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

                                 FORM 10-QSB/A-1
                                   (Mark One)

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

                  For the quarterly period ended June 30, 1998

                                       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:
4,103,525 outstanding as of June 30, 1998.

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



<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

PART I.              FINANCIAL INFORMATION                                                                            Page Number

Item 1.              FINANCIAL STATEMENTS

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

                     Condensed  statements  of  operations  for the three months
ended June 30, 1997 and 1996.
                                                                                                                                4
                     Condensed  statements  of cash  flows for the three  months
ended June 30, 1997 and 1996.
                                                                                                                                5
                     Notes to condensed financial statements                                                                  6-8

Item 2.              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS                   9-13
PART II.             OTHER INFORMATION                                                                                         14


Item 1.              LEGAL PROCEEDINGS                                                                                         14

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

                     Signatures                                                                                                15

</TABLE>



<PAGE>
Item 1. Financial Statements




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

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                                   June 30, 1998    March 31, 1998
                                                                                                    (unaudited)        (Restated)

Current

<S>                                                                                                     <C>             <C>      
Cash .................................................................................................. $ 289,455       $ 648,986
Accounts receivable ...................................................................................    51,976          78,594
Merchandise inventories ............................................................................... 9,376,037       7,872,804
Other current assets ..................................................................................   561,156         433,928
                                                                                                         ------------ ------------
Total current assets ................................................                                  10,278,624       9,034,312



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

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

                                                                                                      $ 15,750,599    $ 14,139,887
                                                                                                         ============ ============
                       LIABILITIES & STOCKHOLDERS' EQUITY
                                                                                                      June 30, 1998   March 31, 1998
                                                                                                       ------------   ------------

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

Total current liabilities ......................................................................         5,182,458      4,581,831
Borrowings under financing agreement ....................................................................6,521,695      5,445,198
Notes payable, and capital leases, net of ................................................................. 71,541      1,500,000
current portion (Note 2)
Deferred rent liability ...................................................................................114,903        110,351



Stockholders' equity:

Series E preferred stock, $.01 par, 10,000,000 shares authorized;
5,746,403 and 4,200,570 shares outstanding (Note 2) ..................................................   4,259,120      3,974,376
Common stock, $.01 par value, 40,000,000 shares
authorized; 4,103,525 and 4,103,519 shares outstanding ...............................................      41,035         41,035
Additional paid-in-capital .............................................................................14,461,251     12,927,918
Accumulated deficit ....................................................................................(14,901,404)  (14,440,822)
                                                                                                         ------------ ------------



Total stockholders' equity .........................................                                     3,860,002      2,502,507
                                                                                                         ------------ ------------



                                                                                                      $ 15,750,599   $ 14,139,887
                                                                                                         ============ ============
</TABLE>

            See accompanying notes to condensed financial statements




<PAGE>
Item 1. Financial Statements



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

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

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

<S>                                                         <C>            <C>        
Net sales ...............................................   $ 6,357,395    $ 3,142,813
Cost of Sales ...........................................     3,706,331      1,973,365
                                                            -----------    -----------
                                 Gross profit ...........     2,651,064      1,169,448
Operating expenses:
                 Operating expenses .....................     2,483,771      2,044,652
                 Depreciation and amortization ..........       188,417        139,027
                                                            -----------    -----------
                                 Total operating expenses     2,672,188      2,183,679
                                                            -----------    -----------

Operating income (loss) .................................       (21,124)    (1,014,231)
Interest expense:
                 Interest and finance charges ...........       138,452        118,619
                 Amortization of debt issuance costs ....        27,200         76,654
                                                            -----------    -----------
                                 Total interest expense .       165,652        195,273
                                                            -----------    -----------
Net income (loss) .......................................   $  (186,776)   $(1,209,504)
                                                            ===========    ===========
Other comprehensive income (loss) .......................          --             --
Comprehensive net income (loss) .........................   $  (186,776)   $(1,209,504)
                                                            ===========    ===========

Calculation of basic and diluted income (loss) per share:

  Net income (loss) .....................................   $ (186, 776)   $(1,209,504)
                                                            ===========    ===========
  Effect of non-cash dividends on convertible
     Preferred stock ....................................      (273,806)          --
  Net income (loss) applicable to common shares .........   $  (460,582)   $(1,209,504)
                                                            ===========    ============
  Basic and diluted loss per common share
      And share equivalents .............................   $     (0.11)   $     (0.30)
                                                            ===========    ===========

  Weighted average number of common shares
      share equivalents outstanding .....................     4,103,525      4,083,739
                                                            ===========    ===========
</TABLE>



            See accompanying notes to condensed financial statements




<PAGE>
Item 1. Financial Statements



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

                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
     
                                                                               Three Months Ended
                                                                                    June 30,

                                                                            1998          1997
                                                                           -----          ----

CASH FLOWS FROM OPERATING ACTIVITIES:

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

         Increase (decrease) from changes in:
                             Accounts receivable .....................        26,618        (14,776)
                           Merchandise inventories ...................    (1,503,233)      (457,854)
                           Other current assets ......................      (127,228)       101,504
                           Deposits and other assets .................       (93,072)        12,420
                           Accounts payable ..........................     1,249,369        602,459
                             Accrued expenses and other liabilities ..      (527,702)      (165,469)
                                                                         -----------    -----------
                             Net cash used for operating activities ..      (958,117)      (929,762)
                                                                          -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchases of property and equipment .........................      (461,745)       (64,518)
                                                                         -----------    -----------
                             Net cash used for investing activities ..      (461,745)       (64,518)
                                                                         -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from issuance of preferred and common stock ........          --          700,501
         Change in bank overdraft ....................................          --          (41,443)
         Net borrowings on financing agreement
                                                                           1,076,497        387,188
         Net repayments of notes payable and capital leases
                                                                             (16,166)          --
                                                                          -----------    -----------
                             Net cash provided by financing activities     1,093,664        979,580
                                                                          -----------    -----------
Net decrease in cash .................................................      (359,531)       (14,700)
Cash at beginning of quarter .........................................       648,986        177,722
Cash at end of quarter ...............................................   $   289,455    $   163,022

</TABLE>
            See accompanying notes to condensed financial statements




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





Note 1. General

     The interim accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted  accounting  principles  ("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, 1998  included in its Annual  Report on Form  10-KSB.  Operating
results for the three  month  quarter  ended June 30,  1998 are not  necessarily
indicative of the results of operations that may be expected for the year ending
March 31, 1999.

Note 2. Debt Conversion

     In June  1998,  ABC  Fund,  Ltd.  ("ABC")  - a  Belize  corporation  and an
affiliate of the Company and the holder of a 5% convertible secured subordinated
debenture  dated  January 21, 1998 and due August 15, 2000 (the  "Debenture")  -
offered  to amend the terms of the  Debenture  to enable the  conversion  of the
principal  amount and accrued  interest  thereon,  into shares of the  Company's
Series E Preferred Stock ("Series E Stock"),  at a conversion price of $1.00 per
share.  The conversion  price  represents a 33% discount to the trading price of
the Series E Stock and was  determined  on the basis of the  security's  trading
price,  the  illiquidity  of the restricted  Series E Stock,  and the absence of
registration  rights  of  same.  Simultaneously,  ABC  elected  to  convert  the
Debenture  as of June 30, 1998,  whereby  $1.5  million in principal  amount and
$33,333 in accrued  interest was  converted  into  1,533,333  shares of Series E
Stock. ABC did not receive any registration rights regarding the shares.

     Simultaneous  with the  conversion of the  Debenture,  ABC  terminated  the
Subordinated  Security  Agreement  between the parties and the Intercreditor and
Subordination  Agreement,  dated January 21, 1998, by and between ABC and FINOVA
Capital Corporation  ("FINOVA"),  the Company's working capital lender (which is
not affiliated with the Company).

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

     Management agreed to convert ABC's subordinated debenture as the conversion
of  the  debt  to  equity  resulted  in a  strengthened  equity  position  which
management  believes provides confidence to the Company's working capital lender
and trade creditors.  Further, converting the debt to equity eliminated on-going
interest  expense  requirements  as well as the cash flow  required to repay the
debenture.

     From an accounting standpoint,  the Company has treated the issuance of the
shares of Series E Stock in a manner consistent with the treatment prescribed by
EITF Topic No. D-60, as discussed  further in Note 4. This accounting  treatment
resulted in the  allocation of the $1,500,000 in proceeds from the conversion of
the debt to the beneficial conversion feature of the securities.  The allocation
represents a discount in the recorded  value of the Series E shares that will be
amortized over the minimum holding period and recorded as a non-cash dividend.

Note 3. Subsequent Events

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

     On July 22,  1998,  the Company  entered  into a Lead  Generation/Corporate
Relations  Agreement with Corporate  Relations Group,  Inc.  ("CRG"),  a Florida
corporation not affiliated with the Company, pursuant to which CRG shall provide
investor  and public  relations  services  to the  Company  for a period of five
years.  Under the terms of the Agreement,  the Company paid $100,000 to CRG upon
execution of the  agreement  and agreed to issue 50,000  shares of the Company's
Series E Stock as a reimbursement for expenses. In addition, the Company granted
to CRG options to purchase  350,000  shares of Common Stock at an exercise price
of $0.78125 per share and 400,000  shares of Series E Stock at an exercise price
of $2.25 per share. In a related  agreement,  the Company issued options to four
principals of CRG entitling each to purchase 25,000 shares of Common Stock at an
exercise  price of $0.78125  and 75,000  shares of Series E Stock at an exercise
price of $2.25 per share. In connection with these options, the Company recorded
approximately  $35,000 in  compensation  ($10,000 for the Series E Stock options
and $25,000 for the Common Stock options) based on an option pricing model which
considered the volatility of the securities' stock prices, and the short life of
the  options,  2/3 of which  are  exercisable  for a two  month  period  and the
remaining 1/3 of which are exercisable for a six month period.

     On July 27,  1998,  the Company  sold  100,000  shares of Series E Stock to
United Textiles & Toys Corp. ("UTTC"), the Company's principal stockholder,  for
$100,000.  In determining  the purchase price paid by UTTC, the trading price of
the  Company's  Series  E  Stock -  along  with  the  applicable  discounts  for
illiquidity,  lack of  marketability,  and  lack of  registration  rights - were
considered. The trading price of approximately $2.00 per share was discounted by
50% for the above reasons.

     Effective  July 30,  1998,  the  Company and FINOVA  amended the  Company's
credit agreement to increase the maximum level of borrowings under the agreement
from $7.1 million to $7.6 million.

Note 4. Restatement of Financial Statements

     The Company has restated its financial  statements for the year ended March
31, 1998 from those originally presented,  to conform with Topic No. D-60 of the
Emerging Issues Task Force.  Topic D-60  communicated  the views of the staff of
the  Securities  and Exchange  Commission  that the portion of the proceeds upon
issuance of convertible  preferred stock allocable to the beneficial  conversion
feature  should be recorded as additional  paid-in  capital and  recognized as a
dividend over the minimum period in which the preferred shareholders can realize
the conversion.

     Each  share of the  Company's  Series E Stock,  which  stock was  issued in
varying  amounts on various  dates,  includes a  beneficial  conversion  feature
whereby each share is convertible into six shares of the Company's Common Stock,
at the option of the holder, at no additional conversion price.

     The  beneficial  conversion  feature is measured at the date of issuance of
the Series E Stock as the difference  between the conversion price, which is $0,
and the  market  value of the  Common  Stock  into  which the  Series E Stock is
convertible,  limited to the proceeds received from the issuance of the Series E
Stock.  Based on the  calculations  prescribed  by Topic No. D-60,  all proceeds
initially  received  by the  Company  from the  issuances  of the Series E Stock
should  initially  be recorded as  additional  paid-in  capital,  as 100% of the
proceeds are allocable to the beneficial  conversion feature.  Over the required
holding period, a non-cash  dividend is recorded  reducing the retained earnings
(or increasing the accumulated  deficit) and increasing the balance  recorded as
Series E Stock in the balance sheet.  Thus,  there is no net effect on the total
shareholders' equity of the Company.

     However,  the Company has also  restated  its net loss per common  share as
presented in the statement of  operations  for the year ended March 31, 1998, as
the dividend  attributable to the beneficial  conversion feature of the Series E
Stock  reduces  the amount of net income (or  increases  the amount of net loss)
applicable to the common shares.

     In  applying  the  provisions  of Topic  D-60,  the  Company  has  recorded
dividends  of  $273,806  for the  three  months  ended  June 30,  1998.  No such
dividends were recorded for the three months ended June 30, 1997.




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

Results of Operations

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

     The Company is a subsidiary of United Textiles & Toys Corp. ("UTTC"), which
currently owns  approximately  60.1% of the issued and outstanding shares of the
Company's Common Stock. UTTC is a Delaware  corporation and public company which
was  organized  in March  1991 and  commenced  operations  in October  1991.  It
formerly designed,  manufactured, and marketed a variety of lower priced women's
dresses, gowns, and separates (blouses,  camisoles,  jackets, skirts, and pants)
for  special  occasions  and  formal  events.  In April  1998,  UTTC  ceased all
operating activities; it now operates solely as a holding company.

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

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

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

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

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

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

     Interest expense totaled $165,652 for the three months ended June 30, 1997.
This represented a $29,621, or 15.2%, decrease from interest expense of $195,273
for the three months ended June 30,  1997.  The primary  reason for the decrease
was the  completion of the  amortization  of debt issuance  costs related to the
Company's previous financing arrangement in the fiscal year ended March 31, 1998
in connection with the Company's prior credit financing  company.  Those charges
were  recorded as interest  expense.  The  Company had  amortization  expense of
$27,200 in the June 1998 quarter related to the FINOVA financing agreement.

     As a result of the above mentioned factors, the Company recorded a net loss
of  $(186,776)  for the three  months ended June 30, 1997.  This  represented  a
$1,022,728  improvement over the net loss of $(1,209,504)  recorded in the three
months ended June 30, 1997.

     For the three  months  ended  June 30,  1998,  net loss of  $(186,776)  was
increased by non-cash dividends of $273,806 in order to determine the net income
(loss)   applicable  to  common  shares.   The  non-cash   dividends   represent
amortization  of the discount  recorded  upon  issuance of Series E Stock with a
beneficial  conversion  feature. No dividends in the form of securities or other
assets were actually paid out. There was no such dividend  recorded for the June
1997 period.

     The basic and diluted  loss per share for the three  months ended June 1998
was $(0.11) compared to a basic and diluted net loss per share in the comparable
June 1997  quarter of $(0.30).  The  weighted  average  number of common  shares
outstanding  increased  from  4,083,739 in the June 1997 quarter to 4,103,525 in
the June 1998 quarter.

Liquidity and Capital Resources

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

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

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

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

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

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

     The  Company  has  signed  leases  to open five  additional  stores in high
traffic  malls in 1998,  including  locations in Texas,  Illinois,  Michigan and
southern California.  The cost involved in opening these five new locations will
require a estimated  capital  expenditure of approximately  $1.3 million to $1.6
million.  The  Company  plans to  finance  the  capital  expenditure  through  a
combination  of working  capital,  landlord  tenant  improvement  contributions,
capital leases,  drawing down on its credit line and through  additional  equity
investments, though the Company does not presently have any agreements to obtain
said equity  investments  and can not give any assurances  that it will have the
funds when needed to meet the capital  requirements to open these locations.  In
May 1998, the Company  commenced an offering of Units,  each Unit comprising one
share of the Company's Series F Preferred Stock and one Series F Preferred Stock
Purchase  Warrant at a purchase  price of $3.00 per Unit,  through  Morgan Grant
Capital Group,  Inc., as placement  agent.  The offering was terminated,  and no
funds were raised  thereby.  In June 1998, the Company  entered into a five-year
capital  lease for  approximately  $84,000 to partially  finance the cost of its
relocated Century City store. The Company is in the documentation process for an
additional capital lease to partially finance the cost of its Nevada store.

     In July 1998,  the  Company  and FINOVA  Capital  Corporation,  its working
capital lender,  amended the Company's  credit agreement to increase the maximum
level of borrowings  under the agreement from $7.1 million to $7.6 million.  The
Company  expects  to  utilize  this  additional  amount  on its  credit  line to
partially finance either its working capital,  particularly inventory purchases,
or the capital expenditure requirements noted above.

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

Year 2000

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

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

Trends Affecting Liquidity, Capital Resources and Operations

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

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

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

Inflation and Seasonality

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

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



<PAGE>
                                     PART II


Item 1. Legal Proceedings

     In October 1997, in the Superior Court of the State of  California,  County
of San Bernardino,  Foothill Marketplace  commenced suit against the Company and
its former guarantor for breach of contract pertaining to premises leased by the
Company  in  Rialto,  California.  The  lease for the  premises  has a term from
February 1987 through  November 2003. The Company vacated the premises in August
1997. Under California State law and the provisions of the lease,  plaintiff has
a duty to mitigate its damages. Plaintiff seeks damages, of a continuing nature,
for  unpaid  rent,  proximate  damages,  costs,  and  attorneys'  fees,  in  the
approximate amount of $300,000. This action is in the discovery phase.

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

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

Item 3. Defaults Upon Senior Securities: None

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

Item 5. Other Information: None

Item 6. Exhibits and Reports on Form 8-K

     (a) The following exhibits,  except those designated with an (*), which are
filed  herewith,  were  previously  filed with the Company's Form 10-QSB for the
quarter ended June 30, 1998:

<TABLE>
<CAPTION>

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


(b) During the quarter  ended June 30,  1998,  no reports on Form 8-K were filed
with the Securities and Exchange Commission.




<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 31st day of March 1999.


                                        PLAY CO. TOYS & ENTERTAINMENT CORP.



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


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