for the options never issued to
         CRG and Typhoon                                                                               (79,000)

5.       Additional net loss in accumulated deficit (from above items)                                 718,634

         The  following  is a summary of the impact of the  restatements  on the
         March 31, 1999  consolidated  statement of operations and comprehensive
         net income (loss).

1.       Increase in operating  expenses from  recognition  of  compensation
         expense from  issuance of Series E Preferred  Stock to  officers                      $        79,000

2.       Reduction in operating expenses from reversing amortization for options
         not ultimately issued                                                                         (10,366)

3.       Additional effective non-cash interest expense attributable to the
         beneficial conversion feature of convertible debentures                                       650,000
                                                                                               ---------------
              Decrease in March 31, 1999 net income                                            $       718,634
                                                                                               ===============

</TABLE>
<PAGE>
Note 5.  Restatement of Amounts Previously Reported (continued)

The  effects  on the  Company's  previously  issued  March  31,  1999  financial
statements are summarized as follows.
<TABLE>
<CAPTION>
                                                             Previously         Increase
                                                              Reported         (Decrease)        Restated
                                                           ---------------  ----------------  ---------------

Consolidated Balance Sheet:
<S>                                                        <C>              <C>               <C>
       Other current assets                                $     1,310,263  $        (68,634) $     1,241,629

           Total assets                                    $    21,150,392  $        (68,634) $    21,081,758
                                                           ===============  ================  ===============

       Series E convertible preferred stock                $     5,682,101  $         79,000  $     5,761,101
       Additional paid-in capital                               15,335,172           571,000       15,906,172
       Accumulated deficit                                     (16,007,679)          718,634      (16,726,313)

          Total liabilities and stockholders' equity       $    21,150,392  $        (68,634) $    21,081,758
                                                           ===============  ================  ===============

Consolidated Statement of Operations and
    Comprehensive Income (Loss):
       Operating expenses                                  $    12,658,376  $         68,634  $    12,727,010
       Effective interest for beneficial
         conversion feature                                              -           650,000          650,000

       Net income (loss) and comprehensive
         net loss                                          $       140,868  $       (718,634) $      (577,766)
                                                           ===============  ================  ===============
       Net income (loss) applicable to
         common shares                                     $    (1,566,857) $       (718,634) $    (2,285,491)
                                                           ===============  ================  ===============
       Basic and diluted income (loss) per
         common share and share equivalents                $         (.34)  $         (.16)   $         (.50)
                                                           ==============   ==============    ==============
</TABLE>
<PAGE>
Note 5.  Restatement of Amounts Previously Reported (continued)

The  following  is a summary of the impact of the  restatements  on the June 30,
1999 consolidated  financial  statements which include the cumulative effects of
the  restatements  made to the March 31, 1999  financial  statements as detailed
above.
<TABLE>
<CAPTION>

Balance Sheet
<S>                                                                                          <C>
1.       Reduction of other current assets for options not ultimately issued,
         net of previously recorded amortization                                             $              (67,072)

2.       Increase in Series E Preferred Stock for issuance of shares                                         79,000

3.       Increase in additional paid-in capital for beneficial conversion feature
         of convertible debentures                                                                          650,000

4.       Reduction in additional  paid-in capital for  extraordinary  gain from
         modification of debt terms,  which was considered a debt extinguishment
         from significant modification in the terms under EITF 96-19.                                      (650,000)

5.       Increase in additional paid-in capital for beneficial  conversion
         feature of revised convertible  debentures treated as new debt instruments
         (Note 4)                                                                                           650,000

6.       Reduction in additional paid-in capital for cancellation of options                                (79,000)

7.       Increase in Series F Preferred  Stock to reflect change in  amortization
         period for  beneficial  conversion  feature.  The  amortization for the
         dividend associated with the beneficial conversion feature of the
         securities was initially to be recognized over the two-year hold period.
         The amortization  period  was  changed  to seven  months to  correspond
         to the expected timeframe to bring the Series F Stock registration statement
         effective, since this is the first instance when the Series F Stock is
         able to be converted.                                                                               44,643

8.       Additional  net  loss  and  non-cash  dividend  in  accumulated  deficit.
         The increase in the accumulated deficit is attributable to a cumulative
         increase of $718,634 for the year ended March 31, 1999 (see previous
         table  outlining  changes in the March 31, 1999 balance  sheet),  less
         $1,562 in operating  expenses  attributed to the reversal of amortization
         expense of prepaid stock options that were not issued,  plus an additional
         non-cash dividend of $44,643  related  to  the  change  in  the
         amortization  period  of  the  beneficial conversion feature, as noted
         in 7. above.                                                                                       761,715

9.       Net reduction in stockholders' equity                                                              (67,072)
</TABLE>
<PAGE>
Note 5.           Restatement of Amounts Previously Reported (continued)

Statement of Operations and Comprehensive Net Income (Loss)
<TABLE>
<CAPTION>
<S>                                                                                                <C>
1.       Net decrease in operating expenses from reversal of amortization of
         stock options not issued                                                                  $        (1,562)

2.       Additional  effective non-cash interest expense  attributable to the
         beneficial  conversion feature of revised  convertible debentures
         treated as new debt instruments (Note 4)                                                          650,000

3.       Extraordinary gain from modification of debt terms, since such
         modifications were significant to be considered a debt extinguishment
         under EITF 96-19                                                                                  650,000

         Decrease in net loss for the three months ending June 30, 1999                            $        (1,562)
                                                                                                   ================
</TABLE>

The  effects on the  Company's  previously  submitted  June 30,  1999  financial
statements are summarized as follows.
<TABLE>
<CAPTION>
                                                             Previously         Increase
                                                              Reported         (Decrease)        Restated
                                                           ---------------  ----------------  ---------------
Consolidated balance sheet:
<S>                                                        <C>              <C>               <C>
       Other current assets                                $     1,387,622  $        (67,072) $     1,320,550

           Total assets                                    $    22,665,095  $        (67,072) $    22,598,023
                                                           ===============  ================  ===============

       Series E convertible preferred stock                $     6,160,074  $         79,000  $     6,239,074
       Additional paid-in capital                               16,048,319           571,000       16,619,319

          Total liabilities and stockholders' equity       $    22,665,095  $        (67,072) $    22,598,023
                                                           ===============  ================  ===============

Consolidated statement of operations and comprehensive loss:
       Operating expenses                                  $     3,755,090  $         (1,562) $     3,753,528
       Effective interest for beneficial
         conversion feature                                              -           650,000          650,000
       Extraordinary gain on extinguishment
          of debt                                                        -           650,000          650,000

       Net income(loss)                                    $    (1,549,601) $          1,562  $    (1,548,039)
                                                           ===============  ================  ===============

       Non-cash dividends on preferred stock                      (540,473)           44,643         (585,116)
       Net income(loss) applicable to
         common shares                                     $    (2,090,074) $         43,081  $    (2,133,155)
                                                           ===============  ================  ===============
       Basic and diluted income(loss) per
         common share and share equivalents                $         (.39)  $              -  $         (.39)
                                                           ==============   ================  ==============

</TABLE>
<PAGE>
Note 6.  Subsequent Events

On July 15, 1999, Tudor  Technologies,  Inc.  ("Tudor") - an entity of which Mr.
Moses Mika (a director of the Company) is a  shareholder - as the assignee of an
option to  acquire  25% of the  outstanding  shares of the  common  stock of the
Company's subsidiary,  Toys International.COM,  Inc. ("Toys"), which shares were
then owned by the Company and which  option price was set at Toys' book value on
the date of election to exercise  the option,  elected to exercise  its right to
purchase the stock and requested  that the exercise  price be amended to reflect
the book value of Toys at the most recent  fiscal  quarter,  June 30, 1999.  The
Company agreed to Tudor's request. As the book value of Toys as of June 30, 1999
is not yet determined, the Company has not yet provided Tudor with the basis for
the option  exercise  and, as a result,  Tudor has not yet  provided the Company
with the appropriate consideration. The Company anticipates that it will provide
Tudor the June 30, 1999 book value determination by the end of August 1999.

This option arose out of the June 30, 1998 conversion, by ABC Fund, Inc. ("ABC,"
an  affiliate  of the  Company),  of a $1.5  million  debenture  into  Series  E
Preferred Stock ("Series E Stock") as of June 30, 1998. Pursuant to the terms of
the  debenture,  in September  1998, ABC assigned its right to purchase the Toys
common stock to Tudor.

On July  20,  1999,  Toys  completed  a  placement  of its  Common  Stock to two
investors for $2.8 million in gross proceeds in a private  transaction.  The new
shares  issued  represented  a 6.6%  interest  in Toys.  The  investors  were an
unaffiliated  investment banking firm and CDMI Capital Corporation  ("CDMI"),  a
British Virgin  Islands  corporation.  Mr. Mika is a shareholder  of CDMI.  Each
party invested $1.4 million in the transaction.

The Company accounted for this as a capital  transaction,  and therefore did not
recognize  any  gain  or loss  on the  transaction.  The  Company  followed  the
guidelines  established  by the SEC under Staff  Accounting  Bulletin  Topic 5 -
Miscellaneous Accounting, "Accounting for Sales of Stock in a Subsidiary", since
Toys sold shares of its own stock.  Management  of the Company  does not believe
recognizing  a gain or loss would be  appropriate  due to the fact that the sale
was "part of a broader corporate  reorganization  contemplated or planned by the
registrant".  This  "broader  corporate  reorganization"  is  a  foreign  public
offering of the subsidiary's  stock, which Toys is in the process of completing.
In these instances,  the Staff Accounting Bulletin indicates that recognition of
a gain is not appropriate.

On August 4, 1999,  the Company  entered into a sixth  amendment to its Loan and
Security Agreement with FINOVA Capital  Corporation  ("FINOVA").  As a result of
this amendment,  the Company's  aggregate  credit facility with FINOVA increased
from $8.3 million to $11.3 million.

The amendment also (1) increased the minimum net worth  financial  covenant from
$750,000  to $2.9  million as of June 30, 1999 with the $2.9  million  threshold
increasing  by 60% of any equity  raised by the Company and by 60% of any annual
profits  generated  by the  Company;  (2) allows the  Company to sell a minority
equity  interest  (up to 49%) in its  Toys  subsidiary;  and (3)  increased  the
maximum  levels of  capital  expenditures,  capital  leases and  unsecured  debt
allowed under the Financing Agreement.
<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.

At June 30, 1999,  the  Company's  operations  were  influenced to a significant
degree by United  Textiles  & Toys  Corp.  ("UTTC")  and  Breaking  Waves,  Inc.
("Breaking Waves") which owned 44.9% and 22.9%, respectively, of the then issued
and outstanding shares of the Company's Common Stock (then totaling  5,548,857).
By virtue of Breaking Wave's status as a wholly-owned subsidiary of Shopnet.com,
Inc.  ("Shopnet"),  a  Delaware  public  company,  Shopnet  may  be  deemed  the
beneficial owner of the shares of Common Stock owned by Breaking Waves.

For the three months ended June 30, 1999 compared to the three months ended June
30, 1998

The Company generated net sales of $6,508,565 in the three months ended June 30,
1999.  This  represented  an increase of  $151,170,  or 2.4%,  from net sales of
$6,357,395  in the three months  ended June 30,  1998.  All of this sales growth
came from the Company's  new stores as same store sales  declined by 27% for the
period.

The Company  believes  that its same store sales showed a decline after a period
of two years of continuous  increases because in the three months ended June 30,
1999,  the flow of allocated or "hot" selling  merchandise  is being spread over
25% more stores.  This  shortfall in allocated or "hot"  selling  inventory is a
result  of the  current  credit  lines  that the  Company  has with  some of its
vendors. The Company is working to increase its lines of credit with its vendors
to more  adequately  address  not only the past growth but its  expected  future
growth as well.

In addition,  the Company held back a substantial  amount of critical  inventory
from its  existing  stores for the  openings  of its Toys  International  stores
located in the Venetian  Resort and Casino (the  "Venetian") in Las Vegas and in
Pier 39 in San  Francisco.  The Venetian  store  opened in mid-June,  a full two
months late, and due to major site  construction  delays,  the Company currently
expects to open Pier 39 in early September, four months late.
<PAGE>
The Company  posted a gross profit of  $2,745,351 in the three months ended June
30, 1999,  reflecting an increase of $94,287,  or 3.6%, from the gross profit of
$2,651,064 in the three months ended June 30, 1998. This increase was due to the
above noted growth in sales and to an increase in the  Company's  gross  margin.
The gross  margin  of 42.2% in the June 1999  period  was 0.5%  higher  than the
Company's  gross  margin of 41.7% in the June 1998  period.  This  gross  margin
improvement   was  the  result  of  the  continuing   change  in  the  company's
merchandising  mix to  augment  its  historical  product  base of  lower  margin
traditional  toys with  educational and specialty toys which  generally  produce
better margins than traditional  toys. This change in merchandising mix has been
the centerpiece of the Company's  business plan for approximately the past three
business years.

Operating expenses  (excluding  depreciation and amortization  expenses) for the
three months ended June 30, 1999 were $3,753,528. This represented a $1,269,757,
or 51.1%,  increase over the Company's  operating  expenses of $2,483,771 in the
three months ended June 30, 1998. The primary reasons for the operating  expense
increase  were an increase in payroll  and related  expenses of $436,000  and an
increase in rent expense of $548,000.  The payroll  expense  increase was due to
the addition of several  middle  managers and  employees  at the  Company's  new
stores. The growth of rent expense was the result of adding additional stores.

During the three  months  ended June 30,  1999,  the Company  recorded  non-cash
depreciation and amortization expense of $224,468, a $36,051, or 19.1%, increase
from  $188,417  in the period  ended June 30,  1998.  Total  operating  expenses
(operating  expenses  combined with  depreciation and  amortization) in the June
1999 period were $3,977,996,  representing a $1,305,808, or 48.9%, increase from
total operating expenses of $2,672,188 in the June 1998 period.

As a result of the $94,287 increase in gross profit less the $1,305,808 increase
in  total  operating  expenses,   the  Company's  operating  loss  increased  by
$1,211,521  from  $(21,124)  during  the three  months  ended  June 30,  1998 to
$(1,232,645) during the three months ended June 30, 1999.

Interest expense totaled $965,394 for the three months ended June 30, 1999. This
represented a $799,742,  or 482.8%,  increase from interest  expense of $165,652
for the three months ended June 30, 1999.  The primary  reason for the increased
level of interest expense was the recognition of $650,000 in non-cash  effective
interest  expense,  which  was  allocable  to the  proceeds  of  the  beneficial
conversion  feature of the  amended  Frampton  and EACF  convertible  debentures
during the three  months  ended June 30,  1999,  which were  treated as new debt
instruments due to the significant  changes in the terms. The effective interest
expense  represents a non-cash item that is effectively offset dollar for dollar
in stockholders' equity by an increase in additional paid-in capital.

The Company also recorded an extraordinary gain of $650,000 as the result of the
modification of terms for the Frampton and EACF  convertible  debentures,  since
the modification was treated as an extinguishment of debt under EITF 96-19.
<PAGE>
As a result of the above-mentioned  factors,  the Company recorded a net loss of
$(1,548,039)  for the three  months  ended June 30,  1999.  This  represented  a
$1,361,263 increase over the net loss of $(186,776) recorded in the three months
ended June 30, 1998.

For the three  months  ended June 30,  1999,  the net loss of  $(1,548,039)  was
increased by non-cash  dividends of $585,116 in order to determine  the net loss
applicable to common shares.  This compares with $273,806 of non-cash  dividends
recorded in the three month period ended June 30, 1998.  The non-cash  dividends
represent  amortization  of the discount  recorded upon issuance of the Series E
Preferred  Stock  ("Series E Stock")  and Series F  Preferred  Stock  ("Series F
Stock") with a beneficial conversion feature.

The basic and diluted  loss per share for the three  months  ended June 30, 1999
was  $(0.39)  compared  to basic and  diluted  loss per share of $(0.11) for the
three months ended June 30, 1998.  The weighted  average number of common shares
outstanding increased from 4,103,525 in the June 1998 period to 5,525,936 in the
June 1998 period.

Liquidity and Capital Resources

At June 30,  1999,  the Company  had a working  capital  position of  $4,621,768
compared to a working  capital  position of  $5,763,509  at March 31, 1999.  The
primary factors in the $1,141,741  decrease in working capital were a $1,579,092
reduction  in  the  Company's  net  investment  in   inventories   (increase  in
inventories less increase in accounts payable).

The Company  believes  that its same store sales showed a decline after a period
of two years of continuous  increases because in the three months ended June 30,
1999,  the flow of allocated or "hot" selling  merchandise  is being spread over
25% more stores.  This  shortfall in allocated or "hot"  selling  inventory is a
result  of the  current  credit  lines  that the  Company  has with  some of its
vendors. The Company is working to increase its lines of credit with its vendors
to more  adequately  address  not only the past growth but its  expected  future
growth as well.

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 Stock.  There can be no assurance,  however,  that the
Company will be able to generate  sufficient revenues or have sufficient control
over expenses and other charges to achieve profitability.

During the three-month  period ended June 30, 1999, the Company used $227,489 of
cash  in  its  operations  compared  to  $958,117  used  in  operations  in  the
three-month  period ended June 30, 1998.  The Company's net loss was  $1,548,039
and $186,776,  respectively,  in those  periods.  The primary reason the Company
used a far lower level of cash in its operating activities than its loss was due
to a decrease in its net investment  (increase in  inventories  less increase in
accounts payable) in inventories of $1,579,092.
<PAGE>
The  Company  used  $196,653  of cash in its  investing  activities  during  the
three-month  period ended June 30, 1999 compared to $377,028 in the  three-month
period  ended June 30,  1998.  Investing  activity  consisted of the purchase of
equipment and fixtures for new stores.

The Company  generated  $690,920 of cash from its  financing  activities  in the
three-month  period ended June 30, 1999  compared to the  generation of $975,614
from  financing  activities in the  three-month  period ended June 30, 1998. The
primary  contributors to the Company's  financing  activities in the 1999 period
were $657,500 in proceeds from the sale of Series F Stock and net  borrowings on
the Company's line of credit.  Those proceeds were used to finance the Company's
working capital  requirements  and capital  expenditures  during the three-month
period  ended  June 30,  1999.  The  primary  factor  in the  prior  period  was
$1,076,497 in net borrowings on the Company's line of credit.

As a result of the above  factors,  the  Company  had a net  increase in cash of
$266,778  in the  three-month  period  ended  June 30,  1999  compared  to a net
decrease in cash of $359,531 in the three-month period ended June 30, 1998.

In November  1998, the Company  entered into an agreement with ZD Group,  L.L.C.
("ZD"), a related party, to secure additional financing. ZD is a New York trust,
the  beneficiary  of which is a member of the family of the Company's  chairman.
Pursuant to the ZD agreement, ZD issued a $700,000 irrevocable standby letter of
credit ("L/C") in favor of FINOVA. FINOVA then loaned a matching $700,000 to the
Company in the form of a term loan.  The term loan expires on August 3, 2000 and
bears interest at prime plus one percent.  As consideration  for its issuance of
the L/C, ZD will receive a one-third  profit  percentage  after  application  of
corporate  overhead  beginning April 1, 1999 from three of the Company's  stores
(Woodfield  Mall in Schaumburg,  Illinois now scheduled to open in the late fall
of 1999; Auburn Hills, Michigan; and Gurnee,  Illinois). As those stores did not
generate a profit after  application  of corporate  overhead in the  three-month
period  ended June 30, 1999,  no payments  were accrued or made to ZD during the
June period.

Planned  new store  openings  remain a  significant  capital  commitment  of the
Company.  The Company entered into leases to open eight new stores by the end of
calendar  year 1999.  The Company  expects that the costs of building  those new
stores,  net of  landlord  tenant  improvement  contributions  and of  inventory
requirements,  will be approximately $2.8 million.  The Company plans to finance
the costs of opening  those new stores  through a  combination  of capital lease
financing,  use of the  Company's  working  capital,  and the sale of additional
equity.

The first of those stores  opened in June in the Venetian in Las Vegas,  Nevada.
The  costs of  opening  that  store  (excluding  inventory)  were  approximately
$825,000.  This store was projected to be the most capital  intensive of all the
stores scheduled to be opened this fiscal year.
<PAGE>
As of June 30,  1999,  the  Company is a  defendant  in a lawsuit  with a former
landlord of a retail  site the Company  vacated in August  1997.  The  plaintiff
seeks damages  ranging to $300,000.  The Company has accrued $41,000 at June 30,
1999 as an approximate settlement amount based on management's assessment of the
matters that the landlord allowed the retail mix of the mall site to change from
a  contractually  agreed minimum  percentage  level of retail  tenants.  As this
action is in the  discovery  phase at June 30, 1999,  the actual  outcome  could
differ from management's estimate. A trial date has been set for September 1999.

The following transactions entered into after April 1, 1999 were equity and debt
transactions  structured  to help  the  Company  with  the  cost of the  capital
expenditures associated with opening the total of eight new stores in 1999.

The Company  received  approximately  $240,000 in lease  financing  in the three
month  period  ended  June  30,  1999  period.  The  Company  continues  to seek
additional capital lease financing.

In May 1999, pursuant to ss.506 of Regulation D, the Company sold 750,000 shares
of Series F Stock,  at a purchase  price of $1.00 per share,  through  Robb Peck
McCooey Clearing  Corporation as placement agent. The Company received  $657,500
in net proceeds from the sale. Each share of Series F Stock is  convertible,  at
the holder's  option,  into two fully paid and  non-assessable  shares of Common
Stock, at any time commencing on the date the registration statement registering
the Common Stock  underlying  same is declared  effective by the  Securities and
Exchange Commission. Each share of Series F Stock shall convert automatically on
the occurrence of the earlier of either of the following events,  without action
on the part of the holder  thereof:  (i) two years from  issuance or (ii) in the
event the closing  price per share of Common Stock has been at least $5.00 for a
consecutive 30 day period.  The Company  received net proceeds of $657,500 after
deduction of all investment banking and legal and administrative fees.

Due to the  beneficial  conversion  feature of the Series F Stock,  the proceeds
have initially been recorded as additional paid-in capital,  which will amortize
over a 7-month period in the form of a non-cash dividend. The seven month period
is the expected time frame until the shares are  convertible  upon the effective
date of a registration statement.

In  connection  with the Private  Placement  of the Series F Stock,  the Company
granted  options to the  Placement  Agent to purchase  350,000  shares of Common
Stock at an  exercise  price of $3.00 per share for a period of four  years from
the date of closing of the  Private  Placement.  The  Company  has valued  these
options at  approximately  $507,000  using the  Black-Scholes  option  valuation
model. As the options were granted in connection with the Private Placement, the
compensation  effect of these was  effectively  offset against the proceeds into
additional  paid-in  capital with no net effect on the  Company's  stockholders'
equity or  result  of  operations.  The  Placement  Agent  also  received  a 10%
commission,  or $75,000, and a 1% allowance,  or $7,500, to cover administrative
expenses. The Private Placement closed on May 27, 1999.
<PAGE>
On July 15, 1999, Tudor  Technologies,  Inc.  ("Tudor") - an entity of which Mr.
Moses Mika (a director of the Company) is a  shareholder - as the assignee of an
option to  acquire  25% of the  outstanding  shares of the  common  stock of the
Company's subsidiary,  Toys International.COM,  Inc. ("Toys"), which shares were
then owned by the Company and which  option price was set at Toys' book value on
the date of election to exercise  the option,  elected to exercise  its right to
purchase the stock and requested  that the exercise  price be amended to reflect
the book value of Toys at the most recent  fiscal  quarter,  June 30, 1999.  The
Company agreed to Tudor's request. As the book value of Toys as of June 30, 1999
is not yet determined, the Company has not yet provided Tudor with the basis for
the option  exercise  and, as a result,  Tudor has not yet  provided the Company
with the appropriate consideration. The Company anticipates that it will provide
Tudor the June 30, 1999 book value determination by the end of August 1999.

This option arose out of the June 30, 1998 conversion, by ABC Fund, Inc. ("ABC,"
an affiliate of the Company through common control), of a $1.5 million debenture
into Series E Preferred  Stock ("Series E Stock") as of June 30, 1998.  Pursuant
to the amended terms of the debenture, in September 1998, ABC assigned its right
to purchase the Toys common stock to Tudor.

On July 20, 1999, the Company's  subsidiary,  Toys, sold a 6.6% interest in Toys
to two  investors for $2.8 million in gross  proceeds in a private  transaction.
The  investors  were an  unaffiliated  investment  banking firm and CDMI Capital
Corporation  ("CDMI"),  a British  Virgin  Islands  corporation.  Mr.  Mika is a
shareholder of CDMI. Each party invested $1.4 million in the transaction.

Toys  accounted  for  this  as a  capital  transaction,  and  therefore  did not
recognize  any  gain  or  loss  on  the  transaction.  Management  followed  the
guidelines  established  by the SEC under Staff  Accounting  Bulletin  Topic 5 -
Miscellaneous  Accounting,  "Accounting  for  Sales of  Stock in a  Subsidiary".
Management does not believe  recognizing a gain or loss would be appropriate due
to the  fact  that the sale was  "part  of a  broader  corporate  reorganization
contemplated or planned by the registrant", the foreign public offering of Toy's
stock, which currently is in process of being completed. In these instances, the
Staff  Accounting   Bulletin  indicates  that  recognition  of  a  gain  is  not
appropriate.

On August 4, 1999,  the Company  entered into a sixth  amendment to its Loan and
Security Agreement with FINOVA Capital  Corporation  ("FINOVA").  As a result of
this amendment,  the Company's  aggregate  credit facility with FINOVA increased
from $8.3 million to $11.3 million.

The amendment also (1) increased the minimum net worth  financial  covenant from
$750,000  to $2.9  million as of June 30, 1999 with the $2.9  million  threshold
increasing  by 60% of any equity  raised by the Company and by 60% of any annual
profits  generated  by the  Company;  (2) allows the  Company to sell a minority
equity  interest  (up to 49%) in its  Toys  subsidiary;  and (3)  increased  the
maximum  levels of  capital  expenditures,  capital  leases and  unsecured  debt
allowed under the Financing Agreement.
<PAGE>
Electronic  commerce  represents  another  area that may  result in  significant
capital  expenditures  for the Company in fiscal 2000.  It is also a major focus
for management.  In April 1999, The Company debuted the first of three dedicated
electronic commerce websites. This site, www.ToysWhyPayRetail.com,  represents a
new trade  name for the  Company  and  allows  consumers  to  purchase,  at near
wholesale  prices,  overstocks,  special buys, and overruns on mostly name-brand
toys  purchased  by the  Company  out of  season.  The  Company  plans  to offer
approximately 1000 items for sale on the website.

The second and third electronic  commerce websites are currently being developed
to a  state-of-the-art  standard in  conjunction  with two  Internet  consulting
firms.  These sites will offer  collectible and imported  specialty  merchandise
such as die-cast cars, dolls, plush toys, trains, and collectible action figures
and are  expected  to open in the late  fall of 1999.  In  conjunction  with the
website  launch,  the Company plans to place  computer  kiosks in several of its
retail locations in order to permit customers to place orders on the website for
goods otherwise not sold in such store.

The Company has entered into a letter of intent with an investment  banking firm
to raise additional  equity in the approximate  amount of $20-25 million through
the public sale of a minority  interest in the Company's Toys  subsidiary.  This
public offering  currently is expected to close in 1999. This investment banking
firm also participated in the $2.8 million private placement in July 1999.

The Company is pursuing this  opportunity  and is continuing to seek  additional
lease  financing.  There can be no  assurance  that the Company  will be able to
obtain  sufficient  financing  to  successfully  open the  planned  new  stores.
Additionally, the Company has incurred significant capital expenditures over the
past twelve  months.  To date,  the Company has deployed its working  capital to
cover a significant  portion of these  capital  expenditures.  As a result,  the
Company is also seeking  additional  working  capital  from the  above-mentioned
equity  offerings.  Should  the  Company be unable to raise  sufficient  working
capital,  it may be  unable to  purchase  product  directly  from  factories  at
advantageous  pricing,  thereby  resulting in a negative impact on gross margins
and results of operations.
<PAGE>
Year 2000

In 1998,  the  Company  developed  a plan to  upgrade  its  existing  management
information system and computer hardware and to become year 2000 compliant.  The
Company  has  completed  the  hardware  upgrade  and has  installed  a year 2000
compliant upgrade to its accounting software.  The Company expects to finish the
year 2000 compliance work in the September  quarter of 1999. To finance the cost
of the new hardware in the computer upgrade project,  the Company entered into a
lease in the amount of $82,472 bearing an interest rate of 10.8%. The total cost
of the  hardware  and  software  purchased  for the  project  was  approximately
$100,000.

Beyond the above  noted  internal  year 2000  system  issue,  the Company has no
current  knowledge of any outside third party year 2000 issues that would result
in a material  negative  impact on its  operations.  Management has reviewed its
significant  vendors' (i.e.,  Mattel, Inc. and Hasbro, Inc.) and financing arm's
(FINOVA) recent SEC filings vis-a-vis year 2000 risks and uncertainties  and, on
the basis  thereof,  is confident that the steps the Company has taken to become
year 2000 compliant are sufficient.  In continuation of this review, the Company
shall continue to monitor or otherwise  obtain  confirmation  from the aforesaid
entities - and such other entities as management deems appropriate - as to their
respective  degrees of preparedness.  To date, nothing has come to the attention
of the Company that would lead it to believe that its significant vendors and/or
service providers will not be year 2000 ready.

Year 2000 readiness is a priority of the Company,  and the Company believes that
it is taking such  reasonable and prudent steps as are necessary to mitigate the
risks associated with potential year 2000  difficulties.  The effect, if any, of
year 2000  problems on the  Company's  results of operations if the Company's or
its customers,  vendors,  or service providers are not fully compliant cannot be
estimated  with any degree of certainty.  It is  nonetheless  possible that year
2000  problems  could  have a  material  adverse  effect  in that  holiday  1999
purchases  may be  stunted  due to  consumer  uncertainty  and that the  overall
business environment may be disrupted in the Company's fourth fiscal quarter.

Trends Affecting Liquidity, Capital Resources and Operations

The Company  believes  that its same store sales showed a decline after a period
of two years of  continuous  increases  because the flow of  allocated  or "hot"
selling  merchandise  is being  spread over 25% more stores.  This  shortfall in
allocated or "hot"  selling  inventory  is a result of the current  credit lines
that the  Company  has with some of its  vendors.  The  Company  is  working  to
increase  its lines of credit  with its vendors to more  adequately  address not
only the past growth but its expected future growth as well. As noted above, the
Company  has   significantly   strengthened   its   balance   sheet  by  raising
approximately  $3.5  million in  additional  equity over the past three  months,
which should result in expanded lines of credit with its trade vendors.

The Company  believes that its growth and the availability of "hot" or allocated
merchandise  within  certain  sectors  of its  core  business  - such as  action
figures,  video games,  and collector plush - could have an impact on continuing
store sales in the future.  The Company is working  diligently  to address  this
issue.
<PAGE>
The Company's future financial performance will depend upon continued demand for
toys and the Company's ability to choose locations for new stores, the Company's
ability to purchase  product at favorable prices and on favorable terms, and the
effects of increased competition and changes in consumer preferences.

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 and Kay Bee Toy Stores.  Competitors
that emphasize  specialty and  educational  toys include  Disney Stores,  Warner
Bros. Stores, Learning Smith, Lake Shore, Zainy Brainy, and Noodle Kidoodle. The
Company  also  competes  both through its  electronic  commerce  operations  and
through its stores against Internet  oriented toy retailers such as eToys,  Inc.
There can be no assurance that the Company's business strategy will enable it to
compete effectively in the toy industry.

Seasonality

The Company's  operations are highly seasonal with  approximately  30-40% of its
net sales falling within the Company's  third quarter,  which coincides with the
Christmas selling season.  The Company intends to open new 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.

Impact of Inflation

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.




<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,  in  the
approximate   amount  of  $300,000.   The  Company  is  engaged  in   settlement
negotiations  with  plaintiff  with  respect  to this  action;  in the  event no
settlement  is  reached,  however,  trial  has been  scheduled  by the court for
September 1999.

Neither the Company's officers,  directors,  affiliates, nor owners of record or
beneficially  of more than five  percent  of any class of the  Company's  Common
Stock is a party to any  material  proceeding  adverse  to the  Company or has a
material interest in any such proceeding adverse to the Company.

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

Item 3.           Defaults Upon Senior Securities:   None

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

Item 5.           Other Information:        None

Item 6.           Exhibits and Reports on Form 8-K

(a)      The following exhibits are filed herewith:

(b) During the quarter  ended June 30,  1999,  no reports on Form 8-K were filed
with the Securities and Exchange Commission.

<TABLE>
<CAPTION>
<S>                 <C>
10.131              ABC Fund, Inc. Assignment of Debenture to Tudor Technologies, Inc. dated September 15, 1998
10.132              Tudor Technologies, Inc. Election to Exercise dated July 15, 1999
10.133              Sixth  Amendment to Loan and Security  Agreement by and between the Company and FINOVA  Capital
                    Corporation, dated August 1999
10.134              Fixture Financing Agreement with Longwater Capital Corporation
27.1                Financial Data Schedule
</TABLE>


<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 day of 2000.

                                           PLAY CO. TOYS & ENTERTAINMENT CORP.


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


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