SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 FORM 10-KSB/A-2
                                   (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.


<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.



<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 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).

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.



<PAGE>
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 (100%) American Telecom PLC (80.0%)    ABC Fund, Ltd. (20%)
                                     (100%)
                                       ||
                                       \/
                                U.S. Stores Corp.
                                     (62.2%)
                                       ||
                                       \/
                     Multimedia Concepts International, Inc.
                                     (78.5%)
                                       ||
                                       \/
                          United Textiles & Toys Corp.
                                     (45.2%)
                                       ||
                                       \/
                       Play Co. Toys & Entertainment Corp.

     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."

<PAGE>
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.



<PAGE>
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.

         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.



<PAGE>
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.

         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.



<PAGE>
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.

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.
<PAGE>
         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.
<PAGE>
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."

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.
<PAGE>
         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.  However,  since management
cannot contact any  representatives at Typhoon and has not received any of these
services, the Company does not intend to issue these options.

         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.  However, the Company
believes that CRG did not fully perform under the Agreement  and, has therefore,
not issued these options.

         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.



<PAGE>
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:

<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.
<PAGE>
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).

         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>

(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.



<PAGE>
         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.



<PAGE>
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.

Series F Preferred Stock Private Placement

         In May 1999,  pursuant  to ss.506 of  Regulation  D, the  Company  sold
750,000  shares  of Series F Stock,  at a  purchase  price of $1.00  per  share,
through Robb Peck McCooey  Clearing  Corporation as placement agent. The Company
received  $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        $5,763,509
Total assets                                    9,213,104         9,378,618       14,139,887        21,081,758
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         4,995,995
Common stock dividends                                ---               ---              ---               ---




                                                                  Year Ended March 31,

                                                1996              1997              1998             1999
                                                ----              ----              ----             ----

Operating Data:

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      13,741,011
Net income (loss) before taxes                 (3,542,715)       (3,584,881)       (2,054,470)       (575,616)
Net income (loss)                              (3,542,715)       (3,584,881)       (2,054,470)       (577,766)
Net income (loss) applicable to common
shares                                         (3,542,715)       (6,474,496)       (3,528,276)     (2,285,491)
Income (loss) per common share(1)                   (2.77)            (1.29)            (0.86)           (.50)
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  $12,727,010.  This represented a $3,862,403,  or 43.6%,  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 2.3% to 37% of net sales for fiscal year 1999 from 39.3% in fiscal
year 1998.

<PAGE>
         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.

         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  $13,741,011.  This  represented  a  $3,621,581,  or 35.8%,
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 $1,039,435 in fiscal year 1999
compared  to an  operating  loss of  $(1,240,502)  in  fiscal  year  1998.  This
represented an improvement of $2,279,937.  This  improvement was a result of the
$5,901,518  increase in gross profit being  partially  offset by the  $3,621,581
increase in total operating expenses.

         Total interest  expense  amounted to $1,615,051 in the year ended March
31, 1999.  This  represented a $801,083,  or 98.4%,  increase over the Company's
interest  expense of $813,968 in fiscal year 1998.  The primary  reasons for the
increased level of interest  expense were a higher level of borrowings in fiscal
year 1999 than in fiscal year 1998, and $650,000 of effective  interest  expense
for the beneficial  conversion  feature of the convertible  debentures issued by
the Company.  The effective  interest expense represents a non-cash item that is
effectively  offset dollar for dollar in stockholders'  equity by an increase in
additional paid-in capital.

         The Company issued two similar convertible debentures that contained an
embedded  privilege to convert the outstanding debt into Series E Stock. This is
a beneficial  feature,  whose  intrinsic  value is accounted for  separately and
based on the  underlying  value of the stock.  On the date of the funding of the
convertible  debentures,  in February 1999, the Company  recorded a discount for
$650,000,   the  amount  of  the  proceeds,   and  immediately   recognized  the
amortization of this discount as non-cash  effective interest for the beneficial
conversion feature, since the debenture allowed for immediate conversion.




<PAGE>
         In May 1999, the Company and two of its  creditors,  EACF and Frampton,
agreed to modify certain terms of their convertible  debentures.  The debentures
originally  contained a 50% discount  factor to the market price of the Series E
Stock. The amended  debenture was changed to eliminate the discount based on the
market price on the date of the original agreement.  This changed the conversion
price from $.10 per share to $.20 per share; i.e., for every $100,000 converted,
the holder would receive only 500,000 shares, as a result of the modification in
terms.  This modification  resulted in an extraordinary  gain of $650,000 in the
quarter ended June 30, 1999 as an extinguishment of debt.  However,  as the debt
modification  is treated as a new agreement for  accounting  purposes and due to
the  significant  increase in Series E stock  market  price at the  modification
date,  the  $650,000  proceeds  have  again  been  allocated  to the  beneficial
conversion  feature,  and therefore  recognized as non-cash  effective  interest
expense in the quarter ended June 30,1999.

         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
loss of  $(577,766)  for the fiscal  year ended 1999  compared  to a net loss of
$(2,054,470)  for the fiscal year ended March 31, 1998.  Excluding  the $650,000
non-cash  effective  interest expense from the beneficial  conversion feature of
debt  investments,  the Company  would have reported a net income of $72,234 for
the year ended March 31, 1999.

         In fiscal  year  1999,  the net loss of  $(577,766)  was  increased  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 $(2,285,491),  or $(.50) per share,
for the year ended March 31, 1999 and $(3,528,276), or $(.86) per share, for the
year ended March 31, 1998.



<PAGE>
Liquidity and Capital Resources

         At March 31,  1999,  the  Company  had a working  capital  position  of
$5,763,509 compared working capital of $4,452,481 at March 31, 1998. The primary
factors in the $1,311,028  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.

         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 loss of $577,766  compared to the prior
year's loss of $2,054,470.  Beyond the $1,476,704 net loss, the Company recorded
an incremental  amount of $312,177 of non-cash  depreciation  and  amortization,
amortization of debt issuance costs, and $650,000 in non-cash effective interest
expense 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.



<PAGE>
        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.

         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.



<PAGE>
         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 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.  The  Company  recorded a
$650,000  non-cash  effective  interest  expense  to  recognize  the  beneficial
conversion feature of this debenture.  The effective interest expense represents
a non-cash item that is  effectively  offset dollar for dollar in  stockholders'
equity by an increase in additional paid-in capital.  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.
The Company had previously recognized in the fiscal year ending March 31, 1999 a
$650,000  effective  interest expense for the beneficial  conversion.  Upon this
amendment,  the Company  applied the  provision of EITF 96-19 to recognize  this
modification  of debt terms as an  extinguishment  of debt.  This resulted in an
extraordinary gain of $650,000, which was recognized in the first quarter ending
June 30,  1999.  Additionally,  due to the change in the Series E stock price at
the  modification  date,  the  proceeds  would be  allocable  to the  beneficial
conversion feature, and therefore recognized as interest expense.

         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.

         As of March 31,  1999,  the Company is a defendant  in a lawsuit with a
former  landlord  of a retail  site the  Company  vacated  in August  1997.  The
plaintiff seeks damages ranging to $300,000.  The Company has accrued $41,000 at
March  31,  1999 as an  approximate  settlement  amount  based  on  management's
assessment of the matter, mainly that the landlord allowed the retail mix of the
mall site to change from a  contractually  agreed  minimum  percentage  level of
retail  tenants.  As the action is in the discovery phase at March 31, 1999, the
actual outcome could differ from  management's  estimate.  A trial date has been
set for September 1999.
<PAGE>
         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.

         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.

         In May 1999,  pursuant  to ss.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.



<PAGE>
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.

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.



<PAGE>
         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.
<PAGE>
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>
         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.



<PAGE>
     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.

     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.
<PAGE>
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.

 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.

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

                                          Annual Compensation                             Long-Term Compensation

                                                                                      Awards                       Payouts
                                                                                                Securities
                                                                                Restricted      Underlying             All Other
                                                                              Stock Award(s)     Options/     LTIP    Compen-sation
                                                                                    ($)            SARs       Payouts         ($)
Name and Principal          Year      Salary    Bonus(#) ($)  Other Annual
Position                                         (1)          Compen-sation
<S>                         <C>       <C>       <C>           <C>             <C>              <C>            <C>       <C>
   Richard Brady
     President,  CEO,
    and Director            1999      124,500    --           8,579 (2)       --               --             --         --
                            1998      120,000    --           8,579 (2)       25,000(3)        --             --         --
                            1997      108,000    --           6,179 (2)       --               --             --         --
</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.


<PAGE>
         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.

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.
<PAGE>
         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 Owned2,3
                 -------------------                           ------------------                  ------------------

------------------------------------------------------- ----------------------------------- ------------------------------------
<S>                                                            <C>                                  <C>
Harold Rashbaum 4
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
------------------------------------------------------- ----------------------------------- ------------------------------------
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%


<PAGE>
     (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.

     (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.



<PAGE>
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.  The $.20 per share  conversion  price however,
represented  a  significant  discount  from  the  market  price  at the  date of
amendment.

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.  The  $.20  per  share  conversion  price  however,  represented  a
significant discount from the market price at the date of amendment.



<PAGE>
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.
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.



<PAGE>
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.
------------------- ------------------------------------------------------------------------------------------------
<PAGE>
------------------- ------------------------------------------------------------------------------------------------
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.
------------------- ------------------------------------------------------------------------------------------------
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)
------------------- ------------------------------------------------------------------------------------------------
<PAGE>
------------------- ------------------------------------------------------------------------------------------------
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).
------------------- ------------------------------------------------------------------------------------------------
<PAGE>
------------------- ------------------------------------------------------------------------------------------------
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).
------------------- ------------------------------------------------------------------------------------------------
<PAGE>
------------------- ------------------------------------------------------------------------------------------------
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).
------------------- ------------------------------------------------------------------------------------------------
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 15th day of ,2000.

                                    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
Harold Rashbaum                     Board of Directors                          Date


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


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


/s/ Moses Mika                      Director
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>
HASKELL &
WHITE LLP
CERTIFIED PUBLIC ACCOUNTANTS


               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.

As  discussed  in Note 11, the  Company  restated  its  previously  issued  1998
financial statements. Further, as discussed in Note 14, the Company has restated
its previously issued 1999 financial statements.

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

Irvine, California
June 24, 1999, except for
   Notes 6, 11, and 14, which
   are as of April 10, 2000


                                       F-2
<PAGE>
                       PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

                                 Balance Sheets

                                 ASSETS (Note 4)
<TABLE>
<CAPTION>

                                                                                             March 31,
                                                                                     1999
                                                                                   Restated
                                                                                  (Note 14 )             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                                                             1,241,629             183,928
                                                                                ---------------    ----------------

                  Total current assets                                               13,322,156           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
                                                                                ---------------    ----------------

                                                                                $    21,081,758    $     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,
                                                                                -----------------------------------
                                                                                     1999                1998
                                                                                   Restated            Restated
                                                                                   (Note 14)           (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; 5,883,903 and 4,200,570 shares outstanding,
       respectively, full liquidation value of $5,883,903 and $4,200,570, net of
       unamortized   discount  of  $1,842,252   and  $1,916,644  for  beneficial
       conversion
       feature (Note 11)                                                              5,761,101           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                                                      15,906,172          12,927,918
     Accumulated deficit                                                            (16,726,313)        (14,440,822)
                                                                                ---------------    ----------------

                  Total stockholders' equity                                          4,995,995           2,502,507
                                                                                ---------------    ----------------

                                                                                $    21,081,758    $     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.)

          Statements of Operations and Comprehensive Net Income (Loss)
<TABLE>
<CAPTION>

                                                                                       Years Ended March 31,
                                                                                -----------------------------------
                                                                                     1999                1998
                                                                                   Restated            Restated
                                                                                   (Note 14)           (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)                                             12,727,010           8,864,607
     Litigation related expenses (Note 7)                                                27,659             583,541
     Depreciation and amortization                                                      986,342             671,282
                                                                                ---------------    ----------------

                  Total operating expenses                                           13,741,011          10,119,430
                                                                                ---------------    ----------------

Operating income (loss)                                                               1,039,435          (1,240,502)
                                                                                ---------------    ----------------

Interest expense  (Note 4)
     Interest and finance charges                                                       855,074             617,119
     Amortization of debt issuance costs                                                109,977             196,849
     Effective non-cash interest for beneficial conversion feature (Note 6)             650,000                   -
                                                                                ---------------    ----------------

                  Total interest expense                                              1,615,051             813,968
                                                                                ---------------    ----------------

Net loss before income taxes                                                           (575,616)         (2,054,470)

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

Net loss                                                                               (577,766)         (2,054,470)

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

Comprehensive net loss                                                          $      (577,766)   $     (2,054,470)
                                                                                ===============    ================

Calculation of basic and diluted loss per share:

     Net loss                                                                   $      (577,766)   $     (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                                   $    (2,285,491)   $     (3,528,276)
                                                                                ===============    ================

Basic and diluted income (loss) per common share
     and share equivalents                                                      $          (.50)   $          (.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
                                               ------------------------------
                                                          Series E                         Common Stock                     Paid-In
                                               ------------------------------     ---------------------------------
                                                  Shares            Amount            Shares            Amount              Capital
                                               -------------    -------------     ---------------    --------------    -------------

<S>            <C>                                 <C>          <C>                     <C>          <C>               <C>
Balance, April 1, 1997                             2,500,570    $   2,500,570           4,083,519    $       40,835    $   9,374,177

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

Balance, March 31, 1998                            4,200,570        3,974,376           4,103,519            41,035       12,927,918

Conversion of debt and accrued
    interest to Series E Preferred Stock           1,533,333                -                   -                 -        1,533,333
Issuance of Series E Preferred Stock
    for cash                                         100,000                -                   -                 -          100,000
Issuance of Series E Preferred Stock to
    consultants                                            -                -                   -                 -           43,750
Issuance of Series E Preferred Stock to officers      50,000           79,000                   -                 -                -
Issuance of Common Stock for cash
    and inventories                                        -                -           1,400,000            14,000          651,000
Non-cash dividend to amortize discount
    on Series E (Note 11)                                  -        1,707,725                   -                 -                -
Beneficial conversion feature for
    convertible debentures (Note 6)                        -                -                   -                 -          650,000
Miscellaneous adjustments                                  -                -                   -                 -              171
Net loss for the year                                      -                -                   -                 -                -
                                               -------------    -------------     ---------------    --------------    -------------
Balance, March 31, 1999                            5,883,903    $   5,761,101           5,503,519    $       55,035    $  15,906,172
                                               =============    =============     ===============    ==============    =============
</TABLE>

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

                       Statements of Stockholders' Equity
                       Years Ended March 31, 1999 and 1998
                                    (con't)
<TABLE>
<CAPTION>

                                                                           Total
                                                     Accumulated       Stockholders'
                                                       Deficit            Equity
                                               -----------------     -------------

<S>            <C>                             <C>                  <C>
Balance, April 1, 1997                         $   (10,912,546)     $   1,003,036

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

Balance, March 31, 1998                            (14,440,822)         2,502,507

Conversion of debt and accrued
    interest to Series E Preferred Stock                     -          1,533,333
Issuance of Series E Preferred Stock
    for cash                                                 -            100,000
Issuance of Series E Preferred Stock to
    consultants                                                            43,750
Issuance of Series E Preferred Stock to
    officers                                                 -             79,000
Issuance of Common Stock for cash
    and inventories                                          -            665,000
Non-cash dividend to amortize discount
    on Series E (Note 11)                          (1,707,725)                 -
Beneficial conversion feature for
    convertible debentures (Note 6)                          -            650,000
Miscellaneous adjustments                                    -                171
Net loss for the year                                (577,766)           (577,766)
                                               ---------------      -------------
Balance, March 31, 1999                        $  (16,726,313)      $   4,995,995
                                               ===============      =============

</TABLE>

<PAGE>
                 See accompanying notes to financial statements.

                                       F-6
<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
                                                                                   Restated
                                                                                   (Note 14)             1998
                                                                                ---------------    ----------------

Cash flows from operating activities:
<S>                                                                             <C>                <C>
     Net (loss)                                                                 $      (577,766)   $     (2,054,470)
     Adjustments to reconcile net income (loss) to net cash
       used for operating activities:
         Depreciation and amortization                                                  986,342             671,282
         Effective interest for beneficial conversion feature                           650,000                   -
         Stock compensation                                                              79,000                   -
         Loss on abandonment of assets                                                   (2,883)             45,255
         Amortization of debt issuance costs                                            109,977             196,849
         Deferred rent                                                                   16,418             (16,574)
     Increase (decrease) from changes in:
         Accounts receivable                                                            (19,682)            (18,388)
         Merchandise inventories                                                     (3,268,480)         (1,779,874)
         Other current assets                                                        (1,123,757)             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>

                 See accompanying notes to financial statements.

                                       F-7
<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
                                                                                   Restated
                                                                                   (Note 14)             1998
                                                                                ---------------    ----------------

Cash flows from financing activities:
<S>                                                                             <C>                <C>
     Change in bank overdraft                                                   $             -    $       (135,325)
     Borrowings under financing agreements                                           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>
                 See accompanying notes to financial statements.

                                       F-8
<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

         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:

                                       F-9
<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)

         Business Organization and Revenue Recognition (continued)

                         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). Ilan Arbel is the President of UTTC.  The Company is influenced to
         a significant  degree by UTTC. The Company bases its conclusion that it
         is  influenced  to a  significant  degree by UTTC on  several  factors.
         During the period of April 1, 1998 through  November  23,  1998,  which
         represented  a majority of the fiscal year ended March 31,  1999,  UTTC
         owned  approximately  61% of the Company's common stock.  From November
         24, 1998  through  March 31,  1999,  UTTC owned 44.9% of the  Company's
         common stock. Therefore, for over seven months of the fiscal year, UTTC
         maintained  a  majority  voting  interest  in  the  Company.  It is the
         Company's   position   that  UTTC's  44.9%   ownership   position  also
         represented de facto voting control over the Company's  Common Stock at
         fiscal year-end,  since it would be extremely difficult for the various
         small block shareholders that represent the remaining 55.1% interest to
         actually  achieve  the  necessary  votes to garner 45% (the  percentage
         needed to outvote UTTC) of the vote. Additionally there are significant
         affiliate  relationships  that  help  enforce  UTTC's  influence,  to a
         significant  degree,  over the  Company.  The  President of UTTC is the
         son-in-law of Harold Rashbaum, the President of Shopnet.com ("Shopnet")
         and  Breaking  Waves,  Inc.  ("Breaking  Waves"),  who in  turn  is the
         Chairman of the Company.  Breaking Waves owns  approximately 25% of the
         Company's Common Stock. The combination of Breaking Waves' 25% position
         and  UTTC's  44.9%  position  yields  a 69.9%  voting  interest  in the
         Company.  Moses Mika,  the father of the President of UTTC,  and Harold
         Rashbaum  occupy  two of the  four  seats  on the  Company's  Board  of
         Directors.

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

                                      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

         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-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)

         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
                 / /                   ||               \\
                / /                    \/                \\
Frampton Industries (100%) American Telecom PLC (80.0%)    ABC Fund, Ltd. (20%)
                                     (100%)
                                       ||
                                       \/
                                U.S. Stores Corp.
                                     (62.2%)
                                       ||
                                       \/
                     Multimedia Concepts International, Inc.
                                     (78.5%)
                                       ||
                                       \/
                          United Textiles & Toys Corp.
                                     (45.2%)
                                       ||  (60.1% through November 24, 1998)
                                       \/
                       Play Co. Toys & Entertainment Corp.


                                      F-12
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


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.

<PAGE>

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


1.       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 anti-dilutive  given the
         net loss applicable to common shares for each year.


                                      F-14
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


1.       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:
<S>                                                                                  <C>                 <C>
         Conversion of Series E Preferred Stock;  5,883,903 and 4,200,570 shares
         outstanding, respectively, each convertible into six shares of Common
         Stock, subject to holding periods.                                          35,303,418          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  6,500,000  shares of Series E
         Preferred  Stock,  each  share of  Series E then  convertible  into six
         shares  of Common  Stock,  subject  to  holding  periods.  Subsequently
         reduced to 19,500,000 upon amendment of debenture
         (Note 6).                                                                   39,000,000                   -

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

                                                                                     86,333,418          37,233,420
                                                                                ===============    ================
</TABLE>


                                      F-15
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


1.       Summary of Accounting Policies (continued)

         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.

         Fair Value of Financial Instruments

         The carrying amount of the Company's financial instruments,  consisting
         of cash,  certificates of deposit,  accounts  receivable,  and accounts
         payable,  approximates  their  fair value due to the  relatively  short
         maturity of these instruments.

         The fair value of the Company's  financing  agreement  approximates the
         carrying  value  due to  the  variable  interest  rate  feature  of the
         agreement.  The  fair  value  of the  Company's  other  long-term  debt
         arrangements  are  considered  to  approximate  fair value,  given such
         features as lower interest rates coupled with conversion features.

         For short-term debt arrangements,  the Company estimates the fair value
         of these  obligations  in relation to the interest  rate on its primary
         financing  arrangement.  As of March 31, 1999 and 1998,  the effects of
         imputing  interest on these  obligations is considered to be immaterial
         (Note 6).

         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.


                                      F-16
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


1.       Summary of Accounting Policies (continued)

         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.

         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.


                                      F-17
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


1.       Summary of Accounting Policies (continued)

         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  paid-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.

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.


                                      F-18
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)



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
                                                                                ===============    ================

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

         Furniture and fixtures                                                                    $        849,429

         Less accumulated depreciation                                                                     (112,584)
                                                                                                   ----------------

                                                                                                   $        736,845
                                                                                                   ================
</TABLE>



                                      F-19
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


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"),  to  acquire  shares of Common  Stock and  Preferred
         Stock,  the aggregate  value of which was $458,000.  The method used to
         value these options is discussed in Note 11. The aggregate $458,000 was
         initially  included  in  other  assets,  as debt  issuance  costs,  and
         additional  paid-in capital.  The option values were amortized in prior
         fiscal  years  into  interest  expense  through  the  February  1, 1998
         maturity of the Congress  Financing.  The final period of  amortization
         resulted in aggregate  interest  charges of $196,849 for the year ended
         March 31, 1998, and as such, no interest  expense was amortized for the
         year ended March 31, 1999.

         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-20
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


4.       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 waiver was granted for the
         specific  defaults  noted and did not cover a specific  period of time.
         The waiver was granted in  connection  with  negotiations  to amend the
         FINOVA financing. The proposed amendment,  which was executed in August
         1999,  increased  the available  borrowing  level and  established  new
         covenants  with which the  Company  expects  compliance  to be probable
         through the maturity  date of August  2000.  The  arrangement  has been
         classified as a long-term  obligation as of March 31, 1999, since it is
         not callable by the creditor.

         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-21
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


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
                                                                                ---------------    ----------------
         <S>                                                                    <C>             <C>
         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 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 (Note 4).                                               -                    250,000

</TABLE>

                                      F-22
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)
<TABLE>
<CAPTION>


6.       Notes Payable (continued)
                                                                                             March 31,
                                                                                -----------------------------------
                                                                                     1999                1998
                                                                                ---------------    ----------------
         <S>                                                                    <C>                <C>
         Note payable to stockholder of Toys International non-interest bearing,
         guaranteed  by  UTTC,   an  affiliate   (Note  1),  paid  in  quarterly
         installments 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>
                                      F-23
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


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 $.10 per share, i.e. for every $100,000 converted,  the holder
         would receive 1,000,000 shares.  Each share of Series E Preferred Stock
         is convertible into six shares of Common Stock (Note 11).

         The embedded  privilege to convert the  outstanding  debt into Series E
         Preferred  Stock  is a  beneficial  feature,  which  is  accounted  for
         separately,  in accordance  with Topic D-60 of the Emerging Issues Task
         Force ("EITF").  Topic D-60 of the EITF  communicated  the views of the
         staff of the Securities and Exchange  Commission  ("SEC"),  in that for
         such convertible debentures, that portion of the proceeds upon issuance
         of the debentures allocable to the beneficial conversion feature should
         be recorded as additional  paid-in  capital and  recognized as interest
         expense  over the  minimum  period in which the holder can  realize the
         conversion. The intrinsic value is calculated based on the value of the
         underlying stock into which the debenture can be converted,  limited to
         the  proceeds.  On the date of funding the  convertible  debentures  in
         February  1999,  the  Company  recorded a discount  for  $650,000,  and
         immediately  recognized the  amortization  of this discount as non-cash
         effective  interest for the beneficial  conversion  feature,  since the
         debenture  allowed  for  immediate  conversion,  which was  effectively
         offset by the dollar for dollar increase in additional paid-in capital.


                                      F-24
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


6.       Notes Payable (continued)

         In May 1999,  the Company and these two  creditors,  EACF and Frampton,
         agreed to modify  certain terms of their  convertible  debentures.  The
         debentures  originally  contained a 50%  discount  factor to the market
         price of the  Series E  Preferred  Stock.  The  amended  debenture  was
         changed to eliminate the discount based on the market price on the date
         of the original agreement.  This changed the conversion price from $.10
         per share to $.20 per share;  i.e., for every $100,000  converted,  the
         holder  would   receive  only  500,000   shares  as  a  result  of  the
         modification in terms. The Company had previously recognized a $650,000
         non-cash  effective interest expense for the year ended March 31, 1999.
         The Company has  subsequently  applied the  provisions of EITF 96-19 to
         recognize this modification of debt terms as an extinguishment of debt.
         This extraordinary gain of $650,000 was subsequently  recognized in the
         quarter ended June 30, 1999.  However,  since the agreement was revised
         in May 1999, the revised  agreement is treated as a new arrangement for
         accounting  purposes.  At the date of the amended  agreement,  the $.20
         conversion price was substantially lower than the approximate $2.00 per
         share closing market price for the Series E Preferred  Stock.  As such,
         the modified agreement contains a beneficial  conversion  feature,  the
         amount of which is limited to the proceeds of $650,000 under Topic D-60
         of the  EITF.  Therefore,  the  Company  also  subsequently  recognized
         $650,000  in non-cash  effective  interest  expense for the  beneficial
         conversion feature in the quarter ended June 30, 1999.

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.

                                      F-25
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


7.       Closure of Retail Stores - Litigation (continued)

         The Company  currently has one remaining  landlord/tenant  matter which
         has yet to be resolved with a potential  range of loss of $300,000.  As
         of March 31,  1999,  the Company  has  accrued a  liability  of $41,000
         related to this matter, which is an estimate by management based on its
         assessment  of  the  matter  including  management's  belief  that  the
         landlord  allowed  the  retail  mix of the mall site to  change  from a
         contractually agreed minimum percentage level of retail tenants.

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-26
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


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-27
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


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-28
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


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              $       267,913     $    29,931,926    $     30,199,839
                                                            ===============     ===============    ================

</TABLE>

                                      F-29
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

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-30
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


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.
         During the year ended March 31, 1999, 5,673 shares of Common Stock were
         contributed  to the ESOP.  However,  these shares were  contributed  by
         individuals,  and  not by  the  Company.  Therefore,  the  Company  has
         recorded no expense 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-31
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


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. The option award granted  initially was recorded as
         a fixed  award  under APB 25.  Due to the  subsequent  modification  in
         terms,  it is to be  valued as a  variable  award  rather  than a fixed
         award.  Under  APB  25,  such  a  variable  award  has  the  associated
         compensation  expense  adjusted,  up or  down,  to  reflect  subsequent
         changes  in  the  market  price.  The  Company  has  not  recorded  any
         compensation  expense related to this change in award due to the change
         in the subsequent market price being immaterial.  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.


                                      F-32
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


9.       Commitments and Contingencies (continued)

         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.

         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.


                                      F-33
<PAGE>

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


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.

         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.

         Purchase Agreement With Breaking Waves, Inc. ("BWI")

         The Company has entered into an agreement with BWI, an affiliate  (Note
         1), to purchase a minimum of 250 pieces of merchandise  for each of its
         retail stores. BWI sells children's swimsuits. The agreement has a term
         of one year, and automatically  extends each year, unless terminated by
         either  party.  The  agreement  additionally  calls for the  Company to
         provide   advertising,   promotional   materials,   and  ads  for  this
         merchandise in all of its brochures, advertisements,  catalogs, and all
         other  promotional   materials,   merchandising   programs,  and  sales
         promotions.


                                      F-34
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


10.      Related Party Transactions (continued)

         Financing Provided by BWI

         On July 15, 1998, the Company borrowed $3000,000 from BWI and issued an
         unsecured  promissory  note at an  interest  rate of 9% per annum.  The
         repayment  terms of the note  were for  five  monthly  installments  of
         principal  and  interest  commencing  on  August  15,  1998 and  ending
         December 30, 1998, at which time the note was repaid in full.

         Additionally,  the Company had a $250,000  note  payable with BWI as of
         March 31, 1998,  which was repaid during the year ended March 31, 1999.
         The terms of this note are disclosed in Note 6.

         Placement Agent Agreement With Frampton Industries, Ltd.

         In  January  1999,  the  Company  and  Frampton  Industries,  Ltd.,  an
         affiliated  entity (Note 1),  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
         offering of convertible debentures.  The agreement is for a term of six
         months   and   provides   that   Frampton    shall   be   provided   an
         investment-banking  fee of 8% of the  face  amount  of  each  debenture
         funded.  Frampton has the option to extend the agreement for two months
         after the expiration.  During the year ending March 31, 1999,  Frampton
         arranged two such transactions for a face amount of $650,000  involving
         itself and EACF (Note 6).



                                      F-35
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


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
                                                                                ---------------    ----------------
<S>                                                                                  <C>                <C>
                Common Stock

                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>

         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.


                                      F-36
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


11.      Equity Transactions (continued)

         Capital Structure (continued)

         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.

         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.


                                      F-37
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


11.      Equity Transactions (continued)

         EACC Options (continued)

         The fair value of the EACC options was  determined by management  based
         on its  analyses of its  available  sources of and costs for funds from
         traditional and non-traditional lending sources. The option values were
         considered  reasonable  in light of the fees and  commission  costs the
         Company  would  have  incurred  to raise the  $2,000,000  necessary  to
         provide the letter of credit facility on its own behalf.

         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.

         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.




                                      F-38
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


11.      Equity Transactions (continued)

         Issuance of Series E Stock (continued)

         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.

         Simultaneously,  ABC  converted the  debenture,  and $33,333 of accrued
         interest  into  1,533,333  shares of  Series E  Preferred  Stock.  This
         transaction  has,  in  substance,  been  accounted  for  as  a  capital
         transaction  since  ABC and the  Company  were  entities  under  common
         control through  majority  ownership  greater than 50%, at the time the
         conversion occurred. (See chart in Note 1.)

         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, as part of the above mentioned amendment, retain this
         option 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.  ABC
         subsequently assigned this right to Tudor Technologies, Inc. ("Tudor"),
         an entity affiliated with the Company. Tudor is an affiliate due to the
         fact that Mr.  Moses Mika is a director on the boards of  directors  of
         both Tudor and the Company.


                                      F-39
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


11.      Equity Transactions (continued)

         Issuance of Series E Stock (continued)

         On July 28, 1998, the Company sold 100,000 shares of Series E Preferred
         Stock to UTTC, its principal  shareholder and owner of more than 50% of
         the Company's common stock as of the date of the transaction.  As such,
         the Company is an entity  under  common  control of UTTC.  The sale was
         $1.00 per share,  or  $100,000.  The Company has recorded the amount as
         additional paid-in capital since the related party transaction was with
         a  commonly   controlled  entity.  The  Series  E  Preferred  Stock  is
         convertible  into Common Stock,  and  therefore,  contains a beneficial
         conversion  feature,  the value of which  exceeded  the  proceeds.  The
         amount of the  beneficial  conversion is being  amortized as a dividend
         over  the  required  two-year  holding  period.  (See  "Series  E Stock
         Dividends Resulting From Beneficial Conversion Feature" in Note 11.)

         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 would be capitalized and amortized
         through the term of the  Agreement.  However,  the Company has not been
         able to locate and communicate with any representatives at Typhoon. The
         Company has received no services  and doubts that any services  will be
         performed by Typhoon in the future,  and has  accordingly  not executed
         the option agreements,  and does not ever expect to issue such options.
         Therefore,  no amounts have been recorded for these options as of March
         31, 1999.


                                      F-40
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


11.      Equity Transactions (continued)

         Issuance of Options (continued)

         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  Company
         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 Company has recorded an  aggregate  value for this  transaction  of
         $143,750,  including  the $100,000  cash  payment,  and $43,750 for the
         Series E Stock  based on a closing  market  price on August 27, 1998 of
         $0.875 per share.  The Company felt CRG did not fully perform under the
         contract and has, therefore,  not issued the  above-mentioned  options,
         for the 450,000  shares of Common Stock and 700,000  shares of Series E
         Stock.  Should services  ultimately be provided and options issued, the
         fair value of the option  compensation  will be determined when earned.
         Accordingly,  no amounts have been  recorded for the option  portion of
         this transaction. The $143,750 for the cash and stock tendered has been
         capitalized by the Company,  and is being pro-ratably expensed over the
         term  of the  agreement,  since  the  Company  has  received  corporate
         brochures and other promotional material from CRG that it will continue
         to utilize over future periods.

         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 $79,000 in the aggregate,
         based on a closing market price of $1.86 per share, which was subjected
         to a 15%  marketability  discount  given  the  restrictive  nature  and
         vesting requirement of the securities,  as well as their relatively low
         trading volume.


                                      F-41
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

11.      Equity Transactions (continued)

         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.

         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.


                                      F-42
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


11.      Equity Transactions (continued)

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

         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-43
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

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)
                                                                                ===============    =================
</TABLE>

12.      Supplemental Cash Flow Information

         Cash paid for income taxes and interest was as follows:
<TABLE>
<CAPTION>

                                                                                       Years Ended March 31,
                                                                                -----------------------------------
                                                                                     1999                1998
                                                                                ---------------    ----------------

<S>                                                                             <C>                <C>
         Interest paid                                                          $       809,601    $        511,924
                                                                                ===============    ================

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


                                      F-44
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)

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-45
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


13.      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.
         Utilizing the  Black-Scholes  valuation model, the option was valued at
         $507,000,  or $1.45 per option. The model utilized several variables to
         determine  the value  including  the current price of the stock and its
         expected  volatility,  and the risk-free interest rate for the expected
         term.  The current  stock price was $1.69 on May 27, 1999,  the closing
         date.  Based on an analysis of the stock price over the previous twenty
         months,  the  volatility  factor  utilized  for  the  model  was  155%.
         Additionally, the model used a risk-free interest rate of 6.0%.

         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.

         As noted above, the Company's Common Stock had a closing price of $1.69
         on the closing  date of the Private  Placement.  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. The  Company  intends to  recognize  the  effects of this  non-cash
         dividend  over a period of seven  months.  This  period is based on the
         Company's   estimate  as  to  the  length  of  time  to  complete   the
         registration  of the shares  through an SB-2 filing with the Securities
         and Exchange Commission.

                                      F-46
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


13.      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.  The share are valued 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.

14.      Restatement of Amounts Previously Reported

         The March 31, 1999 financial statements contain certain restatements of
         amounts  previously  reported.  The  restatements  were the  result  of
         inquiries  made by the  SEC  regarding  the  accounting  treatment  for
         transactions revolving around the Company's debt and equity securities,
         including grants of  options/stock  (Note 11),  convertible  debentures
         (Note 6), and convertible  preferred stock (Note 11). As a result,  the
         Company has restated  several  amounts,  which are described below. The
         table below identifies significant changes to balances in the financial
         statements.

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

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

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

                                      F-47
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


Restatement of Amounts Previously Reported (continued)

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

2.       Increase in Series E Preferred Stock for issuance of shares to officers
         (See Note 11 "Series E Stock Bonus")                                                    79,000

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

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

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

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

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

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

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

         Decrease in 1999 net income                                                   $       718,634
                                                                                       ================
</TABLE>

                                      F-48
<PAGE>
                      PLAY CO. TOYS & ENTERTAINMENT CORP.
                 (A Subsidiary of United Textiles & Toys Corp.)


Restatement of Amounts Previously Reported (continued)

The effects on the Company's  previously  issued 1999  financial  statements are
summarized as follows.
<TABLE>
<CAPTION>
                                                             Previously         Increase
                                                              Reported         (Decrease)        Restated
                                                           ---------------  ----------------  ---------------


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

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

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

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

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

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

</TABLE>

                                      F-50