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 December 31, 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,  $0.01 par value:
85,690,234 shares outstanding as of February 16, 2001.

     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

                    Accountants' Review Report

<S>                                                                                                                       <C>
                    Condensed consolidated balance sheets as of  December 31, 2000                                        3
                    (unaudited) and March 31, 2000.

                    Condensed consolidated statements of operations and comprehensive net loss for three
                    months and nine months ended December 31, 2000 and 1999 (unaudited).                                  4

                    Condensed consolidated statements of cash flows for the nine months ended December
                    31, 2000 and 1999 (unaudited).                                                                        5

                    Notes to condensed consolidated financial statements                                               6-11

Item 2.             MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                                                                      12-19
PART II.            OTHER INFORMATION
                                                                                                                         20
Item 1.             LEGAL PROCEEDINGS

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>

                                       2
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>

                                                                          December 31, 2000
                                                                           (unaudited)      March 31, 2000
                                                                            ------------    ------------
Current
<S>                                                                         <C>             <C>
           Cash .........................................................   $  1,682,697    $  6,179,007
           Accounts receivable ..........................................        570,439         676,456
           Merchandise inventories ......................................     14,052,585      14,111,236
           Other current assets .........................................        655,252          20,000
                                                                            ------------    ------------
                                           Total current assets .........     16,960,973      20,986,699

Property and Equipment, net of accumulated
           depreciation and amortization of $6,474,595
           and $5,162,813, respectively .................................     10,211,016       7,398,621
Marketable securities ...................................................      4,073,872            --
Website development costs ...............................................      1,612,545       1,753,193
Deposits and other assets ...............................................      2,183,366       2,145,268
                                                                            ------------    ------------
                                                                            $ 35,041,772    $ 32,283,781
                                                                            ============    ============

                       LIABILITIES & STOCKHOLDERS' EQUITY

Current
          Accounts payable ..............................................    $ 8,824,852    $  6,110,161
          Accrued expenses and other liabilities ........................      2,612,580         892,428
          Current portion of notes payable and capital leases ...........        187,504         386,179
          Borrowings under financing agreement ..........................      5,169,514          47,542
                                                                            ------------    ------------
                Total current liabilities ...............................     16,794,450       7,436,310

Notes payable and capital leases, net of current portion ................      1,099,418         988,767
Deferred rent liability .................................................        129,268         135,607
                                                                            ------------    ------------
                        Total liabilities ...............................     18,023,136       8,560,684
                                                                            ------------    ------------

Minority interest in subsidiary .........................................      6,125,317       9,943,407
                                                                            ------------    ------------

Stockholders' equity:
          Convertible series E preferred stock, $1 par, 25,000,000 shares
            authorized: 1,233,769 and 8,377,640 shares outstanding, .....      1,089,624       7,349,154
          respectively
          Convertible  series F preferred  stock,  $0.01 par, 5,500,000
            shares authorized; 750,000 shares
            Outstanding .................................................        726,153         750,000
          Common stock, $.01 par value, 160,000,000 shares authorized;
            85,534,783 and 11,227,568 shares outstanding, respectively ..        855,347         112,275
          Additional paid-in-capital ....................................     43,933,559      33,053,724
          Accumulated deficit and
          comprehensive loss ............................................    (35,711,364     (27,485,463)
                                                                            ------------    ------------
                                           Total stockholders' equity ...     10,893,319      13,779,690
                                                                            ------------    ------------
                                                                            $ 35,041,772    $ 32,283,781
                                                                            ============    ============
</TABLE>

            See accompanying notes to condensed financial statements

                                      3
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                           AND COMPREHENSIVE NET LOSS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                            Three Months Ended December 31,          Nine Months Ended December 31,
                                                                                     1999                                   1999
                                                                                 (Restated,                             (Restated,
                                                              2000                 Note 8)              2000              Note 8)
                                                              ----                 -------              ----              -------

<S>                                                          <C>                  <C>                 <C>                <C>
Net sales                                                    $19,257,452          $17,315,824         $35,302,596        $30,691,508

Cost of sales                                                 11,668,839           10,006,720          21,337,072         17,370,835
                                                              -----------       -------------          -----------     -------------
                              Gross profit                     7,588,613            7,309,104          13,965,524         13,320,673
                                                              -----------       -------------          -----------     -------------
Operating expenses:
                Operating expenses                             7,529,499            6,016,423          19,917,210         13,742,120
                Litigation settlement expense                         --              183,464             126,300            270,206
                Depreciation and amortization                    655,117              320,508           1,818,664
                                                              -----------       -------------          -----------     -------------
                                                                                                                             773,490
                             Total operating expenses          8,184,616            6,520,395          21,862,174         14,785,816
                                                              -----------       -------------          -----------     -------------
Impairment of website development costs                        1,695,874                   --           1,695,874                 --
                                                              -----------       -------------          -----------     -------------
Operating profit (loss)                                       (2,291,877)             788,709          (9,592,524)       (1,465,143)
                                                              -----------       -------------          -----------     -------------

Interest expense:
                Interest and finance charges                     780,011              307,870           1,025,424            823,200
                Amortization of debt issuance costs              251,055               58,097             303,055
                                                                                                                             174,889
                Effective non-cash interest expense
                from beneficial conversion feature                     -                    -             500,000            650,000
                                                              -----------       -------------          -----------     -------------
                             Total interest expense            1,031,066              365,967           1,828,479          1,648,089
                                                              -----------       -------------          -----------     -------------

Profit (loss) before minority interest in   consolidated
subsidiary and income taxes                                   (3,322,943)             422,742         (11,421,003)       (3,113,232)

Provision for income taxes                                         5,757                   --              60,003                 --
                                                              -----------       -------------          -----------     -------------

Minority interest in loss (income) of consolidated
subsidiary                                                     1,387,992            (608,478)           3,818,090          (464,981)
                                                              -----------       -------------          -----------     -------------
Net loss before extraordinary gain                            (1,940,708)           (185,736)          (7,662,916)       (3,578,213)

Extraordinary gain on modification of debt terms                        -                   -                   -            650,000
                                                               -----------       -------------          -----------     ------------
Net loss                                                      (1,940,708)           (185,736)          (7,662,916)       (2,928,213)

Other comprehensive loss                                        (136,660)                   -            (214,149)                 -
                                                              -----------       -------------          -----------     -------------
Comprehensive net loss                                      $ (2,077,368)       $   (185,736)        $ (7,877,065)      $(2,928,213)
                                                            =============       =============        =============     =============

Calculation of basic and diluted loss per share:
    Net loss                                                 $ 1,940,708)         $ (185,736)         $(7,662,916)      $(2,928,213)
    Effects of non-cash dividends on convertible
        preferred stock                                                 -           (799,402)            (500,000)       (2,183,919)
                                                              -----------       -------------          -----------     -------------

     Net loss applicable to common shares                    $(1,940,708)         $ (985,138)         $(8,162,916)      $(5,112,132)
                                                            =============       =============        =============     =============
    Basic and diluted loss per common share and
        share equivalents                                      $   (0.02)          $   (0.18)           $   (0.14)      $     (0.92)
                                                            =============       =============        =============     =============
    Weighted average number of common shares
        and share equivalents outstanding                     84,696,135            5,548,852          59,021,606          5,541,076
                                                            =============       =============        =============     =============

</TABLE>
            See accompanying notes to condensed financial statements

                                       4
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)

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

                                                                                   Nine-months Ended December 31,
                                                                                    2000                     1999
                                                                                --------------          ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                               <C>                     <C>
        Net loss                                                                  $(7,662,916)            $(2,928,213)
        Adjustments used to reconcile net loss
            to net cash used in operating activities:

             Depreciation and amortization                                          1,818,664                  773,490
             Minority interest in net income (loss) of                            (3,818,090)                  464,981
             subsidiary
             Deferred rent                                                            (6,339)                    8,291
             Other                                                                     89,530
             Impairment of website development costs                                1,695,874                        -
             Amortization of debt issuance costs                                      303,055                  174,889
             Extraordinary gain                                                              -               (650,000)
             Effective interest expense for
             beneficial conversion                                                    500,000                  650,000
        Increase (decrease) from changes in:
                        Accounts receivable                                            106,017                (887,146)
                        Merchandise inventories                                         58,651              (2,669,557)
                        Other current assets                                        (635,252)                 1,627,026
                        Deposits and other assets                                    (341,153)              (4,105,431)
                        Accounts payable                                            2,714,691                2,291,178
                        Accrued expenses and other liabilities                      1,720,152                  839,009
                                                                                --------------          ---------------

                        Net cash used by operating activities                      (3,457,116)              (4,411,483)
                                                                                --------------          ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchases of property and equipment                                        (4,214,332)              (1,931,206)
        Website development                                                        (1,971,953)                        -
                                                                                                                      -
        Issuance of notes receivable to affiliates                                           -                (650,000)
                                                                                 --------------          ---------------

                       Net cash used by investing activities                       (6,186,285)             (2,581,206)
                                                                                --------------          ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from issuance of preferred and common stock                                 -              25,560,792
        Borrowings under financing agreement                                        34,898,776              27,061,000
        Repayments under financing agreement                                       (29,776,804)            (34,821,496)
        Borrowings under notes payable                                                      -
        Reclassification of restricted cash                                                 -                2,000,000
        Repayments under notes payable and capital leases                             (88,024)                (638,379)
                                                                                --------------          ---------------

                        Net cash provided by financing activities                   5,033,948               19,161,917
                                                                                --------------          ---------------

Effect of exchange rate on cash                                                       113,143                        -
                                                                                --------------          ---------------

Net increase(decrease) in cash                                                    (4,496,310)               12,169,228

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

Cash at end of period                                                             $ 1,682,697             $ 12,295,195
                                                                                  ===========             ============
</TABLE>

            See accompanying notes to condensed financial statements

                                       5
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 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,
as amended.  Operating results for the nine month period ended December 31, 2000
are not necessarily indicative of the results of operations that may be expected
for the year ending March 31, 2001.

         The interim  accompanying  unaudited condensed  consolidated  financial
statements  include  the  operations  of the  Company  and  its  majority  owned
subsidiary,  Toys  International.COM,  Inc. ("Toys").  At December 31, 2000, the
Company owned 58.4% of Toys.

Note 2.  Liquidity and Capital Resources

         The nine-month period covered in this report was an extremely difficult
period for the toy industry. The Company incurred a significantly increased loss
from operations  due, in part, to a decline in same store sales.  This operating
loss,  coupled with investments in new store locations and Internet  operations,
has reduced the  Company's  working  capital and increased its reliance on trade
vendor  support and bank  financing  (see Note 4). The  Company's  management is
actively  working  with its trade  vendors  and its  secured  lender to  sustain
inventory shipments and continued financing.

Note 3.  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 December  31,  2000,  and for the nine
months then ended.  For the  nine-months  ended  December 31, 1999, the Internet
segment was not  considered to be an operating  segment by management  since the
websites were under  development or revision and only operated for approximately
the last two months of that nine month period.

                                       6
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000
                                   (Unaudited)


         The following  information reflects a $1,695,874  impairment charge the
Company  recorded  relating to its website  development  costs.  This charge was
recorded pursuant to Statement of Financial  Accounting  Standards No. 121 ("FAS
121"), which addresses accounting for the impairment of long-lived assets. After
reviewing the carrying amount of the website development costs and the projected
cash  flows  from the  Internet  operations,  the  Company  determined  that the
$1,695,874  impairment  charge  was  appropriate  under FAS 121 at this point in
time.

As of December 31, 2000:
<TABLE>
<CAPTION>

Assets
<S>                                                                                       <C>
     Retail                                                                               $30,920,651
     Internet                                                                               4,121,121
                                                                                         ------------
                                                                                          $35,041,772
For the Nine-Months Ended December 31, 2000:

Capital Expenditures
     Fixed Assets                                                                         $ 4,214,332
     Website Development costs                                                              1,971,953
                                                                                         ------------
        Total                                                                             $ 6,186,285
                                                                                         ============
Sales
     Retail                                                                               $34,355,861
     Internet                                                                                 946,735
                                                                                         ------------
          Total                                                                           $35,302,596
                                                                                         ============

Gross Profit
     Retail                                                                               $13,757,047
     Internet                                                                                 208,477
                                                                                         ------------
        Total                                                                             $13,965,524
                                                                                         ============

Operating loss
     Retail                                                                               $(5,222,326)
     Internet, including impairment charge                                                 (4,370,198)
                                                                                          -----------
        Total                                                                             $(9,592,524)
                                                                                          ============
</TABLE>


                                       7
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000
                                   (Unaudited)


Note 4.   Line of Credit

         On November 20, 2000, Toys entered into a $12,000,000  revolving credit
facility (the "Credit  Facility")  with Paragon  Capital LLC, now known as Wells
Fargo Retail Finance ("Wells Fargo"). The Company guarantied the Credit Facility
for its Toys subsidiary. The Credit Facility called for an initial 90-day period
(the "Evaluation Period") for Wells Fargo to determine the covenant requirements
to be  maintained  under  the  agreement,  and to  complete  its  due  diligence
investigation.  During the Evaluation Period, the Credit Facility is effectively
on a demand note basis.  After conclusion of the Evaluation  Period,  the Credit
Facility  provides  for a  three-year  life.  The Wells  Fargo  Credit  Facility
replaced the Company's previous credit facility with FINOVA Capital Corporation.

         The Company's  performance during the holiday selling season fell below
plan due, among other factors,  to the depressed retail climate and the soft toy
industry  generally.  This performance led Wells Fargo in late January to extend
the  90-day  Evaluation  Period  for  another  month in order  to  continue  its
evaluation  process.  There was approximately $6.6 million outstanding under the
Credit Facility on February 16, 2001.

         Should  Wells  Fargo  elect not to further  extend the Credit  Facility
beyond the additional month of the Evaluation Period,  then the Company would be
forced to seek a replacement lender.  There can be no assurance that the Company
would be able to find  such a  replacement  lender  on terms  acceptable  to the
Company or at all.

Note 5.  Bridge Loan

         In order to support  its  inventory  needs for the holiday  season,  in
October 2000, the Company borrowed an aggregate of $750,000 ("Bridge Loan") from
ZD Group LLC ("Bridge Lender") - a related New York limited  liability  company,
the  beneficiary  of which is a member of the family of the Company's  chairman.
The Company paid $48,000 in  consulting  fees to CDMI Capital  Corp.  ("CDMI," a
British Virgin Islands  corporation of which Moses Mika,  then a director of the
Company,  was a  shareholder)  for assisting the Company in arranging the Bridge
Loan.

         The Bridge Loan and accrued  interest of $20,000 was repaid on November
24, 2000  following  the initial  funding of the Credit  Facility.  In September
2000, in anticipation  of receiving the Bridge Loan from DIG Financial  Corp., a
material  stockholder  of the  Company,  the  Company  granted to DIG a security
interest  in certain  of its  assets.  Upon  receipt of the loan from the Bridge
Lender,  the Security  Agreement was assigned by DIG to the Bridge  Lender.  The
security interest was terminated upon repayment of the Bridge Loan.


                                       8
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000
                                   (Unaudited)



Note 6.           Basic and Diluted Loss per Share

         The  basic and  diluted  loss per  common  share for the three and nine
month periods  ending  December 31, 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 aggregate 20,932,614,  which
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 7.  Launch of TX40 Project

         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 nine months ended December 31, 2000, the Company invested $1,971,953
in this project. That investment is shown net of accumulated  amortization and a
$1,695,874  impairment  charge (see Note 3), on the  December  31, 2000  balance
sheet as a balance of $1,612,545  under the  description  "web-site  development
costs."

Note 8.  Restatement of Amounts Previously Reported

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



                                        9
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000
                                   (Unaudited)



Note 8.  Restatement of Amounts Previously Reported (continued)

Balance Sheet
<TABLE>
<CAPTION>
<S>                                                                                             <C>
1.       Reduction of other current assets for options not ultimately issued, net
         of previously recorded amortization                                                    $           (63,947)
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 the
         accumulated  deficit is attributable to a  cumulative  increase of $718,634
         for the year ended March 31, 1999 (see previous table  outlining changes
         to the March 31, 1999 balance sheet), less $4,686 in operating expenses
         attributed to the reversal of amortization expense of prepaid stock options
         that were not issued                                                                               713,947
8.       Net reduction in stockholders' equity                                                              (63,947)

Statement of Operations and Comprehensive Net Income (Loss)

For the three months ended December 31, 1999:

1.       Decrease in operating expenses from reversal of amortization of stock
         options not issued                                                                     $             1,562

For the nine months ended December 31, 1999:

1.       Decrease in operating expenses from reversal of amortization of stock
         options not issued                                                                     $            (4,686)
2.       Additional effective non-cash interest expense attributable to the
         beneficial conversion feature                                                                      650,000
3.       Extraordinary gain from modification of debt terms                                                (650,000)
                                                                                                -------------------

              Decrease in net loss                                                              $            (4,686)
</TABLE>

                                       10
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2000
                                   (Unaudited)


Note 8.  Restatement of Amounts Previously Reported (continued)

The effects on the Company's  previously  submitted  December 31, 1999 financial
statements are summarized as follows.
<TABLE>
<CAPTION>

                                                             Previously         Increase
                                                              Reported         (Decrease)        Restated
                                                           ---------------  ----------------  ---------------
Consolidated balance sheet:
<S>                                                        <C>              <C>               <C>
       Total current assets                                $    28,753,164  $        (63,947) $    28,689,217

           Total assets                                    $    40,512,911  $        (63,947) $    40,448,964
                                                           ===============  ================  ===============

       Series E convertible preferred stock                $     7,116,020  $         79,000  $     7,195,020
       Additional paid-in capital                               29,525,537           571,000       30,096,537

          Total liabilities and stockholders' equity       $    40,512,911  $        (63,947) $    40,448,964
                                                           ===============  ================  ===============

                                                             Previously         Increase
                                                              Reported         (Decrease)        Restated
                                                           ---------------  ----------------  ---------------
Consolidated statement of operations and comprehensive loss:

For the nine months ended December 31,1999:

       Operating expenses                                  $    13,746,807  $         (4,687) $    13,742,120
       Effective interest for beneficial
         conversion feature                                              -           650,000          650,000
       Extraordinary gain on extinguishment
          of debt                                                        -           650,000          650,000

       Comprehensive net income (loss)                     $    (2,932,900) $          4,687  $    (2,928,213)
                                                           ===============  ================  ===============
       Net income (loss) applicable to
         common shares                                     $    (5,116,819) $          4,687  $    (5,112,132)
                                                           ===============  ================  ===============
       Basic and diluted income (loss) per
         common share and share equivalents                $         (.92)  $              -  $         (.92)
                                                           ==============   ================  ==============


For the three months ended December 31, 1999:

       Operating expenses                                  $     6,017,985  $         (1,562) $     6,016,423

       Comprehensive net income (loss)                     $      (187,298) $          1,562  $      (185,736)
                                                           ===============  ================  ===============
       Net income (loss) applicable to
         common shares                                     $      (986,700) $          1,562  $      (985,138)
                                                           ===============  ================  ===============


</TABLE>

                                       11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OFOPERATIONS

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-seven of the Company's stores, of which Canyon holds the lease for one of
Toys' retail locations.

            For the three months ended December 31, 2000 compared to
                    the three months ended December 31, 1999

     The Company  generated net sales of  $19,257,452  in the three months ended
December 31, 2000. This  represented an increase of $1,941,628,  or 11.2%,  from
net sales of  $17,315,824  in the three months ended  December 31, 1999.  All of
this sales  growth is  attributable  to the  Company's  new stores as same store
sales  declined  by  7.7%  for the  period  and  since  the  Company's  Internet
operations in the United  States and Germany  generated  approximately  $174,000
less in sales  during the 2000 period than the  Internet  operations  did in the
1999 period.

     The Company ended December 2000 with 38 retail  locations in eleven states,
compared to 31 retail  locations in seven states at the end of fiscal year 2000.
During the quarter,  the Company  opened four new stores,  which were located in
Colorado, Illinois, Maryland and Minnesota.

                                       12
<PAGE>
     The Company  posted a gross profit of  $7,588,613 in the three months ended
December 31, 2000, representing an increase of $279,509, or 3.8%, from the gross
profit of  $7,309,104  in the three months ended  December 31, 1999.  This gross
profit  increase  is due to the above noted  sales  increase,  which was largely
offset by a decrease in the Company's gross margin. The gross margin of 39.4% in
the December 2000 period represented a decrease of 2.8% from the Company's gross
margin of 42.2% in the  December  1999  period.  The gross  margin  decrease was
largely due to a  significant  level of sales price  discounting  by the Company
during the holiday season in order to generate sales.

     Operating   expenses   (excluding   litigation   settlement   expenses  and
depreciation and  amortization  expenses) in the three months ended December 31,
2000 were $7,529,499. This represented a $1,513,076, or 25.1%, increase over the
Company's  operating  expenses of $6,016,423 in the three months ended  December
31,  1999.  The  primary  reasons for the  operating  expense  increase  were an
increase  in payroll and  related  expenses of $418,347  and an increase in rent
expense of  $299,636.  The  payroll  expense  increase  was due to the hiring of
several middle managers and employees at new stores.  The growth in rent expense
was caused by the additional stores.

     During the three months ended  December 31, 1999,  the Company  settled its
remaining  store closing related  litigation.  Under this settlement the Company
agreed to make a cash payment of $35,000,  to issue 100,000 shares of its common
stock, and to pay an aggregate  $186,138 over a 36-month period. The Company has
estimated  the total net present  value of the  settlement  to be  $233,905  and
accrued an additional amount of $183,464 in the three months ended December 1999
to cover the estimated  value of the settlement,  $113,905 and other  litigation
related expenses,  incurred of $69,559. The value of the settlement includes the
initial  $35,000 cash payment and $42,500  attributable to the 100,000 shares of
common stock.  The value assigned to the common stock component was based on the
then market  price of $.50 per share and a 15% discount  given the  unregistered
nature of the shares as well as the  thinly-traded and highly volatile nature of
the market for the  Company's  securities.  The  remaining  balance of  $156,405
represent the net present value of the thirty-six  monthly payments  aggregating
$186,138 using a discount factor of 10%.

     During the three months  ended  December  31,  2000,  the Company  recorded
non-cash  depreciation  and  amortization  expenses of $655,117,  representing a
$334,609,  or 104.4%,  increase over  $320,508 in the period ended  December 31,
1998.  This amount was higher in the  December  2000 period than in the December
1999 period primarily due to the additional depreciation associated with the new
stores  opened by the Company.  Total  operating  expenses  (operating  expenses
combined with litigation  settlement expenses and depreciation and amortization)
in the December  2000 period were  $8,184,616,  representing  a  $1,664,221,  or
25.5%, increase from total operating expenses of $6,520,395 in the December 1999
period.

     During  the three  months  ended  December  2000,  the  Company  recorded a
$1,695,874  impairment  charge relating to its website  development  costs. This
charge was recorded pursuant to Statement of Financial  Accounting Standards No.
121 ("FAS 121"),  which  addresses  accounting  for the impairment of long-lived
assets. After reviewing the carrying amount of the website development costs and
the projected cash flows from the Internet  operations,  the Company  determined
that the  $1,695,874  impairment  charge was  appropriate  under FAS 121 at this
point in time.


                                       13

<PAGE>
     Due  to the  combination  of  the  above  mentioned  impairment  charge  of
$1,695,874 and the increase in total  operating  expenses of  $1,664,221,  which
were only partially offset by the $279,509 increase in gross profit, the Company
generated an operating  loss of $2,291,877  for the three months ended  December
2000.  This was a $3,080,586  decrease  from the Company's  operating  profit of
$788,709 in the three months ended December 1999.

     Interest expense totaled $1,031,066 for the three months ended December 31,
2000. This represented a $665,099  increase from interest expense of $365,967 in
the three months ended  December 31, 1999.  The primary reason for the increased
level of interest expense was the expensing of various fees and interest charges
relating to the bridge loan from the Company's prior lender.

     As a result of the  above-mentioned  factors,  the Company  recorded a loss
before minority interest in its consolidated  subsidiary and before income taxes
of $3,322,943  in the December  2000 period  compared to a profit of $422,742 in
the December 1999 period, a decrease of $3,745,685.

     During the three months ended  December  31, 2000,  the Company  recorded a
minority  interest  arising  out of  the  loss  in  consolidated  subsidiary  of
$1,387,992,  compared  to a  minority  interest  arising  out of the  profit  of
consolidated  subsidiary of $608,478 in the December 1999 period.  This minority
interest   arose  out  of  various  sales  of  stock  of  the   Company's   Toys
International.COM,  Inc. ("Toys") subsidiary. This minority interest represented
a reduction in the Company's loss in the December 2000 period and a reduction in
the Company's profit in the December 1999 period.

     As a result of the above-mentioned factors, the Company recorded a net loss
of $1,940,708 for the three months ended December 31, 2000.  This  represented a
$1,754,972  increase  from the net loss of $185,736  for the three  months ended
December 31, 1999. For the  three-month  period ended December 31, 1999, the net
loss of $187,298 was  increased by a non-cash  dividends of $799,402 in order to
determine  the net loss  applicable  to common  shares.  The  non-cash  dividend
represented  amortization of the discount recorded upon the issuance of Series E
Stock and Series F Preferred Stock ("Series F Stock"),  both having a beneficial
conversion feature.  The Series F Stock non-cash dividend was applicable only to
1999.  No dividends in the form of securities or other assets were actually paid
out.

     The basic and  diluted  net loss per  common  share for the  December  2000
period was $(0.02),  compared to a basic and diluted net income per common share
in the December 1999 period of $$(0.18).  The decrease in the loss per share was
due to the increase in the weighted  average number of shares  outstanding  from
5,548,852 in the December 1999 period to 84,696,135 in the December 2000 period.


                                       14
<PAGE>
             For the nine months ended December 31, 2000 compared to
                     the nine months ended December 31, 1999

     The Company  generated net sales of $35,302,596  in the  nine-month  period
ended December 31, 2000. This  represented an increase of $4,611,088,  or 15.0%,
from net sales of $30,691,508 in the nine-month  period ended December 31, 1999.
All of this sales growth is  attributable  to the  Company's  new stores as same
store sales  declined by 12.8% for the period and since the  Company's  Internet
operations in the United  States and Germany  generated  approximately  $117,000
less in sales  during the 2000 period than the  Internet  operations  did in the
1999 period.

     The Company posted a gross profit of  $13,965,524 in the nine-month  period
ended December 31, 2000, representing an increase of $644,851, or 4.8%, from the
gross profit of  $13,320,673  in the nine month period ended  December 31, 1998.
This gross profit increase is due to the above noted sales  increase,  which was
largely offset by a decrease in the Company's gross margin.  The gross margin of
39.6% in the  December  2000  period  represented  a  decrease  of 3.8% from the
Company's  gross margin of 43.4% in the December  1999 period.  The gross margin
decrease  was due to a  significant  level of  sales  price  discounting  by the
Company during the holiday season in order to generate sales.

     Operating   expenses   (excluding   litigation   settlement   expenses  and
depreciation and amortization  expenses) in the nine month period ended December
31, 2000 were  $19,917,210.  This represented a $6,175,090,  or 44.9%,  increase
over the Company's  operating  expenses of $13,742,120 in the nine-month  period
ended  December 31, 1999.  The most  significant  contributors  to the operating
expense  increase were an increase in payroll and related expenses of $1,232,969
and an increase in rent expense of $1,347,995.  The payroll expense increase was
due to the hiring of several  middle  managers and employees at new stores.  The
growth in rent expense was caused by the additional stores.

     During the nine months ended  December 31,  1999,  the Company  settled its
final store closing related litigation. Under this settlement the Company agreed
to an upfront cash  payment of $35,000,  to issue  100,000  shares of its common
stock, and to pay an aggregate  $186,138 over a 36-month period. The Company has
estimated  the total net present  value of the  settlement  to be  $233,905  and
accrued an additional  amount of $270,206 in the nine months ended December 1999
to cover the estimated  value of the  settlement  and other  litigation  related
expenses.

     During the nine-month  period ended December 31, 2000, the Company recorded
non-cash depreciation and amortization expenses of $1,818,664, a $1,045,174,  or
135.1%,  increase  from  $773,490 in the period ended  December  31, 1999.  This
increase was largely due to depreciation  on the fixed assets  purchased for the
newly opened stores.  Total operating expenses (operating expenses combined with
litigation settlement expense and depreciation and amortization) in the December
2000 period were $21,862,174, representing a $7,076,358, or 47.9%, increase from
total operating expenses of $14,785,816 in the December 1999 period.


                                       15

<PAGE>
     During  the three  months  ended  December  2000,  the  Company  recorded a
$1,695,874  impairment  charge the  Company  recorded  relating  to its  website
development  costs.  This charge was recorded pursuant to Statement of Financial
Accounting  Standards No. 121 ("FAS 121"),  which  addresses  accounting for the
impairment  of long-lived  assets.  After  reviewing the carrying  amount of the
website  development  costs  and the  projected  cash  flows  from the  Internet
operations,  the Company  determined that the $1,695,874  impairment  charge was
appropriate under FAS 121 at this point in time.

     Due  to the  combination  of  the  above  mentioned  impairment  charge  of
$1,695,874 and the increase in total  operating  expenses of  $7,076,358,  which
were only partially offset by the $644,851 increase in gross profit, the Company
generated an operating  loss of  $9,592,524  for the nine months ended  December
2000.  This was a  $8,127,381  increase  over the  Company's  operating  loss of
$1,465,143 in the nine months ended December 1999.

     Interest  expense  totaled  $1,828,479  for  the  nine-month  period  ended
December 31, 2000.  This  represented  a $180,390,  or 10.9%,  increase over the
interest expense of $1,648,089 in the nine-month period ended December 31, 1999.
The primary  reason for the increased  level of interest  expense was a $500,000
non-cash  interest  charge  related  to  the  settlement  of  the  ZD  Financing
Agreement,  as discussed in the prior quarter, and expensing of various fees and
interest  charges  relating to the bridge loan from the Company's  prior lender.
The  December  1999  period  included  the  recognition  of $650,000 in non-cash
effective  interest  expense,  which  was  allocable  to  the  proceeds  of  the
beneficial  conversion  feature of the  amended  Frampton  and EACF  convertible
debentures  during the nine-month period ended December 31, 1999. That effective
interest expense  represented a non-cash item that was effectively offset dollar
for dollar in stockholders' equity by an increase in additional paid-in capital.

     The Company  also  recorded an  extraordinary  gain of $650,000 in the nine
month ended December 31, 1999 as a result of the  modification  of terms for the
Frampton and EACF convertible debentures.

     As a result of the  above-mentioned  factors,  the Company  recorded a loss
before the minority interest in its consolidated  subsidiary and before taxes of
$11,421,003 in the December 2000 period  compared to a loss of $3,113,232 in the
December 1999 period, representing a increase of $8,307,771.

     During the nine months  ended  December 31,  2000,  the Company  recorded a
minority  interest  arising  out of  the  loss  in  consolidated  subsidiary  of
$3,818,090,  compared  to a  minority  interest  arising  out of the  profit  of
consolidated  subsidiary of $464,981 in the December 1999 period.  This minority
interest   arose  out  of  various  sales  of  stock  of  the   Company's   Toys
International.COM,  Inc. ("Toys") subsidiary. This minority interest represented
a reduction in the Company's loss in the December 2000 period and a reduction in
the Company's profit in the December 1999 period.

     As a result of the above-mentioned factors, the Company recorded a net loss
of  $7,662,916  for  the  nine-month   period  ended  December  31,  2000.  This
represented a $4,734,703  decrease  from the net loss of $2,928,213  recorded in

                                       16
<PAGE>
the nine-month period ended December 31, 1998. For the nine-month  periods ended
December 31, 2000 and 1999,  the net losses of $7,662,916  and  $2,928,213  were
increased by non-cash  dividends of $500,000 and  $2,183,919,  respectively,  in
order to  determine  the net loss  applicable  to common  shares.  The  non-cash
dividend represented  amortization of the discount recorded upon the issuance of
Series E Stock and Series F Preferred  Stock  ("Series F Stock"),  both having a
beneficial  conversion  feature. No dividends in the form of securities or other
assets were actually paid out.

     The basic and  diluted  net loss per  common  share for the  December  2000
period was $(0.14)  compared to a basic and diluted net loss per common share in
the December 1999 period of $(0.92).  The decrease in the loss per share was due
to the  increase  in the  weighted  average  number of shares  outstanding  from
5,541,076 in the December 1999 period to 59,021,606 in the December 2000 period.

Liquidity and Capital Resources

     At December 31, 2000, the Company had working capital of $166,523  compared
to working  capital of  $13,550,389 at March 31, 2000. The primary factor in the
$13,383,866  decrease in working capital was the Company's operating loss in the
nine months ended December 2000 coupled with its investments in fixed assets and
in its websites, which are classified as noncurrent assets.

     The Company  has  historically  financed  operations  and  working  capital
requirements  through  financing  agreements  and sales of the Company's  equity
securities,  primarily  through the sale of the Company's Series E 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 nine month  period ended  December  31,  2000,  the Company used
$3,457,116 of cash in its operations  compared to $4,411,483  used in operations
in the  nine-month  period ended  December 31, 1999.  The primary reason for the
significant  difference between the amount of cash used in operations in the two
periods was the net loss of  $7,662,916  in the 2000 period  compared to the net
loss of  $2,928,213  in the 1999 period  coupled with a rise in  inventories  of
approximately $2.7 million in the 1999 period while inventories  remained fairly
constant in the 2000 period.

     The Company used $6,186,285 of cash in its investing  activities during the
nine-month  period  ended  December  31,  2000  compared  to  $2,581,206  in the
nine-month  period  ended  December  31,  1999.  In both  periods,  the  primary
investing  activity was the  purchase of equipment  and fixtures for new stores.
Additionally,  in 2000,  the Company also invested  approximately  $2 million in
website  development.  In  1999,  the  Company  loaned  $650,000  to  affiliated
entities.

     The Company  generated  $5,033,948  from its  financing  activities  in the
nine-month  period  ended  December  31,  2000  compared  to the  generation  of
$19,161,917  from financing  activities in the nine-month  period ended December
31, 1999. The primary contributors to the Company's financing activities in 2000
were borrowings on the Company's line of credit. The primary contributors to the
1999 financing  activities were proceeds from the sale of the Company's Series F
Stock and the sale of common stock of the Toys  subsidiary as well as borrowings
on the Company's line of credit.


                                       17
<PAGE>
     As a result of the above factors, the Company had a net decrease in cash of
$4,496,310 in the  nine-month  period ended  December 31, 2000 compared to a net
increase in cash of  $12,169,228  in the nine month  period  ended  December 31,
1999.

     During the  three-month  period ended December 31, 2000, the Company opened
four new  stores,  which  were  located  in  Colorado,  Illinois,  Maryland  and
Minnesota.  These four stores  represented  an aggregate  capital  investment of
approximately  $2.0 million,  net of landlord  contributions.  The Company ended
December 2000 with 38 retail  locations in eleven states,  compared to 31 retail
locations in seven states at the end of fiscal year 2000. Subsequent to December
31, 2000, one store closed upon  expiration of its lease,  and three  additional
stores will be closed upon expiration of their leases in the months of March and
April 2001.

     The Company is currently  evaluating a number of non-performing  stores for
closure and has  retained  two lease  consultants  to assist with  related  rent
reductions and/or exit strategies.

     On November 20, 2000,  Toys entered  into a  $12,000,000  revolving  credit
facility (the "Credit  Facility")  with Paragon  Capital LLC, now known as Wells
Fargo  Retail  Finance  ("Wells  Fargo").  The  Company  guarantied  the  Credit
Facility.  The  Credit  Facility  called  for  an  initial  90-day  period  (the
"Evaluation  Period") for Wells Fargo to determine the covenant  requirements to
be   maintained   under  the   agreement  and  to  complete  its  due  diligence
investigation.  During the Evaluation Period, the Credit Facility is effectively
on a demand note basis.  After conclusion of the Evaluation  Period,  the Credit
Facility  provides  for a  three-year  life.  The Wells  Fargo  Credit  Facility
replaced the Company's previous credit facility with FINOVA Capital Corporation.

     The Company's performance during the holiday selling season fell below plan
due,  among other  factors,  to the  depressed  retail  climate and the soft toy
industry  generally.  This performance led Wells Fargo in late January to extend
the  90-day  Evaluation  Period  for  another  month in order  to  continue  its
evaluation  process.  There was approximately $6.6 million outstanding under the
Credit Facility on February 16, 2001.

     The Company  believes that it requires  access to and the ability to borrow
against a line of credit to continue financing its operations.  It also requires
the  ongoing  support  of its trade  vendors  in the form of  ongoing  inventory
shipments  and  financing  in order to maintain  its  business  operations.  The
Company  is  currently  actively  working  with its  vendors  to try to  sustain
shipments.  Should Wells Fargo elect not to further  extend the Credit  Facility
beyond the additional month of the Evaluation Period,  then the Company would be
forced to seek a replacement lender.  There can be no assurance that the Company
would be able to find  such a  replacement  lender  on terms  acceptable  to the
Company  or at all.  There also can be no  assurance  that the  Company's  trade
vendors will continue to ship products to the Company on acceptable terms.


                                       18
<PAGE>
     Given ongoing support from Wells Fargo and from its trade vendors, based on
currently  proposed  plans  and  assumptions  relating  to its  operations,  the
Company's   operations  and  working  capital  should  suffice  to  satisfy  its
contemplated cash requirements for the next 12 months.

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.  To  highlight  the  challenges  in  the  toy  industry,  several
competitors  recently filed for bankruptcy and/or ceased  operations,  including
E-Toys, ToyTime, RedRocket, World of Science/Natural Wonders. Given the soft toy
market,  manufacturers  are  also  incurring  substantial  losses.  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,  Lake Shore and Zainy Brainy. The Company also competes both through its
electronic  commerce operations and through its stores against Internet oriented
toy retailers ToysRUs.com. There can be no assurance that the Company's business
strategy will enable it to compete effectively in the toy industry.

Seasonality

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

Impact of Inflation

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




                                       19
<PAGE>
                                    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, and the discovery process has begun.


Item 2.           Changes in Securities and Use 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

         None




                                       20
<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 February 2001.

                                        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















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