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

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

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

                For the quarterly period ended December 31, 1999

                                       OR

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

             For the transition period from __________ to __________

                         Commission File Number O-25030

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

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

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

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

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     State the number of shares of each of the issuer's classes of common equity
outstanding as of the latest  practicable date:  Common Stock,  $0.01 par value:
7,514,716 shares outstanding as of February 21, 2000.

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

                       PLAY CO. TOYS & ENTERTAINMENT CORP.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
     PART I.                                        FINANCIAL INFORMATION                                       Page Number

Item 1.             FINANCIAL STATEMENTS

<S>                                                                       <C> <C>                                         <C>
                    Condensed consolidated balance sheets as of  December 31, 1999                                        3
                    (unaudited) and March 31, 1999.

                    Condensed consolidated statements of operations and comprehensive net loss for three
                    months and nine months ended December 31, 1999 and 1998 (unaudited).                                  4

                    Condensed consolidated statements of cash flows for the nine months ended December
                    30, 1999 and 1998 (unaudited).                                                                        5

                    Notes to condensed consolidated financial statements                                               6-13

Item 2.             MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS
                                                                                                                      14-23
PART II.                                              OTHER INFORMATION

                                                                                                                         24
Item 1.             LEGAL PROCEEDINGS

Item 2.             CHANGES IN SECURITIES AND USE OF PROCEEDS                                                            24

Item 3.             DEFAULTS UPON SENIOR SECURITIES                                                                      24

Item 4.             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                  24

Item 5.             OTHER INFORMATION                                                                                    24

Item 6.             EXHIBITS AND REPORTS ON FORM 8-K                                                                     24

                    Signatures                                                                                           25
</TABLE>
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                       December 31, 1999             March 31, 1999
                                                                                       Restated (Note 8)           Restated (Note 8)
                                                                                           (unaudited)
                                                                                       --------------------        -----------------
Current
<S>                                                                                           <C>                          <C>
           Cash                                                                               $ 12,295,195             $  125,967
           Accounts receivable                                                                     985,422                 98,276
           Notes receivable - affiliates                                                           650,000                      -
           Merchandise inventories                                                              14,175,841             11,506,284
           Other current assets                                                                    582,759              1,591,629
                                                                                                ----------             ----------

                                           Total current assets                                 28,689,217             13,322,156
Property and Equipment,         net of accumulated
           depreciation and amortization of $4,832,093                                           7,312,257              5,348,175
           and $4,058,603, respectively
Deposits and other assets                                                                        4,447,490              2,411,427
                                                                                                ----------             ----------

                                                                                             $  40,448,964           $ 21,081,758
                                                                                           ===============           ============

                       LIABILITIES & STOCKHOLDERS' EQUITY

                                                                                       December 31, 1999        March 31, 1999
                                                                                       Restated (Note 8)       Restated (Note 8)
                                                                                           (unaudited)
                                                                                       -------------------      -----------------
Current
          Accounts payable                                                                   $ 7,902,620              $ 5,611,442
          Accrued expenses and other liabilities                                               1,392,517                  595,008
          Current portion of notes payable and capital leases                                    848,774                1,352,197
          Borrowings under financing agreement                                                    54,170                        -
                                                                                              ----------               ----------
                Total current liabilities                                                     10,198,081                7,558,647

Borrowings under financing agreement                                                                   -                7,814,666
Notes payable and capital leases, net of current portion                                       1,257,091                  585,681
Deferred rent liability                                                                          135,060                  126,769
                                                                                              ----------               ----------
                        Total liabilities                                                     11,590,232               16,085,763
                                                                                              ----------               ----------

Minority interest in subsidiary                                                               12,600,132                        -
                                                                                              ----------               ----------

Stockholders' equity:
          Convertible series E preferred stock, $1 par, 25,000,000 shares
            authorized: 5,858,903 shares outstanding                                           7,195,020               5,761,101
          Convertible series F preferred stock, $0.01 par,
            5,500,000 shares authorized; 750,000 and 0
            shares outstanding, respectively                                                     750,000                       -
          Common stock, $.01 par value, 160,000,000 shares authorized;
            5,548,852 and 5,503,519 shares outstanding, respectively                              55,488                  55,035
          Additional paid-in-capital                                                          30,096,537              15,906,172
          Accumulated deficit                                                                (21,838,445)            (16,726,313)
                                                                                              ----------              ----------
                                           Total stockholders' equity                         16,258,600               4,995,995
                                                                                              ----------              ----------
                                                                                             $40,448,964            $ 21,081,758
                                                                                             ===========            ============
</TABLE>

            See accompanying notes to condensed financial statements
<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                   1998               1999                1998
                                                              ----                   ----               ----                ----

<S>                                                          <C>                 <C>                  <C>               <C>
Net sales                                                    $17,315,824         $ 14,715,952         $30,691,508       $ 27,171,662

Cost of Sales                                                 10,006,720            8,545,336          17,370,835         15,665,721
                                                              ----------         ------------          ----------         ----------
                              Gross profit                     7,309,104            6,170,616          13,320,673         11,505,941
                                                              ----------         ------------          ----------         ----------
Operating expenses:
                Operating expenses                             6,016,423            4,049,888          13,742,120          9,115,002
                Litigation settlement expense                    183,464                2,227             270,206             31,004
                Depreciation and amortization                    320,508              324,975             773,490            707,186
                                                              ----------         ------------          ----------         ----------

                             Total operating expenses          6,520,395            4,377,090          14,785,816          9,853,192
                                                              ----------         ------------          ----------         ----------

Operating profit (loss)                                          788,709            1,793,526          (1,465,143)         1,652,749
                                                              ----------         ------------          ----------         ----------

Interest expense:
                Interest and finance charges                     307,870              221,860             823,200            517,172
                Amortization of debt issuance costs               58,097               73,032             174,889            127,434
                Effective non-cash interest expense
                from beneficial conversion feature                     -                    -             650,000                  -
                                                              ----------         ------------          ----------         ----------
                             Total interest expense              365,967              294,892           1,648,089            644,606
                                                              ----------         ------------          ----------         ----------
Profit (loss) before minority interest in
consolidated subsidiary                                          422,742            1,498,634          (3,113,232)         1,008,143

Minority interest (income) in loss of consolidated
subsidiary                                                      (608,478)                   -            (464,981)                 -
                                                              ----------         ------------          ----------         ----------
Net income (loss) before extraordinary gain                     (185,736)           1,498,634          (3,578,213)         1,008,143

Extraordinary gain on modification of debt terms                       -                    -             650,000                  -
                                                              ----------         ------------          ----------         ----------
Net income (loss)                                               (185,736)           1,498,634          (2,928,213)         1,008,143

Other comprehensive income (loss)                                      -                    -                   -                  -
                                                              ----------         ------------          ----------         ----------
Comprehensive net income (loss)                             $   (185,736)         $ 1,498,634         $(2,928,213)       $ 1,008,143
                                                              ==========         ============          ==========         ==========

Calculation of basic and diluted loss per share:
    Net income (loss)                                         $ (185,736)          $1,498,634         $(2,928,213)       $ 1,008,143
    Effects of non-cash dividends on convertible
       Preferred stock                                          (799,402)            (477,973)         (2,183,919)       (1,229,752)
                                                              ----------         ------------          ----------         ----------
     Net income (loss) applicable to common shares
                                                              $ (985,138)          $1,020,661         $(5,112,132)       $ (221,609)
                                                              ==========         ============          ==========         ==========
    Basic and diluted income (loss) per common
share and share equivalents                                    $   (0.18)            $   0.22           $   (0.92)       $    (0.05)
                                                              ==========         ============          ==========         ==========
    Weighted average number of common shares
        and share equivalents outstanding                      5,548,852            4,666,562           5,541,076          4,291,883
                                                              ==========         ============          ==========         ==========
</TABLE>

            See accompanying notes to condensed financial statements

<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,
                                                                             Restated (Note 8)
                                                                                    1999                    1998
                                                                                --------------          -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                               <C>                    <C>
        Net income (loss)                                                         $(2,928,213)           $ 1,008,143
        Adjustments used to reconcile net income (loss)
        to net cash used in operating activities:

             Depreciation and amortization                                            773,490                707,186
             Minority interest in net income (loss) of                                464,981                      -
             subsidiary
             Deferred rent                                                              8,291                  4,552
             Stock compensation                                                             -                 32,814
             Amortization of debt issuance costs                                      105,521                127,434
             Extraordinary gain                                                      (650,000)                     -
             Effective interest expense for
             beneficial conversion                                                    650,000                      -
        Increase (decrease) from changes in:
                        Accounts receivable                                          (887,146)               (32,140)
                        Merchandise inventories                                    (2,669,557)            (2,951,966)
                        Other current assets                                        1,627,026             (1,302,841)
                        Deposits and other assets                                  (4,036,063)              (213,123)
                        Accounts payable                                            2,291,178              1,713,009
                        Accrued expenses and other liabilities                        839,009                 54,770
                                                                                   -----------            -----------


                        Net cash used by operating activities                      (4,411,483)              (852,162)
                                                                                   -----------            -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchases of property and equipment                                        (1,931,206)            (1,497,673)
        Issuance of notes receivable to affiliates                                   (650,000)                      -
                                                                                   -----------            -----------

                       Net cash used by investing activities                       (2,581,206)           (1,497,673)
                                                                                   -----------            -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from issuance of preferred and common stock                        25,560,792               706,148
        Borrowings under financing agreement                                        27,061,000            33,321,000
        Repayments under financing agreement                                       (34,821,496)          (31,012,017)
        Borrowings under notes payable                                                      -              1,550,000
        Reclassification of restricted cash                                         2,000,000                      -
        Repayments under notes payable and capital leases                            (638,379)            (1,644,293)
                                                                                   -----------            -----------

                        Net cash provided by financing activities                  19,161,917              2,920,838
                                                                                   -----------            -----------

Net increase in cash                                                               12,169,228                571,003

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


Cash at end of period                                                            $ 12,295,195            $ 1,219,989
                                                                                  ============            ===========
</TABLE>


            See accompanying notes to condensed financial statements
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999
                                   (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,
as restated  (Note 8), for the year ended March 31, 1999  included in its Annual
Report  on Form  10-KSB.  Operating  results  for the nine  month  period  ended
December 31, 1999 are not  necessarily  indicative  of the results of operations
that may be expected for the year ending March 31, 2000.

         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, 1999, the
Company owned 58.4% of Toys.

Note 2.  Cash

         At December 31, 1999, the Company had  $12,295,195 in cash,  $9,819,941
of which was attributable to Toys.

Note 3.  Leases

         During the nine month  period  ended  December  31,  1999,  the Company
entered into several  capital  leases to help  finance  several new stores.  The
leases are for an aggregate  principal  amount of $806,366 and bear  interest at
rates varying between 9.2% and 20.9%.

Note 4.  Sale of Shares in Subsidiary

         On November 19, 1999,  Toys completed an initial  public  offering (the
"Offering") on the SMAX segment of the Frankfurt Stock Exchange in Germany.  The
Offering was  underwritten  by Concord  Effekten AG  ("Concord")  of  Frankfurt,
Germany.  Toys sold 2 million shares,  or a 16.7% interest,  in the Offering for
net proceeds of approximately $23.3 million. The Offering was priced at 13 Euros
per share, or approximately  US $13.52 per share. The Company retained  majority
ownership of Toys (58.4%) and, as a result,  will continue to consolidate  Toys'
operations  in its  financial  statements.  No gain or loss was  recorded on the
sales of Toys' shares in the public  offering or in earlier  private  placements
per Staff Accounting  Bulletin Topic 5 - Miscellaneous  Accounting,  "Accounting
for Sales of Stock in a Subsidiary",  as such sale of shares were issued as part
of a broader  corporate  reorganization,  which was the public  offering of Toys
shares as discussed above.
<PAGE>
Note 4.  Sale of Shares in Subsidiary (continued)

         Toys has granted  options to purchase an  aggregate  250,000  shares of
common stock to certain of its directors,  officers,  and advisors.  The options
bear an exercise  price of $4.24 per share and a term of three  years.  They are
not  exercisable  until  November 19, 2000 (see below).  As the Company and Toys
utilize the  provisions  of APB 25 for stock options  granted to  employees,  no
compensation  expense was recorded for 224,000 of these  options as the exercise
price was  estimated  by  management  to  approximate  the fair value  given the
private sales of Toys shares immediately preceding such grants.  However, 26,000
of the  options  were  granted to a legal  advisor for  services  related to the
proposed  public  offering and were valued by management  at the estimated  fair
value of approximately  $118,000 which amount was netted against the proceeds of
the Offering credited to additional  paid-in capital.  As such, the compensation
recorded for such shares had no net effect on the Company's  consolidated equity
or results of operations.

         Concurrently,  the  Company  granted an  additional  450,000  incentive
options to acquire  shares of Toys common  stock  which have an exercise  period
over nine years at an exercise price of 3 Euro per share.  The exercise price in
US dollars will depend on the conversion rate at the time in the future when the
options are  exercised.  As of September 22, 1999, the date of the option grant,
the exercise  price was $3.06.  As these  options  were granted  subject to Toys
meeting future performance  criteria,  no compensation expense has been recorded
currently  as the  compensation  has not yet been earned.  If the Company  meets
these performance targets in the future, the officers will therefore be entitled
to the  options,  and  the  Company  will  record  compensation  expense  on the
measurement  date.  As the  Company  utilizes  the  provisions  under  APB25,  a
compensation  expense  for each  option will be  recognized  for the  difference
between the quoted market price and the exercise price on the measurement date.

         The  performance  parameters of these options are based on Toys' annual
audited  retail after tax profit.  Retail after tax is defined as Toys'  overall
operations excluding its Internet operations. The retail profit criteria are for
any fiscal year after the grant date.  Once the first  threshold of greater than
$5 million is achieved,  a retail  profit of greater than $6.5 million will need
to be earned in any  subsequent  year in order  for the next  options  to become
exercisable.  The same  circumstance is applicable to the next threshold  level.
These  options  expire nine years after the grant date.  The actual  performance
criteria and the parties to whom the incentive  options were issued are shown in
the following table:
<PAGE>
Note 4.                  Sale of Shares in Subsidiary (continued)
<TABLE>
<CAPTION>

                                                     Shares Exercisable

                         Retail Profit         Retail Profit       Retail Profit               Total
Name                     >$5 million           >$6.5 million        >$9 million         Options Achievable
-----------           --------------------  ------------------  ------------------  --------------------------
<S>                                 <C>                 <C>                 <C>                  <C>
Richard Brady                       75,000              75,000              75,000               225,000

Harold Rashbaum                     45,000              45,000              45,000               135,000

James Frakes                        30,000              30,000              30,000                90,000
                      --------------------  ------------------  ------------------  --------------------

                                   150,000             150,000             150,000               450,000
                      ====================  ==================  ==================  ====================
</TABLE>

         As a result  of the  transactions  involving  Toys  common  stock,  the
Company  has  recorded  a  minority  interest  in  its  consolidated   financial
statements to reflect the ownership of the minority owners.  This represents the
minority shareholders' basis in Toys, along with their respective portion of the
net profits recorded for Toys through December 31, 1999.

Note 5.   Basic and Diluted Loss per Share

         The  basic and  diluted  loss per  common  share for the three and nine
month periods  ending  December 31, 1999 and 1998 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 68,709,418,  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 6.  Credit Facility

         On December 31,  1999,  the Company had $54,170  outstanding  under its
revolving  credit  facility  with  FINOVA  Capital  Corporation  ("FINOVA")  and
$6,990,395  available  under  the  credit  facility.  During  December,  at  the
Company's  request,  FINOVA agreed to reduce the maximum  borrowing level of the
credit facility from $11.3 million to $9.3 million and to terminate a $2 million
standby  letter of credit  ("L/C")  that  previously  helped  support the credit
facility.  The termination of the L/C allowed the Company access to a $2 million
certificate  of  deposit  which  previously  was  restricted  and  was  used  as
collateral for the L/C by the issuing bank.  The amount  outstanding at December
31, 1999  represented the interest  accrued during the month of December 1999 as
the principal balance was paid down to zero during the December quarter.
<PAGE>
Note 6.  Credit Facility (continued)

         As of December 31, 1999, the FINOVA credit line is presented as a short
term liability since the credit facility  expires August 3, 2000, or within less
than one year of the December 31, 1999 balance sheet date.

Note 7.  Transactions with Affiliates

         In early October 1999, the Company loaned $50,000 to Shopnet.com,  Inc.
("Shopnet") and $200,000 to Breaking Waves,  Inc.  ("Breaking  Waves"),  both of
which entities are affiliated  with the Company.  The loans carry interest at 9%
and are due in March 2000.

         On October  25,  1999,  Tudor  Technologies,  Inc.  ("Tudor")  lent the
Company  $127,922  under a Demand  Promissory  Note ("Demand  Note")  bearing an
interest  rate of eight  percent  per annum.  The Demand  Note was a bridge loan
designed to be paid off after the  completion of the then  contemplated  initial
public offering of Toys and has been paid in full.

         On November 29,  1999,  the Company  loaned  Shopnet  $400,000  under a
Demand  Promissory Note ("Demand Note") bearing an interest rate of nine percent
per annum.  The Demand Note  required a  principal  repayment  of $100,000  plus
accrued  interest on January 30, 2000 and  requires  that the balance be paid on
April 30, 2000. The January 30, 2000 payment was remitted as agreed.

         In December 1999,  one of the two holders of the Company's  convertible
subordinated debentures,  Frampton Industries,  Ltd. ("Frampton"),  assigned its
debenture to the remaining holder,  Europe American Capital Foundation ("EACF").
Pursuant to the debenture agreement,  EACF informed the Company of its intention
to convert the aggregate  $650,000 of subordinated  debt into Series E Preferred
Stock.  The Company expects this conversion to occur prior to its March 31, 2000
fiscal year end.
<PAGE>
Note 8.  Restatement of Amounts Previously Reported

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

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

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




<PAGE>
Note 8.  Restatement of Amounts Previously Reported (continued)

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

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

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

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

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

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

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

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

3.       Additional  effective  non-cash  interest  expense  attributable to the
         beneficial  conversion  feature of convertible debentures                                    650,000
                                                                                               ---------------

          Decrease in March 31, 1999 net income                                                     $ 718,634

</TABLE>
<PAGE>
Note 8.  Restatement of Amounts Previously Reported (continued)

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

                                                             Previously         Increase
                                                              Reported         (Decrease)        Restated
                                                           ---------------  ----------------  ---------------

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

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

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

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

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

       Net income (loss) and comprehensive
         net loss                                          $       140,868  $       (718,634) $      (577,766)
                                                           ===============  ================  ===============
       Net income (loss) applicable to
         common shares                                     $    (1,566,857) $       (718,634) $    (2,285,491)
                                                           ===============  ================  ===============
       Basic and diluted income (loss) per
         common share and share equivalents                $         (.34)  $         (.16)   $         (.50)
                                                           ==============   ==============    ==============

</TABLE>
The following is a summary of the impact of the restatements on the December 31,
1999 consolidated  financial  statements which include the cumulative effects of
the  restatements  made to the March 31, 1999  financial  statements as detailed
above.
<PAGE>
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 six 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>
<PAGE>
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 six months ended September 30,1999:

       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 September 30,1999:

       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>
<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  that could cause actual  results to differ  materially
from those projected.

         At December 31, 1999,  the Company's  operations  were  influenced to a
significant degree by United Textiles & Toys Corp.  ("UTTC") and Breaking Waves,
Inc. ("Breaking Waves") which owned 43.9% and 22.9%,  respectively,  of the then
issued and  outstanding  shares of the  Company's  Common  Stock (then  totaling
5,548,857).  By virtue of Breaking Wave's status as a wholly-owned subsidiary of
Shopnet.com,  Inc. ("Shopnet"), a Delaware public company, Shopnet may be deemed
the beneficial owner of the shares of Common Stock owned by Breaking Waves.

         UTTC is a Delaware  corporation  and public company which was organized
in March 1991 and operates solely as a holding company.  Breaking Waves is a New
York corporation and private company which manufactures swimwear.

         As of February  21, 2000 UTTC and  Breaking  Waves own 32.4% and 16.9%,
respectively,  of the Company's  issued and  outstanding  shares of Common Stock
(now  totaling  7,514,716  shares  given  the  recent  conversions  of  Series E
Preferred Stock ("Series E Stock") into Common Stock).  The president of UTTC is
also (a) the president of Multimedia Concepts International,  Inc. ("MMCI"), the
parent of UTTC and (b) the son-in-law of Harold  Rashbaum who is the chairman of
the board of the Company and the  president of both Shopnet and Breaking  Waves.
By virtue of UTTC's and Breaking Waves'  ownership of the Company's Common Stock
and the companies' significant affiliate  relationships,  these companies can be
deemed to hold de facto voting control of the Company.

            For the three months ended December 31, 1999 compared to
                    the three months ended December 31, 1998

         The Company  generated  net sales of  $17,315,824  in the three  months
ended December 31, 1999. This  represented an increase of $2,599,872,  or 17.7%,
from net sales of  $14,715,952  in the three months ended  December 31, 1998. Of
this sales growth, $840,224 is attributable to the Company's Internet operations
in the United States and Germany; the remainder is attributable to the Company's
new stores' sales as same store sales declined by 17.6% for the period.
<PAGE>
         The Company believes that its same store sales showed a decline after a
period of two years of continuous increases (in the fiscal years ended March 31,
1998 and March 31, 1999)  because in the three  months ended  December 31, 1999,
the flow of  allocated  or "hot"  selling  merchandise  was spread over 25% more
stores.  This  shortfall in allocated or "hot" selling  inventory is a result of
the current  credit  lines that the Company  has with some of its  vendors.  The
Company is  working to  increase  its lines of credit  with its  vendors to more
adequately  address not only the past growth but its expected  future  growth as
well.  In  addition,  the  Company  held back a  substantial  amount of critical
inventory from its existing  stores for the six new stores it opened in the June
through late October 1999 timeframe.

         The Company  posted a gross  profit of  $7,309,104  in the three months
ended December 31, 1999, representing an increase of $1,138,488,  or 18.5%, from
the gross profit of $6,170,616 in the three months ended December 31, 1998. This
gross profit  increase is due to the above noted increase and an increase in the
Company's  gross  margin.  The gross margin of 42.2% in the December 1999 period
represented an increase of 0.3% over the Company's  gross margin of 41.9% in the
December 1998 period.

         Operating  expenses  (excluding   litigation  settlement  expenses  and
depreciation and  amortization  expenses) in the three months ended December 31,
1999 were $6,016,423. This represented a $1,966,535, or 48.6%, increase over the
Company's  operating  expenses of $4,049,888 in the three months ended  December
31,  1998.  The  primary  reasons for the  operating  expense  increase  were an
increase  in payroll  and  related  expenses  of  $469,200,  an increase in rent
expense  of  $476,543,  and  operating  expenses  related to the  Company's  new
Internet  activities of $685,352.  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 final 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%.
<PAGE>
         During the three months ended December 31, 1999,  the Company  recorded
non-cash  depreciation  and  amortization  expenses of $320,508,  representing a
$4,467,  or 1.4%,  decrease from $324,975 in the period ended December 31, 1998.
This amount was lower in the  December  1999 period  than in the  December  1998
period  because in the 1998 period the Company  amortized a portion of its store
opening expenses.  All such expenses were considered operating expenses in 1999.
Total operating expenses (operating expenses combined with litigation settlement
expenses and  depreciation  and  amortization)  in the December 1999 period were
$6,520,395,  representing a $2,143,305,  or 49%,  increase from total  operating
expenses of $4,377,090 in the December 1998 period.

         Since  the  $1,138,488  increase  in gross  profit  was  less  than the
$2,143,305 increase in total operating expenses,  the Company's operating income
decreased by $1,004,817 from  $1,793,526  during the three months ended December
31, 1998 to $788,709 during the three months ended December 31, 1999.

          Interest  expense totaled $365,967 for the three months ended December
31, 1999. This  represented a $71,075 increase from interest expense of $294,892
in the three  months  ended  December  31,  1998.  The  primary  reason  for the
increased level of interest  expense was a higher average level of borrowings in
the three months ended December 31, 1999 than in the December 1998 period.

         As a result of the  above-mentioned  factors,  the  Company  recorded a
profit before the minority  interest in its consolidated  subsidiary of $422,742
compared  to  $1,498,634,  a decrease  of  $1,075,892.  Profit  before  minority
interest may be a more  relevant  position on the  statements  of  operations to
compare the two periods than the net income (loss) position,  given there was no
minority interest in 1998.

         During the three months ended December 31, 1999, the Company recorded a
minority  interest in the profit of  consolidated  subsidiary of $608,478.  This
minority  interest  arose out of various  sales of stock of the  Company's  Toys
International.COM,  Inc.  ("Toys")  subsidiary,  as  described  in Note 4 to the
condensed  consolidated  financial  statements  and below.  Since Toys  posted a
profit of  $1,267,310  during the three  months ended  December  31, 1999,  this
minority interest represented a reduction in the Company's profits.



<PAGE>
         As a result of the above-mentioned  factors, the Company recorded a net
loss  of  $(185,736)  for  the  three  months  ended  December  31,  1999.  This
represented a $1,684,370  decrease from the net profit of $1,498,634 recorded in
the three months ended  December 31, 1998.  For the  three-month  periods  ended
December  31,  1999 and  1998,  the net loss and net  income of  $(187,298)  and
$1,498,634,  respectively,  were increased by non-cash dividends of $799,402 and
$477,973,  respectively, in order to determine the net loss applicable to common
shares. The non-cash dividends  represent  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  1999
period was $(0.18),  compared to a basic and diluted net income per common share
in the December 1998 period of $0.22.

             For the nine months ended December 31, 1999 compared to
                     the nine months ended December 31, 1998

         The Company generated net sales of $30,691,508 in the nine-month period
ended December 31, 1999. This  represented an increase of $3,519,846,  or 13.0%,
from net sales of $27,171,662 in the nine-month  period ended December 31, 1998.
Of this sales growth,  $1,063,666  can be  attributed to the Company's  Internet
operations in the United  States and Germany;  the remainder of the sales growth
can be attributed  to the  Company's new stores as same store sales  declined by
22.5% for the period.

         The Company believes that its same store sales showed a decline after a
period of two years of continuous increases (in the fiscal years ended March 31,
1998 and March 31, 1999)  because in the nine month  period  ended  December 31,
1999,  the flow of allocated or "hot"  selling  merchandise  was spread over 25%
more stores.  This shortfall in allocated or "hot" selling inventory is a result
of the current  credit lines that the Company has with some of its vendors.  The
Company is  working to  increase  its lines of credit  with its  vendors to more
adequately  address not only the past growth but its expected  future  growth as
well.  In  addition,  the  Company  held back a  substantial  amount of critical
inventory  from its  existing  stores  for the six new  stores  it opened in the
September through late October 1999 timeframe.

         The Company  posted a gross  profit of  $13,320,673  in the  nine-month
period ended  December  31, 1999,  representing  an increase of  $1,814,732,  or
15.8%,  from the gross  profit of  $11,505,941  in the nine month  period  ended
December 31, 1998.  This gross profit  increase was due to the increase in sales
noted above and in the Company's gross margin. The gross margin of 43.4% for the
nine-month  period ended December 31, 1999  represented an increase of 1.1% over
the Company's gross margin of 42.3% in the nine-month  period ended December 31,
1998.
<PAGE>
         Operating  expenses  (excluding   litigation  settlement  expenses  and
depreciation and amortization  expenses) in the nine month period ended December
31, 1999 were  $13,742,120.  This represented a $4,627,118,  or 50.8%,  increase
over the Company's  operating  expenses of $9,115,002 in the  nine-month  period
ended December 31, 1998. The primary reasons for the operating  expense increase
were an increase in payroll and related  expenses of $1,431,265,  an increase in
rent expense of $1,517,642 and operating  expenses relating to the Company's new
Internet  activities of $921,231.  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,  1999,  the Company
recorded non-cash depreciation and amortization expenses of $773,490, a $66,304,
or 9.4%,  increase  from  $707,186 in the period ended  December 31, 1998.  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
1999 period were $14,785,816, representing a $4,932,624, or 50.1%, increase from
total operating expenses of $9,853,192 in the December 1998 period.

         Since  the  $1,814,732  increase  in gross  profit  was  less  than the
$4,932,624  increase in total operating  expenses,  the Company's operating loss
increased  by  $3,117,892  from an  operating  profit of  $1,652,749  during the
nine-month  period ended  December 31, 1998 to an operating  loss of  $1,465,143
during the nine-month period ended December 31, 1999.

         Interest  expense  totaled  $1,648,089 for the nine-month  period ended
December 31, 1999. This represented a $1,003,483,  or 155.7%,  increase over the
interest  expense of $644,606 in the nine-month  period ended December 31, 1998.
The  primary  reason  for  the  increased  level  of  interest  expense  was the
recognition  of  $650,000  in  non-cash  effective  interest  expense  which was
allocable to the proceeds of the  beneficial  conversion  feature of the amended
Frampton and EACF  convertible  debentures  during the  nine-month  period ended
December 31, 1999.  The effective  interest  expense  represents a non-cash item
that is  effectively  offset  dollar  for dollar in  stockholders'  equity by an
increase in additional paid-in capital.

         The Company also recorded an extraordinary gain of $650,000 as 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  of  $(3,113,232)
compared to a profit of $1,008,143, representing a decrease of $4,121,375. Since
there was no  minority  interest  in the 1998  period,  profit  before  minority
interest may be a more  relevant  position on the  statements  of  operations to
compare the two periods than the net income (loss) position.
<PAGE>
         During the nine months ended December 31, 1999, the Company  recorded a
minority  interest in the profit of  consolidated  subsidiary of $464,981.  This
minority  interest  arose out of various  sales of stock of the  Company's  Toys
subsidiary,  as  described  in Note 4 to the  condensed  consolidated  financial
statements  and below.  Since Toys posted a profit  during the nine months ended
December 31, 1999 of $455,387, this minority interest represented a reduction in
the Company's profits.

         As a result of the above-mentioned  factors, the Company recorded a net
loss of  $(2,928,213)  for the nine-month  period ended December 31, 1999.  This
represented a $3,936,356  decrease from the net profit of $1,008,143 recorded in
the nine-month  period ended December 31, 1998. For the nine month periods ended
December  31,  1999 and 1998,  the net loss of  $(2,928,213)  and net  profit of
$1,008,143, respectively, were increased by non-cash dividends of $2,183,919 and
$1,229,752,  respectively,  in order to  determine  the net loss  applicable  to
common shares.  The non-cash  dividends  represent  amortization of the discount
recorded  upon the  issuance  of  Series E Stock  with 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  1999
period was $(0.92)  compared to a basic and diluted net loss per common share in
the December 1998 period of $(0.05).

Liquidity and Capital Resources

         At December 31, 1999,  the Company had working  capital of  $18,491,196
compared to working  capital of $5,763,509 at March 31, 1999. The primary factor
in the $12,727,687  increase in working capital was the completion of an initial
public  offering of a minority  interest in the Company's Toys subsidiary on the
Frankfurt Stock Exchange on November 19, 1999.

         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.
<PAGE>
         During the nine month period ended  December 31, 1999, the Company used
$4,411,483 of cash in its operations  compared to $852,162 used in operations in
the  nine-month  period  ended  December 31,  1998.  The primary  reason for the
significant  difference between the amount of cash used in operations in the two
periods was the net loss of  $(2,928,213) in the 1999 period compared to the net
income of $1,008,143 in the 1998 period.

         The Company used $2,581,206 of cash in its investing  activities during
the  nine-month  period ended  December 31, 1999  compared to  $1,497,673 in the
nine-month  period  ended  December  31,  1998.  In both  periods,  the  primary
investing  activity was the  purchase of equipment  and fixtures for new stores.
Additionally, in 1999, the Company loaned $650,000 to affiliated entities.

         The Company generated  $19,161,917 from its financing activities in the
nine-month  period  ended  December  31,  1999  compared  to the  generation  of
$2,920,838 from financing activities in the nine-month period ended December 31,
1998.  The primary  contributors  to the  Company's  financing  activities  were
borrowings  on the  Company's  line of credit and proceeds  from the sale of the
Company's Series F Stock and the sale of common stock of the Toys subsidiary, as
discussed  herein.  Those  proceeds were used to finance the  Company's  working
capital  requirements,  capital  expenditures  and  operating  losses during the
nine-month period ended December 31, 1999.

         As a result of the above  factors,  the Company  had a net  increase in
cash of $12,169,228 in the nine-month period ended December 31, 1999 compared to
a net increase in cash of $571,003 in the nine month  period ended  December 31,
1998.

         During the  three-month  period ended  December  31, 1999,  the Company
opened  five new stores.  In October  1999,  the Company  opened five new stores
located in Concord,  North  Carolina  (two  stores),  near  Houston,  Texas (two
stores)  and in Mission  Viejo,  California.  These  stores are  located in high
traffic  shopping  malls.  These five stores  represented  an aggregate  capital
investment of approximately  $1.3 million,  net of landlord  contributions.  The
Company  postponed  the  construction  of its planned  new store in  Schaumburg,
Illinois  until the spring of 2000.  The  Company  now has 32 stores  located in
seven states.

         The  Company  had  planned to finance  the above  store  opening  costs
through a combination of capital lease financing,  use of the Company's  working
capital,   and  the  sale  of  additional   equity.  The  Company  has  obtained
approximately $806,000 in capital lease financing this fiscal year.
<PAGE>
         In May 1999,  pursuant  to ss.506 of  Regulation  D, the  Company  sold
750,000  shares  of Series F Stock,  at a  purchase  price of $1.00  per  share,
through Robb Peck McCooey  Clearing  Corporation as placement agent. The Company
received $657,500 in net proceeds from the sale. Each share of Series F Stock is
convertible,  at the  holder's  option,  into two full  paid and  non-assessable
shares of Common  Stock,  at any time  commencing  on the date the  registration
statement  registering the Common Stock underlying same is declared effective by
the  Securities  and  Exchange  Commission.  Each share of Series F Stock  shall
convert  automatically  on  the  occurrence  of the  earlier  of  either  of the
following  events,  without  action on the part of the holder  thereof:  (i) two
years from  issuance or (ii) in the event the closing  price per share of Common
Stock has been at lease $5.00 for a consecutive 30-day period.

         Due to the  beneficial  conversion  feature of the Series F Stock,  the
proceeds have initially been recorded as additional  paid-in  capital,  which is
being  amortized  over a  7-month  period  in the form of a  non-cash  dividend.
Management  has used a  7-month  period  to  correspond  to the  estimated  time
necessary to have a registration  statement declared effective by the Securities
and Exchange Commission.  Such registration  statement has not yet been declared
effective.

         In  connection  with the private  placement of the Series F Stock,  the
Company  granted  options to the placement  agent to purchase  350,000 shares of
Common Stock at an exercise  price of $3.00 per share for a period of four years
from the date of closing of the private placement.  The Company has valued these
options at  approximately  $507,000  using the  Black-Scholes  option  valuation
model. As the options were granted in connection with the private placement, the
compensation  effect of these was  effectively  offset against the proceeds into
additional  paid-in  capital with no net effect on the  Company's  stockholders'
equity or  result  of  operations.  The  placement  agent  also  received  a 10%
commission,  or $75,000, and a 1% allowance,  or $7,500, to cover administrative
expenses. The private placement closed on May 27, 1999.

         On July 15, 1999,  Tudor  Technologies,  Inc.  ("Tudor") - an entity of
which Mr. Moses Mika (a director of the Company) is a  shareholder  - elected to
exercise its right to purchase a 25% ownership  interest in the  Company's  Toys
subsidiary.  Tudor  was  the  assignee  of an  option  to  acquire  25%  of  the
outstanding  shares of the common stock of Toys at book value. The book value of
Toys as of June 30, 1999 was determined to be $2,894,711. In October 1999, Tudor
paid the Company $723,678 (25% of the book value as of June 30, 1999).

         This  option  arose out of the June 30, 1998  conversion,  by ABC Fund,
Inc.  ("ABC," an affiliate of the  Company),  of a $1.5 million  debenture  into
Series E Stock as of June 30, 1998.  Pursuant to the terms of the debenture,  in
September  1998,  ABC  assigned  its right to purchase  the Toys common stock to
Tudor.
<PAGE>
     On July 20, 1999, the Company's  subsidiary,  Toys, sold a 6.6% interest in
Toys  to  two  investors  for  $2.8  million  in  gross  proceeds  in a  private
transaction. The investors were an unaffiliated investment-banking firm, Concord
Effekten AG ("Concord") of Frankfurt, Germany and CDMI, a British Virgin Islands
corporation. Mr. Mika is a shareholder of CDMI. Each party invested $1.4 million
in the transaction.

     In early October 1999, the Company loaned $50,000 to Shopnet.com,  Inc. and
$200,000 to Breaking Waves, Inc., both of which entities are affiliated with the
Company. The loans carry interest at 9% and are due in March 2000.

     On  October  25,  1999,  Tudor  lent the  Company  $127,922  under a Demand
Promissory  Note ("Demand  Note")  bearing an interest rate of eight percent per
annum.  The  Demand  Note was a bridge  loan  designed  to be paid off after the
completion of the then contemplated initial public offering of Toys and has been
paid in full.

     On November  19,  1999,  Toys  completed an initial  public  offering  (the
"Offering") on the SMAX segment of the Frankfurt Stock Exchange in Germany.  The
Offering was underwritten by Concord of Frankfurt,  Germany. Toys sold 2 million
shares,  or a 16.7% interest,  in the Offering for net proceeds of approximately
$23.3 million.  The Offering was priced at 13 Euros per share, or  approximately
US $13.52 per share.  The Company  retained  majority  ownership  of Toys with a
58.4%  equity  interest in the  subsidiary  and, as a result,  will  continue to
consolidate  Toys' operations in its financial  statements.  No gain or loss was
recorded  on the sales of Toys'  shares in the  public  offering  or in  earlier
private placements per Staff Accounting Bulletin No. 84.

     As a result of the  transactions  involving  Toys  stock,  the  Company has
recorded a minority interest in its consolidated financial statements to reflect
the ownership of the minority owners. This represents the minority shareholders'
basis in Toys, along with their  respective  portion of the net profits recorded
for Toys through December 31, 1999.

     On November 29, 1999, the Company  loaned  Shopnet  $400,000 under a Demand
Promissory  Note  ("Demand  Note")  bearing an interest rate of nine percent per
annum.  The Demand Note required a principal  repayment of $100,000 plus accrued
interest on January 30, 2000 and requires  that the balance be paid on April 30,
2000. The January 30, 2000 payment was remitted as agreed.

     The  holders of the  Company's  convertible  subordinated  debentures  have
informed the Company that they plan to convert the $650,000 of subordinated debt
into the Company's Series E Preferred Stock. The Company expects this conversion
to occur prior to its March 31, 2000 fiscal year end.

     The Company anticipates,  based on currently proposed plans and assumptions
relating to its  operations,  that the proceeds of the Offering  will suffice to
satisfy its contemplated cash requirements for at least 12 months.
<PAGE>
Year 2000

         The Company believes that its computer systems completed the transition
to the year 2000 without any discernible  issues.  The Company is not aware that
any of its key vendors realized any year 2000 related computer problems.

Trends Affecting Liquidity, Capital Resources and Operations

         The Company believes that its same store sales showed a decline after a
period of two years of continuous increases (in the fiscal years ended March 31,
1998 and March 31, 1999)  because in the nine month  period  ended  December 31,
1999,  the flow of allocated or "hot" selling  merchandise  is being spread over
25% more stores.  This  shortfall in allocated or "hot"  selling  inventory is a
result  of the  current  credit  lines  that the  Company  has with  some of its
vendors. The Company is working to increase its lines of credit with its vendors
to more  adequately  address  not only the past growth but its  expected  future
growth  as  well.  As  noted  above,  the  Company  has  recently  significantly
strengthened  its  balance  sheet  by  raising   approximately  $25  million  in
additional  equity,  which  should  result in expanded  lines of credit with its
trade vendors.

         The Company  believes that its growth and the  availability of "hot" or
allocated  merchandise  within  certain  sectors of its core  business - such as
action  figures,  video  games,  and  collector  plush - could have an impact on
continuing  store sales in the  future.  The  Company is working  diligently  to
address this issue.

         The Company's future  financial  performance will depend upon continued
demand for toys and the  Company's  ability to choose  locations for new stores,
the Company's  ability to purchase  product at favorable prices and on favorable
terms,  and the  effects  of  increased  competition  and  changes  in  consumer
preferences.

         The toy and hobby retail industry faces a number of potentially adverse
business  conditions  including  price and gross  margin  pressures  and  market
consolidation.  The  Company  competes  with a  variety  of mass  merchandisers,
superstores,  and  other  toy  retailers,  including  Toys R Us and  Kay Bee Toy
Stores. Competitors that emphasize specialty and educational toys include Disney
Stores,  Warner Bros.  Stores,  Learning Smith,  Lake Shore,  Zainy Brainy,  and
Noodle Kidoodle.  The Company also competes both through its electronic commerce
operations and through its stores against  Internet  oriented toy retailers such
as eToys,  Inc. There can be no assurance that the Company's  business  strategy
will enable it to compete effectively in the toy industry.

Seasonality

         The Company's  operations are highly seasonal with approximately 30-40%
of its net sales falling  within the Company's  third quarter,  which  coincides
with the Christmas  selling season.  Also, the Company opened five new stores in
October,  which will make the  Company's  third  quarter  sales an even  greater
percentage of the total year's sales.
<PAGE>
Impact of Inflation

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

<PAGE>
                                     PART II

Item 1.           Legal Proceedings

         During the nine months ended December 31, 1999, the Company settled its
lawsuit  with  Foothill   Marketplace  which  had  alleged  breach  of  contract
pertaining  to the  Company's  closing  of its  Rialto  store.  Pursuant  to the
settlement,  the  Company  made a cash  payment of $35,000  and agreed to pay an
aggregate $186,138 to Foothill  Marketplace over a 36-month period. In addition,
the Company  agreed to issue 100,000 shares of Common Stock to same. The Company
has estimated the total net present value of the settlement to be $233,905.

         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:  On February 4,
2000,  the Company  held a special  meeting of its Common and Series E Preferred
Stock shareholders at its San Marcos office.  Shareholders were asked to vote on
the proposal to amend the Company's  Certificate of  Incorporation to modify the
conversion  terms of the Series E  Preferred  Stock to render all shares of same
eligible for  conversion  as of February 4, 2000.  The proposal was adopted by a
majority of both the Common and Series E Preferred shareholders as follows:
<TABLE>
<CAPTION>
                         Votes Cast For        Votes Cast Against                 Abstentions

<S>                        <C>                       <C>                                <C>
Common Stock               3,709,300                 3,202                              687
Series E Preferred Stock   3,845,880                 0                                  0
</TABLE>


Item 5.           Other Information:        None

Item 6.           Exhibits and Reports on Form 8-K

(a)      The following exhibits are filed herewith:

         27.1                     Financial Data Schedule

(b)      During the quarter ended December 31, 1999, 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 _______ day of _______________ 2000.

                                        PLAY CO. TOYS & ENTERTAINMENT CORP.


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


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