SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                                   (Mark One)
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended March 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 Registrant as Specified in its Charter)

<TABLE>
<CAPTION>
<S>                                                                              <C>
Delaware                                                                        95-3024222
(State or Other Jurisdiction of Incorporation or Organization)                  (I.R.S. Employer Identification No.)
</TABLE>

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

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

               Securities registered pursuant to Section 12(b) of
                                    the Act:

          Title of Each Class Name of Each Exchange on Which Registered
                                      NONE

               Securities registered pursuant to Section 12(g) of
                                    the Act:

                          Common Stock, $0.01 par value
                    Series E Preferred Stock, $0.01 par value
                   Series E Preferred Stock Purchase Warrants
                                (Title of Class)


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

     Check if no  disclosure  of  delinquent  filers in  response to Item 405 of
Regulation S-B is contained in this form,  and no disclosure  will be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB [ X].

     The  Registrant's  revenues  for its fiscal  year ended March 31, 1999 were
$34,371,230.

     The aggregate market value of the voting stock on July 12, 1999 (consisting
of  Common  Stock,  par  value  $0.01  per  share)  held by  non-affiliates  was
approximately  $1,737,375  based upon the closing price for such Common Stock on
said date  ($1.06),  as reported  by a market  maker.  On such date,  there were
5,554,530 shares of Registrant's Common Stock outstanding.

                                        1


<PAGE>
                                     PART I

ITEM 1.           DESCRIPTION OF BUSINESS

General

     Play  Co.  Toys  &  Entertainment   Corp.  (the   "Company"),   a  Delaware
corporation,  was founded in 1974, at which time it operated one store under the
name Play Co. Toys in Escondido, California. At present, the Company and its two
wholly-owned subsidiaries - Toys International,  Inc. ("Toys") and Play Co. Toys
Canyon Country,  Inc.  ("Canyon," which operates the Company's  "flagship model"
store  opened in  October  1996 in Santa  Clarita)  - operate  an  aggregate  of
twenty-six stores throughout  Southern  California (in the Los Angeles,  Orange,
San Diego,  Riverside,  and San Bernardino Counties) and in (i) Tempe,  Arizona,
(ii) Las Vegas, Nevada, (iii) Dallas,  Texas, (iv) Auburn Hills,  Michigan,  and
(v)  Chicago,   Illinois.   The  Company   intends  to  expand  its   operations
geographically  and in  accordance  therewith  has  executed  leases to open ten
additional  stores by the end of  calendar  year  2000.  These  stores  shall be
located in California (San  Francisco,  San Ysidro,  and Mission Viejo),  Nevada
(Las  Vegas),  Texas  (Houston),  North  Carolina  (Charlotte),   and  Tennessee
(Nashville),  and Illinois  (Schaumberg).  The Company and its  subsidiaries are
hereinafter  referred to in the aggregate as the  "Company"  except as otherwise
required for clarity.

     Approximately 75% of the Company's stores offer educational, new electronic
interactive,  and  specialty  and  collectible  toys and  items for sale and are
strategically  located in highly  trafficked,  upscale malls.  The remaining 25%
sell traditional toys and games and are located in strip shopping centers. Given
the  favorable  results  obtained  from a two  year  market  test of the sale of
children's swimwear in its stores, the Company recently expanded its product mix
and now offers a limited number of children's  swimwear and accessories for sale
in many of its stores.

     Since 1997, the Company has embraced and implemented a new store design and
layout,  remodeled most of its older stores, closed  non-profitable  stores, and
expanded its  geographic  market from  exclusively  Southern  California  to the
mid-western United States. Since 1996, the Company has opened eight stores which
are  considered  by  management  to be  high-end  retail  toy  and  educational,
electronic  interactive stores.  These outlets, and those the Company expects to
open in the  future,  offer  items  comparable  in  quality  and choice to those
offered by FAO Schwarz,  Warner Brothers,  and Disney Stores and are expected to
attract clientele similar to those attracted by such stores.

     In April 1999,  the Company  debuted the first of two dedicated  electronic
commerce websites. This site,  www.ToysWhyPayRetail.com,  represents a new trade
name for the Company and allows consumers to purchase, at near wholesale prices,
overstocks,  special buys, and overruns on mostly  name-brand  toys purchased by
the Company out of season.  The Company plans to offer  approximately 1000 items
for sale on the website.

     The second electronic commerce website, www.Playco.com,  is currently being
developed  to a  state-of-the-art  standard  in  conjunction  with  an  Internet
consulting  firm.  This second site,  which will offer  collectible and imported
specialty  merchandise such as die-cast cars,  dolls,  plush toys,  trains,  and
collectible  action  figures,  is  expected  to open in the  fall  of  1999.  In
conjunction with the website launch,  the Company plans to place computer kiosks
in its retail  locations  in order to permit  customers  to place  orders on the
website for goods otherwise not sold in such stores.

     Because the Company's new and newly  remodeled  stores focus on the sale of
educational and electronic  interactive games and toys, specialty products,  and
collector's  toys which  generally  carry higher gross margins than  traditional
toys,  such stores have shown and are  expected to continue to show higher gross
profits than the Company's older stores (which focused  primarily on the sale of
traditional toys).



<PAGE>
Acquisition of Toys International

     In January 1997, the Company  acquired  substantially  all of the assets of
Toys. The acquisition,  in principal,  included the assignment to the Company of
the three store leases then held by Toys and Toys' entire inventory.  As part of
the  purchase   agreement,   the  Company  obtained  the  rights  to  the  "Toys
International"  and "Tutti  Animali"  operating name trademarks and also assumed
the  existing  leases at Toys'  three  store  locations:  two of such  locations
operate under the tradename "Toys  International,"  and the third operates under
the "Tutti  Animali"  tradename.  The total purchase price was $1,024,184  which
consisted  mainly of inventory and certain  prepaid  expenses and deposits.  The
purchase  price was tendered in the form of a $759,184 cash payment  remitted in
January 1997 and the execution of two promissory  notes,  aggregating  $265,000,
payable over a two year period.  Both promissory notes were repaid in full under
agreed terms. In order to ensure a smooth  transition in operations,  the former
president of Toys, Mr. Gayle Hoepner, continued his relationship as a consultant
to the  Company  through  April 1997,  during  which time he advised the Company
regarding Toys' then operations, vendors, policies, employees, etc.

Ownership of the Company

     At fiscal year end March 31, 1999,  approximately  45.2% of the outstanding
shares of the Company's common stock, par value $0.01 (the "Common Stock"), were
owned  by  United  Textiles  &  Toys  Corp.   ("UTTC"),   the  Company's  parent
corporation.  UTTC is a  Delaware  corporation  and  public  company  which  was
organized in March 1991 and  commenced  operations  in October 1991. It formerly
designed,  manufactured, and marketed a variety of lower priced women's dresses,
gowns,  and  separates  (blouses,  camisoles,  jackets,  skirts,  and pants) for
special  occasions and formal events.  In April 1998,  UTTC ceased all operating
activities;  it now operates  solely as a holding  company.  The president and a
director of UTTC is Mr. Ilan Arbel who is also the  president,  chief  executive
officer, and a director of Multimedia Concepts International, Inc. ("MMCI"), the
parent company of UTTC. MMCI owns  approximately  78.5% of UTTC common stock and
is, in turn, owned  approximately 62.2% by U.S. Stores Corp., a company of which
Mr. Arbel is the  president and a director.  U.S.  Stores Corp. is owned 100% by
American  Telecom PLC ("ATPLC"),  a British public  corporation,  which is owned
approximately  80% by  Europe  American  Capital  Foundation  ("EACF"),  a Swiss
foundation,  which is the parent corporation also of Frampton  Industries,  Ltd.
("Frampton") and ABC Fund, Ltd.  ("ABC"),  entities  affiliated with the Company
under common control.

     The following chart depicts the Company's ownership structure:

                       Europe American Capital Foundation


Frampton Industries, Ltd. (100%) American Telecom PLC (80%) ABC Fund, Ltd.(100%)
                                       (100%)

                                U.S. Stores Corp.
                                     (62.2%)

                     Multimedia Concepts International, Inc.
                                     (78.5%)

                          United Textiles & Toys Corp.
                                     (45.2%)

                       Play Co. Toys & Entertainment Corp.



<PAGE>
     The Company has two operating subsidiaries,  Toys and Canyon, each of which
is wholly-owned.  Toys operates fourteen stores,  and Canyon operates one store.
See "Item 2. Description of Property."

Product Lines

     The Company's  older stores,  which are located in strip shopping  centers,
sell children's and adult toys, games,  bicycles and other wheel goods, sporting
goods,  puzzles,  Nintendo and Sony  electronic  game  systems  (and  cartridges
therefor),  cassettes,  and books.  These stores offer in excess of 15,000 items
for sale, most of which are major brand name toys and hobby products.

     The Company's new (post 1996) and remodeled stores, while also offering the
aforesaid products for sale, stock a mix of educational toys,  specialty stuffed
animals such as Steiff and North America  Bears,  Small World toys,  LBG trains,
CD-ROMs,  computer  software  games,  and Learning  Curve and Ty  products.  The
Company's Tutti Animali store,  located in the Crystal Court Mall in Costa Mesa,
California, primarily sells stuffed animals.

     The Company  periodically reviews each individual store's sales history and
prospects on an  individual  basis to decide on the  appropriate  product mix to
stock  thereat.  During  calendar years 1997 and 1998, the Company market tested
the sale in its  stores of a limited  number  of pieces of  children's  swimwear
manufactured  by Breaking  Waves,  Inc.  ("BWI"),  an  affiliate.  The Company's
chairman is also the president of Shopnet.com,  Inc. ("Shopnet"),  BWI's parent.
Those market tests proved successful. As a result, in November 1998, the Company
entered into a sales  agreement with BWI pursuant to which BWI agreed to sell to
the Company on a wholesale  basis,  and the Company agreed to purchase from BWI,
during each season during which swimwear is purchased,  an agreed upon number of
pieces of merchandise  for its retail  locations.  The Company further agreed to
provide advertising, promotional materials, and ads of the merchandise in all of
its brochures,  advertisements,  catalogs,  and all other promotional materials,
merchandising  programs, and sales promotion methods, in all mediums utilized by
same.  The Company's  swimwear  sales comprise a small portion (less than 1%) of
its total sales.

Suppliers and Manufacturers

     The  Company   purchases  a  significant   portion  of  its  products  from
approximately five manufacturers and ships them to its stores from its warehouse
distribution  center.  There are no written contracts and/or agreements with any
individual manufacturer or supplier;  rather, all orders are on a purchase order
basis only. The Company relies on credit terms from suppliers and  manufacturers
to  purchase  nearly all of its  inventory.  Credit  terms vary from  company to
company  and are based  upon many  factors,  including  the  ordering  company's
financial condition,  account history, type of product, and the time of year the
order is placed.  Such  credit  arrangements  vary for  reasons  both within and
outside the control of the Company.

Merchandising Strategy

Store Design

     The Company  believes it  important  to offer an  environment  that is less
intimidating and more "user friendly" than the environments  provided by some of
the larger toy retailers whose businesses  compete with the Company.  In view of
this belief,  the Company actively  embraces a policy of affording its customers
courtesy,  respect, and ease of convenience.  The Company provides trained store
clerks to assist  customers  with all of their  shopping  needs and  stocks  its
merchandise at eye level for its patrons' convenience.



<PAGE>
     In 1996,  management  determined  that current and  prospective  consumers,
whose  needs  and  desires  are  influenced  by  prevailing  musical,   fashion,
recreational,  and entertainment trends,  require variety and demand in addition
to traditional  products;  namely, they desire the most fashionable products. In
an effort to meet the  rapidly  changing  needs of its  consumers,  the  Company
designed  new  outlets  which  provide  a  combination  of (i) new  educational,
electronic  interactive,  specialty,  hobby,  and collectible toys and goods and
(ii)  traditional  toys and games. In addition,  it sought out, has opened,  and
continues to open outlets located in highly trafficked malls, rather than in the
strip shopping centers where it originally opened its stores.  In addition,  the
Company  developed a new store design and  marketing  format  which  provides an
interactive setting together with a retail operation. This format and design has
formed the  foundation  for the  Company's  future  direction  and growth plans,
thereby allowing the Company to meet current and imminent industry demands.

     On June 17, 1999,  the Company  opened its 26th store in the Venetian Hotel
in Las Vegas,  Nevada.  During  fiscal  year 1999,  the  Company  opened six new
stores.  By the end of  calendar  year  2000,  the  Company  intends to open ten
additional stores.

Product and Trend Analysis

     The  Company  continually  assesses  trends and  demands  in the  industry,
refines its store  formats  and/or  product  lines as needed,  and  analyzes and
evaluates  markets for future store openings,  merchandise  lines, and marketing
strategies.  The Company  operates its stores  under the names "Play Co.  Toys,"
"Toys  International," "Toy Co.," and "Tutti Animali" depending upon the product
mix and location.

     The  Company  offers a broad  in-stock  selection  of  products  at  prices
generally competitive within the industry.  While the Company does not stock the
depth or  breadth  of  selection  of toys for its  stores as some of its  larger
competitors  do, the Company does strive to stock all basic  categories  of toys
and  all  television  advertised  items.  The  Company  continues  to  emphasize
specialty and educational toys in its stores.

Termination of Military Base Sales

     In June 1994,  the Company began to sell toy and hobby items on a wholesale
basis to military bases located in Southern  California.  In accordance with its
new  corporate  focus,  and given that  wholesale  sales to military  bases were
minimal in fiscal  year 1998 (2% of sales)  and fiscal  year 1997 (3% of sales),
the Company ceased such sales as of July 1998. Wholesale sales to military bases
were approximately 1% of sales in fiscal year 1999.

Seasonality

     Since inception,  the Company's business has been highly seasonal, with the
majority of its sales and profits being generated in the fourth calendar quarter
of the year, particularly during the November and December holiday season.

Competition

     The toy market is highly competitive. Though the Company's new stores offer
a  combination  of  traditional,   educational,   new  electronic   interactive,
specialty,  and  collectible  toys and  items,  the  Company  remains  in direct
competition  with local,  regional,  and national toy retailers  and  department
stores,  including Toys R Us, Kay Bee Toy Stores,  K-Mart, and Wal Mart. Most of
the Company's larger competitors are located in free-standing stores rather than
in malls. Kay Bee stores,  however,  are located in malls,  though their product
line is different than the Company's. The Company also competes with on-line toy
retailers,  such as eToys Inc. The toy market is particularly  characterized  by
large  retailers and discount  stores with intensive  advertising  and marketing
campaigns  and with  deeply  discounted  pricing of such  products.  The Company
competes as to price,  personnel,  service,  speed of  delivery,  and breadth of
product line.



<PAGE>
    As a result  of the  continually  changing  nature of  children's  consumer
preferences  and tastes,  the success of the Company is dependent on its ability
to change and adapt to new trends and to supply the merchandise  then in demand.
Children's  entertainment  products are often  characterized  by fads of limited
life cycles.  Combining  the  traditional  and  educational  toy segments of the
market into one retail  location is believed to be a unique  concept that should
prove to differentiate  the Company's stores from those of its larger or similar
size  competitors.  Management  has been  unable  to locate  any other  retailer
currently using this combined  marketing  concept.  The Company will compete for
the educational toy customer with other specialty  stores such as Disney Stores,
Warner Bros.  Stores,  Learning  Smith,  Lake Shore,  Zainy  Brainy,  and Noodle
Kidoodle.

     Most of the companies  with which the Company  competes have more extensive
research and  development,  marketing,  and customer  support  capabilities  and
greater financial, technological, and other resources than those of the Company.
There can be no assurance that the Company will be successful or that it will be
able to distinguish itself from such larger, better known entities. In addition,
the Company  does not  believe  there are any  significant  barriers to entry to
discourage new companies from entering into this industry.

Warehousing, Shipping and Inventory Systems

     The Company's stores are serviced from one  distribution  facility which is
approximately  37,000 square feet.  Inventory and shipment of products continues
to be monitored by a computerized point-of-sale system. The point-of-sale system
is a sophisticated scanning, inventory control, purchasing, and warehouse system
which allows each store manager to monitor sales  activity and inventory at each
store and enables the  Company's  officers to obtain  reports on all stores.  It
monitors sales at all store locations and  automatically  notifies the warehouse
and  shipping  department  each time stock of a  particular  item is low or out,
depending upon the item and the  instructions  programmed  into it. Through this
system,  the Company  analyzes product sales and adjusts product mix in order to
maximize return and effectively manage its retail space.

     The Company's  stores  generally are restocked on a weekly basis,  although
certain stores and certain items may be restocked at more frequent intervals. In
addition,  restocking of products is increased in the fourth  calendar  quarter,
during the holiday  season,  during which period some stores are  restocked on a
daily basis.  The Company  ships to its stores in  California  by its own leased
vehicles.  The Company ships to stores  located  outside of California via truck
load or less than truck load independent trucking companies.

Trademarks

     In 1976, 1994, and 1998, the Company received federal registrations for the
trademarks "Play Co. Toys," "TKO" and "Toy Co." respectively.  Play Co. Toys and
Toy Co. are trademarks utilized by the Company in connection with its certain of
its  stores.   "TKO"  was  used  for  certain   items  the  Company   previously
manufactured.  The Company also utilizes the tradenames "Toys International" and
"Tutti Animali."

Employees

     At June 30, 1999, the Company had three executive  officers,  approximately
151 full time employees, and approximately 332 part time employees.  None of the
employees of the Company is  represented by a union,  and the Company  considers
employee relations to be good. Each store employs a store manager,  an assistant
manager,  and between fifteen to twenty-five  full-time and part-time employees.
Each of the Company's store managers  reports to the Company's vice president of
retail  operations  and  vice  president  of  merchandising  who in turn  report
directly to the Company's executive officers.



<PAGE>
Financing through FINOVA Capital Corporation

     On January 21,  1998,  the Company  entered  into a $7.1  million  secured,
revolving  Loan and  Security  Agreement  (the "FINOVA  Agreement")  with FINOVA
Capital  Corporation  ("FINOVA").  The  credit  line  offered  under the  FINOVA
Agreement  replaced the $7 million  credit line the Company  previously had with
Congress Financial  Corporation  (Western) (the "Congress  Financing").  Neither
FINOVA nor  Congress is  affiliated  with the  Company.  The Company  repaid the
Congress loan on February 3, 1998.

     The FINOVA  credit line is secured by  substantially  all of the  Company's
assets and expires on August 3, 2000. The FINOVA Agreement is also guaranteed by
UTTC.  It accrues  interest  at a rate of floating  prime plus one and  one-half
percent.  Effective  July 30,  1998,  the Company and FINOVA  amended the FINOVA
Agreement to increase the maximum level of borrowings  under the agreement  from
$7.1 million to $7.6  million.  Effective  September  24, 1998,  the Company and
FINOVA entered into a second  amendment to the FINOVA  Agreement to increase the
maximum level of borrowings thereunder from $7.6 million to $8.6 million through
December  31,  1998.  As of January 1, 1999,  the  maximum  level of  borrowings
returned to the $7.6 million level.  In December 1998, the FINOVA  Agreement was
amended a third time to reflect  FINOVA's taking of a subordinate  position with
respect to its lien on only such  equipment  as has been  leased by the  Company
from Phoenix Leasing, Inc.

     In November 1998, pursuant to an agreement with ZD Group, L.L.C. ("ZD") - a
related New York limited liability company, the beneficiary of which is a member
of the  family of the  Company's  Chairman  - ZD issued a  $700,000  irrevocable
standby letter of credit ("L/C") in favor of FINOVA. FINOVA then lent a matching
$700,000  to the  Company  in the  form of a term  loan,  pursuant  to a  fourth
amendment to the FINOVA  Agreement  entered into on February 11, 1999.  The term
loan from FINOVA  expires on August 3, 2000 and bears interest at prime plus one
percent. In March 1999, the Company and FINOVA entered into a Fifth Amendment to
Loan and  Security  Agreement  which  stretches  the agreed  upon (in the FINOVA
Agreement)  decrease in advance  rate  against the  Company's  cost value of its
inventory over a five month period.

     Under the FINOVA Agreement,  the Company is able to borrow against the cost
value of eligible inventory. Since February 1999, pursuant to the Agreement, the
Company's  allowed borrowing has increased by $100,000 to $2.5 million against a
combination  of $3 million  in standby  letters of credit in favor of FINOVA and
restricted cash provided by a subordinated  loan. $1.5 million of the $3 million
in additional  borrowing support from the standby letters of credit was provided
by an  institutional  investor in the form of a subordinated  loan, $1.0 million
was  provided  in the form of a  standby  letter  of  credit  issued by MMCI (an
affiliate of the Company by virtue of its 78.5% ownership of UTTC, the Company's
parent), and the other $500,000 was provided by the Company.

     During fiscal year 1999, the Company breached two negative covenants in the
FINOVA  Agreement  by  exceeding  maximum  levels of  capital  expenditures  and
unsecured and lease financing. FINOVA waived such defaults.

     The Company  believes  that it will require a  significant  increase in its
line of credit as a result of its 50%  revenue  growth over the past fiscal year
and has approached  FINOVA about increasing the line of credit.  There can be no
assurance  that FINOVA (i) will be  amenable  to such a credit line  increase or
(ii)  will  provide  such  an  increase  under  terms  that  the  Company  deems
reasonable.

Trade Financing

     The Company relies on credit terms from its suppliers and  manufacturers to
purchase nearly all of its inventory.  Credit arrangements vary for reasons both
within  and  outside  the  control  of  the  Company.   See  "--  Suppliers  and
Manufacturers."



<PAGE>
Fixture Financing

     During  fiscal year 1999,  the Company  entered into  approximately  twelve
financing  agreements  for the leasing of  fixtures  for its  remodeled  and new
stores. These agreements were entered into with various entities,  none of which
is affiliated with the Company,  and bear terms of between three and five years.
The  agreements  are  payable  monthly  and  provide  fixture  financing  in the
approximate aggregate amount of $849,000. All such financings are secured by the
Company's  store  fixtures and equipment.  The Company is currently  negotiating
additional financing of this type.

Former Financing through Congress Financial Corporation (Western)

     In February 1996, pursuant to the terms of the Congress  Financing,  Europe
American Capital Corporation ("EACC"), an affiliate of the Company,  delivered a
$2 million L/C to Congress.  The Congress Financing was also guaranteed by UTTC,
the majority shareholder of the Company. As compensation for the issuance of the
L/C, the Company granted to EACC options,  subject to shareholder approval,  (i)
to purchase up to an aggregate of 1,250,000 shares of Common Stock at a purchase
price of 25% of the closing bid price for the Common Stock on the last  business
day prior to  exercise,  for a period of six months from  issuance  (this option
expired  unexercised);  and (ii) to  purchase up to an  aggregate  of 20 million
shares of the Company's  Series E Preferred  Stock (the "Series E Stock").  From
April 1996 to June 1997,  EACC  exercised its options and purchased an aggregate
of 3,562,070 shares of the Company's Series E Stock for $3,562,070. An aggregate
of 361,500 of such shares were converted into Common Stock.  In March 1997, EACC
issued an  additional  $1 million  L/C to  Congress  in order for the Company to
obtain  additional  financing  from  Congress.  This L/C  enabled the Company to
receive  additional  advances of up to $1 million  from  Congress.  EACC did not
receive any  compensation  for the issuance of this L/C. With the closing of the
Company's  December 1997  offering of Series E Stock,  EACC's option to purchase
shares of Series E Stock  (granted in  accordance  with the Congress  Financing)
terminated.  The proceeds of the funds received from EACC's  investment  enabled
the Company  (i) to acquire the assets of Toys (a three store  chain) in January
1997, (ii) to finance the openings of the Santa Clarita,  Arizona Mills, Redondo
Beach,  Ontario Mills, and Clairemont Mesa stores,  (iii) to redesign four store
locations,  and (iv) to support the  Company's  operations  during the Company's
business turnaround.

Recent Developments

     In May 1999, the Company sold 750,000  shares of Series F Preferred  Stock,
par value $0.01 per share (the "Series F Stock"),  at a purchase  price of $1.00
per share, in a private placement. The Company received $657,500 in net proceeds
from the sale.

     In March 1999, the Company borrowed an aggregate of $400,000 from Full Moon
Development,  Inc., a corporation not affiliated  with the Company,  pursuant to
two promissory notes, each in the amount of $200,000. The Company has repaid the
first note, and the second note is due on July 30, 1999.

     In  February  1999,  the Company  entered  into a one year  agreement  with
Typhoon Capital  Consultants,  LLC  ("Typhoon")  pursuant to which Typhoon is to
provide financial consulting services and other consulting services encompassing
assistance in the production of a summary  business plan and corporate  profile,
the creation of an advisory committee to assist the Company in assessing certain
proposed actions,  and the marketing of the Company's websites.  In exchange for
Typhoon's  services,  the  agreement  provides  for the  grant of an  option  to
purchase an aggregate of 150,000  shares of Common Stock,  exercisable  at $1.75
per share until their expiration on August 30, 2001.



<PAGE>
     In November 1998, the Company borrowed  $250,000 from Amir Overseas Capital
Corp.  ("Amir"),  a  corporation  not  affiliated  with  the  Company,  under  a
promissory note which bore interest at 12%. The note was repaid in January 1999.
In September 1998, the Company borrowed $1,000,000 from Amir, under a promissory
note which bore interest at 12%. This note was repaid in December 1998.

     In  July  1998,  the  Company  entered  into  a  Lead  Generation/Corporate
Relations  Agreement with Corporate  Relations Group,  Inc.  ("CRG"),  a Florida
corporation not affiliated with the Company, pursuant to which CRG is to provide
investor  and public  relations  services  to the  Company  for a period of five
years.  Under the terms of the Agreement,  the Company paid $100,000 to CRG upon
execution of the agreement,  and a Company shareholder remitted 50,000 shares of
the Company's Series E Stock as a reimbursement  for expenses.  In addition,  in
exchange for CRG's  services,  the  agreement  provided for the grant to CRG and
four of its principals options to purchase an aggregate 450,000 shares of Common
Stock at an exercise price of $0.78125 per share and an aggregate 700,000 shares
of Series E Stock at an exercise  price of $2.25 per share.  In connection  with
these  options,  the  Company  recorded  approximately  $35,000 in  compensation
($10,000  for the  Series E Stock  options  and  $25,000  for the  Common  Stock
options) based on an option pricing model which considered the volatility of the
securities'  stock prices,  and the short life of the options,  2/3 of which are
exercisable  for a  two  month  period  and  the  remaining  1/3  of  which  are
exercisable for an eight month period.

     In May  1998,  the  Company  commenced  an  offering  of  Units,  each Unit
comprising one share of Series F Stock and one Series F Preferred Stock Purchase
Warrant  (the  "Series  F  Warrants"),  at a  purchase  price of $3.00 per Unit,
through  Morgan  Grant  Capital  Group,  Inc. as  placement  agent.  The Company
terminated the offering in June 1998, and no funds were raised thereby.

     In July 1997,  the Company  effected a 1 for 3 reverse  split of its Common
Stock.  To date, not all  shareholders  have exchanged their  pre-reverse  split
shares  for  post-reverse  split  shares;   therefore,   the  number  of  shares
outstanding as of the date set forth herein is subject to change,  nominally, as
such shareholders submit their shares for exchange.

ITEM 2. DESCRIPTION OF PROPERTY

     Until  recently,  the  Company's  stores were  serviced  from two  adjacent
distribution facilities (one 37,000 square feet in size, the other 18,000 square
feet in size) encompassing an aggregate of approximately  55,000 square feet, at
550 Rancheros Drive, San Marcos,  California. As of April 15, 1997, however, the
Company returned  approximately  15,400 feet of the 18,000 square foot warehouse
space to the landlord. The Company now leases (i) 40,000 square feet of combined
office and warehouse space (approximately 3,000 square feet is office space, and
the  remaining  37,000  square feet is warehouse  space) and (ii)  approximately
2,600 square feet of separate  space which houses  defective  merchandise  until
same is either returned to the manufacturers or the Company is authorized by the
manufacturers to destroy the goods. The former space is leased at an approximate
annual cost of  $247,000,  from a  partnership  of which one of the  partners is
Richard Brady, the president and a director of the Company. The lease expires in
April  2000,  and  the  Company  believes  that it is on  terms  no more or less
favorable than terms it might  otherwise have  negotiated  with an  unaffiliated
party. The latter space is leased at an approximate annual cost of $31,572, from
Dunlop/Townley  Holdings.  The lease  expires in March 2000.  From  October 1998
through  April  1999,  the Company  leased an  additional  4,200  square feet of
warehouse  space for $2,300 per month.  This space was leased to store  overflow
inventory from the Company's primary warehouse.

     The following table sets forth the leased properties on which the Company's
(and its subsidiaries') currently operating stores (aggregating 26) are located:


<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
                                                    SIZE IN SQUARE FEET
                                                                                 LEASE                     BASE RENT
                 STORE LOCATION                                               EXPIRATION                  ANNUAL COST
-------------------------------------------------------------------------------------------------------------------------------


<S>                                                      <C>                        <C>                           <C>
Play Co. Toys                                            12,000                July 2006                          $108,000.00
Santa Clarita
19232 Soledad Canyon Rd
Santa Clarita, CA  91351
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                             7,800                January 2001                        $84,840.00
Santa Margarita
27690-B Santa Margarita
Mission Viejo, CA  92691
===============================================================================================================================
</TABLE>

<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>

===============================================================================================================================
                 STORE LOCATION                     SIZE IN SQUARE FEET          LEASE                     BASE RENT
                                                                              EXPIRATION                  ANNUAL COST
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>           <C>                                   <C>
Play Co. Toys                                                  8,250         December 1999                         $87,549.72
Chula Vista
1193 Broadway
Chula Vista, CA  91911
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 10,030           June 2000                          $127,880.64
El Cajon
327 N. Magnolia
El Cajon, CA  92020
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 11,323         November 1999                         $95,040.48
Simi Valley
1117 E. Los Angeles, Suite C
Simi Valley, CA  93065
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 10,000        September 2005                        $110,753.88
Encinitas
280 N. El Camino Real
Encinitas, CA  92024
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                  9,800         December 2004                        $117,330.72
Pasadena
885 S. Arroyo Parkway
Pasadena, CA  91105
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 13,125         January 2001                          $96,360.00
Orange
1349 E. Katella
Orange, CA  92513
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 10,478        Month to Month                         $95,941.80
Redlands
837 Tri-City
Redlands, CA  92373
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 10,156          August 2002                          $88,053.00
Clairemont
4615-A Clairemont Drive
San Diego, CA  92117
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 11,597          March 2004                           $91,020.00
Rancho Cucamonga
9950 W. Foothill Blvd, Suite U
Rancho Cucamonga, CA 91730
-------------------------------------------------------------------------------------------------------------------------------
Play Co. Toys                                                 10,000         October 2004                          $64,926.60
Corona
1210 W. Sixth Street
Corona, CA  91720
===============================================================================================================================
</TABLE>

<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
===============================================================================================================================
                 STORE LOCATION                     SIZE IN SQUARE FEET          LEASE                     BASE RENT
                                                                              EXPIRATION                  ANNUAL COST
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                    <C>                         <C>
Play Co. Toys                                                  9,400         December 2003                        $178,980.00
Woodland Hills
19804 Ventura  Blvd., #366
Woodland Hills, CA 91364
-------------------------------------------------------------------------------------------------------------------------------
Toys International                                             5,183         January 2004                         $159,900.00
South Coast Plaza, Ste. 1020
3333 Bristol Street, Suite 1030
Costa Mesa, CA  92626
-------------------------------------------------------------------------------------------------------------------------------
Toys International                                             3,869         January 2001                         $145,920.00
Century City
10250 Santa Monica Blvd
Los Angeles, CA  90067
-------------------------------------------------------------------------------------------------------------------------------
Tutti Animali                                                  1,220         January 2000                         5% of Sales
Crystal Court
3333 Bear Street
Cost Mesa, CA  92626
-------------------------------------------------------------------------------------------------------------------------------
Toys International                                             3,620          August 2007                          $83,260.08
Galleria at South Bay
1815 Hawthorne Blvd., #366
Redondo Beach, CA  90278
-------------------------------------------------------------------------------------------------------------------------------
Toy  Co.                                                       5,642         January 2003                         $112,840.00
Ontario Mills
One Mills Circle, #302
Ontario, CA  91764
-------------------------------------------------------------------------------------------------------------------------------
Toy Co.                                                        7,103         October 2002                         $163,369.00
Arizona Mills
5000 Arizona Mills Circle, #689
Tempe, AZ  85282
-------------------------------------------------------------------------------------------------------------------------------
Toy Co.                                                        7,002             May 2008                          $175,483.32
Fashion Outlet of Las Vegas
32100-320 Las Vegas Blvd. So.
Primm, NV 89019
-------------------------------------------------------------------------------------------------------------------------------
Toy Co.                                                        9,369           May 2003                           $175,483.32
Grapevine Mills
3000 Grapevine Mills Pkwy, Ste. 312
Grapevine, TX 76051

-------------------------------------------------------------------------------------------------------------------------------
Toys International                                             5,339           December 2008                      $133,475.04
Thousand Oaks
208 W. Hillcrest Drive
Thousand Oaks, CA 91360
===============================================================================================================================
<PAGE>
(table continued from previous page)

===============================================================================================================================
                 STORE LOCATION                     SIZE IN SQUARE FEET          LEASE                     BASE RENT
                                                                              EXPIRATION                  ANNUAL COST
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                       <C>                            <C>
Toys International                                       10,000                May 2008                           $195,000.00
Great Lakes Crossing
4236 Baldwin Rd., #551
Auburn Hills, MI 48326

-------------------------------------------------------------------------------------------------------------------------------
Toy Co.                                                  12,496                July 2003                          $168,696.00
Gurnee Mills Mall
06170 W. Grand Ave., Sp. #559
Gurnee, IL 60031
-------------------------------------------------------------------------------------------------------------------------------
Toys International                                       9,400                March 2008                          $221,424.00
The Block
20 City Dr. West, Ste. 203
Orange, CA 92868

-------------------------------------------------------------------------------------------------------------------------------
Toys International                                       7,002                 June 2004                          $450,000.00
The Venetian Resort & Casino
3311 Las Vegas Blvd. South, Ste.1212
Las Vegas, NV 89109

===============================================================================================================================
</TABLE>
ITEM 3. LEGAL PROCEEDINGS

     In October 1997, in the Superior Court of the State of  California,  County
of San Bernardino,  Foothill Marketplace  commenced suit against the Company for
breach of  contract  pertaining  to  premises  leased by the  Company in Rialto,
California.  The lease for the  premises has a term from  February  1987 through
November 2003. The Company vacated the premises in August 1997. Under California
State law and the provisions of the lease,  plaintiff has a duty to mitigate its
damages.  Plaintiff  seeks  damages,  of a continuing  nature,  for unpaid rent,
proximate  damages,  costs,  and attorneys'  fees, in the approximate  amount of
$300,000.  This  action  is in the  discovery  phase  and a trial  is  currently
scheduled for September 1999.

     Neither the Company's officers, directors, affiliates, nor owners of record
or beneficially  of more than five percent of any class of the Company's  Common
Stock is a party to any  material  proceeding  adverse  to the  Company or has a
material interest in any such proceeding adverse to the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On May 5,  1999,  the  Company  held its  annual  meeting  during  which it
proposed  (i) to elect  four  directors  to the  board  and  (ii) to  amend  the
Company's Certificate of Incorporation to authorize an increase in the number of
authorized  shares of the  Company's  (a) Common  Stock from  fifty-one  million
shares currently authorized to one hundred sixty million shares and (b) Series E
Stock from ten  million  shares  currently  authorized  to  twenty-five  million
shares. Both proposals were adopted, and the following were elected directors of
the  board  for a term of one  year:  Richard  Brady,  James B.  Frakes,  Harold
Rashbaum, and Moses Mika. Mr. Mika is the father of Ilan Arbel (the president of
UTTC).



<PAGE>
     The votes cast or withheld for the election of the  directors are set forth
as follows:
<TABLE>
<CAPTION>

         Nominees                                    Votes For                  Votes Withheld

<S>                                                           <C>                                <C>
         Harold Rashbaum                                      4,777,694                          12,742
         Richard Brady                                        4,783,236                           7,200
         James Frakes                                         4,781,808                           8,628
         Moses Mika                                           4,777,727                          12,709

</TABLE>

     The votes cast for,  against,  or withheld for the proposal to increase the
capital stock of the Company are set forth as follows:
<TABLE>
<CAPTION>

         Votes Cast For                              Votes Cast Against                          Abstentions

<S>      <C>                                         <C>                                         <C>
         4,769,629                                   20,806                                      0

</TABLE>
<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Until  September  24, 1997,  the  Company's  Common Stock was quoted on the
Nasdaq  SmallCap  Stock  Market  ("Nasdaq").  The  following  table  sets  forth
representative  high and low bid quotes as reported by the OTC  Bulletin  Board,
whereon the Company's  securities  are quoted,  during the periods stated below.
Bid quotations  reflect prices between dealers,  do not include resale mark-ups,
mark-downs,  or other  fees or  commissions,  and do not  necessarily  represent
actual transactions.
<TABLE>
<CAPTION>

         Calendar                                                                        Series E (2)           Series E (2)
          Period                  Stock(1 Common)            Warrants (1)              Preferred Stock            Warrants

                                      Low            High          Low          High          Low         High         Low      High

           1996

<S>                                  <C>           <C>            <C>           <C>           <C>         <C>          <C>      <C>
01/01/96 - 03/31/96                    7/8          2 3/8          1/8          1/4

04/01/96 - 06/30/96                  1 1/8              3          1/8          1/4

07/01/96 - 09/30/96                   3/4            21/2

10/01/96 - 12/31/96                  1 1/8          1 3/8



           1997

01/01/97 - 03/31/97                      1            11/4          1           11/4

04/01/97 - 06/30/97                      1          1 1/8

07/01/97 - 09/23/97(3)                   1          1 1/8

10/14/97 - 12/31/97                      2              3



           1998

01/01/98 - 03/31/98                    .67           1.25                                       1        4.75       .5          1.75

04/01/98 - 06/30/98                    .58           1.75                                     .87         3.5       .5          1.25

07/01/98 - 09/30/98                    .75           1.56                                     .31         3.5      .12          1.12

10/01/98 - 12/31/98                    .56           1.22                                     .20         .67      .01           .37



           1999

01/01/99 - 03/31/99                    .75           2.56                                     .20        1.72      .03           .25

04/01/99 - 06/16/99                   1.06           1.84                                     .50        3.37      .10           .58
</TABLE>

---------------------



<PAGE>
     (1) The Common Stock and Warrants  issued in the Company's  initial  public
offering in November 1994 started to trade  separately on February 6, 1995.  The
Warrants  expired in February 1997.  (2) The Company  consummated an offering of
its Series E Stock and Series E Warrants  in  December  1997.  These  securities
commenced  trading  on the OTC  Bulletin  Board  on  January  5,  1998.  (3) The
Company's  Common Stock was  delisted  from Nasdaq  effective  with the close of
business on September 23, 1997.  It began  trading on the OTC Bulletin  Board in
October 1997.

     As of July 12, 1999, there were  approximately 408 holders of record of the
Company's   Common  Stock,   although  the  Company   believes  that  there  are
approximately 650 additional beneficial owners of shares of Common Stock held in
street  name.  As of July 12,  1999,  the  number of  outstanding  shares of the
Company's  Common  Stock was  5,554,530  (This  number  is  subject  to  change,
nominally,  as the  pre-July  1997  reverse  split  shares  which  have not been
exchanged as yet are offered for such exchange by the Company's shareholders.)

     Effective  with the close of business on September 23, 1997,  the Company's
Common  Stock was  delisted  from  trading on Nasdaq.  The  Company  appealed an
earlier  Nasdaq  determination  and  presented its argument in August 1997 at an
oral hearing before the Nasdaq  Qualifications Panel (the "Panel"). On September
23, 1997, the Company received a decision from the Panel that based its decision
to delist on its belief that the Company did not meet the  stockholders'  equity
maintenance  requirement  of  $1,000,000  and  based on  transactions  it deemed
"detrimental  to the  investing  public  and  the  public  interest"  concerning
transactions  undertaken in February  1996 with respect to options  issued to an
investor  which  provided a $2,000,000  L/C as security for the Congress  credit
line. The Company  appealed this matter to the Nasdaq Listing and Hearing Review
Committee  (the "Review  Committee")  which,  on October 29, 1997,  remanded the
Panel's  determination  for  reconsideration  by a new Nasdaq  analyst and a new
Panel, this remand due in part to the Company's allegations of bias.

     In December 1997, the Company  presented  written evidence to the new Panel
which, in a determination  dated January 20, 1998,  affirmed the delisting.  The
Company appealed said determination to the Review Committee.  In a determination
dated May 21, 1998, the Review  Committee  affirmed the delisting  citing as its
basis therefor,  inter alia, as follows:  ". . . given the Company's  history of
losses,  we do  not  have  confidence  in  the  Company's  ability  to  maintain
compliance  [with the capital and  surplus  requirement]  for the long term." In
addition,  the Review  Committee  determined that  "substantial  dilution to the
public  shareholders  by stock issuance . . . and by the conversion of preferred
stock issued . . . at prices substantially below the market price" supported the
Review  Committee's  argument of purported  affiliate  self-dealing.  In further
support of its  determination,  the Review Committee cited the Company's failure
to  provide  information  requested  with  respect  to  entities  which were not
affiliated with the Company.  (In response to the Review Committee's request for
such  information,  the  Company  informed  same  that  it did  not  believe  it
appropriate  to  make   representations   regarding  the   transactions  or  the
composition  of any entities with which it was not  affiliated  and  recommended
that the Review Committee redirect such inquiries directly to such entities.)

     The Company sought all  administrative  remedies  available from Nasdaq and
believes  that  Nasdaq  erred  in its  determination.  Given  the  extreme  cost
associated  with  appealing  Nasdaq's  decision to the  Securities  and Exchange
Commission, however, the Company decided not to file such an appeal.

Recent Sales of Unregistered Securities

     Except where  otherwise  indicated,  the sales of securities of the Company
described below were exempt from registration  under the Securities Act of 1933,
as amended (the "Act"),  in reliance upon the  exemption  afforded by ss.4(2) of
the Act for  transactions  not  involving a public  offering.  All  certificates
evidencing such sales bear an appropriate restrictive legend.



<PAGE>
Series F Preferred Stock Private Placement

     In May 1999,  pursuant  toss.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
$750,000 for the sale, less expenses,  and the placement  agent's 10% commission
and 1%  nonaccountable  expense  allowance.  Each  share  of  Series  F Stock is
convertible,  at the  holder's  option,  into two fully paid and  non-assessable
shares of Common  Stock,  at any time  commencing  on the date the  registration
statement  registering  the Series F Stock and Common Stock  underlying  same is
declared effective by the Securities and Exchange Commission.

Common Stock Issuance

     In May 1999,  the Company  issued  45,333  shares of Common  Stock to Brian
Hunter,  a real estate  consultant,  as  compensation  for services  rendered in
negotiating certain commercial leases on behalf of the Company. This transaction
was valued by the Company at  approximately  $56,000  based on the closing stock
price on May 17, 1999 and a 10% discount related to the  unregistered  nature of
the Common Stock.

<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

     The following  table  summarizes  certain  selected  financial  data and is
qualified in its entirety by the more detailed  financial  statements  contained
elsewhere in this document.
<TABLE>
<CAPTION>
                                                                   Year Ended March 31,

                                                 1996                 1997               1998                1999

Balance Sheet Data:



<S>                                                 <C>              <C>                  <C>                 <C>
Working capital (deficiency)                        $192,401         $(1,570,486)         $4,452,481          $5,832,145

Total assets                                       9,213,104            9,378,618         14,139,887          21,150,392

Total current liabilities                          6,673,570            8,148,657          4,581,831           7,558,647

Long term obligations                                726,007              226,925          7,055,549           8,527,116

Redeemable preferred stock                            87,680                  ---                ---                 ---

Stockholders' equity                               1,725,847            1,003,036          2,502,507           5,064,629

Common stock dividends                                   ---                  ---                ---                 ---


</TABLE>


<TABLE>
<CAPTION>

                                                                    Year Ended March 31,

                                                  1996                1997                1998                1999
Operating Data:



<S>                                               <C>                 <C>                 <C>                 <C>
Net sales                                         $21,230,853         $19,624,276         $22,568,527         $34,371,230

Gross profit                                        6,097,958           5,955,172           8,878,928          14,780,446

Gross margin                                            28.7%               30.3%               39.3%               43.0%

Total operating expenses                            9,105,515           8,789,570          10,119,430          13,672,377

Net income (loss) before taxes                    (3,542,715)         (3,584,881)         (2,054,470)             143,018

Net income (loss)                                 (3,542,715)         (3,584,881)         (2,054,470)             140,868

Net income (loss) applicable to common shares
                                                  (3,542,715)         (6,474,496)         (3,528,276)         (1,566,857)

Income (loss) per common share(1)                      (2.77)              (1.29)              (0.86)               (.34)

Weighted average shares outstanding(1)             1,287,843           2,791,876           4,098,971           4,590,642

</TABLE>

     (1) Adjusted  for effects of 1 for 3 reverse  split of Common Stock in July
1997.

<PAGE>
Results of Operations

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

     The   Company   has  two  wholly   owned   operating   subsidiaries:   Toys
International,  Inc. ("Toys") and Play Co. Toys Canyon Country, Inc. ("Canyon").
Toys currently  operates  fourteen  stores,  and Canyon operates one store.  The
Company plans to combine these two  subsidiaries and to assign to Toys five Play
Co.  Toys  stores  that  either  have  been or will be  reformatted  to the Toys
concept.

For the year ended March 31, 1999 as compared to the year ended March 31, 1998

     The Company  generated net sales of $34,371,230 in the year ended March 31,
1999 (also  referred to as fiscal year 1999).  This  represented  an increase of
$11,802,703, or 52.3%, over net sales of $22,568,527 in the year ended March 31,
1998 (also referred to as fiscal year 1998).  Approximately $7.6 million of this
sales  growth came from new stores,  and the  remaining  $4 million  came from a
21.3%  increase  in  same  store  sales.  Sales  from  the  Company's  wholesale
operations were insignificant in both fiscal years.

     The Company ended fiscal year 1999 with 25 retail  locations in six states,
compared  to 19 retail  locations  in two states at the end of fiscal year 1998.
During fiscal year 1999, the Company opened six new stores.

     The Company  posted a gross profit of  $14,780,446  in the year ended March
31, 1999. This represented an increase of $5,901,518,  or 66.5%,  over the gross
profit of $8,878,928 in the year ended March 31, 1998. The gross profit increase
was due to the above  noted  growth in net  sales and to an  improvement  in the
Company's  gross  margin  from 39.3% in fiscal  year 1998 to 43% in fiscal  year
1999.  This 3.7%  gross  margin  improvement  was the  result of a change in the
Company's  merchandising  mix to augment its  historical  product  base of lower
margin  traditional  toys with  educational  and specialty toys which  generally
produce better margins than traditional  toys. This change in merchandising  mix
has been the  centerpiece of the Company's  business plan for fiscal years 1997,
1998, and 1999.

     Operating  expenses  (total  operating  expenses  less  litigation  related
expenses and  depreciation  and  amortization)  in the year ended March 31, 1999
were  $12,658,376.  This represented a $3,793,769,  or 42.8%,  increase over the
Company's operating expenses of $8,864,607 in the year ended March 31, 1998. The
primary reasons for the operating expense increase were a growth in rent expense
of approximately $673,000 and in payroll and related expenses of $1,770,000. The
increases in rent and salary expenses were largely due to the opening of the six
new stores in fiscal year 1999.  As a percentage  of sales,  operating  expenses
decreased  by 2.5% to 36.8% of net sales  for  fiscal  year  1999 from  39.3% in
fiscal year 1998.

     The Company incurred $27,659 of litigation  related expenses in fiscal year
1999  compared to $583,541 of litigation  related  expenses in fiscal year 1998.
The expenses in fiscal year 1998 were  associated with the closure of five store
locations and related subsequent  litigation.  This expense includes  settlement
amounts relating to four of the five closed locations and the related legal fees
and costs.  The Company  remains in litigation  regarding the fifth closed store
and the $27,659 of litigation  related  expenses in fiscal year 1999 are largely
related to that matter.



<PAGE>
     Depreciation and amortization  expense in the year ended March 31, 1999 was
$986,342.  This  represented a $315,060,  or 46.9%,  increase over the Company's
depreciation  and  amortization  expense of $671,282 in the year ended March 31,
1998. Depreciation and amortization are non-cash charges. The primary reason for
the depreciation and amortization  expense increase was the depreciation related
to the fixed assets  purchased  for the six new stores opened during fiscal year
1999.

     Total operating expenses (the sum of operating expenses, litigation related
expenses, and depreciation and amortization expense) in the year ended March 31,
1999 were $13,672,377.  This represented a $3,552,947,  or 35.1%,  increase over
the Company's  total  operating  expenses of $10,119,430 in the year ended March
31,  1998.  The  reasons  for this  increase  are noted in the  three  preceding
paragraphs.

     The Company  recorded  operating  income of  $1,108,069 in fiscal year 1999
compared  to an  operating  loss of  $(1,240,502)  in  fiscal  year  1998.  This
represented an improvement of $2,348,571.  This  improvement was a result of the
$5,901,518  increase in gross profit being  partially  offset by the  $3,552,949
increase in total operating expenses.

     Total  interest  expense  amounted  to $965,051 in the year ended March 31,
1999.  This  represented  a  $151,083,  or 18.6%,  increase  over the  Company's
interest  expense of $813,968 in fiscal  year 1998.  The primary  reason for the
increased  level of interest  expense was a higher level of borrowings in fiscal
year 1999 than in fiscal year 1998.

     In fiscal  year 1999,  the Company  recorded  income tax expense of $2,150,
representing  various  state income taxes.  The  Company's  net  operating  loss
carryforward  sheltered  the Company  from  federal  income taxes in fiscal year
1999.

     In fiscal  year 1998,  the  Company  recorded  net  income  tax  provisions
consisting  only of the current  portion of the minimum income taxes required by
various  jurisdictions  including  the States of California  and Delaware;  such
amounts  were  immaterial  and are included in  operating  expenses.  Changes in
deferred  taxes were offset  dollar for dollar by  adjustments  to the Company's
valuation  allowance which has reduced its net deferred tax assets to zero as of
March 31, 1999 and 1998 and resulted in a net zero dollar provision for deferred
income taxes for each of the years ended March 31, 1999 and 1998.

     As a result of the  above-mentioned  factors,  the  Company  recorded a net
income of  $140,868  for the fiscal  year ended 1999  compared  to a net loss of
$(2,054,470) for the fiscal year ended March 31, 1998.

     In fiscal  year 1999,  the net income of  $140,868  was reduced by non-cash
dividends of  $1,707,725  in order to  determine  the net income  applicable  to
common shares.  The non-cash  dividends  represent  amortization of the discount
recorded upon issuance of Series E Stock with a beneficial  conversion  feature.
No dividends in the form of securities or other assets were actually paid out. A
non-cash  dividend of $1,473,806 was recorded for fiscal year 1998. As a result,
the net loss applicable to common shares was $(1,566,857),  or $(.34) per share,
for the year ended March 31, 1999 and $(3,528,276), or $(.86) per share, for the
year ended March 31, 1998.

Liquidity and Capital Resources

     At March 31, 1999, the Company had a working capital position of $5,832,145
compared working capital of $4,452,481 at March 31, 1998. The primary factors in
the  $1,379,664  increase in working  capital  were a  $1,162,268  growth in the
Company's net investment in inventories  (increase in inventories  less increase
in accounts payable), which was financed through a $2,369,468 increase under the
Company's financing agreement, a long-term liability.




<PAGE>
         While the Company  generated an  operating  profit  during  fiscal year
ended March 31,  1999,  the  Company  generated  operating  losses for the prior
fiscal years and has historically  financed those losses and its working capital
requirements  through loans and sales of the Company's equity securities.  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.

     For the year ended March 31, 1999,  the Company used  $1,231,117 of cash in
its operations compared to $2,288,736 used in operations in the year ended March
31, 1998. The primary reason for the $1,057,619  reduction in the use of cash in
operations was the Company's net income of $140,868 compared to the prior year's
loss of $2,054,470. Beyond the $2,195,338 improvement of net income, the Company
recorded  an  incremental  amount  of  $312,177  of  non-cash  depreciation  and
amortization  and amortization of debt issuance costs that are added back to the
Company's operating cash flow.

     The  Company  used cash in its  operating  activities  in fiscal  year 1999
because of a $1,162,268  growth in the Company's net  investment in  inventories
(increase in  inventories  less increase in accounts  payable).  The Company has
invested in its  inventory  position to supply its growing  number of stores and
its increased level of sales.

     The Company used  $2,799,819  of cash in its  investing  activities  during
fiscal year 1999 compared to $3,273,273 in fiscal year 1998. All but $100,000 of
the cash used in  investing  activities  represented  purchases  of property and
equipment.  These purchases  primarily related to the six new stores the Company
opened in fiscal year 1999. The $2,799,819  represents capital  expenditures net
of landlord tenant improvement contributions and of capital lease financing.

     In fiscal year 1998,  $2,250,000 of the investing activities related to the
purchase of restricted  certificates of deposit. Of that amount,  $2,000,000 was
used to  collateralize a letter of credit ("L/C") in the same amount in favor of
FINOVA  Capital  Corp.  ("FINOVA" - see below),  the Company's  working  capital
lender.  The other  $250,000 is collateral for a facility for letters of credit.
The  remaining  $1,023,273  of  investing  activities  related to  purchases  of
property and equipment, largely at four new stores that the Company opened.

     The Company generated  $3,507,917 from its financing activities in the year
ended March 31, 1999 compared to the  generation of  $6,033,273  from  financing
activities  in the year ended March 31, 1998.  The largest  contribution  to the
Company's  financing  activities in the 1999 fiscal year was from net borrowings
under the  Company's  financing  agreement.  The  largest  contributions  to the
Company's  financing  activities  in the 1998  fiscal  year were the  receipt of
$3,390,450  of  net  proceeds  from  the  sale  of  preferred  stock  through  a
combination  of public and private  offerings  and  $1,750,000  in proceeds from
notes payable.

     As a result of the above factors, the Company had a net decrease in cash of
$523,019 in fiscal year 1999  compared to a net  increase in cash of $471,264 in
fiscal year 1998.

     During  fiscal  1999,  the  Company  opened six new stores in high  traffic
shopping  malls for a total cost  (excluding  inventory) of  approximately  $3.4
million. The stores are located in Primm (near Las Vegas),  Nevada; Gurnee (near
Chicago),  Illinois;  Auburn Hills (near  Detroit),  Michigan;  Grapevine  (near
Dallas), Texas; Thousand Oaks and Orange (both near Los Angeles), California.

     The Company  had  planned to finance the costs of opening  those new stores
through a combination of capital lease financing,  use of the Company's  working
capital,  and the sale of additional equity. The Company received  approximately
$850,000 in lease financing during fiscal year 1999 and  approximately  $240,000
in the April through June 1999 period.  The Company continues to seek additional
capital lease financing.



<PAGE>
     The following transactions entered into over the second half of fiscal year
1999 were equity and debt  transactions  structured to help the Company with the
cost of the capital expenditures associated with opening the six new stores.

     On  November  24,  1998,  Breaking  Waves,  Inc.  ("BWI"),  a  wholly-owned
subsidiary  of  Shopnet.com,   Inc.  ("Shopnet,"  formerly  known  as  Hollywood
Productions,  Inc.), an affiliate,  purchased 1.4 million unregistered shares of
the Company's  Common Stock in a private  transaction.  The president of Shopnet
and BWI is also the  chairman  of the  Company.  Shopnet  is a  publicly  traded
company. The shares purchased by BWI represent  approximately 25.4% of the total
Common Stock issued and outstanding after the transaction.

     The  consideration  for the Common Stock was $665,000,  which represented a
price of $0.475 per share.  The price  represented an  approximate  33% discount
from the then  current  market  price of $.718  reflecting  a  discount  for the
illiquidity of the shares, which do not carry any registration rights.  $300,000
of the consideration was in cash and the remaining  $365,000 was in product from
BWI,  primarily girl's swimsuits.  The $365,000 value of the swimsuit  inventory
was determined by the Company based on its analysis of the net realizable  value
of the inventory received. The Company had previously carried swimsuits from BWI
in its stores on a trial basis.

     In November 1998, the Company entered into agreements with ZD Group, L.L.C.
("ZD"),  a related party,  and Frampton,  an affiliate under common control,  to
secure additional financing. ZD is a New York trust, the beneficiary of which is
a member of the family of the Company's  chairman.  Frampton is a British Virgin
Islands company.

     Pursuant to the ZD agreement,  ZD issued a $700,000 irrevocable standby L/C
in favor of FINOVA.  FINOVA then lent a matching  $700,000 to the Company in the
form of a term loan.  The term loan expires on August 3, 2000 and bears interest
at prime plus one percent. As consideration for its issuance of the L/C, ZD will
receive a one-third profit  percentage after  application of corporate  overhead
beginning  April 1, 1999 from three of the Company's  stores  (Woodfield Mall in
Schaumburg,  Illinois  scheduled  to open in late  summer  1999;  Auburn  Hills,
Michigan; and Gurnee, Illinois).

     Under the Frampton  agreement,  Frampton lent $500,000 and Europe  American
Capital Foundation, another affiliate under common control, lent $150,000 in the
form of a  convertible,  subordinated  debenture  due  December  31,  1999.  The
debentures  each  bear a 5%  interest  rate  and  will be  convertible  into the
Company's Series E Stock at the lenders' option.  The conversion price initially
was $0.10 per share.  That price was discounted 50% from the then current market
price  (November  10, 1998)  reflecting a discount  for the  illiquidity  of the
shares, which do not carry any registration rights.  Subsequently,  in May 1999,
the  lenders  agreed to amend the  conversion  price to $0.20 per  share,  which
equaled the full market price on the date of the original business transaction.

     At March  31,  1999,  the  Company  had a line of  credit  with  FINOVA  in
connection with a Loan and Security Agreement ("FINOVA  Agreement").  The FINOVA
Agreement originally provided for maximum borrowings up to $7,100,000 based on a
percentage  of the cost value of eligible  inventory,  as  defined.  Outstanding
borrowings  bear  interest at 1.5% above the prime rate,  as defined  (the prime
rate at March 31, 1999 was  7.75%).  The FINOVA  Agreement  matures on August 3,
2000 and can be renewed for one additional year at the lender's option.

     In addition to the  $700,000  term loan secured by the ZD letter of credit,
the FINOVA  Agreement  was amended  during the 1999 fiscal year to increase  the
maximum  amount of borrowings  available  under the line of credit.  The maximum
level of borrowings was first increased by $500,000,  and later by an additional
$1 million only through  December  31, 1998.  As of March 31, 1999,  the overall
FINOVA  Agreement  allowed for a maximum  level of  borrowings  of $8.3 million,
including the $700,000 term loan backed by the ZD letter of credit.  The Company
had  approximately  $100,000  available under the FINOVA  Agreement at March 31,
1999.



<PAGE>
     The FINOVA Agreement is guaranteed by United Textiles & Toys Corp. ("UTTC")
and is secured by substantially  all the assets of the Company and $3,700,000 in
letters of credit.  Of the  $3,700,000  in  letters  of  credit,  $2,000,000  is
collateralized  by  amounts  held  in  a  restricted   certificate  of  deposit.
Multimedia Concepts International,  Inc., an affiliate under common control, has
provided a $1,000,000 L/C and ZD provided a $700,000 L/C as noted above.

     During fiscal year 1999, the Company breached two negative covenants in the
FINOVA  Agreement  by  exceeding  maximum  levels of  capital  expenditures  and
unsecured and lease financing. FINOVA subsequently waived those defaults.

     The Company  believes  that it will require a  significant  increase in its
line of credit as a result of its 50%  revenue  growth over the past fiscal year
and has approached  FINOVA about increasing the line of credit.  There can be no
assurance that FINOVA (a) will be amenable to such a credit line increase or (b)
will only provide such an increase  under terms that  Company  management  finds
reasonable.

     In March 1999, the Company borrowed an aggregate of $400,000 from Full Moon
Development,  Inc., a corporation not affiliated  with the Company,  pursuant to
two promissory notes, each in the amount of $200,000. The Company has repaid the
first note, and the second note is due on July 30, 1999.

     In the  fourth  quarter  of the year  ended  March 31,  1999,  the  Company
borrowed  $100,000 from Shopnet under an unsecured note, with interest at 9%. Of
this amount,  $25,000 has been repaid to date.  The original  maturity  date has
been verbally  extended to an  unspecified  date. In each of April and May 1999,
the Company borrowed an additional $100,000 under unsecured notes, with interest
at 9%, maturity on August 31, 1999 and September 30, 1999, respectively.

     Planned new store openings remain a significant  capital  commitment of the
Company.  The Company has entered  into leases to open ten new stores by the end
of calendar year 2000. The Company  expects that the costs of building those new
stores  net of  landlord  tenant  improvement  contributions  and  of  inventory
requirements  will be approximately  $2.8 million.  The Company plans to finance
the costs of opening  those new stores  through a  combination  of capital lease
financing,  use of the  Company's  working  capital,  and the sale of additional
equity.

     The first of those stores opened in June in the Venetian  Resort and Casino
in Las Vegas, Nevada. The costs of opening that store (excluding inventory) were
approximately  $825,000.  This  store  was  projected  to be  the  most  capital
intensive of all the stores scheduled to be opened this fiscal year.

     Electronic  commerce represents another area that may result in significant
capital  expenditures for the Company in fiscal 2000. In April 1999, The Company
debuted the first of two  dedicated  electronic  commerce  websites.  This site,
www.ToysWhyPayRetail.com, represents a new trade name for the Company and allows
consumers to purchase, at near wholesale prices,  overstocks,  special buys, and
overruns on mostly  name-brand toys purchased by the Company out of season.  The
Company plans to offer approximately 1000 items for sale on the website.

<PAGE>
     The second electronic commerce website, www.Playco.com,  is currently being
developed  to a  state-of-the-art  standard  in  conjunction  with  an  Internet
consulting  firm.  This second site,  which will offer  collectible and imported
specialty  merchandise such as die-cast cars,  dolls,  plush toys,  trains,  and
collectible  action  figures,  is  expected  to open in the  fall  of  1999.  In
conjunction with the website launch,  the Company plans to place computer kiosks
in several of its retail  locations in order to permit customers to place orders
on the website for goods otherwise not sold in such store.



<PAGE>
     In May 1999,  pursuant  toss.506 of  Regulation D, the Company sold 750,000
shares of  Series F  Preferred  Stock,  par value  $0.01  per share  ("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 fully paid and non-assessable  shares of Common Stock,
at any time commencing on the date the  registration  statement  registering the
Series F Stock and Common  Stock  underlying  same is declared  effective by the
Securities and Exchange Commission.

     The Company has  received  letters of intent  from two  investment  banking
firms to raise additional  equity through the public sale of a minority interest
in the Company's Toys  subsidiary.  The Company is pursuing those  opportunities
and continuing to seek  additional  lease  financing.  There can be no assurance
that the Company will be able to obtain  sufficient  financing  to  successfully
open the planned  new  stores.  Additionally,  as noted  above,  the Company has
incurred  significant capital expenditures over the past twelve months. To date,
the Company has deployed its working  capital to cover a significant  portion of
these capital expenditures.  As a result, the Company is also seeking additional
working capital from the above-mentioned equity offerings. Should the Company be
unable to raise sufficient working capital, it may be unable to purchase product
directly from factories at advantageous pricing, thereby resulting in a negative
impact on gross margins and results of operations.

Year 2000

     In 1998,  the Company  developed a plan to upgrade its existing  management
information  system  ("MIS")  and  computer  hardware  and to  become  year 2000
compliant.  The Company has completed  the hardware  upgrade and has installed a
year 2000 compliant upgrade to its accounting  software.  The Company expects to
finish the year 2000 compliance work in the September quarter of 1999.

     To finance the cost of the new  hardware in the computer  upgrade  project,
the Company  entered  into a lease in the amount of $82,472  bearing an interest
rate of 10.8%.  The total cost of the hardware and  software  purchased  for the
project was approximately $100,000.

     Beyond the above noted internal year 2000 system issue,  the Company has no
current  knowledge of any outside third party year 2000 issues that would result
in a material  negative  impact on its  operations.  Management has reviewed its
significant  vendors' (i.e.,  Mattel, Inc. and Hasbro, Inc.) and financing arm's
(FINOVA) recent SEC filings vis-a-vis year 2000 risks and uncertainties  and, on
the basis  thereof,  is confident that the steps the Company has taken to become
year 2000 compliant are sufficient.  In continuation of this review, the Company
shall continue to monitor or otherwise  obtain  confirmation  from the aforesaid
entities - and such other entities as management deems appropriate - as to their
respective  degrees of preparedness.  To date, nothing has come to the attention
of the Company that would lead it to believe that its significant vendors and/or
service providers will not be year 2000 ready.

     Year 2000 readiness is a priority of the Company. The Company believes that
it is taking such  reasonable and prudent steps as are necessary to mitigate the
risks associated with potential year 2000  difficulties.  The effect, if any, of
year 2000  problems on the  Company's  results of operations if the Company's or
its customers,  vendors,  or service providers are not fully compliant cannot be
estimated  with any degree of certainty.  It is  nonetheless  possible that year
2000  problems  could  have a  material  adverse  effect  in that  holiday  1999
purchases  may be  stunted  due to  consumer  uncertainty  and that the  overall
business environment may be disrupted in the Company's fourth fiscal quarter.



<PAGE>
Trends Affecting Liquidity, Capital Resources and Operations

     As a result of its planned  merchandise  mix change to emphasize  specialty
and educational toys, the Company enjoyed significant sales and gross profits in
fiscal 1999. Same can be attributed to the expansion of its collectible die cast
cars,  specialty  yo-yo's,  Rokenbok and Learning  Curve toys, and the continued
strength of Beanie  Babies(R)and  other plush and  educational  toys.  While the
Company  believes  these  particular  toys will remain popular with its customer
base for the  remainder of calendar  year 1999,  there can be no assurance  that
these  particular  specialty  toys will continue to  contribute  strongly to the
Company's  sales and gross  profits.  However,  the history of the toy  industry
indicates that there is generally at least one highly popular toy every year.

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

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

Seasonality

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

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.

Net Operating Loss Carryforwards

     At March 31, 1999, the Company has net operating loss ("NOL") carryforwards
of approximately  $9,400,000 for federal purposes and  approximately  $5,000,000
for state  purposes.  The federal NOLs are  available to offset  future  taxable
income and expire at various  dates  through March 31, 2013 while the state NOLs
are available and expire at various dates through March 31, 2003.

     A portion  of the NOLs  described  above is subject  to  provisions  of the
Internal Revenue Code ss.382 which limits use of NOL carryforwards  when changes
of ownership of more than 50% occur during a three year testing  period.  During
the years ended March 31, 1994 and 1995, the Company's ownership changed by more
than 50% as a result of the May 1993  purchase  of a  majority  interest  in the
Company by American Toys, Inc. and the Company's  November 1994 completion of an
initial  public  offering  of its Common  Stock.  Further  changes in common and
preferred stock ownership  during each of the years ended March 31, 1997 through
1999  have  also  potentially  limited  the  use of  NOLs.  The  effect  of such
limitations  has yet to be  determined.  NOLs could be further  limited upon the
exercise of outstanding  stock options and stock purchase  warrants or as result
of the May 1999 private offering of Series F Stock.


ITEM 7. FINANCIAL STATEMENTS

     See attached Financial Statements.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE

     The Company's  independent auditor since February 20, 1997 has been Haskell
& White LLP.
<PAGE>
                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Officers and Directors

     The following table sets forth the names, ages, and titles of all directors
and officers of the Company:
<TABLE>
<CAPTION>

Name                            Age                  Position

<S>                             <C>                  <C>
Harold Rashbaum                 72                   Chairman of the Board

Richard Brady                   47                   Chief Executive Officer, President, and Director

James Frakes                    42                   Chief Financial Officer, Secretary, and Director

Moses Mika                      78                   Director


</TABLE>

     All  directors   are  elected  at  an  annual   meeting  of  the  Company's
shareholders  and hold  office for a period of one year or until the next annual
meeting  of  stockholders  or  until  their  successors  are  duly  elected  and
qualified.  Vacancies on the board of directors  may be filled by the  remaining
directors.  Officers are appointed  annually by, and serve at the discretion of,
the board of directors.  There are no family relationships  between or among any
officers  or  directors  of  the  Company  except  that  Mr.   Rashbaum  is  the
father-in-law of Ilan Arbel, Mr. Mika's son.

     As permitted  under the Delaware  General  Corporation  Law, the  Company's
Certificate of Incorporation  eliminates the personal liability of the directors
to the Company or any of its shareholders for damages caused by breaches of said
directors' fiduciary duties. As a result of such provision,  stockholders may be
unable to  recover  damages  against  directors  for  actions  which  constitute
negligence or gross  negligence or are in violation of their  fiduciary  duties.
This  provision in the Company's  Certificate  of  Incorporation  may reduce the
likelihood of derivative,  and other types of  shareholder,  litigation  against
directors.

     Richard Brady is a co-founder of the Company and has acted as the Company's
chief  executive  officer and president  since  December 1995. Mr. Brady was the
executive vice president, secretary, and a director from the Company's inception
in 1974 until  December  1996.  He was  re-elected  director  of the  Company in
January 1998.  Mr. Brady has been the president of Toys since January 1997 and a
director thereof since May 1998.

     Harold  Rashbaum  has been the  chairman  of the board of  directors  since
September 10, 1996. Mr. Rashbaum was a management consultant to the Company from
July 1995 to September  10, 1996.  In May 1998,  he was elected as a director of
Toys.  Mr.  Rashbaum has been the  president,  chief  executive  officer,  and a
director of Shopnet  since  January  1997.  From May 1996 to January  1997,  Mr.
Rashbaum  served as secretary and  treasurer of Shopnet.  Since May 1999, he has
also  been  the  president  and  a  director  of  Hollywood  Productions,   Inc.
("Hollywood," a wholly-owned subsidiary of Shopnet) and since September 1996, he
has been the president, secretary, and sole director of BWI (also a wholly-owned
subsidiary of Shopnet). Since February 1996, Mr. Rashbaum has been the president
and a director of H.B.R.  Consultant Sales Corp.  ("HBR"),  of which his wife is
the sole  shareholder.  Prior  thereto,  from  February  1992 to June 1995,  Mr.
Rashbaum was a consultant to 47th Street Photo,  Inc., an electronics  retailer.
Mr.  Rashbaum held this position at the request of the  bankruptcy  court during
the time 47th  Street  Photo,  Inc.  was in Chapter  11.  From  January  1991 to
February 1992, Mr. Rashbaum was a consultant for National Wholesale Liquidators,
Inc., a major retailer of household goods and housewares.



<PAGE>
     James Frakes was  appointed  chief  financial  officer and secretary of the
Company in July  1997.  In August  1997,  he was  elected  as a director  of the
Company. In January 1998, Mr. Frakes was appointed secretary and chief financial
officer of Toys.  He was elected as a director  thereof in May 1998.  In January
1998,  Mr. Frakes was elected as a director of Shopnet.  From June 1990 to March
1997,  Mr. Frakes was chief  financial  officer of Urethane  Technologies,  Inc.
("UTI") and two of its  subsidiaries,  Polymer  Development  Laboratories,  Inc.
("PDL") and BMC Acquisition, Inc. These were specialty chemical companies, which
focused on the  polyurethane  segment of the plastics  industry.  Mr. Frakes was
also vice  president  and a director of UTI during this  period.  In March 1997,
three unsecured creditors of PDL filed a petition for the involuntary bankruptcy
of PDL.  This  matter is  pending  before the United  States  Bankruptcy  Court,
Central District of California.  From 1985 to 1990, Mr. Frakes was a manager for
Berkeley   International   Capital  Corporation,   an  investment  banking  firm
specializing in later stage venture capital and leveraged  buyout  transactions.
In  1980,  Mr.  Frakes  obtained  a  Masters  in  Business  Administration  from
University  of Southern  California.  He obtained his Bachelor of Arts degree in
history from Stanford University, from which he graduated with honors in 1978.

     Moses Mika was appointed as a director of the Company in March 1998 and was
elected a director of Toys in May 1998. Mr. Mika has been retired since 1989.

Significant Employees of the Company

     Howard Labow has been the vice  president of  advertising of the Company (a
non-executive  officer  position)  since June 1998.  He has been employed by the
Company since 1977.

     Donna Hogan has been the vice president of  merchandising of the Company (a
non-executive  officer  position)  since June 1998. She has been employed by the
Company since 1983.

Compliance with Section 16(a) of the Exchange Act

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires the Company's  officers,  directors,  and persons who  beneficially own
more than ten percent of a registered class of the Company's  equity  securities
to file reports of securities  ownership and changes in such  ownership with the
Securities and Exchange Commission  ("SEC").  Officers,  directors,  and greater
than ten percent beneficial owners also are required by rules promulgated by the
SEC to furnish the Company with copies of all Section 16(a) forms they file.

     No person ("a Reporting Person") who during the fiscal year ended March 31,
1999 was a director,  officer,  or beneficial  owner of more than ten percent of
the  Company's  Common  Stock or Series E Stock  [which are the only  classes of
equity  securities  of the  Company  registered  under  ss.12 of the  Securities
Exchange  Act of 1934],  failed to file on a timely  basis  reports  required by
ss.16 of the Act during the most  recent  fiscal  year  except as  follows:  (i)
Richard  Brady  failed to file a Form 4, (ii) Moses Mika  failed to file Forms 3
and 5, (iii) Harold  Rashbaum  failed to file a Form 4, (iv) EACC failed to file
Forms 3, 4, and 5, and (v) EACF failed to file Forms 3 and 5. The  foregoing  is
based  solely  upon a review by the Company of (i) Forms 3 and 4 during the most
recent  fiscal year as furnished to the Company  under Rule  16a-3(e)  under the
Act, (ii) Forms 5 and amendments  thereto  furnished to the Company with respect
to its most recent  fiscal year,  and (iii) any  representation  received by the
Company  from  any  reporting  person  that no  Form 5 is  required,  except  as
described herein.



<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

     The following provides certain information concerning all Plan and Non-Plan
(as defined in Item 402 (a)(ii) of Regulation S-B) compensation  awarded or paid
by the Company during the years ended March 31, 1999,  1998, and 1997 to each of
the named executive officers of the Company.

                                                     SUMMARY COMPENSATION TABLE



<TABLE>
<CAPTION>





                                     Annual Compensation                                Long-Term Compensation
                                                                                Awards             Payouts
                                                                          ($)
                                                    Other Annual   Restricted   Securities
                       Year    Salary     Bonus        Compen-     Stock        Underlying                    All
                                ($)       ($)(1)       sation      Award        Options/      LTIP            Other
                                                                                SARs          Payouts ($)     Compen
                                                                                              ($)             -sation(#)
Name and Principal
Position
<S>                     <C>    <C>          <C>         <C>          <C>        <C>            <C>            <C>
Richard Brady ....      1999   124,500      --          8,579        --         --             --             --
  President,  CEO,
 and Director
                        1998   120,000      --          8,579      25,000(3)    --             --             --
                        1997   108,000      --          6,179        --         --             --             --
</TABLE>

    ----------------------

     (1) No bonuses were paid during the periods herein stated.

     (2)  Includes an  automobile  allowance of $7,200 for each of 1999 and 1998
and $4,800 for 1997,  and the payment of life  insurance  premiums of $1,379 for
each of 1999, 1998 , and 1997.

     (3) Mr. Brady received  25,000 shares of Series E Stock as a bonus in March
1998:  these shares  vested  equally over a 12 month period  commencing in April
1998 and were returned to the Company by Mr. Brady in April 1999.

     During fiscal 1999, Harold Rashbaum,  the Company's  chairman of the board,
received  an  aggregate  of  $33,000  in   compensation   from  the  Company  in
consideration of the consulting  services he provided  therefor.  In March 1998,
the  Company  issued  25,000  shares  of  Series E Stock,  subject  to a vesting
schedule,  to each of Mr. Brady and Mr. Rashbaum:  these shares were returned to
the Company by Messrs.  Brady and  Rashbaum in early  April 1999.  Mr.  Rashbaum
devotes a significant portion of his time to the Company. Among other things, he
reviews potential store sites,  assists in strategic planning,  reviews all cash
outflows,  and otherwise works closely with management in further developing and
implementing the Company's ongoing business strategy.



<PAGE>
1994 Stock Option Plan

     In 1994,  the Company  adopted a Stock Option Plan (the  "SOP").  The board
believes  that SOP is desirable to attract and retain  executives  and other key
employees  of  outstanding  ability.  Under  the SOP,  options  to  purchase  an
aggregate  of not more than 50,000  shares of Common  Stock may be granted  from
time to time to key employees,  officers,  directors,  advisors, and independent
consultants to the Company and its  subsidiaries.  The Company  granted to James
Frakes,  chief financial officer and secretary,  pursuant to his hire, an option
to purchase  30,000  shares of Common  Stock at an  exercise  price of $3.25 per
share,  vesting  at the rate of 10,000  shares  per annum in each of July  1998,
1999, and 2000. On June 17, 1998, the board elected to adjust the exercise price
of the option to $1.15, representing  approximately 110% of the closing price of
the Common Stock on said date.

     The board of  directors is charged  with  administration  of the SOP and is
generally  empowered  to  interpret  the SOP,  prescribe  rules and  regulations
relating thereto, determine the terms of the option agreements,  amend them with
the consent of the  Optionee,  determine the employees to whom options are to be
granted,  and  determine  the number of shares  subject  to each  option and the
exercise price thereof. The per share exercise price for incentive stock options
("ISOs")  will not be less than 100% of the fair market  value of a share of the
Common Stock on the date the option is granted (110% of fair market value on the
date of grant of an ISO if the  Optionee  owns more than 10% of the Common Stock
of the Company).

     Options will be exercisable for a term (not less than one year)  determined
by the board.  Options may be exercised  only while the  original  grantee has a
relationship  with the Company or at the sole  discretion  of the board,  within
ninety  days  after  the  original  grantee's  termination.   In  the  event  of
termination  due to  retirement,  the  Optionee,  with the consent of the board,
shall have the right to exercise  his option at any time  during the  thirty-six
month  period  following  such  retirement.  Options  may  be  exercised  up  to
thirty-six  months  after  the  death or total and  permanent  disability  of an
Optionee.  In the event of certain  basic  changes in the  Company,  including a
change in control of the Company as defined in the SOP, in the discretion of the
board,  each option may become fully and immediately  exercisable.  ISOs are not
transferable  other  than by will or by the laws of  descent  and  distribution.
Options may be exercised during the holder's  lifetime only by the holder or his
guardian or legal representative.

     Options  granted  pursuant  to the SOP may be  designated  as ISOs with the
attendant tax benefits  provided  therefor  pursuant to Sections 421 and 422A of
the  Internal  Revenue  Code of 1986.  Accordingly,  the SOP  provides  that the
aggregate  fair market value  (determined  at the time an ISO is granted) of the
Common  Stock  subject to ISOs  exercisable  for the first  time by an  employee
during any calendar  year (under all plans of the Company and its  subsidiaries)
may not exceed $100,000.  The board may modify,  suspend,  or terminate the SOP,
provided, however, that certain material modifications affecting the SOP must be
approved  by the  shareholders,  and any  change  in the SOP that may  adversely
affect an  Optionee's  rights under an option  previously  granted under the SOP
requires the consent of the Optionee.

1994 401(k) Employee Stock Option Plan ("ESOP")

     In May 1994, the Company adopted corporate  resolutions  approving a 401(k)
Employee   Stock   Ownership   Plan  (the   "401(k)  ESOP  Plan")  which  covers
substantially  all  employees of the Company.  The 401(k) ESOP Plan was filed on
July 14, 1995 with the Internal Revenue Service and includes provisions for both
employee  stock  ownership  and a 401(k)  Plan.  The  401(k)  ESOP  Plan  allows
contributions only by the Company:  these can be made annually at the discretion
of the Company's  board of directors.  The 401(k) ESOP Plan has been designed to
invest  primarily  in the  Company's  stock.  The  employees of the Company will
contribute to the 401(k)  portion of the Plan through  payroll  deductions.  The
Company does not intend to match  contributions to the 401(k).  Contributions to
the 401(k)  ESOP Plan may result in an  expense,  resulting  in a  reduction  in
earnings,  and may dilute the  ownership  interests of persons who currently own
securities of the Company.  On January 26, 1995, Messrs.  Brady and Tom Davidson
(a founder of the Company and the Company's former  president) and the Company's
then parent  company  contributed an aggregate of 15,333 shares of the Company's
Common  Stock to the 401(k)  ESOP Plan.  In August  1998,  pursuant  to the ESOP
portion of the plan,  the Company issued 5,673 shares of Common Stock to certain
former employees.

<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following  table sets forth certain  information  regarding  beneficial
ownership of the Company's  outstanding Common Stock as of July 12, 1999, by (i)
each beneficial owner of 5% or more of the Company's Common Stock;  (ii) each of
the Company's executive officers,  directors,  and key employees;  and (iii) all
executive officers, directors, and key employees as a group:

<TABLE>
<CAPTION>

                   Name and Address                                Number of Shares             Percent of Common Stock
                 of Beneficial Owner                             Beneficially Owned1            Beneficially Owned 2,3

------------------------------------------------------------------------------------------------------------------------------------

Harold Rashbaum 4
<S>                                                                   <C>                                        <C>
c/o Play Co. Toys & Entertainment Corp.                                   --                                     --
550 Rancheros Drive
San Marcos, CA 92069
------------------------------------------------------------------------------------------------------------------------------------

Richard Brady
c/o Play Co. Toys & Entertainment Corp.                                 25,587                                   *
550 Rancheros Drive
San Marcos, CA 92069
------------------------------------------------------------------------------------------------------------------------------------

James B. Frakes 5
c/o Play Co. Toys & Entertainment Corp.                                 20,000                                   --
550 Rancheros Drive
San Marcos, CA 92069
------------------------------------------------------------------------------------------------------------------------------------

Moses Mika
c/o Play Co. Toys & Entertainment Corp.                                   --                                     --
550 Rancheros Drive
San Marcos, CA 92069
------------------------------------------------------------------------------------------------------------------------------------

United Textiles & Toys Corp. 6
1410 Broadway, Suite 1602                                             2,489,910                                45.2%
New York, NY 10018
------------------------------------------------------------------------------------------------------------------------------------

Breaking Waves, Inc. 4
112 West 34th Street                                                  1,400,000                                25.4%
New York, New York  10120
------------------------------------------------------------------------------------------------------------------------------------

Multimedia Concepts International, Inc.7
1410 Broadway, Suite 1602                                                 --                                     --
New York, NY 10018
------------------------------------------------------------------------------------------------------------------------------------

ABC Fund, Ltd.8
Riva Caccia                                                               --                                     --
Lugano, Switzerland CH-900
------------------------------------------------------------------------------------------------------------------------------------

Europe American Capital Foundation ("EACF")9
Via Cantonale                                                             --                    --
Lugano, Switzerland CH-900
------------------------------------------------------------------------------------------------------------------------------------


<PAGE>
                                                                          --                                     --
Volcano Trading Limited10
Via Cantonale
Lugano, Switzerland CH-900
------------------------------------------------------------------------------------------------------------------------------------

Officers and Directors as a Group                                       35,587                                   *
(4 persons)4,5
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*  Less than 1%

     (1) Unless otherwise noted, all of the shares shown are held by individuals
or entities  possessing  sole voting and  investment  power with respect to such
shares.  Shares not outstanding but deemed  beneficially  owned by virtue of the
right of an individual or entity to acquire them within 60 days,  whether by the
exercise of options or  warrants,  are deemed  outstanding  in  determining  the
number of shares beneficially owned by such person or entity.

     (2) The  "Percent of Common  Stock  Beneficially  Owned" is  calculated  by
dividing the "Number of Shares  Beneficially  Owned" by the sum of (i) the total
outstanding shares of Common Stock of the Company, and (ii) the number of shares
of Common  Stock that such  person or entity has the right to acquire  within 60
days,  whether by exercise of options or warrants.  The "Percent of Common Stock
Beneficially  Owned" does not reflect shares beneficially owned by virtue of the
right of any person,  other than the person named and affiliates of said person,
to acquire them within 60 days, whether by exercise of options or warrants.

     (3) Does not include  35,303,418  shares of Common Stock  issuable upon the
conversion  (any time two years from  issuance) of 5,883,903  shares of Series E
Stock outstanding.

     (4) Mr.  Rashbaum,  the  Company's  chairman  of the  board,  is  also  the
president  and the sole  director of BWI which is a  wholly-owned  subsidiary of
Shopnet. Mr. Rashbaum is also the president and a director of Shopnet.

     (5) Represents  those shares  underlying an option which have vested and/or
which shall vest within 60 days. The final 10,000 shares  underlying such option
shall vest on July 1, 2000.

     (6) Does not include  1,950,000  shares of Common Stock  issuable  upon the
conversion  (any time two years from  issuance)  of  325,000  shares of Series E
Stock.  The president of UTTC, a publicly  traded company which is the Company's
controlling  shareholder,  is  Ilan  Arbel  who is  also  the  president,  chief
executive  officer,  and a director of MMCI, a publicly  traded company which is
the parent company of UTTC (owning  approximately  78.5% of same). MMCI is owned
approximately  62.2% by U.S.  Stores Corp.,  a company of which Mr. Arbel is the
president and a director.  U.S.  Stores Corp. is owned 100% by ATPLC,  a British
corporation. By virtue of its ownership of UTTC, MMCI may be deemed a beneficial
holder of the Company's Common Stock held by UTTC.

     (7) Does not include  4,818,420  shares of Common Stock  issuable  upon the
conversion  (any time two years from  issuance)  of  803,070  shares of Series E
Stock.

     (8) Does not include  9,199,998  shares of Common Stock  issuable  upon the
conversion  (any time two years from  issuance) of 1,533,333  shares of Series E
Stock.

     (9) Does not include  11,535,000  shares of Common Stock  issuable upon the
conversion  (any time two years from  issuance) of 1,922,500  shares of Series E
Stock.

<PAGE>
     (10)  Does not  include  1,968,000  shares of Common  Stock  issuable  upon
conversion of 328,000 shares of Series E Stock underlying Series E Warrants.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Shopnet.com, Inc.

     In the  fourth  quarter  of the year  ended  March 31,  1999,  the  Company
borrowed  $100,000 from Shopnet under an unsecured note, with interest at 9%. Of
this amount,  $50,000 has been repaid to date.  The original  maturity  date has
been extended to an unspecified date. In each of April and May 1999, the Company
borrowed an additional  $100,000 under unsecured notes,  with interest at 9% and
maturity on August 31, 1999 and September 30, 1999, respectively.

Breaking Waves, Inc.

     On November 24,  1998,  pursuant to a sales  agreement  entered into by and
between the Company and BWI, BWI  purchased 1.4 million  unregistered  shares of
the Company's Common Stock in a private transaction. The shares purchased by BWI
represent  approximately  25.4% of the total Common Stock issued and outstanding
after the  transaction.  The  consideration  for the stock was  $665,000,  which
represents a price of $0.475 per share.  The price represents an approximate 33%
discount from the then current market price of $0.718  reflecting a discount for
the  illiquidity  of the  shares,  which do not carry any  registration  rights.
$300,000 of the  consideration  was in cash and the  remaining  $365,000  was in
product from BWI, primarily girl's swimsuits. The $365,000 value of the swimsuit
inventory  was  determined  by the  Company  based  on its  analysis  of the net
realizable value of the inventory  received.  The Company had previously carried
swimsuits from BWI in its stores on a trial basis.

     Pursuant  to the  sales  agreement  (which  has a  term  of  one  year  and
automatically  extends  for one year terms  unless  terminated  by either of the
parties),  the Company agreed to purchase a minimum of 250 pieces of merchandise
for  each  of its  retail  locations  and  to  provide  advertising  promotional
materials and ads of the  merchandise in all of its  brochures,  advertisements,
catalogs, and all other promotional materials, merchandising programs, and sales
promotion methods.

     On July 15,  1998,  the Company  borrowed  $300,000  from BWI and issued an
unsecured  promissory  note  (at 9%  interest  per  annum)  to same in  exchange
therefor.  The note  called  for five  monthly  installments  of  principal  and
interest  commencing  August 15, 1998 and ending  December 30, 1998 and has been
repaid in full.

     On March 1, 1998,  the  Company  borrowed  $250,000  from BWI and issued an
unsecured  promissory  note (at 15%  interest  per  annum)  to same in  exchange
therefor. The note called for ten monthly installments of principal and interest
commencing on March 31, 1998 and ending on December 31, 1998 and has been repaid
in full.

ZD Group, L.L.C.

     In November 1998,  the Company  entered into an agreement with ZD to secure
additional  financing.   ZD  is  a  New  York  limited  liability  company,  the
beneficiary  of which is a  member  of the  family  of the  Company's  chairman.
Pursuant to the ZD agreement,  ZD issued a $700,000  irrevocable  standby L/C in
favor of FINOVA, the Company's working capital lender (which is not an affiliate
of the Company). FINOVA then lent a matching $700,000 to the Company in the form
of a term loan,  pursuant to a Fourth  Amendment to Loan and Security  Agreement
executed  on February  11, 1999 by and between the Company and FINOVA.  The term
loan from FINOVA  expires on August 3, 2000 and bears interest at prime plus one
percent.  As consideration for its issuance of the L/C, ZD will receive a profit
percentage after  application of corporate  overhead from three of the Company's
stores.



<PAGE>
Frampton Industries, Ltd.

     In January 1999, the Company and Frampton Industries, Ltd. ("Frampton"), an
affiliated  British Virgin Islands  company,  under common  control,  executed a
letter  agreement  pursuant to which Frampton has agreed to act as the exclusive
placement  agent and  financial  advisor  for the Company in  connection  with a
contemplated proposed offering of convertible debentures. The agreement is for a
term of six months (with a potential two month  extension at Frampton's  option)
and provides that Frampton shall be provided an investment  banking fee of 8% of
the face amount of each debenture funded.

     In November  1998,  the Company  entered into an agreement with Frampton to
secure additional financing. Pursuant to the agreement, Frampton loaned $500,000
in the form of a convertible,  subordinated debenture due December 31, 1999. The
debenture bears a 5% interest rate and initially was  convertible  into Series E
Stock at a price of $0.10 per share at Frampton's option.  This price represents
a 50% discount from the then current (November 10, 1998) market price reflecting
a  discount  for  the  illiquidity  of  the  shares,  which  do  not  carry  any
registration  rights. In May 1999, Frampton agreed to amend the conversion price
to $0.20 per share,  which  represents  the full market price on the date of the
original business transaction.

Europe American Capital Foundation

     In November  1998,  the Company  entered  into an agreement  with EACF,  an
entity which beneficially  controls the Company, to secure additional financing.
Pursuant to the  agreement,  EACF loaned  $150,000 in the form of a convertible,
subordinated  debenture due December 31, 1999. The debenture bears a 5% interest
rate and initially was  convertible  into Series E Stock at a price of $0.10 per
share at EACF's  option.  This price  represents  a 50%  discount  from the then
current  (November  10,  1998)  market  price  reflecting  a  discount  for  the
illiquidity of the shares,  which do not carry any registration  rights.  In May
1999,  EACF  agreed to amend the  conversion  price to $0.20  per  share,  which
represents  the  full  market  price  on  the  date  of  the  original  business
transaction.

United Textiles & Toys Corp.

     The Company's parent, UTTC, has guaranteed the Company's loan from FINOVA.

     The  president of UTTC,  Ilan Arbel,  in a letter  dated May 15, 1998,  has
represented, generally, his intent and ability to provide working capital to the
Company, should same be necessary, through September 30, 1999.

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

ABC Fund, Ltd.

     In June 1998, the Company and ABC, a Belize corporation and an affiliate of
the  Company  under  common  control,  the  holder of a 5%  convertible  secured
subordinated  debenture  - dated  January  21, 1998 and due August 15, 2000 (the
"Debenture")  -  offered  to amend  the terms of the  Debenture  to  enable  the
conversion of the principal amount and accrued interest thereon,  into shares of
Series E Stock, at a conversion price of $1.00 per share.  Management  agreed to
convert the Debenture  since the conversion of the debt into equity would result
in a  strengthened  equity  position  which  management  believed  would provide
confidence to the Company's working capital lender, FINOVA, and trade creditors.


<PAGE>
Further,  converting the debt to equity  eliminated  on-going  interest  expense
requirements  as  well  as the  cash  flow  required  to  repay  the  Debenture.
Simultaneously  with its offer to amend the  Debenture,  ABC  elected to convert
same as of June 30, 1998, whereby,  $1.5 million in principal amount and $33,333
in accrued  interest were converted into 1,533,333 shares of Series E Stock. ABC
did not receive any registration  rights  regarding the shares.  Simultaneously,
ABC terminated the Subordinated  Security  Agreement between the parties and the
Intercreditor  and  Subordination  Agreement,  dated  January 21,  1998,  by and
between ABC and FINOVA.  ABC, or its assigns,  retained a right  included in the
Debenture,  to purchase up to an aggregate of 25% of the  outstanding  shares of
common  stock of Toys.  The  purchase  price per share  shall equal the net book
value per share of Toys' common stock as of the date of exercise using generally
accepted accounting principals.  The calculation of the number of shares subject
to this right and the purchase  price per share shall be as of the date that the
Company  receives  notification  that the right is being  exercised.  This right
shall  extend until August 15, 2000 and shall  automatically  extend  thereafter
until August 15, 2003 unless earlier terminated by ABC or its assignee.

Officers and Directors

     The Company  leases  40,000  square feet of combined  office and  warehouse
space (approximately 3,000 square feet is office space, and the remaining 37,000
square feet is warehouse space), at an approximate annual cost of $247,000, from
a partnership of which one of the partners is Richard Brady, the president and a
director  of the  Company.  The lease  expires in April  2000,  and the  Company
believes  that it is on  terms  no more or less  favorable  than  terms it might
otherwise have negotiated with an unaffiliated party.

     In early April 1999, each of Messrs. Brady and Rashbaum returned his 25,000
shares of Series E Stock  which were issued to same by the Company in March 1998
as bonuses in recognition  of their efforts to further the Company's  turnaround
toward profitability.

     During  fiscal  1999,  the Company  remitted an aggregate of $33,000 to Mr.
Rashbaum in consideration of the consulting  services he provided therefor.  Mr.
Rashbaum received $2,500 per month for the first nine months of the fiscal year,
and  commencing  January 1, 1999,  his  consulting  fee  increased to $3,500 per
month.  Mr. Rashbaum  devotes a significant  portion of his time to the Company.
Among other  things,  he reviews  potential  store  sites,  assists in strategic
planning, reviews all cash outflows, and otherwise works closely with management
in further developing and implementing the Company's ongoing business strategy.

     Pursuant to the Company's SOP, in July 1997,  the Company  granted to James
Frakes (chief financial officer and secretary),  pursuant to his hire, an option
to purchase  30,000  shares of Common  Stock at an  exercise  price of $3.25 per
share,  vesting at the rate of 10,000 shares per annum in July 1998,  1999,  and
2000. On June 17, 1998,  the board  elected to adjust the exercise  price of the
option to $1.15,  representing  110% of the closing price of the Common Stock on
said date. No portion of the option has been exercised.

Multimedia Concepts International, Inc.

     In January 1998, in accordance with certain  financing  provided by FINOVA,
the Company  received  $3.0  million in standby  L/Cs.  Of same,  $2 million was
established  by the  Company  and was  secured  by a $2 million  certificate  of
deposit  which was acquired  with $1.5 million in proceeds  from a  subordinated
debt  arrangement and $500,000 from the proceeds of the Company's  December 1997
public  offering of Series E Stock.  The  remaining  $1 million was  provided by
MMCI, an affiliate of the Company by virtue of its 78.5%  ownership of UTTC, the
Company's parent.



<PAGE>
Europe American Capital Corporation

     From April 1996 to June 1997,  EACC,  an entity of which Ilan Arbel  and/or
his relatives is/are  officer(s) and/or  director(s),  exercised its options and
purchased an aggregate of 3,562,070 shares of the Series E Stock for $3,562,070.
An aggregate of 361,500 shares were  converted to Common Stock which,  inclusive
of the  250,000  shares of Series E Stock  issued in June 1997,  constituted  an
aggregate of 3,450,570 shares of Series E Stock  outstanding prior to the Series
E Stock public  offering in December  1997.  The proceeds of the funds  received
from this  investment  enabled  the Company (i) to acquire the assets of Toys (a
three store  chain) in January  1997,  (ii) to finance the openings of the Santa
Clarita,  Arizona Mills,  Redondo  Beach,  Ontario  Mills,  and Clairemont  Mesa
stores,  (iii)  to  redesign  four  store  locations,  and (iv) to  support  the
Company's operations during the Company's business turnaround.

Toys International Inc. Consulting Agreement

     In January 1997, the Company entered into a consulting agreement with Gayle
Hoepner,  a selling  stockholder and former chief executive officer of Toys. Mr.
Hoepner was not an affiliate of the Company. The term of the agreement commenced
on January 16,  1997,  expired on April 16, 1997,  and called for three  monthly
payments of $10,000 each.  Pursuant to the consulting  agreement,  Mr.  Hoepner,
among other things,  (i) advised the Company on specialty toys purchasing,  (ii)
introduced  management  to  his  contacts  in the  specialty  toy  industry  and
accompanied  management  to the  Nurnberg,  Germany toy show,  and (iii) advised
management on potential  store sites.  The Company  believes that this agreement
was on terms no less  favorable than terms it might  otherwise  have  negotiated
with any other unrelated third party.

American Toys, Inc. Spin-Off

     On January 30, 1996,  pursuant to the  requirements  of the Company's  loan
agreement with  Congress,  American  Toys,  Inc. (the  Company's  former parent)
converted all $1.4 million of debt owed by the Company into equity.  Congress is
not affiliated with the Company.  In exchange for the debt,  American Toys, Inc.
agreed to receive  from the Company  one share of Series D Preferred  Stock with
the right to elect 2/3 of the  Company's  board of  directors  upon  stockholder
approval.  In  August  1996,  the one  share of  Series D  Preferred  Stock  was
converted into 385,676 shares of the Company's Common Stock based on the initial
amount of the debt  divided  by the  average  price of the  shares  for a 90 day
period prior to the  conversion.  This was performed in order for American Toys,
Inc. to spin such shares off to its  stockholders and divest its interest in the
Company.

     See   "Executive   Compensation"   for  a  description   of  the  Company's
compensation of its officers and directors.



<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a) The following financial  statements of the Company are included as Part
II,

Item 8:
<TABLE>
<CAPTION>

<S>                                                                                                         <C>
                  Table of Contents                                                                       F-1
                  Report of Independent Certified Public Accountants                                      F-2
                  Balance Sheets                                                                          F-3
                  Statements of Operations and Comprehensive Net Income (Loss)                            F-5
                  Statements of Stockholders' Equity                                                      F-6
                  Statements of Cash Flows                                                                F-7
                  Notes to Financial Statements                                                           F-9
</TABLE>


     (b) During its last fiscal 1999 quarter, the Company filed no Forms 8-K.

     (c) All exhibits,  except (i) those  designated  with an asterisk (*) which
are filed herewith or (ii) those  designated  with a double  asterisk (**) which
shall be  filed  by  amendment  hereto,  have  previously  been  filed  with the
Commission either (i) in connection with the Company's Registration Statement on
Form SB-2,  dated November 2, 1994,  under file No.  33-81940-NY;  (ii) with the
Company's  Registration Statement on Form SB-2,  Registration No. 333-32051;  or
(iii) as indicated by the reference herein and pursuant to 17 C.F.R.  ss.230.411
are incorporated by reference herein.  Exhibits previously filed but not as part
of the SB-2 Registration  Statement are incorporated  herein by reference to the
appropriate document.
<TABLE>
<CAPTION>

<S>                  <C>
  1.1                Form of Underwriting Agreement. See (ii) above.
  3.1                Certificate of Incorporation of the Company dated June 15, 1995. See (i) above.
  3.2                Amendment to Certificate of Incorporation of the Company, filed July 2, 1997. See (ii) above).
  3.2(a)             Amendment to Certificate of Incorporation of the Company, filed August 11, 1997. See (ii) above.
  3.2(b)*            Amendment to Certificate of Incorporation of the Company, filed May 9, 1996
  3.2(c)*            Amendment to Certificate of Incorporation of the Company, filed August 13, 1996
  3.2(d)*            Amendment to Certificate of Incorporation of the Company, filed March 24, 1997
  3.2(e)*            Amendment to Certificate of Incorporation of the Company, filed May 29, 1998
  3.2(f)*            Amendment to Certificate of Incorporation of the Company, filed May 12, 1999
  3.2(g)*            Amendment to Certificate of Incorporation of the Company, filed May 25, 1999
  3.3                By-Laws of the Company. See (i) above.
  4.1                Specimen Common Stock Certificate See (i) above).
  4.2                Specimen Series E Redeemable Purchase Warrant Certificate. See (ii) above
  4.3                Specimen Series E Preferred Stock Certificate. See (ii) above
  4.4                ESOP Plan See (i) above).
  4.5                Form of Warrant Agreement between the Company, the Underwriter and Continental Stock Transfer & Trust Company.
                     See (ii) above.
10.26                Lease Agreement for Store - Chula Vista. See (i) above.
10.27                Lease Agreement for Store - El Cajon. See (i) above.
10.29                Lease Agreement for Store - Simi Valley. See (i) above.
10.30                Lease Agreement for Store - Encinitas. See (i) above.
10.34                Lease Agreement for Store - Redlands. See (i) above.
10.35                Lease Agreement for Store - Rancho Cucamonga. See (i) above.
10.36                Lease Agreement for Store - Woodland Hills. See (i) above.
10.37                Lease Agreement for Warehouse - Executive Offices. See (i) above.
10.38                Lease Agreement for Store - Pasadena. See (i) above.


<PAGE>
10.41                The Company Incentive Stock Option. Plan See (i) above.
10.44                Lease Agreement for Store - Corona Plaza. See (i) above.
10.50                Extension of Warehouse Lease. See (i) above.
10.75                Asset Purchase Agreement for the purchase of Toys International - (incorporated by reference herein to exhibit
                     10.75 of  the Company's 10-QSB for the period ended  December 31, 1996 filed with the Commission).
10.77                Lease Agreement for Store - Santa Clarita International (incorporated by reference herein to exhibit 10.77 of
                     the Company's 10-KSB for the year ended March 31, 1997, filed with the Commission).
10.78                Lease Agreement for Store - South Coast Plaza International (incorporated  by reference herein to exhibit 10.78
                     of the Company's 10-KSB for the year ended March 31,1997, filed with the Commission).
10.79                Lease Agreement for Store - Century City International (incorporated by reference herein to exhibit 10.79 of
                     the Company's 10-KSB for the year ended March 31, 1997, filed with the Commission).
10.80                Lease Agreement for Store - Crystal Court International (incorporated by reference herein to exhibit 10.80 of
                     the Company's 10-KSB for the year ended March 31, 1997, filed with the Commission).
10.81                Lease Agreement for Store - Orange County (incorporated by reference herein to exhibit (i) of the Company's
                     10-QSB/A-1 for the period ended September 30, 1995 filed with the Commission).
10.85                Lease Agreement for Store - Mission Viejo (incorporated by reference herein to exhibit (iv) of the Company's
                     10-QSB for the period ended December 31, 1995).
10.86                Subscription Agreement between the Company and Volcano Trading Limited dated June 30, 1997. (incorporated by
                     reference herein to exhibit 10.86 to the Company's Registration Statement on Form SB-2, Registration No.
                     333-32051.
10.87                Lease Agreement for Store - Clairemont (incorporated by reference herein to exhibit 10.87 of the Company's
                     10-QSB/A-1 for the period ended September 30, 1997).
10.88                Lease Agreement for Store - Redondo Beach (incorporated by reference herein to exhibit 10.88 of the Company's
                     10-QSB/A-1 for the period ended September 30, 1997).
10.89                Lease Agreement for Store - Arizona Mills (incorporated by reference herein to exhibit 10.89 of the Company's
                     10-QSB/A-1 for the period ended September 30, 1997).
10.90                FINOVA Loan and Security Agreement (incorporated by reference herein to exhibit 10.90 of the Company's 10-QSB
                     for the period ended December 31, 1997)
10.91                Schedule to Loan and Security Agreement (incorporated by reference herein to exhibit 10.91 of the Company's
                     10-QSB for the period ended Dec. 31, 1997).
10.92                Lease Agreement for Store - City Mills (incorporated by reference herein to exhibit 10.92 of the Company's
                     10-KSB for the fiscal year ended March 31, 1998).
10.93                Lease Agreement for Store - Fashion Outlet of Las Vegas (incorporated by reference herein to exhibit 10.93 of
                     the Company's 10-KSB for the fiscal year ended March 31, 1998).
10.93(a)*            Fixture Financing Agreements
10.93(b)             Letter from Ilan Arbel, dated May 15, 1998, re: funding of Company's operations (incorporated by reference
                     herein to exhibit 10.93(b) of the Company's 10-KSB/A-2 for the fiscal year ended March 31, 1998).
10.94                Lease Agreement for Store-Concord Mills (Play Co. Toys) (incorporated by reference herein to exhibit 10.94 of
                     the Company's 10-QSB for the period ended June 30, 1998).
10.95                Lease Agreement for Store-Katy Mills (Play Co. Toys) (incorporated by reference herein to exhibit 10.95 of
                     the Company's 10-QSB for the period ended June 30, 1998).
10.96                Lease Agreement for Store-Concord Mills (Toy Co.) (incorporated by reference herein to exhibit 10.96 of the
                     Company's 10-QSB for the period ended June 30, 1998).
10.97                Lease Agreement for Store-Katy Mills (Toy Co.) (incorporated by reference herein to exhibit 10.97 of the
                     Company's 10-QSB for the period ended June 30, 1998).
10.98                Lease Agreement for Store-Ontario Mills (Toy Co.) (incorporated by reference herein to exhibit 10.98 of the
                     Company's 10-QSB for the period ended June 30, 1998).
10.99                Amendment No. 1 to Finova Loan Agreement (incorporated by reference herein to exhibit 10.99 of the Company's
                     10-QSB for the period ended June 30, 1998).
10.100               Amendment No. 1 to Lease Agreement for Store-Rancho Cucamonga (Play Co. Toys) (incorporated by reference
                     herein to exhibit 10.100 of the Company's 10-QSB for the period ended June 30, 1998).
10.101               Company & Corporate  Relations  Group,  Inc.  Lead  Generation/Corporate
                     Relations  Agreement,  dated July 22, 1998  (incorporated by reference herein to
                     exhibit  10.101 of the  Company's  10-QSB for the period  ended June 30,  1998).
10.103               Promissory Note with Amir Overseas  Capital Corp.  (dated  September 18,
                     1998)  (incorporated  by  reference  herein to exhibit  10.103 of the  Company's
                     10-QSB for the period ended September 30, 1998).
10.104               Promissory Note with Amir Overseas Capital Corp. (dated November 9, 1998) (incorporated by reference herein to
                     exhibit 10.104 of the Company's 10-QSB for the period ended September 30, 1998).
10.105               Lease Agreement for Store - Dallas  (incorporated by reference herein to exhibit 10.105 of the Company's 10-QSB
                     /A-1 for the period ended September 30, 1998).
10.106               Lease Agreement for Store - Thousand Oaks (incorporated by reference herein to exhibit 10.106 of the Company's
                     10-QSB/A-1 for the period ended September 30, 1998).
10.107               Lease Agreement for Store - Detroit (incorporated by reference herein to exhibit 10.107 of the Company's 10-QSB
                     /A-1 for the period ended September 30, 1998).
10.108               Lease Agreement for Store - Chicago  (incorporated by reference herein to exhibit 10.108 of the Company's
                     10-QSB/A-1 for the period ended September 30, 1998).
10.109               Lease Agreement for Store - Orange County (incorporated by reference herein to exhibit 10.109 of the Company's
                     10-QSB/A-1 for the period ended September 30, 1998).
10.110               Phoenix Leasing Incorporated Loan and Security Agreement and Ancillary Documents (October 1998) (incorporated
                     by reference herein to exhibit 10.109 of the Company's 10-QSB/A-1 for the period ended September 30, 1998).
10.111               Agreement by and between the Company and ZD Group, L.L.C., dated November 11, 1998  (incorporated by reference
                     herein to exhibit 10.111 of the Company's 10-QSB for the period ended December 31, 1998).
10.112               Intercreditor and Subordination Agreement by and between ZD Group, L.L.C. and FINOVA Capital Corporation, dated
                     February 11, 1999 (incorporated by reference herein to exhibit 10.112 of the Company's 10-QSB for the period
                     ended December 31, 1998).
10.113               5% Convertible Secured Subordinated Debenture in favor of Frampton Industries, Ltd., dated November 11, 1998
                     (incorporated by reference herein to exhibit 10.113 of the Company's 10-QSB for the period ended December 31,
                     1998).
10.114               Subordinated Security Agreement by and between the Company and Frampton Industries, Ltd., dated November 11,
                     1998 (incorporated by reference herein to exhibit 10.114 of the Company's 10-QSB for the period ended December
                     31, 1998).
10.115               Intercreditor and Subordination Agreement by and between Frampton Industries, Ltd. and FINOVA Capital
                     Corporation, dated February 11, 1999 (incorporated by reference herein to exhibit 10.115 of the Company's 10-
                     QSB for the period ended December 31, 1998).
10.115(a)            Third Amendment to Loan and Security Agreement by and between the Company and FINOVA Capital Corporation,
                     dated December 1998 (incorporated by reference herein to exhibit 10.115(a) of the Company's 10-QSB/A-1 for the
                     period ended December 31, 1998).
10.116               Fourth (initially filed as "Third") Amendment to Loan and Security Agreement by and between the Company and
                     FINOVA Capital Corporation, dated February 11, 1999 (later renamed "Fourth" Amendment) (incorporated by
                     reference herein to exhibit 10.116 of the Company's 10-QSB for the period ended December 31, 1998).
10.117               Letter of Intent by and between the Company and Frampton Industries, Inc., dated January 4, 1999 (incorporated
                     by reference herein to exhibit 10.117 of the Company's 10-QSB for the period ended December 31, 1998).


<PAGE>
10.118               Fifth Amendment to Loan and Security Agreement by and between the Company and FINOVA Capital Corporation, dated
                     March 1999 (incorporated by reference herein to exhibit 10.118 of the Company's 10-QSB/A-1 for the period ended
                     December 31, 1998).
10.119               Typhoon Capital Consultants, LLC agreement dated February 1, 1999 (incorporated by reference herein to exhibit
                     10.118 of the Company's 10-QSB/A-1 for the period ended December 31, 1998).
10.120*              5% Convertible Secured Subordinated Debenture in favor of Europe American Capital Foundation, dated November 11
                     , 1998.
10.121*              Amendment to Lease Agreement - Tutti Animali.
10.122*              Lease Agreement for Store - Aladdin.
10.123*              Lease Agreement for Store - Pier 39.
10.124*              Lease Agreement for Store - Opry Mills.
10.125*              Lease Agreement for Store - Mission Viejo.
10.126*              Fixture Financing Agreement with Premier Capital Corp., dated October 15, 1998.
10.127*              Lease Agreement for Store - Venetian.
10.128*              Lease Agreement for Store - Woodfield Mall.
10.129*              Amendment to Lease Agreement - Rancho Cucamonga.
10.130*              Promissory Notes - Full Moon Development, Inc.
21.01*               Subsidiaries.
27.01*               Financial Data Schedule.

</TABLE>
<PAGE>
                                   SIGNATURES


     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
has duly  caused  this  report to be signed  on its  behalf by the  undersigned,
thereunto duly authorized, this 13th day of July 1999.

PLAY CO. TOYS & ENTERTAINMENT CORP.


By: /s/ Richard Brady___________
Richard Brady, Chief Executive
Officer and President


     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>


<S>                                                  <C>                                                  <C>
/s/ Harold Rashbaum                                  Chairman of the                                      7/13/99
Harold Rashbaum                                      Board of Directors                                   Date


/s/ Richard Brady                                    Chief Executive Officer,                             7/13/99
Richard Brady                                        President, and Director                              Date


/s/ James Frakes                                     Chief Financial Officer,                             7/13/99
James Frakes                                         Secretary, and Director                              Date


/s/ Moses Mika                                       Director                                             7/13/99
Moses Mika                                                                                                Date
</TABLE>


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)



                                Table of Contents

                             March 31, 1999 and 1998

<TABLE>
<CAPTION>




                                                                                                               Page

<S>                                                                                                              <C>
Report of Independent Certified Public Accountants                                                             F-2

Financial Statements

     Balance Sheets                                                                                            F-3

     Statements of Operations and Comprehensive Net Income (Loss)                                              F-5

     Statements of Stockholders' Equity                                                                        F-6

     Statements of Cash Flows                                                                                  F-7

Notes to Financial Statements                                                                                  F-9


</TABLE>

                                       F-1


<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS





Board of Directors
Play Co. Toys & Entertainment Corp.

     We  have  audited  the  accompanying  balance  sheets  of Play  Co.  Toys &
Entertainment  Corp. (a subsidiary of United  Textiles & Toys Corp.) as of March
31, 1999 and 1998 and the related statements of operations and comprehensive net
income (loss), stockholders' equity, and cash flows for each of the two years in
the  period  ended  March  31,  1999.   These   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in  all  material   respects,   the  financial  position  of  Play  Co.  Toys  &
Entertainment  Corp.  at  March  31,  1999  and  1998,  and the  results  of its
operations  and its cash  flows  for each of the two years in the  period  ended
March 31, 1999 in conformity with generally accepted accounting principles.



HASKELL & WHITE LLP

Newport Beach, California
June 24, 1999



                                       F-2


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

<TABLE>
<CAPTION>


                                 Balance Sheets



                                 ASSETS (Note 4)

                                                                   March 31,
                                                            1999                1998
Current
<S>                                                       <C>           <C>
     Cash .............................................   $   125,967   $   648,986
     Restricted certificates of deposit (Notes 2 and 4)       350,000       250,000
     Accounts receivable ..............................        98,276        78,594
     Merchandise inventories ..........................    11,506,284     7,872,804
     Other current assets .............................     1,310,263       183,928
                                                          -----------   -----------

                  Total current assets ................    13,390,790     9,034,312

Property and equipment, net of accumulated
     depreciation and amortization of $4,058,603 and
     $3,414,235, respectively (Note 3) ................     5,348,175     2,782,386

Restricted certificate of deposit (Notes 2 and 4) .....     2,000,000     2,000,000

Deposits and other assets (Note 4) ....................       411,427       323,189
                                                          -----------   -----------

                                                          $21,150,392   $14,139,887
                                                          ===========   ===========
</TABLE>

                 See accompanying notes to financial statements.

                                       F-3


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)



                                 Balance Sheets

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                             March 31,
                                                                                                         1998
                                                                                                       Restated
                                                                                     1999              (Note 11)
Current
<S>                                                                             <C>                <C>
     Accounts payable                                                           $     5,611,442    $      3,505,230
     Accrued expenses and other liabilities                                             595,008             726,601
     Current portion of capital lease obligations (Note 5)                              227,197                 -
     Current portion of notes payable (Note 6)                                        1,125,000             350,000
                                                                                ---------------    ----------------

                  Total current liabilities                                           7,558,647           4,581,831

Borrowings under financing agreement (Note 4)                                         7,814,666           5,445,198

Capital lease obligations, net of current portion (Note 5)                              585,681                 -

Notes payable, net of current portion (Note 6)                                             -              1,500,000

Deferred rent liability (Note 9)                                                        126,769             110,351
                                                                                ---------------    ----------------

                  Total liabilities                                                  16,085,763          11,637,380
                                                                                ---------------    ----------------

Commitments and contingencies (Notes 2, 4, 5, 6, 7, 9, 10 and 13)

Stockholders' equity (Note 11)
     Series E convertible preferred stock, $1 par value,
       10,000,000 shares authorized; 5,833,903 and 4,200,570
       shares outstanding, respectively, full liquidation value
       of $5,833,903 and $4,200,570, net of unamortized discount
       of $1,842,252 and $1,916,644 for beneficial conversion feature (Note 11)      5,682,101           3,974,376

     Series F convertible preferred stock, $.01 par value,
       5,500,000 shares authorized, none outstanding                                     -                     -
     Common stock, $.01 par value, 51,000,000 shares authorized;
       5,503,519 and 4,103,519 shares outstanding, respectively                         55,035              41,035
     Additional paid-in capital                                                     15,335,172          12,927,918
     Accumulated deficit                                                           (16,007,679)        (14,440,822)
                                                                                ---------------    ----------------

                  Total stockholders' equity                                         5,064,629           2,502,507
                                                                                ---------------    ----------------

                                                                                $   21,150,392    $     14,139,887
                                                                                ===============    ================
</TABLE>


                 See accompanying notes to financial statements.

                                       F-4


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


<TABLE>
<CAPTION>

          Statements of Operations and Comprehensive Net Income (Loss)

                                                              Years Ended March 31,
                                                                                                         1998
                                                                             Restated
                                                                1999        (Note 11)

<S>                                                         <C>             <C>
Net sales ...............................................   $ 34,371,230    $ 22,568,527

Cost of sales ...........................................     19,590,784      13,689,599
                                                            ------------    ------------

                  Gross profit ..........................     14,780,446       8,878,928
                                                            ------------    ------------

Operating expenses
     Operating expenses (Notes 9 and 10) ................     12,658,376       8,864,607
     Litigation related expenses (Note 7) ...............         27,659         583,541
     Depreciation and amortization ......................        986,342         671,282
                                                            ------------    ------------

                  Total operating expenses ..............     13,672,377      10,119,430
                                                            ------------    ------------

Operating income (loss) .................................      1,108,069      (1,240,502)
                                                            ------------    ------------

Interest expense (Note 4)
     Interest and finance charges .......................        796,202         525,323
     Amortization of debt issuance costs ................        168,849         288,645
                                                            ------------    ------------

                  Total interest expense ................        965,051         813,968
                                                            ------------    ------------

Net income (loss) before income taxes ...................        143,018      (2,054,470)

Provision for income taxes (Note 8) .....................          2,150            --
                                                            ------------    ------------

Net income (loss) .......................................        140,868      (2,054,470)

Other items of comprehensive income (loss) ..............           --              --
                                                            ------------    ------------

Comprehensive net income (loss) .........................   $    140,868    $ (2,054,470)
                                                            ============    ============

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

     Net income (loss) ..................................   $    140,868    $ (2,054,470)

     Effects of non-cash dividends on convertible
        preferred stock (Note 11) .......................     (1,707,725)     (1,473,806)
                                                            ------------    ------------

Net income (loss) applicable to common shares ...........   $ (1,566,857)   $ (3,528,276)
                                                            ============    ============

Basic and diluted income (loss) per common share
     and share equivalents ..............................   $       (.34)   $       (.86)
                                                            ============    ============

Weighted average number of common shares and
     share equivalents outstanding ......................      4,590,642       4,098,971
                                                            ============    ============
</TABLE>


                 See accompanying notes to financial statements.

                                       F-5


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                       Statements of Stockholders' Equity
                       Years Ended March 31, 1999 and 1998

<TABLE>
<CAPTION>

                                Preferred Stock                                      Additional                         Total
                                    Series E                   Common Stock           Paid-In        Accumulated       Stockholders'
                              Shares         Amount         Shares         Amount      Capital         Deficit            Equity

<S>            <C>           <C>          <C>               <C>         <C>           <C>          <C>             <C>
Balance, April 1, 1997........2,500,570   $  2,500,570      4,083,519   $    40,835   $9,374,177   $(10,912,546)   $  1,003,036

Issuance of Common
Stock for cash ......              --             --           20,000           200          300           --               500
Issuance of Series E
Preferred Stock for cash ....   950,000           --             --             --     1,200,000           --         1,200,000
Issuance of Series E warrants
 for cash ...................      --             --             --             --        50,000           --            50,000
Issuance of Series E Preferred
 Stock and warrants for cash,
 net of offering expenses .     750,000           --             --             --     2,303,441           --         2,303,441
Non-cash dividend to amortize
    discount on Series E
    (Note 11) .....                --        1,473,806           --             --          --       (1,473,806)           --
Net loss for the year .......      --             --             --             --          --       (2,054,470)     (2,054,470)
                              ---------   ------------   ------------   ------------  ------------   ------------    ------------

Balance, March 31, 1998 ......4,200,570      3,974,376      4,103,519        41,035   12,927,918    (14,440,822)      2,502,507

Conversion of debt and accrued
 interest to Series E
 Preferred Stock1,533,333         --              --             --       1,533,333         --        1,533,333
Issuance of Series E
 Preferred Stock for cash ...   100,000           --             --             --       100,000           --           100,000
Issuance of Series E Preferred
 Stock and options to
 consultants .............        --              --             --             --        78,750           --            78,750
Issuance of Common Stock
  for cash and inventories        --              --        1,400,000        14,000      651,000           --           665,000
Non-cash dividend to amortize
 discount on Series E (Note 11)   --         1,707,725           --             --          --       (1,707,725)           --
Issuance of stock options
 to consultants                   --              --             --             --        44,000           --            44,000
Miscellaneous adjustments ....    --              --             --             --           171           --               171
Net income for the year ......    --              --             --             --          --          140,868         140,868
                              --------    ------------   ------------   ------------  ------------  ------------    ------------

Balance, March 31, 1999 ......5,833,903   $  5,682,101      5,503,519   $    55,035  $15,335,172   $(16,007,679)   $  5,064,629
                              =========   ============   ============   ============  ============  ============    ============

</TABLE>
                 See accompanying notes to financial statements.

                                       F-


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)
                       Statements of Cash Flows (Note 12)

<TABLE>
<CAPTION>


                                                                   Years Ended March 31,
                                                                   1999       1998

Cash flows from operating activities:
<S>                                                           <C>            <C>
     Net income (loss) ....................................   $   140,868    $(2,054,470)
     Adjustments to reconcile net income (loss) to net cash
       used for operating activities:
         Depreciation and amortization ....................       983,459        671,282
         Loss on abandonment of assets ....................          --           45,255
         Amortization of debt issuance costs ..............       109,977        196,849
         Deferred rent ....................................        16,418        (16,574)
         Amortization of stock options ....................       122,921           --
     Increase (decrease) from changes in:
         Accounts receivable ..............................       (19,682)       (18,388)
         Merchandise inventories ..........................    (3,268,480)    (1,779,874)
         Other current assets .............................    (1,236,312)        63,385
         Deposits and other assets ........................       (88,238)      (195,241)
         Accounts payable .................................     2,106,212        381,379
         Accrued expenses and other liabilities ...........       (98,260)       417,661
                                                              -----------    -----------

                  Cash used for operating activities ......    (1,231,117)    (2,288,736)
                                                              -----------    -----------

Cash flows from investing activities:
     Purchase of restricted certificates of deposit .......      (100,000)    (2,250,000)
     Purchases of property and equipment ..................    (2,699,819)    (1,023,273)
                                                              -----------    -----------

                  Cash used for investing activities ......    (2,799,819)    (3,273,273)
                                                              -----------    -----------



</TABLE>
<PAGE>

                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                 Statements of Cash Flows (Note 12) (continued)

<TABLE>
<CAPTION>


                                                             Years Ended March 31,
                                                            1999                1998

Cash flows from financing activities:
<S>                                                       <C>             <C>
     Change in bank overdraft .........................   $       --      $   (135,325)
     Borrowings under financing agreements, net .......     43,239,568      33,560,443
     Repayments under financing agreements ............    (40,870,100)    (32,554,120)
     Proceeds from notes payable ......................      2,700,000       1,750,000
     Repayment of notes payable .......................     (1,925,000)       (141,666)
     Repayments under capital leases ..................        (36,551)           --
     Proceeds from issuance of common stock ...........         14,000             500
     Proceeds from issuance of preferred stock ........        386,000       3,390,450
     Proceeds from issuance of preferred stock warrants           --           162,991
                                                          ------------    ------------

                  Cash provided by financing activities      3,507,917       6,033,273
                                                          ------------    ------------

Net (decrease) increase in cash .......................       (523,019)        471,264

Cash, beginning of year ...............................        648,986         177,722
                                                          ------------    ------------

Cash, end of year .....................................   $    125,967    $    648,986
                                                          ============    ============


</TABLE>


<PAGE>
1.       Summary of Accounting Policies

     Business Organization and Revenue Recognition

     Play  Co.  Toys  &  Entertainment  Corp.  (the  "Company")  is  a  Delaware
corporation  that  owns and  operates  retail  stores  which  sell  educational,
specialty,  collectible,  and traditional toys. The Company had twenty-five (25)
retail stores located within southern California,  Arizona, Illinois,  Michigan,
Nevada, and Texas at March 31, 1999, as compared to nineteen (19) stores located
in California  and Arizona as of March 31, 1998.  The Company's  retail  stores,
which are located in  high-traffic  malls and strip  centers,  operate under the
names "Play Co. Toys," "Toys International," and "Toy Co."

     In August 1996, the Company  became a subsidiary of United  Textiles & Toys
Corp.  ("UTTC").  As of March 31,  1999,  UTTC owns  approximately  45.2% of the
outstanding shares of the Company's Common Stock.

     Revenues are  recognized  at the point of sale for retail  locations and at
the shipping date for wholesale  operations.  Wholesale  operations  represent a
minor portion of the Company's operations.

     Nature of Relationships with Affiliates

     As described in the footnotes  following,  the Company obtains a portion of
the financing from and engages in transactions with affiliated entities, many of
which are under common control.  These entities and the nature of the affiliates
are as follows:

                         Affiliates Under Common Control
                    Name of Entity and Nature of Affiliation

     United  Textiles & Toys Corp.  ("UTTC"):  A company that held a majority of
the Company's  common stock  through  November 1998 and 45.2% since the Breaking
Waves, Inc. investment in Common Stock (see below and Note 11). UTTC effectively
controls the Company. The president of UTTC is Ilan Arbel.

     Multimedia Concepts International,  Inc. ("MMCI"):  Majority stockholder in
UTTC. The president and director of MMCI is Ilan Arbel.


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998


     1. Summary of Accounting Policies (continued)

     Nature of Relationships with Affiliates (continued)

     Name of Entity and Nature of Affiliation

     Europe American Capital Foundation ("EACF"): Foundation of which Ilan Arbel
and/or his relatives  is/are  officer(s)  and/or  director(s).  EACF is the sole
stockholder/beneficiary of Frampton Industries, Ltd. and ABC Fund, Ltd., and the
majority stockholder of American Telecom, PLC.

     Europe American Capital  Corporation  ("EACC"):  Entity of which Ilan Arbel
and/or his relatives is/are officer(s) and/or director(s).

     Frampton  Industries,  Ltd.  ("Frampton"):  Entity which is wholly owned by
EACF.

     American Telecom PLC: Entity 80% owned by EACF.

     ABC Fund, Ltd. ("ABC"): Entity which is wholly owned by EACF.

     U.S.  Stores Corp.  ("USSC"):  A private  company  whose  president is Ilan
Arbel, who is also a director. Parent company of MMCI.

     Other Affiliates Name of Entity and Nature of Affiliation

     ZD Group L.L.C. ("ZD"): ZD is a New York Trust, the beneficiary of which is
a member of the family of the Company's Chairman.

     European Ventures Corp. ("EVC"): Parent company of Shopnet.com.  Ilan Arbel
is the president.

     Shopnet.com  ("Shopnet"):  The Chairman of Play Co. is the  president and a
director of Shopnet.

                                      F-10


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998


     1. Summary of Accounting Policies (continued)

     Nature of Relationships with Affiliates (continued)

     Name of Entity and Nature of Affiliation

     Breaking Waves, Inc.  ("BWI"):  This entity is a wholly owned subsidiary of
Shopnet, and also owns 25% of Play Co's Common Stock (Note 11). The president of
BWI is also the  Chairman  of the Board of the  Company  and a relative  of Ilan
Arbel.

     The following chart graphically  depicts the Company's  ownership structure
at March 31, 1999 for those entities under common control:


                       Europe American Capital Foundation
          100%                                            100%

   Frampton Industries, Ltd.                         ABC Fund, Ltd.

                                       80%

                              American Telecom PLC

                                      62.2%

                                U.S. Stores Corp.


                                      100%


                     Multimedia Concepts International, Inc.

                                     78.5%

                          United Textiles & Toys Corp.

                                     45.2%

                       Play Co. Toys & Entertainment Corp.


                                      F-11


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





1. Summary of Accounting Policies (continued)

     Merchandise Inventories

     Merchandise  inventories  are  stated  at  the  lower  of  cost  (first-in,
first-out method - "FIFO") or market.

     Concentration of Credit Risk

     The Company  maintains cash balances at three banks.  Accounts at each bank
are  insured by the  Federal  Deposit  Insurance  Corporation  up to $100,000 in
aggregate.  Uninsured  balances are  approximately  $2,603,308 and $2,698,986 at
March 31, 1999 and 1998, respectively.

     Property and Equipment

     Property and equipment is recorded at cost.  Depreciation  and amortization
are provided using the straight-line method over the estimated useful lives (3 -
15 years) of the related assets.  Leasehold  improvements are amortized over the
lesser  of  the  related  lease  terms  or the  estimated  useful  lives  of the
improvements. Maintenance and repairs are charged to operations as incurred.

     Store Opening and Closing Costs

     Costs incurred to open a new retail location such as advertising,  training
expenses  and  salaries  of newly  hired  employees  are  generally  expensed as
incurred and improvements to leased facilities are capitalized. Upon permanently
closing a retail location,  the costs to relocate fixtures,  terminate employees
and other related costs are expensed as incurred.  In addition,  the unamortized
balances of any abandoned leasehold improvements are expensed.

     In April 1998, the AICPA's Accounting  Standards Executive Committee issued
Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities.
The SOP, which is effective for fiscal years  beginning  after December 15, 1998
with earlier application  encouraged,  requires entities to expense start-up and
organization  costs for  establishing  new  operations.  The Company adopted the
provisions  of this  statement  as of March 31, 1999  without  impact  given its
historical treatment of store opening costs.


                                      F-12


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





     Summary of Accounting Policies (continued)

     Income Taxes

     The Company uses the  liability  method of  accounting  for income taxes in
accordance  with  Statement of Financial  Accounting  Standards  (SFAS) No. 109,
Accounting for Income Taxes.  Deferred income taxes are recognized  based on the
differences  between  financial  statement  and  income  tax bases of assets and
liabilities  using enacted rates in effect for the year in which the differences
are expected to reverse.  Valuation allowances are established,  when necessary,
to reduce the  deferred tax assets to the amount  expected to be  realized.  The
provision  for income  taxes  represents  the tax payable for the period and the
change during the period in deferred tax assets and  liabilities,  including the
effect of change in the valuation allowance, if any.

     Net Loss Per Share

     During the three-month  period ended December 31, 1997, the Company adopted
the  provisions  of SFAS  No.  128,  Earnings  Per  Share,  which  requires  the
disclosure of "basic" and "diluted"  earnings  (loss) per share.  Basic earnings
(loss) per share is computed by dividing net income (loss),  after reduction for
preferred stock dividends and the accretion of any redeemable  preferred  stock,
by the weighted average number of common shares  outstanding during each period.
Diluted  earnings (loss) per share is similar to basic earnings (loss) per share
except  that the  weighted  average  number  of  common  shares  outstanding  is
increased to reflect the dilutive  effect of potential  common  shares,  such as
those  issuable  upon the  exercise of stock or warrants and the  conversion  of
preferred stock, as if they had been issued.

     Non-cash  dividends recorded to amortize the discount on Series E Preferred
Stock totaled  $1,707,725  and $1,473,806 for the years ended March 31, 1999 and
1998 (Note 11).

     For the year ended March 31, 1999, there is no difference between basic and
diluted  loss per common  share as the effects of stock  options or warrants and
conversion of preferred stock are anit-dilutive given the net loss applicable to
common shares for each year.


                                      F-13


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998



Summary of Accounting Policies (continued)

     Net Loss Per Share (continued)

     As of March 31, 1999 and 1998,  potentially dilutive securities outstanding
which were not  included  in the  calculation  of basic and diluted net loss per
common share consist of the following:
<TABLE>
<CAPTION>

                                                                                      Potential Common Shares
                                                                                             March 31,
                                                                                     1999                1998
                                                                                ---------------    ----------
         Common shares issuable upon:

         Conversion of Series E Preferred Stock;
          5,833,903 and 4,200,570 shares outstanding,
          respectively, each convertible into six shares
<S>                                                                                <C>               <C>
          of Common Stock, subject to holding periods.                             35,003,418        25,203,420

         Exercise of 2,000,000 outstanding warrants to
          purchase 2,000,000 shares of convertible Series
          E Preferred Stock, each share of Series E then
          convertible into six shares of Common Stock,
          subject to holding periods.                                              12,000,000        12,000,000

         Conversion of debentures (Note 6) into 3,250,000
          shares of Series E Preferred Stock, each share
          of Series E then convertible into six shares of
          Common Stock, subject to holding periods.                                19,500,000            -

         Exercise of employee stock options                                            30,000            30,000
                                                                                ---------------    ----------------

                                                                                   66,533,418        37,233,420
                                                                                ===============    ================
</TABLE>

     Statements of Cash Flows

     For purpose of the  statements  of cash flows,  the Company  considers  all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.


                                      F-14


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





1.       Summary of Accounting Policies (continued)

     Fair Value of Financial Instruments

     The carrying amount of the Company's financial  instruments,  consisting of
accounts receivable,  accounts payable, and borrowings,  approximates their fair
value.

     Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect the reported amounts of assets and liabilities, revenues
and expenses, and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual amounts could differ from those estimates.

     Impairment of Long-Lived Assets

     SFAS No.  121,  Accounting  for the  Impairment  of  Long-Lived  Assets and
Long-Lived Assets to be Disposed Of, requires that long-lived assets and certain
identifiable  intangibles  to be held  and used by an  entity  be  reviewed  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying  amount  of an  asset  may  not be  recoverable.  For the  purposes  of
evaluating  potential  impairment,  the Company's assets are grouped by physical
location,   namely  the  corporate   office/warehouse,   and  individual  retail
locations.  The Company adopted SFAS 121 effective  April 1, 1997.  There was no
impact of such  adoption on the  Company's  financial  condition  and results of
operations.   Since   adopting  SFAS  121  in  April  1997,  the  Company  gives
consideration  to events or changes in  circumstances  for each of its locations
and has not identified  circumstances other than the closure of retail locations
(see Note 7) which resulted in the write-off of  unamortized  balances of tenant
improvements for the year ended March 31, 1998. The expense related to the write
off of such assets was immaterial.


                                      F-15


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





1.       Summary of Accounting Policies (continued)

     Stock-Based Compensation

     SFAS  No.  123,  Accounting  for  Stock-Based   Compensation,   established
financial   accounting  and  reporting   standards  for   stock-based   employee
compensation  plans and certain  other  transactions  involving  the issuance of
stock.  The  Company  adopted  the  disclosure  requirements  of  SFAS  123  for
stock-based employee compensation  effective April 1, 1996. However, the Company
continues to use the intrinsic value method for recording  compensation expenses
as prescribed by APB Opinion No. 25,  Accounting  for Stock Issued to Employees.
The fair value method  prescribed by SFAS No. 123 is used to record  stock-based
compensation to non-employees.

     Effect of New Accounting Pronouncements

     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement  establishes standards for reporting and display of comprehensive
income and its components (revenues,  expenses, gains and losses) in an entity's
financial  statements.  This  statement  requires an entity to classify items of
other comprehensive  income by their nature in a financial statement and display
the accumulated balance of other  comprehensive  income separately from retained
earnings and  additional  pai in-capital in the equity section of a statement of
financial  position.  This  pronouncement,  which is effective  for fiscal years
beginning  after December 15, 1997, was adopted by the Company during the fiscal
year ending March 31, 1999 without impact to the financial statements for either
of the years ended March 31, 1999 or 1998.

     In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related  Information.  This statement requires public enterprises
to report financial and descriptive  information about its reportable  operating
segments and  establishes  standards for related  disclosures  about product and
services, geographic areas, and major customers. This pronouncement is effective
for fiscal years  beginning  after  December 15, 1997.  Management  reviewed the
provision  of this  statement  during the year ended March 31,  1999.  While the
Company has expanded into several  states during the year,  management  believes
the Company's operations to be limited to one reporting segment being a retailer
of  educational,  specialty,  collectible,  and  traditional  toys.  All  of the
Company's sales have been domestic, and there are no foreign operations.


                                      F-16


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998



2.       Restricted Certificates of Deposit

     At March 31, 1999 and 1998, the Company has three  certificates  of deposit
which are restricted as to their nature. The first, in the amount of $2,000,000,
represents  collateral  against a letter of credit securing  financing under the
FINOVA  Capital  Corporation  agreement  ("FINOVA  Financing")  (Note  4) and is
classified as a non-current  asset since the funds in the certificate of deposit
will  remain  restricted  until the letter of credit  expires or is  released by
FINOVA Capital  Corporation  ("FINOVA" ). The second, in the amount of $250,000,
is collateral for a facility for letters of credit.  The third, in the amount of
$100,000,  is to cover an increase on the previously  mentioned letter of credit
facility.

3.       Property and Equipment

     Property and equipment consisted of the following:
<TABLE>
<CAPTION>

                                                                                             March 31,
                                                                                     1999                1998

<S>                                                                             <C>                <C>
         Furniture, fixtures and equipment                                      $     5,968,292    $      4,222,586

         Leasehold improvements                                                       2,763,711           1,551,760
         Signs                                                                          501,798             317,363
         Vehicles                                                                       104,912             104,912
         Construction in progress                                                        68,065                   -
                                                                                ---------------    ----------------
                                                                                      9,406,778           6,196,621

         Accumulated depreciation and amortization                                   (4,058,603)         (3,414,235)
                                                                                 --------------    ----------------

                                                                                $     5,348,175    $      2,782,386
                                                                                ===============    ================
</TABLE>

     The  following is a summary of property and  equipment  held under  capital
leases (Note 5) at March 31, 1999:
<TABLE>
<CAPTION>

<S>                                                                                                <C>
         Furniture and fixtures                                                                    $        849,429

         Less accumulated depreciation                                                                     (112,584)

                                                                                                          $ 736,845
</TABLE>


                                      F-17


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998



4.       Financing Agreements

     On February 7, 1996, the Company borrowed, under an agreement with Congress
Financial  Corporation  (Western)  (the  "Congress  Financing"),   approximately
$2,243,000,  the  proceeds  of which  were  used to repay  the then  outstanding
borrowings  under a bank  line  of  credit  agreement.  The  Congress  Financing
provided for maximum  borrowings up to $7,000,000 based upon a percentage of the
cost value of  eligible  inventory,  as  defined.  Outstanding  borrowings  bore
interest at 1.5% above the prime rate, as defined.

     In connection  with the Congress  Financing,  and the previous bank line of
credit agreement,  European American Capital Corp. ("EACC"),  an affiliate (Note
1), provided a $2,000,000  letter of credit for  collateral.  As compensation to
EACC, the Company  granted EACC options  ("EACC  Options" - Note 11), to acquire
shares of Common Stock and Preferred  Stock,  the  aggregate  value of which was
$458,000. The aggregate $458,000 was initially included in other assets, as debt
issuance costs, and additional paid-in capital. The option values were amortized
into  interest  expense  through the  February 1, 1998  maturity of the Congress
Financing,  resulting  in  aggregate  interest  charges of $196,849 for the year
ended March 31, 1998.

     In March 1997,  the Congress  Financing  was amended to provide for,  among
other things,  increased borrowing ratios and an additional $1,000,000 letter of
credit  as  collateral  from  EACC.  Thereafter,   the  Congress  Financing  was
collateralized  by an  aggregate  $3,000,000  in letters of credit  through  its
maturity on February 1, 1998.

     On  February  3, 1998,  the Company  borrowed  $4,866,324  under the FINOVA
Financing,  the  proceeds  of  which  were  used  primarily  to  repay  the then
outstanding  borrowings under the Congress  Financing and to pay fees related to
the FINOVA Financing.

     The FINOVA Financing, as amended currently, provides for maximum borrowings
up to $8,300,000 based on a percentage of the cost value of eligible  inventory,
as defined.  Outstanding  borrowings  bear interest at 1.5% above prime rate, as
defined  (the  prime  rate at  March  31,  1999 and 1998  was  7.75%  and  8.5%,
respectively).  The  agreement  matures on August 3, 2000 and can be renewed for
one additional year at the lender's option.


                                      F-18


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





Financing Agreement (continued)

     Total  fees  related  to  the  FINOVA  Financing  aggregated  approximately
$272,000 and are being  amortized over the 30-month term of the  agreement.  The
unamortized  portion of these debt issuance costs was $133,876 and $253,858,  as
of March 31, 1999 and 1998, respectively, and is included in "Deposits and other
assets" in the balance  sheets.  Additional  costs were incurred and capitalized
during the year  relating to  amendments  to the  agreement  that  increased the
borrowing capacity.

     The FINOVA Financing includes a financial covenant requiring the Company to
maintain,  at all times, net worth, as defined,  of $750,000.  At March 31, 1999
and 1998, the Company was in compliance with this financial covenant.

     The FINOVA Financing also includes  various other  covenants,  two of which
the Company  violated during the year by exceeding the specified  maximum levels
of capital expenditures and debt financing. The Company has received a waiver of
these defaults.

     The FINOVA  Financing is guaranteed by UTTC and is secured by substantially
all of the assets of the Company  and  $3,000,000  in letters of credit.  Of the
$3,000,000 in letters of credit, $2,000,000 is collateralized by amounts held in
a restricted certificate of deposit (Note 2). The remaining $1,000,000 letter of
credit, has been provided by MMCI, an affiliate of the Company (Note 1).

         At March 31,  1999,  the  Company  also has  $700,000  included  in its
borrowings  from  FINOVA  under a term loan due  concurrently  with the  overall
FINOVA Financing,  with interest at prime plus one percent,  secured by a letter
of credit (Note 9).


                                      F-19


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





5.       Capital Lease Obligations

     During the year ending  March 31,  1999,  the Company  entered into several
leases with  financing  companies  that have been  classified  as capital  lease
obligations.  The amounts financed ranged from $49,901 to $232,098, with varying
monthly installment payments from $849 to $5,313, at interest rates varying from
12.6% to 19.6%.  The leases,  which have maturity dates ranging from October 15,
2001 to March 1, 2004, require minimum payments as follows:
<TABLE>
<CAPTION>

                  Year ending
                       March 31,
<S>                      <C>                                                                              <C>
                         2000                                                                             $ 249,423
                         2001                                                                               249,423
                         2002                                                                               234,658
                         2003                                                                               213,986
                         2004                                                                               152,672
                                                                                                   ----------------

                  Total minimum lease payments                                                            1,100,162

                  Less amount representing interest                                                        (287,284)

                  Present value of minimum lease payments                                                   812,878

                  Less current portion                                                                     (227,197)

                  Long-term portion                                                                $        585,681
                                                                                                   ================
</TABLE>
6.       Notes Payable
<TABLE>
<CAPTION>
                                                                                             March 31,
                                                                                     1999                1998

Note payable to ABC, an affiliate (Note 1), bearing interest at 5% per annum.
 Converted with accrued interest of $33,333, into 1,533,333 shares of Series
<S>                      <C>                                                    <C>                 <C>
 E Preferred Stock (Note 11).                                                   $ -                 $ 1,500,000

Note payable to BWI, an affiliate (Note 1), bearing interest at 15% per annum,
 paid in ten monthly installments of $25,000 plus accrued interest through
 maturity on December 31, 1998. Note was subordinate to the FINOVA Financing
<S>                                                                             <C>                     <C>
 (Note 4).                                                                        -                     250,000

6.       Notes Payable (continued)
</TABLE>

<TABLE>
<CAPTION>
                                                                                             March 31,
                                                                                     1999                1998
Note payable to stockholder of Toys International non-interest bearing,
 guaranteed by UTTC, an affiliate (Note 1), paid in quarterly installments
<S> <C>                                     <C> <C>                                                     <C>
 of $25,000 through its maturity on January 16, 1999.                             -                     100,000

Note payable to Shopnet, an affiliate (Note 1), bearing interest at 9% per
 annum, payable in monthly installments of $25,000 with an original maturity
 of June 15, 1999. Note has been verbally extended to an unspecified date.        75,000                     -

Note payable to Full Moon Development, Inc., an unaffiliated entity, bearing
 interest at 12%, payable in monthly installments of $50,000 through maturity
 on July 30, 1999.                                                               200,000                     -

Note payable to Full Moon  Development,  Inc., an unaffiliated  entity,
bearing interest at 12%, payable in monthly installments of $66,667,  except for
the final  installment  which is due at maturity on June 30,  1999,  twenty days
after previous payment.                                                          200,000                     -

Convertible debenture to Frampton, an affiliate (Note 1), bearing interest at
 5% per annum, with interest only payments due monthly beginning March 1, 1999,
 convertible to Series E Preferred Stock, due at maturity on December 31, 1999.  500,000                     -

Convertible debenture to EACF, an affiliate (Note 1), bearing interest at 5%
 per annum, with interest only payments due monthly beginning March 1, 1999,
 convertible to Series E Preferred Stock, due at maturity on December 31, 1999.  150,000                     -

Total notes payable                                                             1,125,000             1,850,000

Less current portion                                                            (1,125,000)            (350,000)
                                                                                ---------------    ----------------
Long-term portion                                             $                      -            $   1,500,000
</TABLE>



6.       Notes Payable (continued)

     The above  notes may carry  interest  rates  that  differ  from  prevailing
interest  rates.  The Company  has not  provided  for  imputed  interest on rate
discounts or premiums as the effects are immaterial to the financial statements.

     The above convertible  debentures to Frampton and EACF are both convertible
into Series E Preferred  Stock.  The debenture  holder has the right at any time
prior to the maturity date to convert all or part of the  outstanding  principal
plus any accrued  interest.  The  conversion  price is $.20 per share,  i.e. for
every $100,000 converted, the holder would receive 500,000 shares. Each share of
Series E Preferred  Stock is  convertible  into six shares of Common Stock (Note
11).

7.       Closure of Retail Stores - Litigation

     During the year ended March 31, 1998,  the Company  closed,  and ultimately
vacated,  five  retail  locations  prior to the end of their lease  terms.  As a
result, four of the five landlords filed lawsuits against the Company to collect
unpaid  rent as well as  rental  obligations  remaining  under  the terms of the
respective leases.

     Subsequent  to the filing of actions by the landlords and through May 1998,
the Company with  assistance of outside counsel  reached  settlement  agreements
with the various  landlords.  These settlements  aggregated  $469,600,  of which
$57,820 remains outstanding on one settlement.

     The  statement  of  operations  for the year ended  March 31, 1999 and 1998
includes  $27,659 and $583,541 of "litigation  related  expenses" which comprise
the settlement  costs on the  aforementioned  leases,  and legal fees associated
with the negotiations.

     The Company  currently has one remaining  landlord/tenant  matter which has
yet to be resolved.  As of March 31,  1999,  the Company has accrued a liability
related  to this  matter,  which  is an  estimate  by  management  based  on its
analysis.  The Company's  management  expects this matter to be resolved without
further material effects on the financial statements.


                                      F-20


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998


8.       Income Taxes

         The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>

                                                    1999         1998

Current:
<S>                                               <C>        <C>
         Federal ..............................   $   --     $    --
         State ................................      2,150        --

               Total current ..................      2,150        --


Deferred:
         Federal ..............................     40,424     750,224
         State ................................     45,726     156,280

               Total deferred .................     86,150     906,504

               Valuation allowance ............    (86,150)   (906,504)

               Total provision for income taxes   $  2,150   $    --

</TABLE>

                                      F-21


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





8.       Income Taxes (continued)

     Deferred income taxes reflect the net tax effects of temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes  and the  amounts  used for income  tax  purposes.  The tax  effects of
significant  items  comprising the Company's net deferred  income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>

                                                                                             March 31,
                                                                                     1999                1998

<S>                                                                             <C>                <C>
         Inventories                                                            $      (329,264)   $       (227,696)
         AMT tax credits                                                                (23,260)            (23,260)
         Accrued expenses                                                                72,760             (19,779)
                                                                                ---------------    ----------------

                  Current portion of net deferred income
                      tax (assets) liabilities                                         (279,764)           (270,735)
                                                                                ---------------    ----------------

         Depreciation and amortization                                                 (211,108)            (28,388)
         Loss on disposal of assets                                                     127,043              25,926
         Net operating loss carryforwards                                            (3,471,124)         (3,652,294)
         Deferred rent liability                                                        (50,099)            (43,891)
         Income taxes                                                                       794                 508
         Amortization of stock options                                                 (200,520)           (202,049)
                                                                                ---------------    ----------------

                  Long-term portion of net deferred
                      income tax (assets) liabilities                                (3,805,014)         (3,900,188)
                                                                                ---------------    ----------------

         Total net deferred income tax (assets) liabilities                          (4,084,778)         (4,170,923)

         Valuation allowance                                                          4,084,778           4,170,923

                  Net deferred income taxes                                     $             -    $              -

</TABLE>
         At March  31,  1999  and  1998,  a 100%  valuation  allowance  has been
provided  on the net  deferred  income  tax  assets  since the  Company  can not
determine that it is "more likely than not" to be realized.


                                      F-22


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998



8.       Income Taxes (continued)

     The  reconciliation  of income taxes computed at the federal  statutory tax
rate to income  taxes at the  effective  income  tax rate in the  statements  of
operations is as follows:
<TABLE>
<CAPTION>

                                                                                             March 31,
                                                                                     1999                1998

<S>                                                                                  <C>                    <C>
         Federal statutory income tax (benefit) rate                                 34.0%                  (34.0)%
         Permanent adjustments                                                        4.4                     -
         State income taxes, net of federal benefit                                   1.5                     0.1
         Change in valuation allowance                                              (38.4)                   33.9
                                                                                ---------          --------------

                  Effective income tax rate                                          1.5%                     -%
</TABLE>

     At March 31, 1999, the Company has net operating  loss (NOL)  carryforwards
of approximately  $9,400,000 for federal purposes and  approximately  $5,000,000
for state  purposes.  The federal NOLs are  available to offset  future  taxable
income and expire at various  dates  through March 31, 2013 while the state NOLs
are available and expire at various dates through March 31, 2003.

     A portion of the NOLs  described  above are  subject to  provisions  of the
Internal   Revenue  Code  ss.382  which  limits  use  of  net   operating   loss
carryforwards  when  changes of  ownership of more than 50% occur during a three
year  testing  period.  During  the years  ended  March 31,  1994 and 1995,  the
Company's  ownership  changed  by more  than  50% as a  result  of the May  1993
acquisition  of a majority  interest in the Company and the  Company's  November
1994  completion  of an initial  public  offering of its Common  Stock.  Further
changes in Common and Preferred Stock  ownership  during each of the years ended
March 31, 1997 through  1999,  as  described  in Note 11, have also  potentially
limited  the  use  of  NOLs.  The  effect  of  such  limitations  has  yet to be
determined. NOLs could be further limited upon the exercise of outstanding stock
options  and stock  purchase  warrants  or as a result  of the May 1999  private
offering of Series F Preferred Stock (Note 13).


                                      F-23


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998


9.       Commitments and Contingencies

     Operating Leases

     The  Company  leases  its  retail  store  properties  under   noncancelable
operating  lease  agreements  which expire through June 2009 and require various
minimum annual  rentals.  Several of the leases  provide for renewal  options to
extend the leases for additional five or ten-year periods.  Certain store leases
also require the payment of property taxes,  normal maintenance and insurance on
the properties  and additional  rents based on percentages of sales in excess of
various specified retail sales levels.

     During the years ended March 31, 1999 and 1998, the Company incurred rental
expense under all operating  leases of $4,104,073 and $3,112,822,  respectively.
Contingent rent expense was insignificant  during the years ended March 31, 1999
and 1998.

     At March 31, 1999,  the aggregate  future  minimum lease payments due under
these noncancelable leases,  including  approximately $448,000 for the remaining
term of the lease for the closed  Rialto,  California  retail  location (Note 7)
through November 2003, are as follows:
<TABLE>
<CAPTION>

                                                                Related
                                                                 Party
                                                                Office/
                      Year Ending                              Warehouse            Retail
                       March 31,                               (Note 10)           Locations             Total
                   ----------------                         ---------------     ---------------    -----------

<S>                      <C>                                <C>                 <C>                <C>
                         2000                               $       247,289     $     5,148,190    $      5,395,479
                         2001                                        20,624           4,952,250           4,972,874
                         2002                                             -           4,536,291           4,536,291
                         2003                                             -           4,374,766           4,374,766
                         2004                                             -           3,472,774           3,472,774
                      Thereafter                                          -           7,447,655           7,447,655
                                                            ---------------     ---------------    ----------------

                  Total minimum lease payments              $       267,91      $    29,931,926    $     30,199,839
                                                              =============       ===============  ===================
</TABLE>


                                      F-24


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998


9.       Commitments and Contingencies (continued)

     Operating Leases (continued)

     As of the date of this  report  the  Company  has  executed  leases for the
opening of ten (10)  additional  stores in California,  Nevada,  North Carolina,
Texas, Illinois, and Tennessee. The stores are expected to open on various dates
in August 1999 through November 2000, and have varying  expiration dates through
2010. The new leases will require expected  minimum rental payments  aggregating
approximately  $27,434,000  over the life of the leases.  Accordingly,  existing
minimum lease  commitments  as of March 31, 1999,  plus those  expected  minimum
commitments  for the proposed retail  locations  would  aggregate  minimum lease
commitments of approximately $57,634,000.

     Delisting of Securities

     Until  September  24, 1997,  the  Company's  Common Stock was quoted on the
NASDAQ SmallCap Stock Market.

     Since September 24, 1997, the Company's Common Stock, as well as its Series
E  Preferred  Stock and Series E Preferred  Stock  purchase  warrants  sold in a
public   offering   completed  in  December  1997,   have  been  quoted  on  the
over-the-counter on the OTC bulletin board.

     Dependence on Suppliers

     For the years ended March 31, 1999 and 1998,  approximately forty-one (41%)
and  thirty-one  percent (31%) of the Company's  inventory  purchases  were made
directly from five (5) manufacturers.  The Company typically  purchases products
from its suppliers on credit  arrangements  provided by the  manufacturers.  The
termination  of  a  credit  line  or  the  loss  of  a  major  supplier  or  the
deterioration of the Company's  relationship  with a major supplier could have a
material adverse effect on the Company's business.

     401(k) Employee Stock Ownership Plan

     In August 1994, the Company  adopted a 401(k) Employee Stock Ownership Plan
(the "Plan") which covers  substantially all employees of the Company.  The Plan
includes  provisions  for both an Employee  Stock  Ownership Plan ("ESOP") and a
401(k) Plan.


                                      F-25


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





9.       Commitments and Contingencies (continued)

     401(k) Employee Stock Ownership Plan (continued)

     The  ESOP  allows  only  contributions  by the  Company  which  can be made
annually at the  discretion  of the Company's  Board of  Directors.  The ESOP is
designed to invest  primarily in the Company's  Common Stock.  Through March 31,
1999, there had been no transactions with regards to the ESOP.

     The 401(k)  portion of the Plan is  contributed  to by the employees of the
Company through payroll deductions.  The Company makes no matching contributions
to the 401(k) portion of the Plan.

     Financing Agreement

     In November 1998, the Company  entered into an agreement with ZD, a related
party (Note 1), to secure additional financing.  Pursuant to this agreement,  ZD
issued a  $700,000  irrevocable  standby  letter of credit  ("L/C")  in favor of
FINOVA,  the  Company's  working  capital  lender.  FINOVA  then lent a matching
$700,000  to the  Company  in the form of a term loan  (Note  4).  The term loan
expires on August 3, 2000 and bears interest at prime plus one percent.

     As  consideration  for its  issuance of the L/C, ZD will  receive  payments
representing  one-third (33%) of the net profits from three stores,  Great Lakes
Crossing, Gurnee Mills, and Woodfield Mall (scheduled to open late summer 1999).
The net profit of each store will include an appropriate allocation of corporate
overhead.  The  expense  related to the net profits  interest  due to ZD will be
accrued  beginning  April 1, 1999,  the  effective  date of the  agreement.  The
duration of the agreement  with ZD is equal to the current lease term of each of
the stores,  including any  renewals,  but in any event not beyond the Company's
fiscal year ending March 31, 2013. The store leases currently expire,  including
options for  renewal,  at various  dates  through  June 2009.  The Company  will
categorize  this expense as  (effective)  interest  since these costs  represent
compensation to secure additional financing.

     Additionally, as long as the agreement is in effect, ZD will have the right
to nominate and appoint one-third of the Company's Board of Directors.


                                      F-26


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998



9.       Commitments and Contingencies (continued)

     1994 Stock Option Plan

     In June 1994,  the Company  adopted the 1994 Stock Option Plan (the "Plan")
which  provides  for options to purchase  an  aggregate  of not more than 50,000
shares  of Common  Stock as may be  granted  from time to time by the  Company's
Board  of  Directors.  Pursuant  to the  hire  of the  Company's  current  Chief
Financial  Officer  and  Secretary,  the  Company  granted an option to purchase
30,000  shares  of  Common  Stock at an  exercise  price of $3.25  per share was
authorized, vesting at the rate of 10,000 shares per annum in each of July 1998,
1999 and 2000. In June 1998, the Board of Directors  adjusted the exercise price
of the option to $1.15 per share. As of March 31, 1999, no portion of the option
to purchase Common Stock had been exercised.

         Seasonality

     The  Company's  business  is highly  seasonal  with a large  portion of its
revenues and profits being  derived  during the months of November and December.
Accordingly,  in order for the  Company to operate,  it must obtain  substantial
short-term  borrowings from lenders and the Company's suppliers during the first
three-quarters  of each  fiscal  year to purchase  inventory  and for  operating
expenditures.  Historically,  the  Company  has been able to obtain  such credit
arrangements  and  substantially  repay the amounts  borrowed from suppliers and
reduce  outstanding  borrowings from its lender during the fourth quarter of its
fiscal year.

         Year 2000

     In 1998,  the Company  developed a plan to upgrade its existing  management
information  system  ("MIS")  and  computer  hardware  and to  become  year 2000
compliant.  The Company has completed  the hardware  upgrade and has installed a
year 2000 compliant upgrade to its accounting  software.  The Company expects to
finish the year 2000 compliance work by the end of September 1999.

     To finance the cost of the new  hardware in the computer  upgrade  project,
the Company  entered into a lease in the amount of $82,472,  bearing an interest
rate of 10.8%.  The total cost of the hardware and  software  purchased  for the
project was  approximately  $100,000.  This lease is  included  with the capital
lease obligations described in Note 5.


                                      F-27


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





9.       Commitments and Contingencies (continued)

     Year 2000 (continued)

     Beyond the above noted internal year 2000 system issue,  the Company has no
current  knowledge of any outside third party year 2000 issues that would result
in a material  negative  impact on its  operations.  Management has reviewed its
significant  vendors' and financial  institution's  recent SEC filings vis-a-vis
year 2000 risks and uncertainties  and, on the basis thereof,  is confident that
the steps the Company has taken to become year 2000 compliant are sufficient. In
continuation of this review,  the Company shall continue to monitor or otherwise
obtain  confirmation  from the aforesaid  entities - and such other  entities as
management deems  appropriate - as to their respective  degrees of preparedness.
To date,  nothing has come to the attention of the Company that would lead it to
believe that its significant  vendors and/or service  providers will not be year
2000 ready.

     Year 2000 readiness is a priority of the Company. The Company believes that
it is taking such  reasonable and prudent steps as are necessary to mitigate the
risks associated with potential year 2000 difficulties.  However, the effect, if
any,  of year 2000  problems  on the  Company's  results  of  operations  if the
Company's  or its  customers,  vendors,  or  service  providers  are  not  fully
compliant cannot be estimated with any degree of certainty.

10.      Related Party Transactions

     Office and Warehouse Lease

     The Company leases an  office/warehouse  building from Davidson,  Welker, &
Brady,  a  partnership  of which  one of the  partners,  Richard  Brady,  is the
Company's Chief Executive Officer and Director.  The original lease was executed
in October 1986. The lease term was for a 10-year period,  with increases in the
monthly rent tied to the CPI,  adjusted every three years. The lease was amended
in 1993 to extend the term through April 2000 (Note 9), with an option to extend
for a period of five  years  under the same terms and  conditions  of the lease.
Rent expense under this lease totaled $247,289 for each of the years ended March
31, 1999 and 1998.


                                      F-28


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





10.      Related Party Transactions (continued)

     Consulting Fees

     The Company made payments  aggregating  $33,000 and $25,000 to the Chairman
of the Board of Directors for various consulting services during the years ended
March 31, 1999 and 1998, respectively.

     Commitment of Financing

     The individual,  beneficial majority stockholder of UTTC, in a letter dated
May 15,  1998,  has  represented  his intent and  ability to provide  additional
working  capital to the Company,  should such be  necessary,  through  September
1999.

11.      Equity Transactions

     Capital Structure

     The following  summarizes the Company's  capital  structure as of March 31,
1999, as amended in April 1998,  and the subsequent  change thereto  approved at
the annual meeting of its shareholders on May 5, 1999 and effected May 12, 1999:
<TABLE>
<CAPTION>


                                                                                   March 31,            May 12,
                                                                                     1999                1999

                Common Stock

                <S>                                                                  <C>                <C>
                Authorized shares of $.01 par value
                common stock                                                         51,000,000         160,000,000

                Preferred Stock

                Authorized 15,500,000 shares of preferred stock designated as:

                $1.00 par convertible Series E                                       10,000,000          25,000,000

                $.01 par convertible Series F                                         5,500,000           5,500,000

</TABLE>

                                      F-29


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





11.      Equity Transactions (continued)

     Capital Structure (continued)

     Each share of Series E Preferred  Stock  ("Series E Stock") is  convertible
into six shares of Common Stock at the option of the holder commencing two years
from the date of issuance  for a period of five years.  The Series E Stock has a
liquidation  preference of $1.00 per share. Prior to June 30, 1997, the Series E
Stock was convertible into 20 shares of Common Stock upon issuance.

     Each share of Series F Preferred  Stock  ("Series F Stock") is  convertible
into two shares of Common  Stock at the option of the holder  commencing  at any
time  following  the date the  registration  statement  is  declared  effective.
Holders of Series F Stock are also  entitled  to,  when and as  declared  by the
Board of Directors,  cumulative dividends at $.08 per share. Dividends are fully
cumulative and accrue (whether or not declared), without interest, from the date
such dividends are payable.  The Series F Stock will be automatically  converted
in the event of the earlier of two years or the Company's  Common Stock having a
closing price of at least $5.00 per share for a consecutive  thirty-day  period.
The Series F Stock has a liquidation preference of $0.50 per share, subject only
to the Series E Stock preference.

     Issuance of Common Stock

     In November 1998, the Company  issued  1,400,000  shares of Common Stock to
Breaking  Waves,  Inc.,  an affiliate  (Note 1), in  consideration  for cash and
inventory.  The  Company  received  $300,000  in cash and  inventory  valued  at
$365,000 based upon the Company's  analysis of the net  realizable  value of the
inventory received.


                                      F-30


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





11.      Equity Transactions (continued)

     EACC Options

     In connection  with the Congress  Financing (Note 4), and the previous bank
line of credit  agreement,  EACC  provided  a  $2,000,000  letter of credit  for
collateral.  As  compensation  to EACC, the Company  granted EACC options ("EACC
Options") to acquire shares of 350,000  Common Stock,  the value of such options
estimated  at  $224,000  by the  Company;  and  options to acquire  (i) up to an
additional  1,250,000  shares of Common Stock at a purchase  price of 25% of the
closing bid price for the Company's  Common Stock on the last business day prior
to exercise for a period of six months  commencing  February  1996, the value of
such options was considered to be insignificant,  and (ii) an option to purchase
up to an aggregate  20,000,000  shares of the Series E Stock at a purchase price
of $1.00 per share during the period from May 9, 1996 through  January 30, 1998,
the value of such  options was  estimated  to be $234,000  by the  Company.  The
aggregate  value of the options,  $458,000,  was treated as debt issuance  costs
(Note  4).  All of the  options  to  acquire  shares  of  Common  Stock  expired
unexercised.

     During the year ended  March 31,  1997,  the  Company  issued an  aggregate
2,862,070  shares of Series E Stock for  aggregate  consideration  of $2,862,070
upon  exercise  of a portion  of the EACC  Options on  various  dates.  Of these
shares, EACC transferred 334,000 shares to UTTC.  Subsequently,  during the year
ended March 31, 1997, UTTC and EACC each converted  334,000 and 27,500 of Series
E Stock, respectively, into Common Stock at the 20 to 1 conversion rate, with no
holding requirement, provided for in the definition of the Series E Stock at the
time  (7,230,000  shares of Common Stock before the  retroactive  effect of July
1997, one for three reverse split),  or 2,410,000  post-reverse  split shares of
Common Stock.

     In June 1997,  the Company  issued 700,000 shares of Series E Stock to EACC
which had  previously  advanced  $700,000 in funds  subsequent to March 31, 1997
against the EACC Option to acquire  shares of Series E Stock.  The  remainder of
the EACC Options were then terminated in December 1997, upon consummation of the
Company's public offering of Series E Stock.


                                      F-31


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998


11.      Equity Transactions (continued)

     Issuance of Series E Stock

     In an agreement  dated June 30, 1997,  the Company  agreed to issue 250,000
shares of Series E Stock for $500,000 and 500,000 warrants to purchase shares of
Series E Stock for an  additional  $50,000 in a private  sale.  The $550,000 was
collected on August 12, 1997 and the shares and warrants were issued. The shares
of  Series E Stock  and  warrants  were  registered  and sold by the  holder  in
connection  with the  Company's  public  offering  of Series E Stock,  discussed
below.

     On December 29, 1997,  the Company  completed a public  offering of 750,000
shares  of  Series E Stock  and  1,500,000  redeemable  Series E Stock  purchase
warrants.  The gross  proceeds  from the offering  were  $3,150,000  and the net
proceeds to the Company totaled  $2,303,441 after deduction of offering expenses
including  such  items  as  underwriter   discounts  and   commissions,   legal,
accounting, printing and filing fees.

     On June 30,  1998,  ABC  offered  to  amend  the  terms  of a $1.5  million
debenture  (Note 6) to  enable  the  conversion  of the  principal  and  accrued
interest into shares of Series E Stock at a conversion price of $1.00 per share.
The conversion  price reflects a 33% discount to the trading price of the Series
E Stock and was determined on the basis of the trading price, the illiquidity of
the  restricted  Series E Stock and the  absence  of  registration  rights.  The
debenture  originally provided for the conversion,  at the option of ABC, of the
debenture  into  shares of common  stock of either  (i) a  subsidiary  which the
Company intended to form for the purpose of acquiring certain stores operated by
the Company,  or (ii) any other  subsidiary which might acquire a portion of the
assets and business of the Company.  This option to convert was  exercisable  at
the net book value of the  subsidiary's  shares with a limitation  on such share
ownership being 25% of the total outstanding shares of said subsidiary. ABC did,
however,  retain  the  right to  acquire  up to 25% of the  common  stock of the
subsidiary to be formed at book value at the time of the exercise, if any.


                                      F-32


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





11.      Equity Transactions (continued)

         Issuance of Options

     In February  1999,  the Company  entered into a Consulting  Agreement  (the
"Agreement") with Typhoon Capital Consultants, LLC ("Typhoon") pursuant to which
Typhoon is to provide financial and other consulting  services.  In exchange for
Typhoon's  services,  the  Agreement  provides  for the  grant of an  option  to
purchase  150,000 shares of the Company's Common Stock with an exercise price of
$1.75 per share,  in the following  increments:  an initial  increment of 50,000
options followed by five monthly increments of 20,000 options.  The options will
expire on August 30,  2001.  Each  increment  is valued by the Company  using an
option valuation model. The initial values are capitalized and will be amortized
through the term of the Agreement.  The initial  increment of 50,000 options was
valued at $44,000, of which approximately  $6,300 was expensed through March 31,
1999.

     In July of 1998, the Company entered into a five-year  consulting agreement
with Corporate  Relations Group ("CRG") to provide corporate relations services.
As compensation for their services, CRG received $100,000 in cash upon execution
of the agreement and received  50,000 shares of Series E Stock.  The Company did
not issue the shares of Series E Stock,  however, such were provided to CRG by a
shareholder. In addition, in exchange for CRG's services, the agreement provided
for the grant of options to CRG and four of its principals.  The options are for
an aggregate  450,000 shares of Common Stock  exercisable at $.78 per share, and
an aggregate  700,000  shares of the Series E Stock  exercisable  at $2.25.  The
options  are  exercisable  incrementally  in  batches  of  one-third.  The first
one-third is  exercisable  60 days  commencing  with the date the securities are
registered and declared effective. The next one-third is exercisable for 60 days
commencing 60 days after the registration is declared  effective.  The remaining
one-third is exercisable for a period of 240 days, commencing 120 days after the
registration is declared effective.

     The  Company  has  recorded  an  aggregate  value for this  transaction  of
$178,750,  including the $100,000  cash payment,  $43,750 for the Series E Stock
based on a closing  market  price on August 27,  1998 of $0.875  per share,  and
$35,000 for the two sets of options  ($10,000 for the Series E Stock options and
$25,000  for the Common  Stock  options).  The option  values were based upon an
option pricing model that considered the volatility of the  securities'  prices,
and the short life of the options.  This transaction has been capitalized by the
Company, and is being pro-ratably expensed over the term of the agreement.


                                      F-33


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





11.      Equity Transactions (continued)

         Series E Stock Bonus

     In March 1998, the Company's Board of Directors  granted to its Chairman of
the Board and to its  President,  25,000  shares  each of its  Series E Stock in
recognition  of their  efforts  to  further  the  Company's  turnaround  towards
profitability.  The shares  vested on a monthly  basis  over a  one-year  period
commencing  April 1, 1998,  being fully vested April 1999.  On the date of grant
management  determined  the  compensation  value  of  this  stock  grant  to  be
approximately $47,000 in the aggregate, based on a closing market price of $1.86
per  share  which  was  subjected  to a 50%  marketability  discount  given  the
restrictive  nature and vesting  requirement  of the  securities  as well as the
relatively low trading  volume.  In early April 1999, the Company's  Chairman of
the  Board  and its  President  returned  the  shares  of  Series E Stock to the
Company, which then reversed the compensation expense previously recorded during
the year.  As a result,  these shares have been  excluded from the balance sheet
and statement of stockholders' equity.

     Series E Stock Dividends Resulting from Beneficial Conversion Feature

     For the years ended March 31, 1999 and 1998, the Company recorded  non-cash
dividends of $1,707,725  and  $1,473,806 in applying the provisions of Topic No.
D-60 of the Emerging Issues Task Force as described below.

     In  April  1999,  the  Company  filed  with  the  Securities  and  Exchange
Commission  restated  financial  statements for the year ended March 31, 1998 to
conform  with Topic No.  D-60 of the  Emerging  Issues  Task  Force.  Topic D-60
communicated  the views of the staff of the Securities  and Exchange  Commission
that  the  portion  of the  proceeds  upon  issuance  of the  convertible  stock
allocable to the beneficial  conversion feature should be recorded as additional
paid-in  capital and  recognized as a dividend over the minimum  period in which
the preferred shareholders can realize the conversion.

     The  Company's  Series E Stock,  of which  shares  were  issued in  varying
amounts on various dates as described  above,  includes a beneficial  conversion
feature in that each share of Series E Stock is  convertible  into six shares of
the Company's Common Stock at the option of the holder commencing two years from
the date of  issuance.  Shares of Series E Stock  issued  through June 30, 1997,
were originally convertible into twenty shares of Common Stock, at the option of
the holder, with no holding period requirement.


                                      F-34


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





11.      Equity Transactions (continued)

     Series E Stock  Dividends  Resulting  from  Beneficial  Conversion  Feature
(continued)

     The  beneficial  conversion  feature is measured at the date of issuance of
the Company's Series E Stock as the difference  between the conversion price and
the  market  value  of the  Common  Stock  into  which  the  Series  E Stock  is
convertible,  limited to the proceeds received from the issuance of the Series E
Stock.  Based on the  calculations  prescribed  by Topic No. D-60,  all proceeds
initially  received by the Company from the issuance of Series E Stock have been
initially  recorded  as  additional  paid in capital as 100% of the  proceeds is
allocable  to the  beneficial  conversion  feature.  Over the  required  holding
period,  if any, a non-cash  dividend is recorded reducing the retained earnings
(or increasing the accumulated  deficit) and increasing the balance  recorded as
Series E Stock in the balance sheet.  Thus,  there is no net effect on the total
stockholders' equity of the Company. Since shares of Series E Stock issued prior
to June  30,  1997,  were  originally  convertible  upon  issuance,  100% of the
non-cash  dividend was recorded  upon  issuance of the Series E Stock.  Non-cash
dividends  associated  with shares of Series E Stock issued after June 30, 1997,
are being recorded over the required two-year holding period of the security.

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

     In applying  the  provisions  of Topic No.  D-60,  the Company has recorded
non-cash  dividends of $1,473,806 for the year ended March 31, 1998. This amount
represents $0, $1,200,000,  $0, and $273,806 for each of the three-month periods
ended June 30, 1997, September 30, 1997, December 31, 1997, and March 31, 1998.

     For the year ended March 31,  1999,  these  non-cash  dividends  aggregated
$1,707,725.   These  non-cash   dividends  were  recorded  as  $273,806  in  the
three-month  period ended June 30, 1998 and $477,973 in each of the  three-month
periods ended September 30, 1998, December 31, 1998, and March 31, 1999.


                                      F-35


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





11.      Equity Transactions (continued)

     Series E Stock  Dividends  Resulting  from  Beneficial  Conversion  Feature
(continued)

     As a  result  of the  application  of  Topic  No.  D-60,  the  Company  has
reclassified  the initial  proceeds of issuance of Series E Stock to  additional
paid-in  capital  and  the  resulting   non-cash   dividends  which  affect  the
accumulated deficit and the amount recorded as Series E Stock. The impact on the
financial statements for the year ended March 31, 1998 is summarized as follows:
<TABLE>
<CAPTION>


                                                                                          March 31, 1998

                                                                                As Reported                As Restated
<S>                                                                             <C>                <C>
         Series E Stock                                                         $     5,891,020    $      3,974,376
         Common Stock                                                                    41,035              41,035
         Additional paid-in capital                                                   6,675,398          12,927,918
         Accumulated deficit                                                        (10,104,946)        (14,440,822)
                                                                                ---------------    ----------------

         Total stockholders' equity                                             $     2,502,507    $      2,502,507
        -                                                                       ===============    ================

         Net loss for the year ended                                            $    (2,054,470)   $     (2,054,470)

         Effects of non-cash dividends                                                        -          (1,473,806)
                                                                                ===============    ================
         Net loss applicable to common shares                                   $    (2,054,470)   $     (3,528,276)
                                                                                ===============    ================

         Basic and diluted loss per common share and share equivalent           $        (.50)     $        (.86)
                                                                                =============      ===============

12.      Supplemental Cash Flow Information

         Cash paid for income taxes and interest was as follows:

                                                                                       Years Ended March 31,
                                                                                     1999                1998

         Interest paid                                                              $    809,601        $  511,924
                                                                                     ============        ================

        Income taxes                                                                 $    850            $      800
                                                                                     ========            ============
</TABLE>


                                                      F-36


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





12.      Supplemental Cash Flow Information (continued)

     Non-cash investing and financing activities consisted of the following:

     The Company acquired  leasehold  improvements and equipment during the year
ended March 31, 1999, by entering into capital  lease  obligations  for $849,429
(Notes 3 and 5).

     Convertible  debt  and  accrued  interest  outstanding  of  $1,533,333  was
converted  into  1,533,333  shares of Series E Stock during the year ended March
31, 1999 (Note 11).

     Common Sock was issued in exchange for cash and  inventory  during the year
ended March 31, 1999. The inventory acquired had a value of $365,000 (Note 11).

     For the  years  ended  March  31,  1999  and  1998  non-cash  dividends  of
$1,707,725 and $1,473,806,  respectively, were recorded to amortize the discount
recorded on Series E Sock  resulting  from the  beneficial  conversion  features
(Note 11).

13.      Subsequent Events

     Unsecured Promissory Notes

     On April 22, 1999, the Company  entered into an unsecured  promissory  note
with Shopnet, an affiliate,  (Note 1) for $100,000 at an interest rate of 9% per
annum. The principal payments and accrued interest are due monthly beginning May
31, 1999, with a maturity date of August 31, 1999.

     On May 17, 1999, the Company entered into an unsecured promissory note with
Shopnet, an affiliate (Note 1) for $100,000 at an interest rate of 9% per annum.
The principal  payments and accrued interest are due monthly  beginning June 30,
1999, with a maturity date of September 30, 1999.


                                      F-37


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998





Subsequent Events (continued)

     Private Placement of Series F Stock

     On May 18, 1999, the Board of Directors of the Company  unanimously adopted
a  Corporate  Resolution  to enter into a  Securities  Purchase  Agreement  (the
Private Placement) with several investors. The Private Placement was for 750,000
shares of the Company's  Series F Preferred Stock ("Series F Stock"),  par value
of $.01 per  share,  for  gross  proceeds  of  $750,000.  The  Company  was also
authorized  to amend its  articles  of  incorporation  to  change  the terms and
privileges  of the Series F Stock.  The Series F Stock is  convertible  into two
shares  of  Common  Stock  at any  time  following  the  effective  date  of the
registration  statement  registering the Series F Stock and underlying shares of
Common Stock for resale.

     The Corporate Resolution also authorized the Company to file a Registration
Statement with the Securities and Exchange  Commission for the securities  under
Private Placement.

     As part of the  Private  Placement,  the  Company  granted an option to the
Placement  Agent and its  assignees to purchase an aggregate  350,000  shares of
Common  Stock,  with an  exercise  price of $3.00 per share for a period of four
years  from the date of  closing  of the  Private  Placement.  Additionally,  as
commission, the Placement Agent received a 10% fee, or $75,000, and a 1% fee, or
$7,500, to cover  administrative  expenses.  The Private Placement closed on May
27, 1999,  providing net cash  proceeds of $667,500 to the Company  before legal
and other administrative expenses.

     On the May 27, 1999 closing date of the Private  Placement,  the  Company's
Common  Stock had a closing  price of $1.69.  As such,  the Series F Stock has a
beneficial  conversion  feature  which will result in  accounting  treatment  to
reflect non-cash dividends in future periods in a manner similar to the Series E
Stock transactions described in Note 11.


                                      F-38


<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                          Notes To Financial Statements
                       Years Ended March 31, 1999 and 1998




Subsequent Events (continued)

     Common Stock Compensation of Consultant

     In May  1999,  the  Company  issued  45,333  shares  of  Common  Stock to a
consultant  as  compensation  for site  selections  and  negotiation  of  retail
location  leases.  These  services  are being  provided  for new Company  stores
opening in fiscal 2000.  This Company has valued the shares based on the May 17,
1999 closing  price of $1.375 per share,  less a 10% discount for  marketability
restrictions for an aggregate value of approximately $56,000.



                                      F-39