SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB
                                   (Mark One)

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

                For the quarterly period ended September 30, 1997

                                       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 registrant as specified in its charter)

Delaware                                     95-3024222
(State or Jurisdiction of Incorporation 
or Organization)                            (I.R.S. Employer Identification No.)

                550 Rancheros Drive, San Marcos, California 92069
                    (Address of principal executive offices)

                                 (760) 471-4505
              (Registrant's telephone number, including area code)

     N/A (Former name, former address,  and former fiscal year, if changed since
last report)

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     State the number of shares of each of the issuer's classes of common equity
outstanding as of the latest  practicable  date:  Common Stock,  $.01 par value:
4,103,519 shares outstanding as of November 10, 1997.

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



<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>


                                                                                                                               PAGE

PART I.           FINANCIAL INFORMATION

Item 1.                    FINANCIAL STATEMENTS
<S>                         <C> <C>                                                                                             <C>
                  Condensed balance sheets as of  September 30, 1997
                  and March 31, 1997  ..........................................                                                3

                  Condensed statements of operations for the
                  three months and six months ended September 30, 1997 and 1996                                                 4

                  Condensed statements of cash flows for the
                  six months ended September 30, 1997 and 1996  ................                                                5

                  Notes to condensed financial statements ......................                                                6


Item 2  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF  OPERATIONS ...............                                                          7-13

Part II    OTHER INFORMATION

Item 1  LEGAL PROCEEDINGS                                                                                                       13

Item 2  CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                               14

Item 3  DEFAULTS UPON SENIOR SECURITIES                                                                                         14

Item 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                     14

Item 5  OTHER INFORMATION                                                                                                       14

Item 6  EXHIBITS AND REPORTS ON FORM 8-K                                                                                        14

</TABLE>





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

                                                      ASSETS
<TABLE>
<CAPTION>
                                                                                             (unaudited)
                                                                                              September 30, 1997   March 31, 1997
                                                                                              ------------------   --------------

Current

<S>                                                                                                <C>             <C>         
            Cash ...............................................................................   $    185,573    $    177,722
            Accounts receivable ................................................................        398,970          60,206
            Merchandise inventories ............................................................      7,356,635       6,092,930
            Other current assets ...............................................................        233,895         247,313
                                                                                                   ------------    ------------

                                              Total current assets .............................      8,175,073       6,578,171



Property and Equipment, net of accumulated
            depreciation and amortization of $3,106,965
            and $2,828,913, respectively .......................................................      2,563,856       2,475,650



Deposits and other assets ......................................................................        431,474         324,797
                                                                                                   ------------    ------------

                                                                                                   $ 11,170,403    $  9,378,618
                                                                                                   ============    ============

                       LIABILITIES & STOCKHOLDERS' EQUITY

                                                                                              September 30, 1997   March 31, 1997
                                                                                                    ------------    ------------

Current

           Borrowings under financing agreement .................................................   $  5,634,234    $  4,438,875

           Accounts payable .....................................................................      4,700,689       3,259,176

           Accrued expenses and other liabilities ...............................................         46,855         308,940

           Current portion of notes payable .....................................................        100,000         141,666
                                                                                                     ------------    ------------

                   Total current liabilities ....................................................     10,481,778       8,148,657


Notes payable, net of current portion ...........................................................         50,000         100,000

Deferred rent liability .........................................................................        135,672         126,925



     Stockholders' equity:

           Series E preferred stock, $1 par, 4,000,000 shares authorized;
             3,200,570 and 2,500,570 shares outstanding .........................................      3,700,570       2,500,570

           Common stock, $.01 par value, 40,000,000 shares

             authorized; 4,103,519 and 4,083,519 shares outstanding .............................         41,035          40,835

           Additional paid-in-capital ...........................................................      6,562,407       6,512,107

           Accumulated deficit ..................................................................     (9,801,059)     (8,050,476)

           Total stockholders' equity ............................................                        502,954       1,003,036

                                                                                                     $ 11,170,403    $  9,378,618
                                                                                                     ============    ============
</TABLE>
            See accompanying notes to condensed financial statements




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

                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                            Three Months Ended September 30,        Six Months Ended September 30,

                                                            1997           1996           1997           1996
                                                            ----
<S>                                                         <C>            <C>            <C>            <C>        
Net sales ...............................................   $ 4,228,780    $ 3,666,218    $ 7,371,593    $ 6,851,121
Cost of Sales ...........................................     2,384,717      2,528,783      4,358,082      4,680,501
                                 Gross profit ...........     1,844,063      1,137,435      3,013,511      2,170,620


Operating expenses:

                 Operating expenses .....................     2,028,571      1,817,170      4,056,974      3,558,962
                 Depreciation and amortization ..........       139,028         95,580        278,053        191,160
                                                                           -----------    -----------    -----------

                                 Total operating expenses     2,167,597      1,912,750      4,335,027      3,750,122

Operating loss ..........................................      (323,534)      (775,315)    (1,321,516)    (1,579,502)
Interest expense ........................................       217,545        195,663        429,067        374,837


Net loss ................................................   $  (541,079)   $  (970,978)   $(1,750,583)   $(1,954,339)



Net loss applicable to common shares ....................   $  (541,079)   $  (970,978)   $(1,750,583)   $(1,954,339)



Net loss per common share ...............................   $     (0.13)   $     (0.60)   $     (0.43)   $     (1.35)
Weighted average number of common shares and
          share equivalents outstanding .................     4,103,519      1,604,929      4,093,683      1,446,386



</TABLE>

            See accompanying notes to condensed financial statements




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

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

                                                                        Six Months Ended September 30,

                                                                         1997           1996
                                                                         -----

CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                      <C>            <C>         
         Net loss ....................................................   $(1,750,583)   $(1,954,339)
         Adjustments used to reconcile net loss to net
           cash used for operating activities:
                  Depreciation and amortization ......................       278,053        298,532
                  Amortization of common stock options ...............       107,372        107,372
                  Deferred rent ......................................         8,746        (20,825)
                  Preferred stock issued for financing charges .......          --           16,000
         Increase (decrease) from changes in:
                             Accounts receivable .....................      (338,764)      (258,284)
                           Merchandise inventories ...................    (1,263,705)    (2,710,581)
                           Other current assets ......................        13,418        126,027
                           Deposits and other assets .................      (214,050)       (40,234)
                           Accounts payable ..........................     1,441,513      2,115,304
                             Accrued expenses and other liabilities ..      (262,085)      (274,802)

                             Net cash used for operating activities ..    (1,980,085)    (2,595,830)

CASH FLOWS FROM INVESTING ACTIVITIES:

         Purchases of property and equipment .........................       366,258)      (231,477)
                                                                         -----------    -----------
                             Net cash used for investing activities ..      (366,258)      (231,477)
                                                                         -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from issuance of preferred and common stock ........     1,250,501        834,000
         Net borrowings on line of credit ............................     1,195,359      2,077,947
         Repayments of notes payable .................................       (91,666)          --
         Redemption of preferred stock ...............................          --          (87,680)
                                                                         -----------    -----------

                             Net cash provided by financing activities     2,345,194      2,824,267
                                                                         -----------    -----------

Net increase in cash .................................................         7,851         (3,040)
Cash at beginning of period ..........................................       177,722         83,650
Cash at end of period ................................................   $   185,573    $    80,610


</TABLE>
            See accompanying notes to condensed financial statements



<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  June 30, 1997
                                   (Unaudited)


Note 1.

The interim  accompanying  unaudited  condensed  financial  statements have been
prepared in accordance with generally accepted  accounting  principles  ("GAAP")
for interim  financial  information  and with the  instructions  to Form 10-QSB.
Accordingly,  they do not include all of the information and footnotes  required
by GAAP for complete  financial  statements.  In the opinion of management,  all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair  presentation  have been  included.  For  further  information,  management
suggests that the reader refer to the audited financial  statements for the year
ended  March 31,  1997  included  in its  Annual  Report on Form  10-KSB and the
Company's registration statement on Form SB-2, which became effective on October
2, 1997. Operating results for the six month period ended September 30, 1997 are
not necessarily indicative of the results of operations that may be expected for
the year ending March 31, 1998.



<PAGE>



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


Results of Operations

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

     The Company's operations are substantially  controlled by United Textiles &
Toys Corp.  ("UTTC"),  the Company's parent.  UTTC currently owns  approximately
59.3% of the issued and outstanding shares of the Company's Common Stock.

     For the three  months  ended  September  30, 1997  compared to three months
ended September 30, 1996

     The Company  generated  net sales of  $4,228,780  in the three months ended
September 30, 1997. This represented an increase of $562,562, or 15.3%, from net
sales of $3,666,218 in the three months ended  September 30, 1996.  The increase
in sales is directly  attributable  to  increased  sales  contribution  from its
stores of $496,820,  or a 13.6% improvement over the stores' sales  contribution
in the three months ended  September 30, 1996. The sales  contribution  from the
Company's  stores came despite a decrease of $48,592 in same store sales for the
three months ended  September  30, 1997.  Sales from new stores  contributed  an
additional  $545,412 to the Company's  sales in the three months ended September
30, 1997.

     The Company  posted a gross profit of  $1,844,063 in the three months ended
September 30, 1997, an increase of $706,628,  or 62.1%, from the gross profit of
$1,137,435 in the three months ended  September 30, 1996.  This  represented  an
improvement  in the  Company's  gross  margin from 31.0% in the  September  1996
period  to  43.6%  in  the  September  1997  period.  This  12.6%  gross  margin
improvement was largely due to the ongoing  implementation of the Company's plan
to augment its traditional  product base of lower margin promotional toys with a
mix of educational toys, which generally produce better margins than promotional
toys.

     Operating  expenses  in the three  months  ended  September  30,  1997 were
$2,028,571.  This represented a $211,401,  or 11.6%, increase over the Company's
operating  expenses of $1,817,170 in the three months ended  September 30, 1996.
The  primary  reasons for the  operating  expense  increase  were an increase in
payroll and related  expenses of $75,648,  a decrease of rental and other income
of $64,546 and an increase in rent expense of $37,934. A contributing  factor to
the increases in rent and payroll  related  expenses was the  acquisition of the
three Toys  International  stores in January 1997. Two of the Toys International
stores generate higher gross profit than the Company's  original stores but also
carry higher rent and salary expenses than the original stores.  Those increases
were  partially  offset  by a  reduction  in  advertising  expense  of  $66,788.
Operating expenses for the three months ended September 30, 1997 were equivalent
to the Company's operating expenses for the three months ended June 30, 1997.

     During the three months ended  September  30,  1997,  the Company  recorded
non-cash  depreciation and amortization expenses of $139,028, a $43,448 increase
from $95,580 in the period ended  September 30, 1996.  This increase was largely
due to depreciation on the Toys  International  assets acquired in January 1997.
Total operating  expenses  (operating  expenses  combined with  depreciation and
amortization)  in the  September  1997 period were  $2,167,597,  a $254,847,  or
13.3%,  increase  from total  operating  expenses of $1,912,750 in the September
1996 period.  Total operating  expenses for the three months ended September 30,
1997 were  equivalent to the Company's  total  operating  expenses for the three
months ended June 30, 1997.

     As a  result  of  the  $706,628  improvement  in  gross  profit  more  than
offsetting  the $254,847  increase in total  operating  expenses,  the Company's
operating loss decreased by $451,781 from $775,315 during the three months ended
September 30, 1996 to $323,534 during the three months ended September 30, 1997.
This represented a 58.3% reduction in the Company's operating loss.

     Interest  expense totaled $217,545 for the three months ended September 30,
1997. This  represented a $22,230,  or 11.2%,  increase over interest expense of
$195,663 in the three months ended  September 30, 1996.  The primary  reason for
the increased level of interest  expense was a higher level of borrowings in the
September 1997 period than in the September 1996 period.

     As a result of the above mentioned factors, the Company recorded a net loss
of $541,079 for the three months ended  September 30, 1997.  This  represented a
$429,899  reduction  from the net loss of $970,978  recorded in the three months
ended  September 30, 1996.  The net loss per common share for the September 1997
period was $(0.13) compared to a net loss per common share in the September 1996
period of $(0.60).  The loss per common share  decreased in the  September  1997
period  compared  to the  corresponding  prior  period due to an increase in the
weighted  average number of shares  outstanding  from 1,604,929 in the September
1996 period to 4,103,519 in the September 1997 period.

     For the six months ended  September  30, 1997  compared to six months ended
September 30, 1996

     The Company generated net sales of $7,371,593 in the six month period ended
September 30, 1997. This represented an increase of $520,472,  or 7.6%, from net
sales of  $6,851,121  in the six month period  ended  September  30,  1996.  The
increase in sales is directly  attributable to increased sales contribution from
its  stores  of  $556,169,  or  an  8.1%  improvement  over  the  stores'  sales
contribution  in the six  month  period  ended  September  30,  1996.  The sales
contribution  from the  Company's  stores came despite a decrease of $359,361 in
same store sales for the six month period ended  September 30, 1997.  Sales from
new stores contributed an additional  $915,530 to the Company's sales in the six
month period ended September 30, 1997.

     The Company  posted a gross  profit of  $3,013,511  in the six month period
ended  September  30, 1997,  an increase of $842,891,  or 38.8%,  from the gross
profit of  $2,170,620  in the six month period ended  September  30, 1996.  This
represented  an  improvement  in the  Company's  gross  margin from 31.7% in the
September  1996 period to 40.9% in the  September  1997 period.  This 9.2% gross
margin  improvement  was  largely  due  to  the  ongoing  implementation  of the
Company's  plan  to  augment  its  traditional  product  base  of  lower  margin
promotional toys with a mix of educational  toys, which generally produce better
margins than promotional toys.

     Operating  expenses in the six month period ended  September  30, 1997 were
$4,056,974.  This represented a $498,012,  or 14.0%, increase over the Company's
operating  expenses of  $3,558,962  in the six month period ended  September 30,
1996. The primary reasons for the operating expense increase were an increase in
rent  expense of  $264,272,  an  increase  in payroll  and  related  expenses of
$179,544 and a decrease of rental and other income of $131,257.  A  contributing
factor to the increases in rent and payroll related expenses was the acquisition
of the  three  Toys  International  stores  in  January  1997.  Two of the  Toys
International  stores generate  higher gross profit than the Company's  original
stores but also carry higher rent and salary expenses than the original  stores.
Those increases were partially  offset by a reduction in advertising  expense of
$204,353.

     During the six month period ended September 30, 1997, the Company  recorded
non-cash  depreciation and amortization expenses of $278,053, a $86,893 increase
from $191,160 in the period ended  September 30, 1996. This increase was largely
due to depreciation on the Toys  International  assets acquired in January 1997.
Total operating  expenses  (operating  expenses  combined with  depreciation and
amortization)  in the  September  1997 period were  $4,335,027,  a $584,905,  or
15.6%,  increase  from total  operating  expenses of $3,750,122 in the September
1996 period.

     As a  result  of  the  $842,891  improvement  in  gross  profit  more  than
offsetting  the $584,905  increase in total  operating  expenses,  the Company's
operating loss decreased by $257,986 from $1,579,502 during the six month period
ended  September  30,  1996 to  $1,321,516  during  the six month  period  ended
September  30,  1997.  This  represented  a  16.3%  reduction  in the  Company's
operating loss.

     Interest  expense totaled $429,067 for the six month period ended September
30, 1997. This represented a $54,230,  or 14.5%,  increase over interest expense
of $374,837 in the six month period ended September 30, 1996. The primary reason
for the increased level of interest  expense was a higher level of borrowings in
the September 1997 period than in the September 1996 period.

     As a result of the above mentioned factors, the Company recorded a net loss
of  $1,750,583  for  the  six  month  period  ended  September  30,  1997.  This
represented a $203,756 reduction from the net loss of $1,954,339 recorded in the
six month period ended September 30, 1996. The net loss per common share for the
September 1997 period was $(0.43) compared to a net loss per common share in the
September  1996 period of $(1.35).  The loss per common  share  decreased in the
September  1997 period  compared  to the  corresponding  prior  period due to an
increase in the weighted average number of shares  outstanding from 1,446,386 in
the September 1996 period to 4,093,683 in the September 1997 period.

     Liquidity and Capital Resources

     At  September  30,  1997,  the  Company  had a working  capital  deficit of
$(2,306,705)  compared to a working capital deficit of $(1,570,486) at March 31,
1997. The Company has generated  operating losses for the past several years and
has  historically  financed  those losses and its working  capital  requirements
through  sales of 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,  1997,  the Company used
$1,980,085 of cash in its operations  compared to $2,595,830  used in operations
in the six month period ended  September  30, 1996.  The  Company's net loss was
approximately $1.75 million and $1.95 million, respectively, in those periods.

     The Company used  $366,258 of cash in its investing  activities  during the
six month period ended  September 30, 1997 compared to $231,477 in the six month
period ended September 30, 1996.

     The Company generated  $2,345,194 from its financing  activities in the six
month period ended  September 30, 1997 compared to the  generation of $2,824,267
from financing  activities in the six month period ended September 30, 1996. The
primary  contributors to the Company's  financing  activities were borrowings on
the Company's line of credit and proceeds from the issuance of preferred  stock.
Those  proceeds were used to finance the Company's  working  capital and capital
expenditure  requirements and operating losses during the six month period ended
September 30, 1997.

     As a result of the above factors, the Company had a net increase in cash of
$7,851 in the six month  period  ended  September  30,  1997  compared  to a net
decrease in cash of $3,040 in the six month period ended September 30, 1996.

     During the three months ended  September 30, 1997,  the Company  opened one
new store and  remodeled  an  existing  store to the  Company's  new format that
emphasizes  specialty  and  educational  toys.  Both stores are located in strip
malls in San Diego county, California. In October 1997, the Company opened a new
store in a highly trafficked mall in Ontario,  California and opened a temporary
store  for the  Christmas  season  in a highly  trafficked  mall in Costa  Mesa,
California.  In early November 1997, the Company opened an additional store in a
highly  trafficked  mall in  Redondo  Beach,  California.  Later in the month of
November,  it expects to open an additional  store in a highly  trafficked  mall
located  in Tempe,  Arizona.  The Tempe  store will be the first  Company  store
located outside of California.

     At September  30,  1997,  the Company had an  inventory  financing  line of
credit with Congress  Financial  Corporation  ("Congress")  in connection with a
Loan and Security  Agreement ("Loan Agreement") that was executed on February 1,
1996. The Loan Agreement  provides for maximum borrowings of $7,000,000 based on
the "Cost Value of Eligible  Inventory," as defined in the Loan  Agreement.  The
Loan Agreement also requires the Company to maintain,  at all times, a net worth
of $500,000.  The Loan Agreement requires the payment of a quarterly service fee
of  $10,000,  The line of credit is secured by  substantially  all assets of the
Company,  is guaranteed by UTTC, and is further  collateralized by $3,000,000 in
letters of credit provided by Europe American Capital Corp.  ("EACC").  Interest
on  outstanding  balances  is charged at prime  plus  1.5%.  The Loan  Agreement
matures February 1, 1998.

     The Company is  exploring  options to find a lender to replace the Congress
line of credit. The Company has been verbally informed by a lender that its loan
committee has approved a loan subject to the Company's  receipt of an additional
$1.5 million in equity.  There can be no assurance  that the loan agreement will
be consummated.

     The toy industry is seasonal with approximately 45% to 49% of the Company's
annual  sales  occurring  during the months of October  through  December.  As a
result,   sources  of  funds  to  repay  amounts  due  under  inventory  finance
arrangements  with  financial   institutions  and  manufacturers  are  typically
generated from sales during the peak selling season.

     The Company has  prepared  cash flow  forecasts  for the fiscal year ending
March 31, 1998. Management acknowledges that the Company will require additional
financing in addition to its support  from its line of credit with  Congress and
from  vendor  credit  lines in order to meet its  capital  requirements  for the
fiscal  year  ending  March 31,  1998.  In  addition,  the  Company  may require
additional   capital  to  redesign   current  and  future  retail  locations  to
incorporate its plans to focus on the educational and specialty toy market.  The
Company has filed a  registration  statement  with the  Securities  and Exchange
Commission for an initial public  offering for the Company's  Series E preferred
shares to meet those capital requirements. The offering is being managed by West
America  Securities  Corp.  on a best efforts basis with an objective of raising
net proceeds to the Company of approximately $2.5 million. However, there can be
no assurance that this offering will be consummated.

     In September 1997, the NASDAQ SmallCap Market System delisted the Company's
common  stock  for   perceived   failure  to  maintain   the  required   minimum
stockholders'   equity  of  $1,000,000   and  for  public   interest   concerns.
Subsequently,  the Company's  common stock began trading on the over-the counter
market.  West  America  Securities  Corp.  has agreed to market the above  noted
preferred stock offering with the preferred  shares and common stock all trading
(or to be traded) on the over-the  counter  market.  However,  the delisting may
have a negative impact on the Company's  ability to raise  additional  equity or
debt financing.

     In addition,  Mr. Ilan Arbel,  an affiliate of EACC, in a letter dated June
10, 1997,  represented his willingness to provide  additional working capital to
the Company, should such be necessary, through September 30, 1998.

     Trends Affecting Liquidity, Capital Resources and Operations

     The Company's sales efforts are focused  primarily on a defined  geographic
segment consisting of the Southern  California area and the Southwestern  United
States.  The Company's future  financial  performance will depend upon continued
demand for toys and hobby items and on general economic  conditions  within that
geographic  market  area,  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  domination of the toy industry by Toys R Us has resulted in
increased  price  competition  among various toy  retailers and declining  gross
margins for such retailers.  Moreover,  the domination of Toys R Us has resulted
in the  liquidation  or bankruptcy of many toy retailers  throughout  the United
States,  including  some in the  Southern  California  market.  There  can be no
assurance  that the  Company's  business  strategy  will  enable  it to  compete
effectively in the toy industry.

     Management  currently  knows of no  trends  reasonably  expected  to have a
material  impact upon the Company's  operations or liquidity in the  foreseeable
future. The Company's  operating history has been characterized by narrow profit
margins;  accordingly,  the Company's earnings will depend  significantly on its
ability to purchase its product on favorable terms, to obtain store locations on
favorable terms, retail a large volume and variety of products efficiently,  and
to provide quality support services. The Company's prices are, in part, based on
market surveys of its  competitors'  prices,  primarily those of Toys R Us. As a
result,  aggressive  pricing  policies,  such as those  used by Toys R Us,  have
resulted  in the  Company  reducing  its retail  prices on many  items,  thereby
reducing the available profit margin.  Moreover,  increases in expenses or other
charges to income may have a material adverse effect on the Company's results of
operations.  There can be no assurance that the Company will be able to generate
sufficient  revenues or have sufficient  control over expenses and other charges
to increase profitability.

Inflation and Seasonality

     During  the  past  few  years,  inflation  in the  United  States  has been
relatively stable. In management's opinion, this is expected to continue for the
foreseeable future. However, should the American economy again experience double
digit  inflation  rates, as was the case in the past, the impact on prices could
adversely affect the Company's operations.

     The  Company's  business  is highly  seasonal  with a large  portion of its
revenues and profits being  derived  during the months of November and December.
Accordingly,  the Company is required to obtain substantial short-term borrowing
during  the first  three  quarters  of the  calendar  year in order to  purchase
inventory and to finance  capital and  operational  expenditures.  The Company's
past  history of  negative  cash flows  during the fiscal  year are  partially a
result of its seasonal  business  nature.  The Company's cash flows are negative
for most months prior to the Christmas season.  The Company's negative cash flow
for all months except November and December  historically  has been serviced via
the Company's line of credit,  special  credit terms with vendors,  and from the
sale of equity instruments, principally preferred stock.

<PAGE>

                                     PART II

Item 1.           Legal Proceedings

     In June 1997, in the Superior Court of the State of California, Los Angeles
County, Shook Development Corp. commenced suit against the Company for breach of
contract  pertaining to premises  leased by the Company from South San Dimas,  a
California  Limited  Partnership.   The  premises  are  located  in  San  Dimas,
California. The lease for the premises has a term from November 15, 1990 through
March 2000. The Company vacated the premises in April 1997. The plaintiff is not
the entity with which the Company entered the lease.  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, unpaid Common
Area Maintenance charges,  late charges,  interest,  costs, and attorneys' fees.
The Company is defending against this action.

     Also in June 1997, in the Superior Court of the State of California, Orange
County,  Prudential  Insurance  Company of America  commenced  suit  against the
Company for breach of contract pertaining to premises leased by the Company. The
premises are located in Riverside, California, and the lease extends from August
1995 through  January  2001.  In April 1997,  the Company  vacated the premises.
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,  unpaid Common Area Maintenance  charges,  late charges,  interest,
costs, and attorneys' fees. The Company is defending against this action.

     In May 1997, in the Superior Court of the State of California,  Los Angeles
County,  PNS  Stores,  Inc.  commenced  suit  against the Company and its former
guarantor for breach of contract  pertaining to premises  leased by the Company.
The premises are located in Whittier, California. The lease for the premises has
a term from  September  1994  through  January  2000.  The  Company  vacated the
premises in March 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, unpaid Common Area Maintenance  charges,
late charges,  interest,  costs,  and attorneys'  fees. The Company is defending
against this action.

     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.  The  premises  are  located 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. Once served,  the Company shall defend against this
action.

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

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

Item 3. Defaults Upon Senior Securities: None

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

Item 5. Other Information: None

Item 6. Exhibits and Reports on Form 8-K

Exhibit 10.87 - Lease Agreement for Store-Clairemont
Exhibit 10.88 - Lease Agreement for Store-Redondo Beach
Exhibit 10.89 - Lease Agreement for Store-Arizona Mills





<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 18th day of November 1997.


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