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

                                    FORM 10-Q
                                   (Mark One)

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

                For the quarterly period ended September 30, 2000

                                       OR

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

             For the transition period from __________ to __________

                         Commission File Number O-25030

                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                       -----------------------------------
        (Exact Name of Small Business Issuer as Specified in its Charter)
<TABLE>
<CAPTION>
<S>                                                                             <C>
                Delaware                                                        95-3024222
         (State or Other Jurisdiction of                               (IRS Employer Identification No.)
         Incorporation or Organization)
</TABLE>

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

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

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     State the number of shares of each of the issuer's classes of common equity
outstanding as of the latest  practicable  date:  Common Stock,  $.01 par value:
84,928,054 shares outstanding as of November 16, 2000.

     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 consolidated balance sheets as of September 30, 2000 (unaudited) and March                  3
                    31, 2000.

                    Condensed consolidated statements of operations and comprehensive net loss for three
                    months and six months ended September 30, 2000 and 1999 (unaudited).                                  4

                    Condensed consolidated statements of cash flows for the six months ended September
                    30, 2000 and 1999 (unaudited).                                                                      5-6

                    Notes to condensed consolidated financial statements                                               7-13

Item 2.             MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS
                                                                                                                      14-20
PART II.                                              OTHER INFORMATION


Item 1.             LEGAL PROCEEDINGS                                                                                    20

Item 2.             CHANGES IN SECURITIES AND USE OF PROCEEDS                                                            20

Item 3.             DEFAULTS UPON SENIOR SECURITIES                                                                      20

Item 4.             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                  20

Item 5.             OTHER INFORMATION                                                                                    20

Item 6.             EXHIBITS AND REPORTS ON FORM 8-K                                                                     20

                    Signatures                                                                                           21


</TABLE>
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                               ASSETS

                                                                                      September 30, 2000          March 31, 2000
                                                                                    -----------------------     -------------------
                                                                                         (Unaudited)
Current
<S>                                                                                             <C>                    <C>
           Cash                                                                                 $  30,450              $ 6,179,007
           Accounts receivable                                                                     99,270                  676,456
           Merchandise inventories                                                             18,329,966               14,111,236
           Marketable securities                                                                4,250,000                        -
           Other current assets                                                                   476,337                   20,000
                                                                                                ---------                ---------
                                           Total current assets                                23,186,023               20,986,699
Property and Equipment,         Net of accumulated
           depreciation and amortization of $5,576,022
           and $4,058,603  respectively                                                         8,745,048                7,398,621

Web        Site Development costs                                                               3,081,149                1,753,193

Deposits and other assets                                                                       2,113,857                2,145,268
                                                                                                ---------                ---------
                                                                                              $37,126,077              $32,283,781
                                                                                              ===========              ===========

                                                 LIABILITIES & STOCKHOLDERS' EQUITY


Current
          Accounts payable                                                                     12,155,745                6,110,161
          Accrued expenses and other liabilities                                                  601,622                  892,428
          Current portion of notes payable and capital leases                                     187,696                  386,179
          Borrowings under financing agreement                                                  3,144,873                   47,542
                                                                                                ---------                ---------
                Total current liabilities                                                      16,089,936                7,436,310

Notes payable and capital leases, net of current portion                                          994,797                  988,767
Deferred rent liability                                                                           135,008                  135,607
                                                                                                ---------                ---------
                        Total liabilities                                                      17,219,741                8,560,684
                                                                                                ---------                ---------

Minority interest in subsidiary                                                                 7,342,509                9,943,407
                                                                                                ---------                ---------

Stockholders' equity:
          Convertible series E preferred stock, $1 par, 25,000,000 shares
            authorized: 1,536,550 and 8,377,640 shares outstanding                              1,216,098                7,349,154
          Convertible series F preferred stock, $0.01 par,
            5,500,000 shares authorized; 750,000
            shares outstanding, respectively                                                      750,000                  750,000
          Common stock, $.01 par value, 160,000,000 shares authorized;
            83,718,097 and 11,227,568 shares                                                      837,181                  112,275
          outstanding,
          respectively
          Additional paid-in-capital                                                           43,897,432               33,053,724
          Accumulated deficit                                                                 (34,136,884)             (27,485,463)
                                                                                                ---------                ---------
                                           Total stockholders' equity                          12,563,827               13,779,690
                                                                                                ---------                ---------
                                                                                             $ 37,126,077              $32,283,781
                                                                                             ============              ===========

</TABLE>
                                       3
            See accompanying notes to condensed financial statements

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                           AND COMPREHENSIVE NET LOSS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                   Three Months Ended September 30,   Six Months Ended September 30,
                                                                                    Restated (Note 5)              Restated (Note 5)
                                                                         2000             1999           2000            1999
                                                                     ------------    ------------    ------------    ------------
<S>                                                                  <C>             <C>             <C>             <C>
Net sales ........................................................   $  8,958,205    $  6,867,119    $ 15,976,298    $ 13,375,684

Cost of Sales ....................................................      5,619,881       3,600,901       9,574,549       7,364,115
                                                                     ------------    ------------    ------------    ------------

                                   Gross profit ..................      3,338,324       3,266,218       6,401,749       6,011,569
                                                                     ------------    ------------    ------------    ------------

Operating expenses:
                Operating expenses ...............................      7,180,310       3,788,706      12,721,623       7,542,234
                Depreciation and amortization ....................        615,674         228,514       1,167,792         452,982
                                                                     ------------    ------------    ------------    ------------

                                   Total operating expenses ......      7,795,984       4,017,220      13,889,415       7,995,216
                                                                     ------------    ------------    ------------    ------------

Operating loss ...................................................     (4,457,660)       (751,002)     (7,487,666)     (1,983,647)
                                                                     ------------    ------------    ------------    ------------

Interest expense:
                Interest and finance charges .....................        146,300         300,016         797,413         584,680
                Amortization of debt issuance costs ..............           --            47,424            --            78,154
                Effective non-cash interest expense ..............

                from beneficial conversion feature ...............           --              --              --           650,000
                                                                     ------------    ------------    ------------    ------------
                                   Total interest expense ........        146,300         347,440         797,413       1,312,834
                                                                     ------------    ------------    ------------    ------------

Net loss before minority .........................................     (4,603,960)     (1,098,442)     (8,285,079)     (3,296,481)
interest, income taxes and
extraordinary item

Provision for income taxes .......................................         54,246            --            54,246            --

Net loss before minority .........................................     (4,658,206)     (1,098,442)     (8,339,325)     (3,296,481)
interest and extraordinary
item

Minority interest in loss of consolidated subsidiary .............      1,409,889         143,497       2,508,646         143,497
                                                                     ------------    ------------    ------------    ------------


Net loss before extraordinary gain ...............................     (3,248,317)       (954,945)     (5,830,679)     (3,152,984)

Extraordinary gain on modification of debt terms .................           --              --              --           650,000
                                                                     ------------    ------------    ------------    ------------

 Net loss ........................................................     (3,248,317)       (954,945)     (5,830,679)     (2,502,984)

Other comprehensive income (loss) ................................        (34,633)           --           (68,115)           --
                                                                     ------------    ------------    ------------    ------------

Comprehensive net loss ...........................................   $ (3,282,950    $   (954,945)   $ (5,898,794)   $ (2,502,984)
                                                                     ============    ============    ============    =============

</TABLE>
                                       4
            See accompanying notes to condensed financial statements

<PAGE>
<TABLE>
<CAPTION>

Calculation of basic and diluted loss per share:
<S>                                                                   <C>             <C>              <C>           <C>
    Net loss                                                          $(3,282,950)    $   (954,945)    $ 5,898,794   $ (2,502,984)
    Effects of non-cash dividends on convertible
       preferred stock                                                       --           (799,402)       (500,000)    (1,384,517)
                                                                     ------------    ------------    ------------    ------------
     Net loss applicable to common  shares                            $(3,282,950)    $ (1,754,347)    $(6,398,794)  $ (3,887,501)
                                                                     =============   ==============  ==============  =============
    Basic and diluted loss per common share
                and share equivalents                                $       (.26)    $      (0.32)    $      (.45)  $      (0.70)
                                                                     =============   ==============  ==============  =============

    Weighted average number of common shares
         and share equivalents outstanding                             12,821,498        5,548,852      14,104,679      5,537,457
                                                                     =============   ==============  ==============  =============
</TABLE>




                                       5
            See accompanying notes to condensed financial statements

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                               Six-months Ended September 30,
                                                                                             Restated (Note 5)
                                                                                  2000          1999
                                                                                -----------   -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>           <C>
        Net loss ..........................................................     (5,830,679)   $ (2,502,984)
        Adjustments used to reconcile net loss to net
          cash used in operating activities:

               Depreciation and amortization ..............................      1,167,792         452,962
               Minority interest in net loss of subsidiary ................     (2,508,646)       (143,497)
               Deferred rent ..............................................           (599)          4,112
               Extraordinary gain .........................................           --          (650,000)
               Effective interest for beneficial conversion feature .......        500,000         650,000
               Other
                                                                                                  (159,321)
        Increase (decrease) from changes in:
                                  Accounts receivable .....................        577,186         (74,166)
                                  Merchandise inventories .................     (4,218,730)     (3,621,341)
                                  Other current assets ....................       (456,337)       (650,462)
                                  Deposits and other assets ...............         31,411      (1,001,538)
                                  Accounts payable ........................      6,045,584       4,094,201
                                  Accrued expenses and other liabilities ..       (290,806)       (334,299)
                                                                                -----------   -------------

                                  Net cash used in operating activities ...     (5,143,145)     (3,777,012)
                                                                                -----------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchases of property and equipment ...............................     (2,236,401)     (1,919,427)
        Web Site Development ..............................................     (1,605,774)           --
                                                                                -----------   -------------
                                                                                (3,842,175)     (1,919,427)
                                                                                -----------   -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from issuance of preferred and common stock ..............           --         3,540,504
        Borrowings under financing agreement ..............................     12,000,000      21,157,590
        Repayments under financing agreement ..............................     (8,902,669)    (18,246,482)
        Repayments under notes payable and capital leases .................       (192,453)       (503,962)
                                                                                -----------   -------------

                                  Net cash provided by financing activities      2,904,878       5,947,650
                                                                                -----------   -------------

Effect of exchange rate on cash ...........................................        (68,115)           --
                                                                                -----------   -------------
Net increase (decrease) in cash ...........................................     (6,148,557)        251,211

Cash at beginning of period ...............................................      6,179,007         125,967
                                                                                -----------   -------------

Cash at end of period .....................................................   $     30,450    $    377,178
                                                                                ===========   =============
</TABLE>


                                       6
            See accompanying notes to condensed financial statements

<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000
                                   (Unaudited)



Note 1.  General

The interim accompanying  unaudited condensed  consolidated financial statements
have been prepared in accordance with generally accepted  accounting  principles
("GAAP") for interim  financial  information  and with the  instructions to Form
10-QSB.  Accordingly,  they do not include all of the  information and footnotes
required  by  GAAP  for  complete  financial  statements.   In  the  opinion  of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.  For further  information,
management  suggests that the reader refer to the audited  financial  statements
for the year ended March 31, 2000  included in its Annual Report on Form 10-KSB.
Operating  results for the  six-month  period ended  September  30, 2000 are not
necessarily indicative of the results of operations that may be expected for the
year ending March 31, 2001.

Note 2.  Segment Information

The  Company's  reportable  segments  are its retail  store  operations  and its
Internet  operations.  The retail store  operations  are  entirely  based in the
United States,  and its Internet  operations occur both in the United States and
in Germany.  The Internet  operations consist of both  business-to-consumer  and
business-to-business (or wholesale) sales.

Information on segments which is based on information  utilized by the Company's
chief operating  decision maker,  and a  reconciliation  to income (loss) before
income taxes,  are as follows at September 30, 2000, and for the six months then
ended. For the six-months ended September 30, 1999, the Internet segment was not
considered  to be an operating  segment by  management  since the websites  were
under development or revision.
<TABLE>
<CAPTION>

Assets
<S>                                                              <C>
                                  Retail                         $    30,184,347
                                  Internet                             4,603,705
                                                ---------------------------------
                                                                      34,788,052
                                                =================================

For the Six-Months Ended
September 30, 2000
Capital Expenditures for Fixed Assets
and Website development costs
                                  Retail                         $     2,236,401
                                  Internet                             1,605,774
                                                ---------------------------------
                                                                       3,842,175
                                                =================================
Sales
                                  Retail                         $    15,764,207
                                  Internet                               212,091
                                                ---------------------------------
                                                                      15,976,298
                                                =================================

</TABLE>

                                       7
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000
                                   (Unaudited)

<TABLE>
<CAPTION>
Gross Profit
<S>                                                              <C>
                                  Retail                         $     6,400,918
                                  Internet                                   831
                                                ---------------------------------
                                                                       6,401,749
                                                =================================
Operating Income (loss)
                                  Retail                        $    (5,675,275)
                                  Internet                           (1,812,391)
                                                ---------------------------------
                                                                     (7,487,666)
                                                =================================


</TABLE>

Note 3.   American Telecom PLC Stock Exchange with DIG Financial Corp.

The Company entered into a Stock Purchase Agreement dated September 1, 2000 (the
"Agreement"),  with DIG Financial  Corp.,  a British  Virgin Island  corporation
("DIG"). The Agreement provides for the sale of an aggregate of 26,315,79 shares
of the Company's  authorized,  but  unissued,  shares of Common Stock ("Play Co.
Stock") to DIG in  exchange  for  1,086,957  Ordinary  1 pence par value  shares
("Ordinary Shares") of American Telecom, PLC ("American Telecom'), owned by DIG.
American  Telecom is a corporation  formed under the laws of the United Kingdom.
American  Telecom  Ordinary  Shares are traded on OFEX,  an  off-exchange  share
matching and trading  facility  enabling  London Stock Exchange  member firms to
deal in securities of unlisted and unquoted  companies.  American  Telecom is an
affiliated entity. European American Capital Foundation ("EACF") owns 80% of the
outstanding shares of American Telecom.  EACF also owns approximately 30% of the
outstanding common shares of Play Co.

On the date of the  Agreement,  the Play Co.  Stock and the  1,086,957  Ordinary
Shares of American  Telecomm  ("American  Telecom  Stock") each had an aggregate
fair value of approximately U.S. $5 million,  calculated based on an approximate
30-day  trading  average of each security prior to such date, as reported by the
Over the Counter Bulletin Board and OFEX, respectively. The determination of the
share price being based on the 30-day  average was  stipulated in the Agreement.
The sale of the Play Co.  Stock was made in  reliance  upon the  exemption  from
registration  provisions of the Securities Act of 1933, as amended,  afforded by
Section 4(2) thereof,  and as such, are  "restricted  securities."  The American
Telecom Stock is freely tradable on OFEX.

Based on the contractual  value of $5 million for the stock  exchange,  this was
determined to be the nominal value of the Play Co. shares issued.  However,  due
the Play Co. shares being unregistered, and the fact that the shares are lightly
traded and not readily  marketable for such a large trading  block,  the Company
recognized a 15%  valuation  discount to determine  the fair value of the shares
issued.  Therefore,  the  Company  valued  the  stock  exchange  transaction  at
$4,250,000
                                       8
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000
                                   (Unaudited)

The shares of  American  Telecom  have been  classified  as  available  for sale
marketable securities.  Management intends to sell these shares in the future to
raise cash.  The shares of American  Telecom  are also  thinly  traded,  and the
market price has not changed as of September  30, 2000.  There is no  unrealized
gain or loss for these marketable securities as of September 30, 2000.

As of the  date  of  the  Agreement,  the  Company  had  56,217,377  issued  and
outstanding  shares of Common Stock, $.01 par value.  After giving effect to the
issuance of the Play Co. Stock, DIG owns  approximately  32% of the aggregate of
82,533,166 issued and outstanding shares of the Company's Common Stock as of the
date of the Agreement.

Note 4.   Basic and Diluted Loss Per Share

The basic and diluted loss per common share for the three and six month  periods
ending  September 30, 2000 and 1999, are the same as the effects of common stock
equivalents  are  anti-dilutive  given  the net  loss per  common  share in each
period.  Potentially  dilutive  common shares as of September 30, 2000 aggregate
22,749,300  that could  result from the exercise of options,  warrants,  and the
conversion  of  debentures  and/or the Series E and  Series F  Preferred  Stock.
Exercise or conversion of certain of these  instruments  is restricted  based on
defined holding periods or vesting schedules.

Note 5.  Restatement of Amounts Previously Reported

The September 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 tables
below identify 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 6 below for the impact on the  balance  sheet and
Item 1 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.

                                       9
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000
                                   (Unaudited)



Note 5.           Restatement of Amounts Previously Reported (continued)

The revision in Item 3,4, and 5 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.

The  following is a summary of the impact of the  restatements  on the September
30, 1999 consolidated  financial statements which include the cumulative effects
of the restatements made to the March 31, 1999 financial statements.

Balance Sheet
<TABLE>
<CAPTION>

<S>                                                                                                                        <C>
1.       Reduction of other current assets for options not ultimately issued, net of previously recorded amortization      $(65,510)
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 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                                                                         650,000
6.       Reduction in additional paid-in capital for cancellation of options                                                (79,000)
7.       Additional net loss in accumulated  deficit.  The increase in accumulated  deficit is attributable
         to a cumulative increase of $718,634  for the year ended March 31,  1999,  less $3,124 in operating
         expenses attributed  to the reversal of  amortization  expense of prepaid  stock  options that were
         not issued.                                                                                                        715,510
8.       Net reduction in stockholders' equity                                                                              (65,510)

</TABLE>

                                       10
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000
                                   (Unaudited)


Note 5.  Restatement of Amounts Previously Reported (continued)

Statement of Operations and Comprehensive Net Income (Loss)

For the three months ended September 30, 1999:
<TABLE>
<CAPTION>

<S>                                                                                                               <C>
1.       Decrease in operating expenses from reversal of amortization of stock options not issued                 $        (1,562)

For the six months ended September 30, 1999:

1.       Decrease in operating expenses from reversal of amortization of stock options not issued                 $        (3,124)
2.       Additional  effective non-cash interest expense  attributable to the beneficial  conversion
         feature of revised  convertible debentures treated as new debt instruments                                       650,000
3.       Extraordinary  gain from modification of debt terms,  since such  modifications were
         significant to be considered as a debt extinguishment under EITF 96-19                                   $      (650,000)
                                                                                                                 -------------------

              Decrease in net loss for the six-months ended    September 30, 1999                                 $        (3,124)
                                                                                                                 ===================

</TABLE>
The effects on the Company's  previously  submitted September 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                                $     2,425,601  $        (65,510) $     2,360,091

           Total assets                                    $    29,485,279  $        (65,510) $    29,419,769
                                                           ===============  ================  ===============

       Series E convertible preferred stock                $     6,638,047  $         79,000  $     6,717,047
       Additional paid-in capital                               17,960,428           571,000       18,531,428

          Total liabilities and stockholders' equity       $    29,485,279  $        (65,510) $    29,419,769
                                                           ===============  ================  ===============
</TABLE>

                                       12
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000
                                   (Unaudited)


Note 5.  Restatement of Amounts Previously Reported (continued)

Consolidated statement of operations and comprehensive loss:

For the six months ended September 30,1999:
<TABLE>
<CAPTION>

<S>                                                        <C>              <C>               <C>
       Operating expenses                                  $     7,545,358  $         (3,124) $     7,542,234
       Effective interest for beneficial
         conversion feature                                              -           650,000          650,000
       Extraordinary gain on extinguishment
          of debt                                                        -           650,000          650,000

       Comprehensive net income (loss)                     $    (2,506,108) $          3,124  $    (2,502,984)
                                                           ===============  ================  ===============
       Net income (loss) applicable to
         common shares                                     $    (3,890,625) $          3,124  $    (3,887,501)
                                                           ===============  ================  ===============
       Basic and diluted income (loss) per
         common share and share equivalents                $         (.70)  $              -  $         (.70)
                                                           ===============  ================  ===============

For the three months ended September 30,1999:

       Operating expenses                                  $     3,790,268  $         (1,562) $     3,788,706

       Comprehensive net income (loss)                     $      (956,507) $          1,562  $      (954,945)
                                                           ===============  ================  ===============
       Net income (loss) applicable to
         common shares                                     $    (1,755,909) $          1,562  $    (1,754,347)
                                                           ===============  ================  ===============
</TABLE>



                                       13
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000
                                   (Unaudited)




Note 6.  Subsequent Events


On November 20, 2000,  Toys entered  into a  $12,000,000,  three-year  revolving
credit  facility (the  "Paragon  Facility")  with Paragon  Capital LLC; an asset
based lending  institution  affiliated  with Foothill  Capital,  a subsidiary of
Wells Fargo Bank.  While the Paragon  Facility  carries several possible advance
rates against Toys' inventory, the pricing on the primary lending facility is at
the prime rate plus 1 1/2%.  The Company  guaranteed the Paragon  Facility.  The
agreement  calls for a 90-day  period for  Paragon  to  determine  the  covenant
requirements  to be maintained  under the agreement.  The Paragon  Facility also
called  for the  issuance  of a warrant by Toys for  400,000  shares at a strike
price of $1.50 per share,  which is higher  than the current  trading  price for
Toys'  common  stock.  The warrant  will be valued at fair value and recorded as
debt issuance cost.

         This Paragon Facility  replaces the Company's  previous credit facility
with FINOVA Capital Corporation.

         In October  2000,  the Company  debuted  its new concept in  electronic
commerce  with the  launch of  www.tx40.net  and  www.toys.tx40.de.  Tx40 is the
Company's  new concept of using an evolving  storyline  to bring  viewers to its
websites.  Toys.tx40.de is the company's related  e-commerce website in Germany.
In  November  2000,  the  Company  launched  www.toys.tx40.com  as  its  related
e-commerce  website in the United States. In addition to prior amounts expended,
through the six months ended September 30 2000, the Company invested  $1,605,774
in this project.  That investment is shown net of accumulated  amortization,  on
the  September  30,  2000  balance  sheet as a balance of  $2,181,539  under the
description "web-site development costs."


                                      14
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000
                                   (Unaudited)



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

Results of Operations

     This Report on Form 10-QB and the following  "MANAGEMENT'S  DISCUSSION  AND
ANALYSIS  OF   FINANCIAL   CONDITION   AND  RESULTS  OF   OPERATIONS"   includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All statements other than statements of
historical  fact  are   "forward-looking   statements"  for  purposes  of  these
provisions,  including any projections of earnings,  revenues or other financial
items,  any  statements of the plans and  objectives  of  management  for future
operations,  any statements  concerning  proposed new products or services,  any
statements  regarding  future  economic  conditions  or  performance,   and  any
statements  of  assumptions  underlying  any of the  foregoing  in  some  cases,
forward-looking  statements can be identified by the use of terminology  such as
"may", "will", "expects", "plans", "anticipates",  "estimates",  "potential", or
"continue" or the negative thereof or other comparable terminology.  Although we
believe  that  the  expectations  reflected  in the  forward-looking  statements
contained   herein  are  reasonable,   there  can  be  no  assurance  that  such
expectations or any of the forward-looking  statements will prove to be correct,
and actual results could differ  materially  from those  projected or assumed in
the  forward-looking  statements.  Our future financial condition and results of
operations,  as well as any  forward-looking  statements are subject to inherent
risks and uncertainties.  All forward-looking statements and reasons why results
may differ included in this report are made as of the date hereof, and we assume
no obligation to update any such forward-looking  statement or reason why actual
results might differ.

     The Company has two subsidiaries, Toys International.COM, Inc. ("Toys") and
Play Co. Toys Canyon  Country,  Inc.  ("Canyon").  Toys  currently  operates all
thirty-six of the Company's  stores,  of which Canyon holds the lease for one of
Toys' retail locations.

For the three months ended September 30, 2000 compared to the three months ended
September 30, 1999

     The Company  generated  net sales of  $8,958,205  in the three months ended
September 30, 2000. This represented an increase of $2,091,086, or 31%, from net
sales of  $6,867,119 in the three months ended  September 30, 1999.  All of this
sales growth can be  attributed  to the  Company's  new stores as the  Company's
Internet  operations  in the United States and Germany  ("Internet  Operations")
contributed  approximately  $52,000  less in sales  than in the  September  1999
period and since the Company's same store sales declined by approximately 2% for
the period.

     The Company ended  September 2000 with 34 retail  locations in nine states,
compared to 31 retail  locations in seven states at the end of fiscal year 2000.
During the quarter, the Company opened one new store in Las Vegas, Nevada.

     The Company  posted a gross profit of  $3,338,324 in the three months ended
September 30, 2000,  reflecting an increase of $72,106,  or 2.2%, from the gross
profit of $3,266,218 in the three months ended September 30, 1999. This increase
was due to the above noted growth in sales.

                                       15
<PAGE>
The Company's gross margin of 37.3% in the September 2000 period was 10.3% below
the gross margin of 47.6%  achieved in the  September  1999 period.  The primary
reasons for the gross margin decline were a 16.9% gross margin contribution from
the  Internet  Operations  in the  September  2000  period  compared  to a 58.3%
contribution  in the  September  1999  period  and to a decline in the margin of
products sold in the stores during the quarter.

     Operating expenses (excluding  depreciation and amortization  expenses) for
the three months ended September 30, 2000 were  $7,180,310.  This  represented a
$3,391,604  or  89.5%,   increase  over  the  Company's  operating  expenses  of
$3,788,706 in the three months ended September 30, 1999. The primary reasons for
the operating expense increase were operating  expenses relating to the Internet
segment of approximately  $773,000,  an increase in payroll and related expenses
of  $1,982,000.  The payroll  expense  increase was due to the addition of a new
President of Toys, a new Director of MIS, as well as several middle managers and
employees at the Company's new stores.

     During the three months ended  September  30,  2000,  the Company  recorded
non-cash  depreciation and amortization expense of $615,674, a $387,160 increase
from  depreciation  and  amortization  expense of $228,514  in the period  ended
September 30, 1999. The primary  reason for the  depreciation  and  amortization
expense increase was the depreciation  related to the fixed assets purchased for
the seven new stores  that opened  during  fiscal year 2000 and three new stores
opened in the first half of the current fiscal year.  Additionally,  the Company
capitalized development costs for its websites, and began amortizing these costs
in December 1999.

     Total operating expenses (operating expenses combined with depreciation and
amortization)  in the  September  2000 period were  $7,795,984,  representing  a
$3,778,764,  or 94.1%,  increase from total operating  expenses of $4,017,220 in
the September 1999 period.

     As a result of the  $72,106  increase in gross  profit less the  $3,778,764
increase in total operating expenses,  the Company's operating loss increased by
$3,706,658  from  $751,002  during the three months ended  September 30, 1999 to
$4,457,660 during the three months ended September 30, 2000.

     Interest  expense totaled $146,300 for the three months ended September 30,
2000. This represented a $201,140 decrease from interest expense of $347,440 for
the three months ended  September 30, 1999. The primary reason for the decreased
level of interest  expense was a lower level of  borrowings  in the three months
ended September 30, 2000 than in the September 1999 period.

     As a result of the  above-mentioned  factors,  the Company  recorded a loss
before minority interest in consolidated  subsidiary of $4,603,960 for the three
months ended September 30, 2000. This represented a $3,505,528 increase over the
net loss before  minority  interest of  $1,098,442  recorded in the three months
ended September 30, 1999.

     During the three months ended  September 30, 2000,  the Company  recorded a
minority interest in the loss of the consolidated Toys subsidiary of $1,409,889.
This minority interest arose out of various sales of stock in the Company's Toys
subsidiary.


                                       17
<PAGE>
The minority interest of $1,409,889 was a $1,266,392  increase over the minority
interest of $143,497 in the three months ended September 30, 1999. This minority
interest represented a reduction in the Company's net loss in both periods.

     As a result  of the  above  factors,  the  Company  recorded  a net loss of
$3,248,317  in the three months ended  September  30, 2000.  This  represented a
$3,383,482  increase  over the net loss of $954,945  posted in the three  months
ended September 30, 1999.

     In the three months ended  September 30, 2000,  the Company  recorded other
items  of  comprehensive  loss of  $34,633  that  related  to  foreign  currency
translation  adjustments arising from Toys Internet operations in Germany. There
were no foreign currency translation adjustments in the September 1999 period.

     For the three months ended  September 30, 2000,  the net loss of $3,282,950
was not  impacted  by  non-cash  dividends  in order to  determine  the net loss
applicable to common shares, as there were no issuances of convertible preferred
stock.  This  compares  with  $799,402  of  non-cash  dividends  recorded in the
three-month period ended September 30, 1999. The non-cash dividends  represented
amortization  of the discount  recorded  upon  issuance of Series E and Series F
preferred stock with a beneficial conversion feature.

     The basic and diluted loss per share for the three  months ended  September
30, 2000 was $(0.26) compared to basic and diluted loss per share of $(0.32) for
the three months ended September 30, 1999. The weighted average number of common
shares  outstanding  increased  from  5,548,852 in the September  1999 period to
12,821,498 in the September 2000 period.

For the six months  ended  September  30, 2000  compared to the six months ended
September 30, 1999

     The Company  generated  net sales of  $15,976,298  in the six months  ended
September 30, 2000. This represented an increase of $2,600,614,  or 19.4%,  from
net sales of  $13,375,684  in the three months ended  September 30, 1999. All of
this sales growth can be  attributed to the Company's new stores as the Internet
Operations  contributed  approximately  $11,000 less than in the September  1999
period and since same store sales declined by approximately 11% for the period.

     The Company ended  September 2000 with 34 retail  locations in nine states,
compared to 31 retail  locations in seven states at the end of fiscal year 2000.
During the six-month  period,  the Company opened three new stores in Nashville,
TN, Orlando, FL and in Las Vegas, NV.

     The Company  posted a gross  profit of  $6,401,749  in the six months ended
September 30, 2000,  reflecting an increase of $390,180, or 6.5%, from the gross
profit of $6,011,569 in the six months ended  September 30, 1999.  This increase
was due to the above noted growth in sales.  The Company's gross margin of 40.1%
in the September  2000 period was 4.8% below the gross margin of 44.9%  achieved
in the September 1999 period.  The primary  reasons for the gross margin decline
were a 0.4%  gross  margin  contribution  from the  Internet  Operations  in the
September  2000 period  compared to a 59%  contribution  in the  September  1999
period and to a decline in the margin of products  sold in the stores during the
period.


                                       18
<PAGE>
     Operating expenses (excluding  depreciation and amortization  expenses) for
the six months ended  September 30, 2000 were  $12,721,623.  This  represented a
$5,179,389,  or  68.7%,  increase  over  the  Company's  operating  expenses  of
$7,542,234 in the six months ended  September 30, 1999. The primary  reasons for
the operating expense increase were operating  expenses relating to the Internet
segment of approximately $1,580,000, an increase in payroll and related expenses
of $859,000 and an increase in rent expense of $1,098,000.  The payroll  expense
increase was due to the addition of a new  President for Toys, a new Director of
MIS, as well as 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 six months  ended  September  30,  2000,  the  Company  recorded
non-cash  depreciation  and  amortization  expense  of  $1,167,792,  a  $714,830
increase from  depreciation and  amortization  expense of $452,982 in the period
ended  September  30,  1999.  The  primary  reason  for  the   depreciation  and
amortization  expense increase was the depreciation  related to the fixed assets
purchased for the seven new stores that opened during fiscal year 2000 and three
new stores opened in the first half of the current fiscal year.

     Total operating expenses (operating expenses combined with depreciation and
amortization)  in the September  2000 period were  $13,889,415,  representing  a
$5,894,199,  or 73.7%,  increase from total operating  expenses of $7,995,216 in
the September 1999 period.

     As a result of the $390,180  increase in gross  profit less the  $5,174,389
increase in total operating expenses,  the Company's operating loss increased by
$5,504,019  from  $1,983,647  during the six months ended  September 30, 1999 to
$7,487,666 during the six months ended September 30, 2000.

     Interest  expense  totaled  $797,413 for the six months ended September 30,
2000. This  represented a $515,421  decrease from interest expense of $1,312,834
for the six  months  ended  September  30,  1999.  The  primary  reason  for the
decreased  level of interest  expense was a lower level of borrowings in the six
months ended September 30, 2000 than in the September 1999 period. The September
2000 interest expense included a $500,000 non-cash charge related to the winding
up of a financing  agreement with ZD Group LLC ("ZD"),  a related party. For the
September  1999 period,  the Company  recognized  non-cash  interest  expense of
$650,000   attributable  to  the  beneficial  conversion  feature  of  its  then
outstanding convertible debentures.

     As a result of the  above-mentioned  factors,  the Company  recorded a loss
before minority  interest in  consolidated  subsidiary of $8,285,079 for the six
months ended September 30, 2000. This represented a 4,988,598  increase over the
net loss before minority interest of $3,296,481 recorded in the six months ended
September 30, 1999.

     During the six months  ended  September  30, 2000,  the Company  recorded a
minority interest in the loss of the consolidated Toys subsidiary of $2,508,646.
This minority interest arose out of various sales of stock in the Company's Toys
subsidiary.  The minority interest of $2,508,646 was a $2,365,149  increase over
the minority interest of $143,497 in the six months ended September 30, 1999.


                                       19
<PAGE>
     This minority interest represented a reduction in the Company's net loss in
both periods. As a result of the above factors,  the Company recorded a net loss
before  extraordinary  gain of $5,830,679 in the six months ended  September 30,
2000.  This  represented  a $2,677,695  increase over the net loss of $3,152,984
posted in the six months ended September 30, 1999.

     In the six months  ended  September  30,  1999,  the  Company  recorded  an
extraordinary  gain of $650,000.  This gain arose out of the modification of the
terms of certain convertible debentures in the September 1999 period.

     In the six months ended  September  30, 2000,  the Company  recorded  other
comprehensive  loss of $68,115  that  related to  foreign  currency  translation
adjustments  arising from Toys  Internet  operations  in Germany.  There were no
foreign currency translation adjustments in the September 1999 period.

     For the six months ended September 30, 2000, the net loss of $5,898,794 was
reduced by non-cash  dividends  of $500,000 in order to  determine  the net loss
applicable to common shares. This compares with $1,384,517 of non-cash dividends
recorded  in the  six-month  period  ended  September  30,  1999.  The  non-cash
dividends  represent  amortization  of the discount  recorded  upon  issuance of
Series E and Series F preferred stock with a beneficial conversion feature.

     The basic and diluted loss per share for the six months ended September 30,
2000 was $(0.45) compared to basic and diluted loss per share of $(0.70) for the
six months ended  September  30, 1999.  The  weighted  average  number of common
shares  outstanding  increased  from  5,537,457 in the September  1999 period to
$14,104,679 in the September 2000 period.

                                       20
<PAGE>
Liquidity and Capital Resources

     At  September  30,  2000,  the  Company had a working  capital  position of
$7,096,087  compared to a working  capital  position of $13,550,389 at March 31,
2000. The primary  factors in the $6,454,302  decrease in working capital were a
$1,826,854 reduction in the Company's net investment in inventories (increase in
inventories less increase in accounts payable).

     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 convertible  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  six-month  period ended  September  30, 2000,  the Company used
$5,143,145of cash in its operations compared to $3,777,012 used in operations in
the  six-month  period ended  September  30, 1999.  The  Company's  net loss was
$5,830,679 and $2,502,984,  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 $1,826,854.

     The Company used $3,842,175 of cash in its investing  activities during the
six-month  period  ended  September  30,  2000  compared  to  $1,919,427  in the
six-month period ended September 30, 1999.  Investing  activity consisted of the
purchase of equipment and fixtures for new stores,  totaling to $2,236,401,  and
investing in the Company's website totaling to $1,605,774.

     The Company generated  $2,904,878 of cash from its financing  activities in
the six-month  period ended  September  30, 2000  compared to the  generation of
$5,947,650  from  financing  activities in the  six-month  period ended June 30,
1999. The primary contributors to the Company's financing activities in the 2000
period were $3,097,331 in 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 six-month period ended September 30, 2000. The
primary  factor in the prior  period was  $2,911,108  in net  borrowings  on the
Company's line of credit.

     As a result of the above factors, the Company had a net decrease in cash of
$6,148,557  in the six-month  period ended  September 30, 2000 compared to a net
increase in cash of $251,211 in the six-month period ended September 30, 1999.

                                       21
<PAGE>
     Electronic commerce represents another area that will result in significant
capital  expenditures  for the  company in fiscal  2001.  In October  2000,  the
Company  debuted  its new  concept  in  electronic  commerce  with the launch of
www.tx40.net and www.toys.tx40.de. TX40 is the Company's new concept of using an
evolving  storyline  to  bring  viewers  to its  websites.  Toys.tx40.de  is the
Company's related e-commerce  website in Germany.  In November 2000, the Company
launched  www.toys.tx40.com  as its  related  e-commerce  website  in the United
States.  Through the six months ended  September  2000, the Company had invested
$2,181,539 in this project.

     On November 20, 2000, Toys entered into a $12,000,000, three-year revolving
credit  facility (the  "Paragon  Facility")  with Paragon  Capital LLC; an asset
based lending  institution  affiliated  with Foothill  Capital,  a subsidiary of
Wells Fargo Bank.  While the Paragon  Facility  carries several possible advance
rates against Toys' inventory, the pricing on the primary lending facility is at
the prime rate plus 1 1/2%.  The Company  guarantied the Paragon  Facility.  The
Paragon  Facility  also called for the issuance of a warrant by Toys for 400,000
shares at a strike  price of $1.50 per share,  which is higher  than the current
trading price for Toys' common  stock.  The warrant will be valued at fair value
and recovered as debt issuance cost.

     The Paragon Facility  replaces the Company's  previous credit facility with
FINOVA Capital Corporation.

Trends Affecting Liquidity, Capital Resources and Operations

     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.

                                       22
<PAGE>
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.



PART II

Item 1.  Legal Proceedings

     On or about  November 16, 2000 a complaint was filed against the Company by
certain  purported holders of the Company's Series F Preferred Stock and Options
to  purchase  shares  of Series F  Preferred  Stock  ("Securityholders")  in the
Supreme Court of the State of New York, County of New York. The  Securityholders
allege,   among  other  things,   breaches  of  contract   relating  to  certain
registration  rights  that they  allege  are  contained  in the  stock  purchase
agreement governing the purchase of such securities.  The complaint seeks, among
other  things,  an award of damages in the  aggregate of  $159,500,  $11,000 per
month, commencing October 25, 2000, for each month that a registration statement
is not declared  effective,  interest,  unspecified damages and reimbursement of
the costs and  expenses of such legal  action.  The Company is in the process of
evaluating the claims.


Item 2.           Changes in Securities and st of Proceeds

         None

Item 3.           Defaults Upon Senior Securities

         None

Item 4.           Submission of Matter to a Vote of Security Holders

         None

Item 5.           Other Information

         None

Item 6.           Exhibits and Reports on From 8-K

a)       Exhibit 27.1 - Financial Data Schedule
b)                The  Company  filed one report on From 8-K during the  quarter
                  ended  September 30, 2000.  Such report was filed on September
                  18, 2000.

                                       23
<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 20th day of November 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